The Option Investor Newsletter Thursday 09-07-2000 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/090700_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 09-07-2000 High Low Volume Advance/Decline DJIA 11259.90 - 50.70 11323.90 11223.20 981 mln 1531/1268 NASDAQ 4098.35 + 85.01 4105.54 4035.12 1.63 bln 2262/1731 S&P 100 818.03 + 3.75 820.55 814.45 totals 3793/2999 S&P 500 1502.51 + 10.26 1505.34 1494.01 55.8%/44.2% RUS 2000 542.82 + 6.50 542.82 536.32 DJ TRANS 2743.92 - 7.15 2757.20 2732.07 VIX 21.07 - 1.58 23.03 16.68 Put/Call Ratio .47 ****************************************************************** Is it starting? The start of the earnings warning season is not until next week but several companies have already jumped the gun. In what may be an effort to announce early and hope to be forgotten quickly once the rush starts, Dupont Chemical, Campbell Soups and TRW warned today. The Dupont warning was the most visible and as a Dow component was responsible for almost 30 points of the Dow drop today. The other major Dow mover was JPM and the on again, off again, merger/takeover rumors. Speculation that Deutsche Bank was not interested caused JPM to drop -5 or almost -30 Dow points. JPM and DD accounted for almost the entire Dow drop at the close. The Nasdaq rebounded from a -221 point drop in the last two days to post a +85 point gain. Is it real or is it an oversold bounce? The Dupont warning was the third in three quarters from the company but it may be a prelude of things to come from the market in general. Citing problems with higher raw materials costs, higher energy prices, strong dollar, weak Euro and slowing sales the only thing they did not blame was the election. The factors given for their earnings woes are the same factors that are going to be quoted again and again as the warnings season begins in earnest next week. Oil costs are soaring with light crude closing at a 10 year high of $35.39 a barrel even after Saudi Arabia said they were going to increase output. No help there. Raw materials are soaring with the CRB Index at a two year high. Other examples include copper, up due to the strong economy, cotton at a two year high and platinum at a ten year high. The dollar is at an all time high against the Euro, a 7-yr high against the Pound and an 11-yr high against the Frank. Get used to hearing the "standard excuses." Need proof? TRW prewarned after the close and blamed the strong dollar, weak Euro, high energy prices and Ford slowdown. Another confessor that did not use the standard excuses was Campbell's Soup. CPB said simply soup sales were weak and if you take a look at the soup isle you will see dozens of new competitors. CPB said it was going to energize soup sales by ramping up its popular "Campbell's soup is Mmm-Mmm good" slogan campaign and by adding pop tops to its cans. Investors liked the approach and CPB closed up slightly for the day. Let's see, could we start something like "Dupont chemicals are Mmm- Mmm good" to prop the Dow back up? The dot.com time bomb finally exploded on Wednesday, or did it? Tim Koogle gave the keynote speech at the Robertson Stevens Internet Conference on Wednesday and mentioned that "Internet consolidation would limit the upside to companies that depend on advertising revenues in the short term." Many analysts mistook his comments for an admission that YHOO would have earnings problems going forward and YHOO dropped to a low near $103 in after hours trading. After the market closed Steve Franks interviewed Koogle on CNBC and questioned him about this apparent misconception. Koogle said that YHOO was not changing any guidance they had issued to analysts and still felt that YHOO prospects looked great. Consolidation in the market place will actually help YHOO since they will be able to dictate terms from a stronger position and use their strength to offer advertisers more benefits due to scale that smaller companies cannot. We made YHOO a call play on Wednesday night because the misinterpretation had driven YHOO to the normal pre-earnings run low. Each earnings season YHOO normally hits a low in this time frame and then rallies the next three weeks. We felt that the news event simply gave us a clearly defined entry point with minimum downside risk. YHOO closed after hour trading on Wednesday at $107.88 and only $107 today. Down from $140 two weeks ago we could see the bounce begin on Friday. Of course the Nasdaq must remain positive for this play to succeed. The chip sector looks like the current analyst battle ground. Some noted analysts are calling for blanket selling across the board and others are calling the recent drop a buying opportunity. With still others downgrading individual stocks like Intel or Micron. The divergence of opinion is huge and the vocal war could become a self fulfilling prophecy for the bears. The verbal war may confuse chip investors and cause them to lighten up to avoid a fall. The difference in opinion is based on the expected duration of the current chip cycle. Some feel it is over while others are calling for another 16-24 months of growth. If you are invested in this sector I would strongly advise stop losses to avoid missing the real sell signal until it is too late. Nasdaq +85, is it real or is it an oversold bounce? That right answer to that question would buy Wendy Passomonte that Jag she wants. Unfortunately no one knows for sure. The earnings warning season begins for real next week as well as a huge slate of economic reports including PPI, CPI, Industrial Production and Import/Export Prices. All inflation sensitive and likely to start another fire storm of Fed worry if they are not market friendly. Will investors buy stocks ahead of these reports AND a sure flurry of earnings warnings? I doubt it but then the market is not called the great humiliator for nothing. Money is still piled on the sidelines by the billions waiting for a sure sign that the bottom has passed. The Nasdaq needs to close above 4250 before many will take the bait. Everyone was expecting a strong rally this week and one downgrade (Intel) dropped the market -221 points. Historically next week is a down week. Add another random downgrade or two, mix with a flurry of earnings warnings and the possibilities of a drop are stronger than a gain. SFAM and ZOOX both warned late in after hours today. Is that a clue? Good luck and sell too soon. Jim Brown Editor ********************* FALL SEMINAR SCHEDULE ********************* Chicago is our next stop. September 14/16th. 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 want to thank Chris, Steve and Scott for the excellent workshop held in Detroit last week. Having been to the Expo in Denver in March (which was fabulous), I was ready for a smaller, hands-on approach to hone my less-than-perfect skills. I was not disappointed. One can never get too much education in options investing, and Chris and Steve offer terrific, unique approaches. Laurie 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 - ** Sold Out ** Sep 21-23 Austin TX Sep 28-30 Boston Oct 12-14 Charlotte NC Oct 19-21 San Francisco Nov 02-04 Phoenix Nov 09-11 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******************** Option trades starting at only $15.50, stock trades as low as $9.95! Mr. Stock provides key advantages to the serious option investor. Along with complex option trading online, fast executions, advanced charting capabilities and the ability to trade from any screen, we now offer some of the best commissions on the Internet. Our staff understands the sense of urgency required in today's market and will respond quickly to your most important trading needs. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ***************************************************************** **************** MARKET SENTIMENT **************** The Fun Has Begun! By Austin Passamonte Can 100+ point sessions on a regular basis be expected from here? We think so, and love every minute of it! For more than two weeks the only media mantra we've heard is post-Labor day rally & new market highs. How many bears did you see interviewed on CNBC during this time? We recall zero ourselves. But, we know how fickle sentiment-winds blow these days. Bias rotation seems to beat sector rotation lately. Perfect time in history to be a short-term trader, options preferred. Numerous traders have told me they're waiting for a new bottom to form before entering the markets. Why? What's wrong with buying in at the top? Nothing if you play puts and watch them swell your account to a state of euphoria. Option experts have told us fewer than 10% of small traders will ever buy index and equity puts. We find that very hard to believe, but it's true. Who then buys the majority of puts? Large speculators and institutions. Hmm, how sad. While calls-only traders wait for their next entry, here's what they missed: SPX Sept 1500 put (SXMUT) Tuesday 10.00, Wednesday 22.00+ [100+%] OEX Sept 820 put (OEXUD) Tuesday 7.00, Wednesday 13.00+ [ 95+%] QQQ Sept 100 put (QVOUV) Tuesday 1.63, Wednesday 5.00 [200+%] How many of these performing contracts would be too many for you to have owned? As usual we didn't buy enough! This point is raised because traders who refuse to play puts will miss exactly half the major moves going forward. We can expect massive volatility and wide market swings for a long time to come. Those who think we found bottom today and it's all straight up from here could be greatly disappointed soon. Crude oil prices will likely see $40 per barrel long before it reaches $20. Today was just a glimmer of the impact this will have. Back oil & food pricing out of government reports? Can we back them out of our household budget as well? Pre-warning season has unofficially begun. More surprises certainly lie in wait. Technical signals on major index daily charts point to more downside ahead. The Dow is least weak and the rest are in big trouble for bulls. Of course this is subjective study but we find it more accurate than blind hope and teas leaves, for sure. The bulls saving grace is money flow. Piles of cash stand ready to pour in wherever fund managers see a bargain. We can expect that to be quite often as well. Up down, up down. We must be prepared for equal measures of both. Option trader's fantasy-land, right here upon us now! 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 9/05 close: 21.37 Thurs 9/07 close: 21.07 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 (9/05) (9/07) (9/09) ************************************************************* CBOE Total P/C Ratio .48 .47 Equity P/C Ratio .41 .42 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 (9/05) (9/07) (9/09) ************************************************************** All index options 1.46 .85 OEX Put/Call Ratio 1.53 1.77 OEX Maximum Open Interest Strikes/Contracts: Puts 790/6,137 820/6,598 Calls 800/4,361 800/4,230 Put/Call Ratio 1.41 1.56 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: (9/05) (9/07) (9/09) Overhead Resistance: (920-855) (860-845)* 87.24 57.28 (850/830) (840-820)* 4.02 1.27 index close: 823 818 Underlying Support: (825-805) (820-800)* 1.52 1.57 (800-780) (795-780)* 2.30 6.14 What the S/R measure indicates: Net open-interest ratios are firm above 840 and below 795 while very light in between. A large index move has clearance from 800 to 835 with relative ease. We could see either or both in a moment's notice. We consider failed tests near the 830 range an excellent put entry and a bounce near 805 a solid call entry. 30-yr Bond: 5.67% 5.72% Light, Sweet Crude, Barrel: $33.80 $35.39 200 Day Moving Average (as of 9/05) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW: 10,821 11,260 11,259 NASDAQ: 3,998 4,143 4,098 NDX: 3,750 3,987 3,953 SPX: 1442 1507 1502 OEX: 780 823 818 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 (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 5.72% 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. Today's included Strength In Financial Sector, Many Dow Components Financial leaders approach or exceed all-time highs as plenty of old-economy stocks enjoy strong price leadership Broad Market Strength All major indexes are well above 200 DMAs and enjoying solid gains. Very bullish behavior ****** BEARISH SIGNALS VIX Today's close above 21 is an improvement but still low. 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. DuPont is the first of many. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. Light, Sweet Crude closed $35.39 today. All petroleum expected to be extremely high this fall. Prices in low $20s would be welcome relief but remain beyond reality. Seasonal patterns are rising prices soon as well. 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, 09/07/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 11,259 11,050 11,450 ** SPX S&P 500 1,502 1,485 1,535 COMPX NASD Composite 4,098 4,000 4,300 OEX S&P 100 818 814 836 RUT Russell 2000 542 520 575 NDX NASD 100 3,953 3,700 4,150 ** MSH High Tech 1,088 1,060 1,130 ** BTK Biotech 743 690 790 XCI Hardware 1,587 1,540 1,660 GSO.X Software 478 450 495 SOX Semiconductor 1,094 1,040 1,180 NWX Networking 1,337 1,320 1,400 ** INX Internet 574 550 605 BIX Banking 621 575 640 ** XBD Brokerage 693 660 710 ** IUX Insurance 714 695 730 ** RLX Retail 824 780 840 DRG Drug 377 365 410 HCX Healthcare 784 760 815 ** XAL Airline 156 152 168 OIX Oil & Gas 317 284 320 Eight alarms were triggered over the past two sessions. Four were at resistance levels (DOW, BIX, XBD, IUX) and four at support (NDX, MSH, NWX, HCX). Yesterday's pullback gives traders the opportunity to establish new support/resistance levels. Raising support (DOW, XCI, SOX, BIX, IUX, XAL, OIX) Raising resistance (DOW, BIX, XBD, IUX) Lowering support (NDX, MSH, NWX, HCX) Lowering resistance (SPX, OEX, NDX, MSH, BTK, XCI, GSO, SOX, INX, HCX). ************** TRADERS CORNER ************** Tracking Option Volume As A Clue To The Moves By Molly Evans When you get right down to it, the world of trading is huge. There's so much to learn about the markets, the economy, sectors, companies, investing styles, technical analysis, trading rules, and even yourself. Go delve into the world of options trading and you've opened a-whole-nother can of worms. All you can do is commit yourself to learning each little piece bit by bit until the picture in the puzzle starts to take shape. Tonight, I want to talk a little bit about another one of those pieces of which I've just taken note. Being the dedicated mother and student of trading that I am, "McMillan on Options" got to sit in my lap at my little one's soccer game last evening. It's funny how when I was in anesthesia school, I'd take those books along hoping that I'd learn by osmosis but I actually LIKE reading this stuff. Anyway, not knowing what I wanted to write about for my Traders Corner article, I started thumbing through and found his chapter on "Using Stock Option Volume As An Indicator." How interesting! What was even more interesting is that when I came home and opened my emails there was some pretty engaging discussion amongst some trader friends about QCOM's move on volume over its 50dma (Wednesday). Hmmm. First, let me tell you what Larry McMillan, THE options textbook author says about option volume as a clue to forthcoming news events: "A significant increase in the trading volume of a stock's options often is a precursor of movement by the underlying stock. Those with inside knowledge will buy options because they can score highly leveraged gains when that knowledge becomes fact." Think about it. What a perfect way to maximize your percentage returns if you know you've got a sure thing. While it may be unethical and even illegal for those insiders to act upon their inside information, it's perfectly fine for us to look for their muddy (or is it bloody?) footprints by tracking surges in option volumes. In McMillan's experience, it is only worthwhile to investigate situations in which today's total volume in traded options is more than double the "average" of what is normally traded. (Q charts gives this but I'm not sure what other sources would have this information.) Furthermore, "If almost all of the option volume is concentrated in one series (that is, just one call or just one put), then it is unlikely that anything special is going on with that stock." In fact, there are several caveats as to the inclusion of pertinent clues in your investigation of speculative buying by the smart money. If an institution or other big player is doing the buying, they're going to go for the maximum leverage, out of the money options. Throw out deep in-the-money surges. Throw out arbitrage situations too. Those would show up as volume increases in the puts and the calls of the same terms. And then there is this, "For reasons of leverage once again, the speculators with inside information will buy the near term options for these are cheaper in price and are generally the most liquid contracts." If they're longer out contracts, you might assume that institutions are simply writing covered calls or are buying midterm put protection for their holdings. Now, what about that QCOM I mentioned? I don't think there's anything secret going on there. News of the CDMA technology being used in China is making the rounds again and the stock was up yesterday on higher volume. However, it was interesting to review the time and sales tape for QCOM calls. There were 17,215 contracts of the QCOM September 60s (AAOIL) traded on Wednesday. Average daily volume as of yesterday was 1309. That's a 13 to 1 ratio. I then noted that the Sept 65s had an 8:1 ratio and the October 75s had an 18:1 ratio! Reviewing the tape revealed one block of 350 contracts, one of 490, two of 500 and one of 1000. Wow! Now, you don't need a calculator to tell you that's big money. Take $4.625 x 50000 and $3.75 x 100,000. Those were the values of some of those trades. I don't know if Jim was on a shopping spree again or what but it sure smells like deep pockets to me. I watched again today and couldn't help but buy my lottery ticket when QCOM went into the red this morning. Sure enough, during the midafternoon, there was another surge of volume on the buy side though less dramatic than yesterday's. Now don't everyone go buy QCOM calls and say I told you so but you might watch it out of interest. QCOM has a mountain of overhead and it has robbed many a trader of hard earned cash. Trust me on this one. It owes me some money back for past transgressions in trading though the 23% gain in my calls today is helping that a little bit. Don't you just love options when they go your way? Today, there was still heavy buying, this time in the Sept 65s AAOIM and Oct 65s AAOJM. The September calls volume was 5837 against an average daily volume of 1334. The October 65 volume today was 5837 vs an average of 344. That's a 17:1 ratio yet again. Consequently, all this volume in the last couple of weeks is pushing up the average daily volumes so this is pretty dramatic. On the flip side, there is, comparatively speaking, little put buying of the same term contracts. I have to wonder what's up. Is the stock price increasing as the market makers have to buy the stock to hedge their risk? Remember I talked about that in my CBOE article? The market maker has to trade stock just to throw off his risk and time decay in the calls he sells and holds. Really, I'm just talking out loud and wondering about it all myself. I'd love nothing more than to hear QCOM gets a big upgrade or has something exotic and wonderful going on there. That would suit me and a whole lot of other contract holders right well. Wouldn't that be a boost to the volume theory? Here's another example: Did you hear about Citigroup buying Associates First Capital (AFS)? Well, apparently the CBOE police are investigating Citigroup's investment arm for some hanky panky call buying in the last week or so. I read that news and donned my cape and round glasses and grabbed my magnifying glass. Uh huh! Someone's tracks are there Watson! Looking at AFSIY, the Sept $27.5 call, I see 4000 contracts in two blocks traded respectively on 9/1/00 and 9/5/00 at $1.56. Those contracts were sold at $12.00 on Wednesday morning after the announcement. Can you say "You're in trouble?" There were other huge blocks going through on other strikes as well but they were further out so would not be suspect, according to McMillan. Still, the average daily volumes were large and charts of the sales showed that the great majority of the trades took place within the last couple of weeks. Serious money there. McMillan does an exhaustive analysis of this topic in his book, "McMillan on Options," the follow-up to his mega book, "Options As A Strategic Investment." The latter was my first scholarly introduction to the world of options trading. I was not led astray and would recommend without reservation that one of these volumes be a main resource for options information. HEY! I hope to meet some of you in Chicago at the seminar next week! Contact Support ************************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.nobletrading.com/newaccount/optioninvest.html ************************************************************** ************* SECTOR TRADER ************* Down, But Not Out By Buzz Lynn Contact Support We are impressed by the NASDAQ's ability to stage a nice bounce just above its 200-dma today following yesterday's selloff. It was also gratifying to see that had JPM and DD not lost $5 each today, the Dow would have closed in positive territory. Still, for the third day in a row the indices moved in opposite directions. Lest you think there's a return to normalcy and traders will begin getting out their wallets tomorrow for more of the gains we saw today on the NASDAQ, read on. First, today's recovery volume of 1.6 bln shares on the NASDAQ is less than yesterday's 1.75 bln share selloff. Today's lower volume was not a recovery that has historically signaled a sustained rally. We need to see volume surpass 1.8 bln shares and preferably hit 2 bln shares before the green starting flag waves. Today's action is more indicative of a lifeless furry housepet (dead cat, for the less squeamish) bounce. Second, tomorrow is Friday, which has investors and traders alike usually taking some chips off the table. Aside from a bounce at tomorrow's open in response to today's finish, tomorrow may be kind of flat. That isn't a guarantee, but if you may want to consider folding your weak plays on any opening strength. Last, the daily charts on the NASDAQ and the OEX suggest there is more downside to come as part of a regular trading oscillation on the MACD and stochastic. The OEX in fact had trouble today breaking previous support at 820, while the NASDAQ couldn't hold 4100. In short, there's enough overhead pressure to keep gains in check until those oscillators reach "oversold" again. The VIX appears to have had some bad data and is mostly meaningless today. However, it still appears to be on the rise and not likely to hit resistance until the 24 level. Stay cautious. As we noted Tuesday, fund managers are going to wait for prices to fall and stabilize (consolidation) before they commit more $$$ to the market. If they are smart (and they generally are), they won't be buyers immediately following the gains of the previous three weeks - they'll wait. But that does not change the fact that they have money. In summary, as long as the market can dodge the earnings warning minefield (TRW warned after the close), the markets are poised for positive moves following this consolidative test. The big picture is for gains into the fall, but you'll be better off sitting on your hands for this brief consolidation to run its course. ************** QQQ ************** QQQ - NASDAQ 100 $98.25 +2.25 (-4.38 this week) On the surface, today's 85-point gain on the NASDAQ looks pretty good, but in our opinion appears more like a dead cat bounce. Yes, NASDAQ and QQQ closed near its high of the day. Yes, the gains were steady with support working at $98, just above our anticipated support level of $97.50. Yes, brokerage analysts came to semiconductors' defense today. That didn't come without some pain as the $97.50 level failed into yesterday's close at $95.75 - not pretty. Unfortunately, volume today was lower than yesterday. Technicals on a daily chart still don't look so good either as the MACD and stochastic have turned down from their overbought position, and may need time to get back to "oversold" and thus make a buying opportunity for us. Of course there will be opportunities to play QQQ on a 60-min chart oscillators for small daily gains until the daily chart shows us that reversal. The fact is nobody with any smarts wants to buy into the previous three weeks of gains. They'd rather wait until a consolidated bottom forms. So would we. This is not short-term doom and gloom - just the normal phase of the market. Fortunately support was found slightly above the 200-dma on the NASDAQ at 4005, which corresponds to about $95.50 for the QQQ, $97.50 comes shortly thereafter. Resistance today at $99.50, which had been a previous level of support is proving tough right now. A break over that level would be seen as positive. $101 is the next level. Calendar Spread: It's been difficult getting a trade entry for either the short or long leg of this spread unless you took advantage of fear at yesterday's close and bought the underlying long term leg of the spread at $95.50. A gutsy move unless you were also able to sell the short leg on today's bounce to new-found resistance at $99.50 (old support). If you made those entries, way to go! There's an analyst position available for you at OIN! Anyway, the point here is to buy the long-term position when the QQQ is at support and sell the short-term position at resistance to let time value decay decrease the net cost of your long-term option, hopefully giving you a free trade after. For you itchy trigger-fingered types, you can buy back your short on a pullback from resistance and do the same thing all over again a few times per month when the conditions exist. That just accelerates the rate at which the underlying is paid for. Careful, if you are wrong on your timing, it also accelerates the burn rate in your trading account. So here it is. Support is at $95.50, $97.50 and potentially $99.50 if it can break through that level convincingly (with volume) first. Otherwise, resistance is first at $99.50, then $101, followed by $103. We think you may be better served by waiting for the 60-min MACD and stochastic chart to turn positive following a bottoming of the daily chart on the same indicators before you enter the long leg. It appears to have some room to fall still despite today's gain. When it does, remember to close out your short when the time value becomes negligible (say $0.50) or a day or so before expiration, whichever occurs first. Unlike a covered call, you don't want to get called out of this one. BUY CALL JAN- 95 QVQ-AQ OI= 2872 at $12.88 SELL CALL OCT-100 QVO-JV OI= 3325 at $ 5.25, ND = 7.63 or less SELL CALL OCT-105 QVO-JA OI= 1566 at $ 3.13, ND = 7.75 or less Long Call: Still exhibiting caution? Unless you took the plunge at yesterday's close when QQQ hit $95.50, we hope so. That level corresponds to roughly to the 200-dma of 4005 on the NASDAQ. We've said it all week that nothing goes up or down in a straight line. We'll just have to wait for QQQ to reach an oversold condition on the daily chart as indicated by the MACD and stochastic before we feel comfortable that the negative trend has reversed. However, the 60-minute chart indicators are still playable for swing trading. In that case look for a sharp upturn in stochastic and MACD from an oversold condition before entering a trade. Support is at $95.50, $97.50 and perhaps $99.50 if it can break through that level with volume first. Otherwise, resistance is at $99.50, $101, then by $103. Target shoot your way in or wait for a technical reversal. BUY CALL OCT- 95 QVQ-JQ OI= 2210 at $8.00 SL=5.75 BUY CALL OCT-100 QVO-JV OI= 3325 at $5.25 SL=3.25 BUY CALL OCT-105 QVO-JA OI= 1566 at $3.13 SL=1.50 Average Daily Volume = 18.4 mln ************** OEX ************** OEX - S&P 100 818.03 +3.75 (-11.80 this week) Our good buddy, VIX was missing in action today. Due to some bad data indicating a range of 16.68 to 22.77, we'll have to disregard today's data as inconclusive. Even so, VIX resistance is at 24 and we aren't there yet. More pain to come? Maybe - the OEX could also not get through its former support level at 820 and the overall markets today (JPM and DD aside) did not show any volume conviction to indicate a new rally is at hand. More like a dead cat bounce as we noted above. While support held at 814 (we expected 815) over the last two days, the MACD and stochastic on a daily chart are still indicating a selloff consolidation is at hand. Only when they reach an oversold condition on the daily chart will we consider going long, but that doesn't mean it's time to go short. In the fundamental picture though, there are some earnings warning storm clouds for smokestack stocks - TRW and DD warned today. There may be others to follow, especially in the retail sector. Semiconductors are currently trapped in an analyst tug of war. Support is at 807, then 815. Resistance is at 820 followed by 825 Long Call: As long as smokestack business, or what some call "old economy" stocks issue earnings warnings and the price of oil is moving up, fundamentals may keep a lid on the gains. Similarly, from a technical side, OEX has turned down from its previously "overbought" condition as indicated on a daily chart. However the 60-min chart would have shown us a swing trade entry during amateur hour - nice, but that's a fundamentally lousy time to buy calls. If you jumped the gun anyway, this would still have made a nice swing trade entry. For those inclined to watch Bollinger bands (we do), the same 60-min chart would have also shown us a bounce off the lower band at yesterday's close - gutsy, but tradable entry. What now? Probably not going to see an entry tomorrow unless the technicals turn up from an oversold condition that OEX still hasn't reached yet. The point is to wait for a reversal form the oversold position on the daily and 60-min charts. Support is at 807, then 815. Resistance is at 820 followed by 825. Open interests are heaviest at 810 and 820, indicating support at those levels. BUY CALL OEX-JB OCT-810 OI=3188 at 28.75 SL=20.00 BUY CALL OEX-JD OCT-820 OI=3181 at 24.38 SL=17.00 BUY CALL OEX-JF OCT-830 OI= 376 at 18.75 SL=14.00 Bullish Calendar Spread: Once again, our job is collect monthly credits from selling near- term calls against a long-term position in order that we may ultimately reduce our cost to zero. Based on volume, our thinking is that today's gain across the board was a dead cat bounce. The technical indicators MACD and stochastic bare this out on a daily chart - there appears to be more room to fall based on the fall from overbought. Until they get to "oversold" and the daily candle touches the lower Bollinger band, you may want to wait to buy the long leg. However this same pattern is tradable on the 60-minute chart. Buy at support of 807 and 815; sell short-term calls at resistance of 820 and 825. Cover when the time value nears zero or expiration day approaches. BUY CALL DEC-840 OEX-LH OI=585 at $28.75 SELL CALL OCT-840 OEX-JH OI= 762 at $13.88, ND=14.88 SELL CALL OCT-850 OEX-JJ OI= 792 at $ 9.75, ND=19.00 Average Daily Volume = 1269 ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 11259.87 0.00 21.83 50.03 -50.77 21.09 Nasdaq 4098.35 0.00-91.15 -129.84 85.01 -135.98 $OEX 818.03 0.00 -6.34 -9.21 3.75 -11.80 $SPX 1502.51 0.00-13.69 -14.83 10.26 -18.26 $RUT 542.82 0.00 -2.89 -2.70 6.50 0.91 $TRAN 2743.92 0.00 14.48 23.67 -7.15 31.00 $VIX 21.07 0.00 1.92 1.28 -1.58 1.62 Calls CHKP 153.19 0.00 5.06 -8.47 7.16 3.75 Still running CFLO 113.00 0.00 -1.44 -0.63 5.56 3.50 New MERQ 130.00 0.00 2.56 -6.06 7.00 3.50 Right on cue VRTS 123.13 0.00 0.13 -3.38 4.63 1.38 Recovery AZA 77.25 0.00 -0.50 0.06 1.13 0.69 New IDTI 92.97 0.00 -3.38 -2.56 6.34 0.41 New highs VERT 54.00 0.00 2.44 -4.44 1.25 -0.75 B2B slide ORCL 91.19 0.00 -1.56 -1.81 1.94 -1.44 EPS soon! AAPL 62.00 0.00 -1.00 -4.00 3.56 -1.44 Bullish Q3 AGIL 73.06 0.00 -0.69 -1.06 0.06 -1.69 Basing NEON 35.75 0.00 -0.50 -2.75 1.25 -2.00 Dropped SNDK 86.50 0.00 1.56 -7.94 4.38 -2.00 Volatile Chip ISSX 80.94 0.00 -0.06 -5.00 1.88 -3.19 Dropped LSCC 74.38 0.00 -2.41 -4.78 3.88 -3.31 Dropped DISH 49.50 0.00 -1.19 -1.63 -0.75 -3.56 Dropped BEAS 66.56 0.00 -2.25 -5.19 3.25 -4.19 Uptrend good INKT 125.00 0.00 0.38 -7.34 1.22 -5.75 On the 10-dma TIBX 102.06 0.00 2.06 -8.06 0.00 -6.00 OUCH, entry? JNPR 214.88 0.00 -1.50 -10.44 5.19 -6.75 Jumping JNPR! YHOO 107.00 0.00 3.19 -5.06 -5.06 -6.94 Stealth play ITWO 169.81 0.00 -4.06 -15.19 9.81 -9.44 B2B blues MRVC 67.38 0.00 -4.88 -6.94 -1.19 -13.00 Dropped CIEN 215.00 0.00-13.81 -7.88 6.56 -15.13 Quick rebound Puts PCS 45.88 0.00 -1.13 -1.19 -2.38 -4.69 New CREE 129.13 0.00 -6.56 -2.31 7.00 -1.88 Rollover??? AT 48.75 0.00 -0.88 -0.81 0.63 -1.06 Upped EPS UK 38.66 0.00 1.31 0.88 -3.09 -0.91 Anarchy in UK MMM 91.63 0.00 -0.25 1.88 -2.50 -0.88 Mkt Rotation 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: ***** NEON $35.88 +1.38 (-1.87) If you missed Tuesday's morning pullback to enter a trade, you were given a second opportunity on Wednesday. The NASDAQ was weak all day and NEON could not buck the trend. It pulled back to a low of $34.88, just above the 10-dma at $34.20, by mid-morning. From there, it channeled between $35 and $36 for the balance of the day, finally closing at $35.13. On Wednesday, NEON announced the launch of a new Internet-based solution to provide flexible and easy-to-use connections for Net Market and Business-To-Business (B2B) transactions. By mid-day today, NEON was in positive territory by just over $1 after having dropped below its 10-dma, at $34.80, in early morning trading. Positive momentum continued as the buyers continued their accumulation of NEON shares. It closed up $1.38 today at $35.88 on volume of 1.11 mln shares (1.27 times ADV). This left NEON closing just above its 10-dma of $34.80 but unable to cross the 5-dma. All that being said, there does not seem to be much "oomph" in NEON's price action to give it the breakout we were looking for, so it is time to move to another play. DISH $49.44 -0.81 (-3.62) DISH was down $1.63 on Wednesday as the NASDAQ peeled back substantially. Volume was huge, logging in at 15.1 mln shares (6.5 times ADV). There appeared to be a large block trade early Wednesday morning of 7 mln shares (at below market) that skewed the volume for the day. Today, the NASDAQ got off to a great start, but DISH was still idling by mid-morning. After hitting a low of $49.06 in early morning trading, DISH continued to hover below the flat line, just below its 5-dma, currently at $50. Later in the day, DISH dipped as low as $47.44 before recovering for the balance of the day to settle down $0.81 at $49.44 just above its 200-dma (currently $47.20). Volume was light today and DISH struggled today remaining in negative territory, even as the NASDAQ climbed. DISH didn't act well with the NASDAQ today. Time to move on for now. MRVC $67.38 -1.19 (-13.00) MRVC has had a hard time lately, and for good reason. With weakness in leaders such as CIEN, GLW and JDSU, the stock has been taken along for the ride. Yesterday in a soft Tech market, MRVC gapped down at the open and spent the rest of the day heading lower. The gap down open was below MRVC's 5- and 10-dma, now converged at $74. By the close, MRVC lost $6.94 or 9.19% on average volume. Today the stock attempted a recovery but encountering resistance at the $72 level, sold off to close down 1.73% on 125% of ADV. This put MRVC below it's 50-dma at $67.75. The high volume accompanied by a failure to make any progress suggests that the stock may be stalling. Add to this the fact that peers CIEN, GLW and JDSU all ended the day in the green is not a good sign. If it can't move up on strong volume, then lack of volume could crush this play. LSCC $74.38 +3.88 (-3.31) Following the whims of the Semiconductor sector, LSCC is looking like it has run out of gas. After running as high as $78.00 last Friday, the stock has come under selling pressure this week, as the sector has been subjected to repeated analyst attacks. Our play was looking pretty good on Tuesday, as it managed to hold the $75 support level in the face of the negative news on INTC, and the Semiconductor sector as a whole. That all fell apart yesterday, as sellers pushed our play back to the $71 support level before the stock saw any buying relief today. Although we saw a nice bounce, it was discouraging to see that our play couldn't get back over the $75 level. It looks like the momentum players have moved away from LSCC, and we are following their lead by moving LSCC onto the drop list tonight. ISSX $80.94 +1.88 (-3.19) We caught a couple of days of trading opportunity, but anymore waiting around and we'll fall asleep. The strong momentum that took ISSX out of the gutter just weeks ago and launched it back to a respectable support level appears to have dissipated. After ISSX flirted with $86.38 on Tuesday, it experienced a $5.00, or 6% decline on Wednesday. Perhaps typical profit taking is to blame, but it's evident by today's performance that ISSX may have difficulty recovering. ISSX is currently sitting on the intersecting 50, 100, & 200 DMAs. This is certainly not a promising factor - remember we added ISSX only after it penetrated these technical lines. The 10-dma at $78.15 is holding up as support, but we'd rather not take a wait-and-see attitude with ISSX. It's time to move on to stronger plays. PUTS: ***** No dropped puts today. ************************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 ************************************************************** 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. 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The Option Investor Newsletter Thursday 09-07-2000 Copyright 2000, All rights reserved. 2 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/090700_2.html ***********************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 ************************************************************ ******************** PLAY UPDATES - CALLS ******************** YHOO $107.00 -5.06 (-6.94) Some of you might be looking at this and wondering, "When did they add this play?" Well, the answer is yesterday at the end of Matt Russ' Wrap. Yes, we know it was an out-of-cycle play, but given the news-related after-hours trading yesterday, Jim decided to add YHOO as a call play. This was done on the basis that comments made by YHOO CEO Tim Koogle at the Robbie Stephens Internet Conference were misinterpreted, sending the stock as low as $103.25 in yesterday's after-hours. Hasty traders sold YHOO when they misunderstood Koogle's comments and thought that he said advertising sales have decreased. Then, Koogle appeared on CNBC in an interview clarifying that Yahoo in no way has changed their guidance. YHOO closed after-hours trading Wednesday at $107.88. Today, YHOO offered a nice entry on the open and spiked to $114.50 on strong volume early on. After that, the stock drifted lower into the close. We would look for entry on buying bounces from current levels. The valuation of YHOO is very low and due in part to the yesterday's misinformation. A breakdown below $100 would be concerning and a sign to stay out. Earnings are confirmed for October 10th, so with the stock at current levels, a earnings run could be very profitable. CHKP $153.19 +7.16 (+3.75) Forest tripped on the sidewalk Wednesday, but regained his footing Thursday! As the NASDAQ slipped yesterday, so did CHKP. The stock could not get any traction as investors dropped it to $146.02, down $8.48 for the session, but above the lows for the day. Thursday morning the sellers took CHKP down to $142, to barely touch its 10-dma at $141.80, before it decided to join the NASDAQ party. Buyers lifted CHKP past its 5-dma at $147.70 later in the day, to $148.50 up over $2 by mid-day. CHKP got stronger as the day went on, due partly to the NASDAQ showing good stability. The buyers showed up this afternoon as trading volume logged in at 2.62 mln shares versus ADV of 1.66 mln, en-route to a close at $153.19. If today's market strength continues, traders should look for a reasonable intraday pullback to use as an entry point. However, a more conservative entry would be at the 5-dma or the 10-dma (currently at $147.70 and $141.80, respectively) along with a volume backed bounce. TIBX $102.00 -0.06 (-8.13) Taken out behind the woodshed! What can you say, TIBX got slammed yesterday to close down at $102.06, just below its 10-dma. If there was a positive for TIBX Wednesday, it was that the down move occurred on lighter than normal volume. On Wednesday, TIBX announced that it had completed its $100 mln acquisition of Extensibility, Inc., a leader in Extensible Markup Language(XML) technology. Also of note Wednesday, Tibco announced support for the UDDI project, a cross- industry initiative comprised of 29 technology leaders, designed to accelerate and broaden B2B integration and commerce on the Internet. This morning the "behind the woodshed" beating continued as the sellers took TIBX down to a low of $96.38. By mid-morning, buying volume picked up as it was off its lows to $98.75, just below its 10-dma, which currently at $99.70. Tibco really picked up steam in the final moments as buyers brought it back to a closing price of $102, only down a teenie for the day. Volume backed the move as TIBX traded 2.3 mln shares. We are solidly above the 10-dma of $99.70 and closing in on the 50-dma, which is currently $105.10. Look for continuing strong volume with solid price action before entering a new trade. Watch for a pullback to the 10-dma along with a volume-backed bounce as an ideal entry point. Keep an eye out for profit taking and a potential pullback in the NASDAQ. CIEN $215.00 +6.56 (-15.13) DLJ and ABN-AMRO both came to CIEN's defense yesterday after the company told analysts it would lose six cents per share due to the bankruptcy of a major customer a day earlier. Despite the attempts from the two brokerages yesterday morning, CIEN fell for the second consecutive day on heavy trade due to other analyst actions in the Telecom sector. Lehman Brothers cut their rating on WCOM, citing the slowdown in capital spending, which could ultimately mean slower sales growth for CIEN. After the two days of heavy selling, CIEN was due for a bounce higher, and that's exactly what happened today. If the NASDAQ's rally today has legs tomorrow morning, traders might look to enter CIEN on a rally above $217, or wait for a momentum based move through the $220 level. Any weakness in the Telecom sector tomorrow might take CIEN down to support near its 10-dma at $212. Aggressive traders might consider trading CIEN's range and buying any dip near support at $212. ITWO $169.75 +9.75 (-9.44) The late-day profit taking we witnessed Tuesday afternoon continued early yesterday morning. In fact, the selling in ITWO really didn't subside until late yesterday afternoon, when the stock bounced off support near the $160 level. ITWO's two days of punishing profit taking might have presented a favorable entry into the play, only if the Tech sector can extend its rally into the weekend. ITWO battled back today to test resistance at the $170 level. Given the stock's big sell-off earlier this week, there is little resistance preventing ITWO from rebounding substantially higher. With that said, watch for a strong rally above the $170 level, confirmed with healthy volume. More conservative traders might wait for ITWO to build momentum and consider entering the play on a rally above $175. Make sure to confirm direction in the broader B-2-B sector before entering the play. If you haven't done so already, consider setting stops on any existing positions to protect your trading capital. IDTI $92.97 +6.34 (+0.40) Our shining star, better know as IDTI, delivered another record performance today. Despite the recently renewed controversy in the Semi sector, namely downgrades of high-profile names such as MU and INTC, our play is charging higher. There was no specific news to spur the rally today, but, the buying was convincing as traders exchanged well over IDTI's ADV. Aggressive traders might consider entering the play at its current levels early tomorrow morning if the NASDAQ, and especially the $SOX, show continued strength. Watch for a quick pop back above the $93 level, or wait for IDTI to build momentum and move back above $94. If the Chip bears return tomorrow morning to sell IDTI, watch for the stock to find support near the $92 level, or lower near $90. Wait for any light selling to subside and consider entering our IDTI play on a bounce off one of the stock's aforementioned support levels. The stock did bolt higher on a burst of volume in the final moments of trading today, be on your toes early Friday morning and watch for an extension of IDTI's rally. SNDK $86.50 +4.38 (-2.00) The past couple of days have been volatile for SNDK indeed. Wednesday saw the stock drop $7.94 or on convincing volume. SNDK's drop was in sympathy with a weak NASDAQ and Semi sector. Today SNDK tagged along for the recovery ride as it reclaimed some of its losses. In doing so, the stock put itself back above its 5-dma near $86 and its 10-dma $84.25. There is light resistance at the $88 level but the real congestion is around $90, thereafter $95 will be a hurdle. Support appears to be strong at around the $81 - 82 range. A bounce near that level might provide an aggressive entry point. The more risk averse might want to wait for SNDK to clear $90 before making a play. Yesterday SNDK announced that it would expand its presence in retail outlets in Africa, Europe and the Middle East. According to SNDK, the expansion is necessary because of increasing demand for the company's flash memory products. Today SNDK announced that it would supply ERICY with flash memory cards for the storage of MP3 audio in their new mobile Internet appliance. AGIL $73.06 +0.06 (-1.69) While many of the Tech issues have been in sell-off mode for the first half of this week, AGIL appears to be in consolidation mode. After a strong breakout on huge volume above resistance at $71 on Friday, the stock has been drifting lower on declining volume. Yesterday AGIL traded in a narrow range of $1.50 to finish only fractionally lower in the face of a strong down day for the NASDAQ. Today the stock dipped briefly in the early morning below its 5-dma at $72.88, but bounced quickly. So it was pretty much the same as yesterday, trading in a narrow range of $1.25 on declining volume. A re-test of former resistance at $71 would be an ideal entry point as this is also where the 10-dma happens to be right now. But make sure it bounces before entering. Conservative traders will look for a break through $75 resistance on high volume before entering. Yesterday AGIL announced an alliance with Andersen Consulting to promote and deliver e-commerce solutions to manufacturing firms around the world. BEAS $66.56 +3.25 (-4.19) BEAS' up-trend is still intact. Yesterday in sympathy with a down day on high volume on the NASDAQ, the stock shed $5.19 on average volume. In doing so, the stock breached its 5-dma support level. Despite the failure at the 5-dma, BEAS managed to find support at the $62 level and bounced strongly, closing above it's 10-dma. Today, the 10-dma, now at $64.05, continued to provide support for BEAS after the stock gapped open and spent the rest of the day trading sideways to higher, closing up 5.23% on meager volume. After a steep sell-off as we've seen recently, traders might be a little shy on the trigger. Those waiting for confirmation of upward momentum will look for BEAS to clear its 5-dma, currently at $67.40, before entering. An aggressive trader will look for a bounce off the 10-dma for an entry. Breaking through the 5-dma will see the next resistance level at $68. MERQ $130.00 +7.00 (+3.50) Right on cue, the profit taking yesterday set us up for a great entry point on MERQ this morning. Remember our comments on Tuesday? "Buying volume is keeping MERQ at its upper Bollinger band and after the last four days strong gains, profit taking in the near future would not be out of the question." The profit taking did indeed occur, bringing our play down for a bounce right on the $120 support level before the buyers began nibbling again late yesterday afternoon. The recovery continued throughout the day today as MERQ managed to close right at its high of the day with volume on the rise. Today's sharp recovery brings MERQ back above the 5-dma, which is currently at $126.13, and market permitting, it should continue to support the share price. On any significant market correction, the $120 level should continue to hold firm as support, especially with the rapidly approaching 10-dma currently at $118.75. Bounces from the $120 level are still buyable, as long as they continue to be confirmed by solid buying volume, but we may not get another shot at this level. Buying on strength is also a viable entry strategy; wait for MERQ to push through resistance at $131 before playing. ORCL $91.19 +1.94 (-1.44) Although it couldn't dodge the weakness on the NASDAQ earlier in the week, ORCL put in a respectable performance today. After two days of selling, the software company was resting right on historical support at $89. Voting with their wallets this morning, investors pushed ORCL back above the $90 level early in the day, where it spent the rest of the session. After the early morning pop, the stock traded in narrow range of just over $1, owing partially to the fact that volume was fairly light at only 14.2 million shares. Recall that the company will be announcing earnings on September 14th, so now is the time to target shoot new entries for a possible run into the announcement. The $89-90 level is getting stronger as a support level, with the 5-dma ($91) fractionally below today's close and the 10-dma still on the rise at $88.69). Another positive factor is that the bounce this morning came right on the ascending trendline, which has been in place since early August. Target shoot to your level of risk tolerance or buy the breakout as ORCL clears the $93 resistance level. VERT $54.00 +1.25 (-0.77) Unable to hold its ground in the B2B downdraft earlier this week, VERT managed to hang onto support yesterday afternoon, bouncing from $52.50. Although the recovery continued today, it didn't have the conviction of buying volume, as only 1.7 million shares traded hands vs. an ADV of 2.7 million. The company is still struggling to convince the investment community that its vertical market strategy is a winner, but the company's rate of revenue growth (over 1300% year-to-year over the past 2 quarters) is starting to get investors' attention. With today's mild recovery, VERT is back above the 10-dma ($53.38), but just barely. Further weakness in the B2B sector could provide an even better entry point by pulling our play down to bounce near the $51 support level. Target shooters should wait for a strong bounce at support before opening new positions. With Tuesday's failure to break through the $60 level, we may be better served by waiting for buying volume to penetrate this level before playing. INKT $125.00 +1.22 (-5.38) INKT is currently perched at a precarious level. The downdraft, following Tuesday's strong move toward the $135 mark, has left INKT sitting smack on the 10-dma line. While this level may entice the more adventurous traders to take entry on a strong rebound, be careful. A more prudent approach would be to wait for high-volume moves through lighter support at $128, or even $130 before starting new positions. Earnings for this company aren't scheduled until later next month, so don't bet on any anticipative excitement to give INKT a boost. INKT needs to create its own momentum if we're to keep it on our call list. On the bright side, the stock did respond well in recent weeks to news events and analyst coverage. Therefore look for more of that kind of matter to generate another breakout in the short-term. Our target is for the share price to explode through upper resistance at $135 and eventually move back towards the early summer highs. AAPL $62.00 +3.56 (-1.44) The profit taking pests blemished Apple's share price yesterday. AAPL led the pack with a 6.4% loss and effectively influenced the Goldman Sachs Computer Hardware Index ($GHA), which dropped 3.1%. The deep dive below the former resistance ($60) to $57.75, near the 10-dma line was extremely bearish. While AAPL managed well on Tuesday, this was the second day computer hardware stocks lost ground. Even the more enterprising traders likely played "wait and see" before taking additional entries into this recovery play. As if we wished upon a star, there was a crucial turnaround today. The research firm, IDC, came forward with encouraging words of growing unit volume. They estimated that the worldwide market should climb to 33.4 mln in the 3Q, which is an 18.5% increase for the year-ago period. According to Bruce Stephen, IDC group VP for Worldwide Personal Systems research, "consumer demand for PCs is especially strong in Asian markets, and US home PC volume is expected to improve based on back-to-school sales" and also the upcoming holiday season is a plus for PC manufacturers. Major players such as Compaq (CPQ), Hewlett-Packard (HWP), DELL, and IBM all benefited from the report too. APPL advanced a hefty 6.1%, which brought it back to a respectable price level. Near-term resistance still stands at Monday's intraday high of $64.13. Conservatively look for strong volume to push it through $65, if you want better confirmation that AAPL's momentum can take it higher. Otherwise, use dips to the 5-dma ($61.45) as a launching point. VRTS $123.13 +4.63 (+1.38) Monkey-see, monkey-do. That's the game VRTS played this week as it mimicked the NASDAQ sentiment. For two days VRTS hovered at near-term support around $121 and $122, then took a slide to the 10-dma (now at $118.92) before coming back up for air. In hindsight, the deep retrace proved to be quite the entry, if your risk-portfolio could stand the heat. At present, this recovery play continues to show some sparks of life with intraday spikes tapping at $125. Nevertheless, be prudent and wait for the ceiling to crack before entering into this pure momentum play. The other option is to take a very aggressive approach. Some may choose to play the intraday spread and bank on volatility to profit. In the news, Merrill Lynch will launch a new HOLDRs basket that will contain 20 of the largest stocks in the software sector including Veritas Software. JNPR $214.94 +5.25 (+6.75) Juniper is jumping and we're loving the volatility! The recent sessions have provided a multitude of entry opportunities off a lower support level at $212-$214 while rendering strong intraday spikes. Of course our target is for JNPR to take us into new territory once again. A high- volume move through $220 insinuates that a breakout above Tuesday's all-time high of $228 isn't impossible. The intraday gyrations and healthy volume reinforce the position that the momentum is building and geared for another run up. If the stock takes off, enter on intraday dips off the rising 5-dma line. Else you may want to be patient and keep your portfolio in cash. This is a HIGH-RISK momentum play and can get rather dicey. ******************* PLAY UPDATES - PUTS ******************* UK $38.66 -3.09 (-0.91) It was anarchy in UK today. The bears had their way with the Chemicals sector today after Dupont (DD) warned analysts that higher energy costs would cut into earnings estimates. The news was enough to send UK to a new 52-week low. What's more, UK bled from the flight of capital back into the Tech sector, after the NASDAQ's three rounds of profit taking ended today with a victory for the bulls. Going forward, concerns over earnings in the Chemicals sector might continue to weigh on UK, along with any shift of capital back into the NASDAQ if the Tech sector extends its recent rally. UK's big drop on heavy volume today pushed the stock well below its critical support level at $40. Aggressive traders might look to enter the play early Friday morning if the UK bleeding continues. Watch for a bump against resistance at $39 or wait for UK to fall below $38.50. More conservative traders might wait for UK to fall below the $38 level, or below its day low at $37.38, before entering the play. CREE $129.13 +7.00 (-1.88) How do you spell overhead resistance? C-R-E-E. The convergence of the 5- and 100-dma at $130 was just too strong for the stock to overcome yesterday. Attempting to buck the trend of a down market on Wednesday, the stock got as high as $130 during amateur hour before succumbing to the weight of the NASDAQ to close down $2.31 or 1.86% on 124% of ADV. Today the stock moved again in sympathy with the Tech index, gaining 5.63% on 73% of ADV. While CREE spent most of the day drifting up, it appears to have hit resistance right below the $130 number, at $129.63. A failure to break through $130 would be an ideal entry point tomorrow, but make sure the stock confirms the rollover before entering. Above, there is more strong resistance at the $135 area in the form of the 10-dma. Today's close put CREE on the right side of the 5-dma at $128.85. Breaching that point to the downside with MMM $91.63 -2.50 (-0.88) Tuesday's quiet trading was shattered yesterday as investors jumped into value stocks as they sought refuge from the selling on the NASDAQ. This enthusiasm drove MMM as high as $95.94 before investors realized that they were chasing a cyclical stock in a slowing economy. After the noon hour, investors came to their senses and began selling again. Although the price didn't drop much yesterday, the increasing volume as the afternoon progressed gave vigilant traders a good entry point for the gap down this morning. Opening sharply lower this morning, it didn't take long for MMM to get back down to the $91-92 support level. So here we are back where we started on Tuesday. If you grabbed yesterday's entry point, congratulations. Going forward, another failed rally to the $95 resistance level is still a good opportunity to buy puts. With the economy slowing , companies like MMM will have a hard time heading higher. More conservative players will want to wait for increased selling volume to push shares of the paper company below the $90 support level, also the site of the 200-dma. AT $49.50 +1.38 (-0.31) News of upped earnings projections for 2001 and 2002 prompted a rise of out AT earlier in today's session. The company said it expects earnings growth of 12 to 16 percent over the next two years on the strength of added wireless subscribers; but nevertheless may miss the current estimates for next year by as much as 8%. A conference call with analysts followed the announcement. Scott Ford, Alltel's president and CEO, said the company has implemented an aggressive growth strategy that "will reduce cash earnings in the short term but will create significant possibilities for sustainable growth over the next several years". AT's enthusiastic spike was hence, short-lived. Whether the immediate bottom-line sunk in with investors or it was simply a matter of technical perspective, the share price slammed into the force field at $52. In a flash, it boomeranged back under $50 and tumbled towards Wednesday's 52- week low of $47.75. Volume levels were quite active at over twice the ADV. Look for continued action to spur future declines. Keep the stops tight. If you want an entry into this Telecom play, then look for strong downward moves from the $50 mark. ************************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.nobletrading.com/newaccount/optioninvest.html ************************************************************** ************** NEW CALL PLAYS ************** CFLO - CacheFlow Inc. $113.00 +5.56 (+3.50 this week) CacheFlow Inc. designs, manufactures, and markets Internet caching appliances. These easy-to-use appliances speed Web page response times, while saving network bandwidth. Because of these key benefits, caching appliances are becoming an integral component of the network infrastructure - much like routers and switches. Explosive growth is forecasted for the caching appliance market, with revenues projected to exceed $3 billion by 2003. Company partners include Akamai, Alcatel, CSC, EDS, Hewlett-Packard, Lucent, Real Networks, Secure Computing Websense and Westcon. CacheFlow is a global organization with offices throughout Asia, Europe, and North America. Judging from the volume accompanying its ascent, the cash has been flowing into CFLO. Ever since the middle of August, volume has picked up significantly in the stock. Like many Tech stocks, last month was a great one for CFLO. Testing support at $55 early in the month, the stock moved up higher in anticipation of its earnings report on August 16th. Beating the Street with a much narrower than expected loss, the stock moved higher post earnings before encountering resistance at $105. From there the stock fell back to its previous breakout level at $88 before bouncing. Last Friday CFLO managed to clear resistance at $105. Since then the stock has spent the week trading in a narrow range between $105 and $112. Considering the sell-off in the markets during that time, CFLO has held up well. Today however, CFLO managed to break through resistance at $112 to close up 5.18%. This move was backed by strong volume, clocking in at 137%. There are a number of possible ways to enter this play. Aggressive traders would look for a bounce off new support at $112. Below that there is stronger support at $105. The even more aggressive would look for a bounce off the 5-dma, currently at $109.45 for an entry. There is additional support from the 10-dma at $103.07 and the psychological $100. Overhead resistance levels can be found in increments of $5 at $115, $120 and $125. Conservative traders may want to look for CFLO to clear $115 with volume before making a play. There has been little if any news so far this month until today, as the company announced an alliance with Top Layer Networks Inc. The partnership will see the two companies teaming up to provide solutions to speed up delivery of Internet content to their clients. ***September contracts expire next week*** BUY CALL SEP-105 FUJ-IA OI= 21 at $10.25 SL= 7.00 BUY CALL SEP-110*FUJ-IB OI= 47 at $ 7.00 SL= 5.00 BUY CALL SEP-115 FUJ-IC OI= 30 at $ 4.38 SL= 2.75 BUY CALL OCT-110 FUJ-JB OI=304 at $15.00 SL=11.00 BUY CALL OCT-115 FUJ-JC OI= 5 at $12.75 SL= 9.50 BUY CALL OCT-120 FUJ-JD OI= 33 at $10.38 SL= 7.50 SELL PUT SEP-110 FUJ-UB OI= 40 at $ 3.38 SL= 5.50 (See risks of selling puts in play legend) Picked on September 7th at $113.00 P/E = N/A Change since picked +0.00 52-week high=$182.19 Analysts Ratings 3-4-0-0-0 52-week low =$ 27.00 Last earnings 08/16 est= -0.17 actual= -0.14 Next earnings 11-15 est= -0.11 versus= -0.22 Average Daily Volume = 587 K AZA - ALZA Corporation $77.25 +1.13 (+1.69 this week) As a research-based pharmaceutical company, AZA applies its leading drug delivery technologies to develop products with enhanced therapeutic value for its own portfolio and many of the world's leading drug companies. The company commercializes products it develops, as well as those it acquires from third parties. AZA is currently focusing its sales and marketing efforts on products for urology and oncology disorders, as well as products for the treatment of pediatric and central nervous system disorders. Sitting in the sweet spot between the big pharmaceutical companies and the profitless Biotechs, AZA is what is known as a specialty pharmaceutical company. Unlike the Biotechs, these companies are typically profitable and AZA is no exception. In contrast to the big drug companies, which can't afford to bring a new product into production unless the market for the product exceeds $1 billion, firms like AZA can profitably market a new drug with a $200-300 million annual demand. AZA has a strong pipeline of new products and continues to receive positive press and analyst coverage. The Biotech sector is a better measure of performance for stocks like AZA, and with the continuing recovery in the sector, investors have been driving the stock to new highs recently. After spending much of the month of July between $56-68, the positive news last week (see below) was just what the doctor ordered, and investors have steadily pushed AZA higher over the past 2 weeks. The nearly uninterrupted 30% move was in need of some consolidation though, and this can be seen in the flattening of the price chart earlier this week. Although volume has been rather light (in the neighborhood of two-thirds the ADV), buyers did come back today to drive the stock to yet another all-time high. Support is hard to come by after such a strong run, but mild intraday support is found at $75, followed by slightly stronger support at $71. For solid support, look all the way down to $68, the level above which the stock broke 2 weeks ago. Target shoot new entries to your level of risk tolerance, but if the stock continues to hit new highs, don't be afraid to buy into the strength. As if AZA needed any more help last week, the stock got a nice boost last Thursday from the reported positive results from clinical trials of the company's flagship incontinence drug, Ditropan XL. This followed positive analyst comments on August 29th and 30th. First, SG Cowen issued a Strong Buy rating, and then Banc of America Securities added the stock to its Fresh Money List and issued a Buy rating. ***September contracts expire next week*** BUY CALL SEP-75*AZA-IN OI=985 at $7.75 SL=5.50 BUY CALL SEP-80 AZA-IO OI=242 at $3.63 SL=2.00 BUY CALL SEP-85 AZA-IP OI=124 at $1.06 SL=0.00 BUY CALL OCT-75 AZA-JO OI= 61 at $6.50 SL=4.50 BUY CALL OCT-80 AZA-JP OI= 68 at $3.75 SL=2.25 BUY CALL JAN-80 AZA-AP OI=122 at $7.88 SL=5.75 Picked on Sep 7th at $77.25 P/E = 63 Change since picked +0.00 52-week high=$77.63 Analysts Ratings 8-5-3-0-0 52-week low =$26.00 Last earnings 07/00 est= 0.35 actual= 0.44 Next earnings 10-19 est= 0.44 versus= 0.40 Average Daily Volume = 1.65 mln ************ NEW PUT PLAY ************ PCS - Sprint PCS Corp. $45.88 -2.38 (-4.70 this week) Sprint PCS Group is a subsidiary of its parent company, the Sprint Corporation. The formation of the Personal Communication Group was approved back in 1988, so that the performance of the domestic wireless operations could be recognized separately. They currently operate a digital wireless network in the U.S. and at the end of 1999 operated PCS systems in over 360 metropolitan markets, including the 50 largest United States metropolitan areas. In short, Sprint PCS is engaged in the wireless mobile telephone business. Recently, PCS announced the availability of PCS phones in Target Stores nationwide and furthermore announced an agreement with Charles Schwab & Co. Inc., to provide customers with nationwide Access to Schwab's PocketBroker mobile investing services via the Sprint PCS Wireless Web. Unfortunately, none of this news has been influential enough to get investors interested. To say this chart is choppy may be an understatement. It appears that a potential triple top formation was formed and completed between March 31st and July 17th. On March 31st an intraday high was logged in at $66.94, then on June 19th PCS made a failed attempt to clear that high with a move to $65 intraday. Finally, on July 17th PCS tried again to move past the March high but failed, only reaching $65.88. If you are a skier you will recognize the look of this chart from July 17th to today, as it is straight down for the most part. Both the 50-dma and the 200-dma, (currently $55.70 and $54.20, respectively) have been violated to the downside, with the violation of the 200-dma being most recent occurring on August 21st. In addition, the current 5-dma at $49.30 and the 10-dma at $48.90 have been breached to the downside. A weak case could be made that prayerful support could be found at the $44.06 level, the site of an intraday low made on April 14th, but I think you can see this might be a bit of a stretch. Adding fuel to this fire has been the continuing concern in the marketplace, that handset sales are slowing. Today PCS moved down $2.38 on volume of 4.6 mln shares (1.26 times ADV). A failure from here to rally above its current 5-dma or 10-dma along with volume to confirm may provide an aggressive entry point. A conservative option may be to wait for a failed rally attempt, with weak volume up to the $49-$51 range before entering a new trade. If PCS overcomes the $51 level with strong volume step aside. ***September contracts expire next week*** BUY PUT SEP-45 PCS-UI OI= 246 at $1.13 SL=0.75 BUY PUT SEP-50 PCS-UJ OI= 32 at $4.50 SL=3.25 BUY PUT SEP-55 PCS-UK OI=2505 at $9.50 SL=7.00 BUY PUT OCT-50*PCS-VJ OI= 133 at $5.75 SL=4.25 Average Daily Volume = 3.66 mln ********************** PLAY OF THE DAY - CALL ********************** MERQ - Mercury Interactive $130.00 +7.00 (+3.50 this week) As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. Most Recent Write-Up Coming right on cue, the profit-taking yesterday set us up for a great entry point on MERQ this morning. Remember our comments on Tuesday? "Buying volume is keeping MERQ at its upper Bollinger band and after the last four days' strong gains, profit taking in the near future would not be out of the question." The profit taking did indeed occur, bringing our play down for a bounce right on the $120 support level before the buyers began nibbling again late yesterday afternoon. The recovery continued throughout the day today as MERQ managed to close right at its high of the day with volume on the rise. Today's sharp recovery brings MERQ back above the 5-dma (currently $126.13), and market permitting, it should continue to support the share price. On any more significant market correction, the $120 level should continue to hold firm as support, especially with the 10-dma(currently $118.75) rapidly approaching this level. Bounces from the $120 level are still buyable, as long as they continue to be confirmed by solid buying volume, but we may not get another shot at this level. Buying on strength is also a viable entry strategy; wait for MERQ to push through resistance at $131 before playing. Comments The NASDAQ has been up and it has been down. As a result, so has MERQ. Interestingly enough, if you look at a 10 minute intraday chart of MERQ, Wednesday and Thursday are nearly mirror images. On both days, the stock got a bounce at $120 support. The question is: was today a dead-cat bounce? Solid volume surged MERQ higher in the final moments of trading. For entry on MERQ tomorrow, jump on board on a strong volume move through $130 with a positive NASDAQ. If the stock pulls back, considering its huge late-day gains, look for bounces from today's intraday support around $126.50. ***September contracts expire next week*** BUY CALL SEP-125 RBF-IE OI=298 at $ 8.75 SL= 6.25 BUY CALL SEP-130*RBF-IF OI=252 at $ 5.88 SL= 4.00 BUY CALL OCT-130 RBF-JF OI=373 at $14.63 SL=10.75 BUY CALL OCT-135 RBF-JG OI= 63 at $12.50 SL= 9.00 BUY CALL OCT-140 RBF-JH OI= 74 at $10.38 SL= 7.25 SELL PUT SEP-120 RBF-UD OI=124 at $ 2.13 SL= 3.75 (See risks of selling puts in play legend) Picked on Sep 5th at $129.06 P/E = 43 Change since picked +0.94 52-week high=$134.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 26.25 Last earnings 07/00 est= 0.12 actual= 0.14 Next earnings 10-12 est= 0.16 versus= 0.11 Average Daily Volume = 1.81 mln ************************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 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ The Rotation Continues... A blue-chip profit warning sent investors scurrying to recently downtrodden technology stocks. Wednesday, September 6 The Dow rallied today on rumors of a new merger in the financial group while the Nasdaq slumped amid concerns over revenues in the semiconductor sector. The Dow closed up 50 points at 11,310 but the technology index ended down 129 points at 4,013. The S&P 500 Index fell 14 points to 1,492. Trading volume on the NYSE edged up to almost a billion shares, with advances outpacing declines 1,608 to 1,236. Activity on the Nasdaq was heavy at 1.75 billion shares exchanged, with declines beating advances 2,340 to 1,752. In the bond market, the 30-year Treasury fell 18/32, pushing its yield up to 5.70%. Tuesday's new plays (positions/opening prices/strategy): Commerce One CMRC OCT45P/OCT50P $1.00 credit bull-put Global Crsg. GBLX JAN40C/OCT40C $2.62 debit calendar Ventro VNTR DEC15C/DEC17C $1.25 debit bull-call Ventro VNTR DEC10-NP $1.25 credit naked-put Our new positions slumped with the broad decline in technology issues, allowing favorable entries in all three plays. One note of interest: A subscriber commented that he was filled on two contracts of the GBLX calendar spread at a debit of $1.50. "Why can't I ever get those?" Portfolio Plays: Stocks in the industrial group climbed to new highs for the summer amid strength in blue-chip issues. Speculation of a new merger in the financial services sector drove investors to a buying frenzy as the Dow rallied for a fourth straight day. The move was based primarily on a rally in J.P. Morgan (JPM), which surged almost $8 on rumors that Deutsche Bank AG is in the process of acquiring the venerable investment bank. Brokerage stocks also rose Wednesday, with E*Trade (EGRP) and Ameritrade (AMTD) both moving higher after CS First Boston upgraded the stocks and set 12-month price targets of $35 on both issues. Cyclical and retail stocks performed well with United Technologies (UTX), Boeing (BA), 3M (MMM), and Proctor & Gamble (PG) giving the blue-chip average a boost. On the Nasdaq, semiconductor stocks were weak for a second straight session after Donaldson, Lufkin & Jenrette and Merrill Lynch issued downgrades in the group amid concerns over lower DRAM prices. Biotechnology and telecom stocks also moved lower during the day. In the broad market, surging oil prices pushed the major oil stocks into a new trading range. The October crude futures soared to the highest level in 10 years as the market awaited word on whether OPEC will raise production levels. Our portfolio enjoyed a number of positive moves in "old economy" stocks. Maytag (MYG) climbed $1.88 to close at $39 on continued speculation that Swedish appliance maker AB Electrolux might buy the company. Last Friday, Electrolux reported it has acquired garden and landscape equipment-maker Bluebird International, which has annual sales of about $18 million. Our synthetic position is profitable with the issue above $35. Mead Corporation (MEA) rose to a session high near $28.25 on strength in the paper sector and the move provided a great opportunity to roll to the October calls in our bullish calendar spread. The credit for the transition was as high as $1.00 during the session. Maxtor (MXTR) rallied to a mid-day high near $8.50 and we used the upside activity to roll to next month's options in the long-term position. The cost basis in the new spread (JAN10C/OCT10C) is $0.62. Caremark RX (CMX), Ryder Group (R) and Mail.com (MAIL) are the remaining spreads that must be adjusted prior to the September options expiration. Ameritrade (AMTD) was our big mover in the banks and brokerages group. The issue jumped over $2 to end near $21 after CS First Boston analyst Jim Marks upgraded the company to a "buy," saying the stock represents a very attractive opportunity at current valuations. The analyst placed a $35 price target on the stock and also said that over Merrill Lynch's and American Express's entrance into the online brokerage sector is not a concern. CIBC World Markets analyst Steven Eisman also upgraded his rating on AMTD shares to a "buy," with a $25 price target on the company. Our bullish synthetic position reached a $2.50 profit during the session. Unfortunately, as Murphy's Law would dictate, we took the smaller gains earlier in the week. Our recent recommendation on Transkaryotic Therapies (TKTX) seems all to appropriate now. The issue surged over $10 to a mid-day high near $56 as traders speculated on the outcome of patent infringement trial between Amgen (AMGN) and Transkaryotic over Amgen's Epogen anaemia drug. As you know, we were unable to enter the bullish position at the desired price. Thursday, September 7 A blue-chip profit warning sent investors scurrying to recently downtrodden chip and biotech stocks. The Dow closed 50 points lower at 11,259 while the Nasdaq ended up 85 points at 4,098. The S&P 500 Index rose 10 points to 1,502. Volume on the NYSE reached 978 million shares, with advances beating declines 1,541 to 1,273. Activity on the Nasdaq was moderate at 1.61 billion shares traded, with advances beating declines 2,268 to 1,735. In the bond market, the U.S. 30-year Treasury fell 5/32, pushing its yield up to 5.71%. Portfolio Plays: The market ended mixed today with a rebound in technology issues helping the Nasdaq recover while a major earnings warning in the industrial group weighed heavily on the Dow. The semiconductor sector rebounded after losses in three consecutive sessions and networking and computer hardware shares also enjoyed impressive gains. At the same time, losses on the Dow were limited by solid advances in its technology components and at the end of the day, the blue-chip barometer was well off session lows. In addition, many of the popular big-cap stocks, which have come under selling pressure in recent trading, rebounded significantly, indicating that investors are still in favor of "buying the dips." In the broader market, oil and oil service shares consolidated as crude oil futures dipped following Wednesday's rally. Major drug and financial stocks were mostly higher and retailers gained ground while airline issues were generally weak. Looking forward, most analysts believe that the stock market will likely reside in the current trading range after rallying over the past few weeks. Our portfolio was relatively quiet and experienced few surprises during the session. In the technology group, a number of issues recovered from yesterday's losses. Network Appliances (NTAP) led the way, up $14 to close at $115. Our bullish credit spread is at maximum profit above $65. Commerce One (CMRC) rebounded $8 to end near $70, International Rectifer (IRF) jumped $6 to $66, Semtech (SMTC) added $6 to close near $111 and Protein Design Labs (PDLI) topped the biotechnology group with a $7 rally to end near $88. A few of our mid-cap issues participated in the bullish activity including; Advanced Fibre (AFCI), Altera (ALTR), Cisco Systems (CSCO), Infocus (INFS), and Vitria (VITR). All of the positions in these issues are expected to end profitably at expiration. In the lower-priced stocks, Read-Rite (RDRT) was the big mover, rising $2.75 to $10.56 after the magnetic-recording head maker said it has formed a fiber-optic company called Scion Photonics. Scion will manufacture high-performance optical components for the fiber-optics communications market and Read-Rite said that it launched the company with $25 million in initial funding from Tyco Ventures, a unit of Tyco International and Integral Capital Partners. Based on the recent movement, we may be able to close the bullish position for a favorable profit, far in advance of the target date in January. In the banks and brokerages group, there was one issue worth noting. Countrywide Credit (CCR) climbed to $40 today on new merger speculation stemming from Citigroup's (C) planned $31 billion stock buyout of Associates First Capital (AFS). Analysts said Citigroup's willingness to pay a 52% premium for Associate's stock underscores the current strategy of expanding through mergers and obliges the market to reassess the value of consumer finance companies. Our bullish diagonal spread is now at maximum profit. Regrettably, we closed the position earlier in the month to lock-in favorable gains. Questions & comments on spreads/combos to Contact Support ****************************************************************** - READER'S REQUEST - Today we are going to offer positions on candidates submitted by our faithful subscribers. Covad, Qualcomm and Crossroads were all identified as potentially bullish stocks and we have listed favorable combination positions on each issue for the benefit of our generous readers. ****************************************************************** COVD - Covad Communications $19.38 *** On The Rebound? *** Covad Communications is a provider of broadband communications services to Internet service provider, enterprise, telecom carrier and other customers. These services include a range of high-speed, high capacity Internet and network access services using digital subscriber line (DSL) technology, and related value-added services. Internet service providers use the company's services to provide high-speed web access to their business and consumer end-users. Enterprise customers purchase Covad's broadband services to offer employees high-speed remote access to the enterprise's local area network, which improves employee productivity and reduces network connection cost. Telecommunications carrier customers purchase the company's services for resale to their ISP affiliates, along with Internet users and enterprise customers. Broadband firms have been in the news recently, with several deals and announcements attracting investor interest. The ability to provide bandwidth is the key to success for these companies and in order to remain competitive, service providers require a new class of infrastructure able to handle high volumes of data traffic and voice with equal agility. Covad is the leading national broadband services provider of high-speed Internet and network access using Digital Subscriber Line (DSL) technology and the company continues to expand its reach in cities across the country. Analysts have noted the new potential in the stock and a number of upgrades have been issued in the past few weeks. Most recently, Goldman Sachs analyst Matthew Janiga initiated coverage of the company with a "Market Outperformer" rating. In addition, Epoch Partners is now tracking the issue, based on the fact that the company remains a broadband-access leader and the DSL market represents significant opportunity over the long term. PLAY (aggressive - bullish/debit spread): BUY CALL OCT-15.00 COU-JC OI=196 A=$5.12 SELL CALL OCT-17.50 COU-JW OI=623 B=$3.38 INITIAL NET DEBIT TARGET=$1.50-$1.62 ROI(max)=66% ****************************************************************** QCOM - Qualcomm $64.13 *** Bracing for a Rally? *** Qualcomm is a major provider of digital wireless communications products, technologies and services based on its Code Division Multiple Access (CDMA) technology. Qualcomm designs, develops, manufactures and markets CDMA subscriber products and designs, develops and markets CDMA chipsets and system software. They also license and receive royalty payments on its CDMA technology from major domestic and international telecom equipment suppliers. In addition, Qualcomm designs, manufactures and distributes other products and provides services for its OmniTRACS system. The company also has contracts with Globalstar, a low-Earth-orbit satellite system utilizing CDMA technology, to design, develop and manufacture subscriber products and ground communications systems and to provide contract development services. Concerns over the future wireless standard in Asia have been the source of negative forecasts for Qualcomm in recent months and there has been relatively little news of late to suppress the worries that investors have over the future of the company. On Wednesday morning, Qualcomm shares rallied on renewed optimism about CDMA being employed by China Unicom in the near future. Unicom chairman Yang Xianzu said earlier in the week that the company was studying the adoption of CDMA, just three months after calling off plans to use the current-generation wireless technology. The announcement raised analyst's expectations and senior executives at other major telecom companies also said they had received similar signals following a meeting last month between Chinese telecom manufacturers and Unicom executives. Chinese and foreign telecom manufacturers, who would stand to earn billions of dollars selling CDMA equipment and handsets, reported that China Unicom had signaled it may begin to build narrow-band CDMA networks as early as January. The news bodes well for Qualcomm and traders who agree with the bullish outlook can use this position to speculate on the future movement of the issue in a conservative manner. PLAY (conservative - bullish/credit spread): BUY PUT OCT-50 AAO-VJ OI=8838 A=$1.06 SELL PUT OCT-55 AAO-VK OI=7194 B=$1.88 INITIAL NET CREDIT TARGET=$0.88-$1.00 ROI(max)=25% ****************************************************************** CRDS - Crossroad Systems $14.69 *** Speculation Only! *** Crossroads Systems is the leading provider of storage routers for Fibre Channel Storage Area Networks (SANs). Crossroads' storage routers enable key Intranet, Internet and e-commerce applications by using storage routers and SANs, so customers can store, manage and ensure the integrity and availability of data in the Internet economy. Crossroads supplies its customers with a SAN solution guide to simplify SAN design and installation, accelerate SAN adoption, and verify interoperability of SAN solutions. The more than 3,000 verified configurations in CV-SAN are available on the Web using the Crossroads online configurator. OEMs such as Bull, Compaq, Dell, Hewlett-Packard, Hitachi, McDATA, Fujitsu-Siemens, and StorageTek as well as top resellers and distributors including Bell Microproducts, Datalink, nStor, Pinacor, Polaris Services, TechData and Vangard have partnered with Crossroads to provide these solutions to their customers. Crossroads is a unique issue with a complex background plagued by under-performance in earnings and a slew of class-action suits concerning potentially false and misleading financial statements. Specifically, most of the complaints suggest company officials failed to disclose that some of their products were experiencing significant interoperability problems which would require CRDS to stop shipments, adversely affecting third quarter results. The complaints also allege that defendants misrepresented the demand for the company's current products and the potential for future growth. The contention is that the failure to disclose material information caused the company's stock to be artificially inflated and additionally, that insiders took advantage of the situation, selling $10 million worth of their own holdings to unsuspecting investors. While all of these claims may indeed be true, now it appears that investors are happy to "load-up" on the issue at what some traders suggest are "bargain" prices. If you believe the technical indications, there may be some truth to that notion. We offer this position as a speculative endeavor for the reader who requested another debit spread combination. The strategy is nothing more than a sold PUT and a "bull-call" debit spread. In most cases, this technique is used to replace a bullish synthetic position where the premiums on the call options are simply too expensive. The premium from the sold PUT is used to finance the purchase of the debit spread. In this play, the collateral for the PUT is approximately $500 per contract. PLAY (aggressive - bullish/debit spread combination): BUY CALL OCT-12.50 URY-JV OI=431 A=$4.12 SELL CALL OCT-15.00 URY-JC OI=210 B=$2.31 SELL PUT OCT-12.50 URY-VV OI=15 B=$1.43 DEBIT SPREAD TARGET=$1.56 NAKED PUT TARGET=$1.56 OVERALL NET DEBIT TARGET=$0.00-$0.12 TARGET ROI=75% ***********************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=423 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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