The Option Investor Newsletter Tuesday 09-26-2000 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/092600_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 09-26-2000 High Low Volume Advance/Decline DJIA 10631.30 -176.80 10813.20 10615.80 1.11 bln 1245/1603 NASDAQ 3689.10 - 52.12 3795.79 3677.73 1.83 bln 1417/2592 S&P 100 756.87 - 9.14 771.36 756.21 totals 2662/4195 S&P 500 1427.21 - 11.82 1448.04 1425.25 38.8%/61.2% RUS 2000 509.89 - 5.49 516.47 509.41 DJ TRANS 2518.07 - 37.56 2557.50 2507.52 VIX 25.08 + 0.68 25.40 23.28 Put/Call Ratio .57 ****************************************************************** Time To Digest Some More Worries Warnings from Eastman Kodak and Lexmark set the tone for the day on Wall Street. It was the second day in a row where the sellers had their way. The DJIA was the main victim due to the Eastman Kodak warning, despite positive news for Microsoft. The blue chip index fell by 176 points and is resting near short-term support at 10,600. It wasn't one of those quick spike, down days either. This was the slow, bleeding market made up of too many bears on the sell button and too many bulls afraid to buy. All in all, it felt like a typical earnings warning season trading day. So let's get right to the white meat. Eastman announced before market open that...and I quote..."Our third quarter business plans required strong September sales growth to enable us to successfully offset the earnings pressures of a rising dollar, increased raw material costs and higher levels of digital investment. As a result of the lower than expected sales we are experiencing in September, our third quarter earnings are likely to fall approximately $.20 to $.25 per share below our previous guidance range." That was according to Chief Financial Officer, Bob Brust. Now let me translate. "We really needed September sales to rocket in order to make up for a lousy quarter and it didn't happen. Thus we are letting you know with only three days left in the quarter." Fair enough. It's not like we haven't heard an Eastman Kodak warning a few times in the last year. Actually, in their defense, they had been able to hit estimates for the past few quarters. Nevertheless, EK is in the DJIA and it weighed heavily on the index today as EK closed at $44.31, down $14.69. Next, please. Lexmark announced yesterday evening that they would also be guilty of lower earnings. The culprit? A reduced forecast of Inkjet cartridge sales and a weak Euro. Revenues are still expected to be on track at a growth rate of about 9% for the quarter, but earnings will be around $0.45-0.50 cents instead of the previously forecasted $0.56 cents a share. For these reasons, plus slower corporate growth, the fourth quarter will also be suspect. Translation? The printer business is and always has been very tough, just ask Xerox. LXK finished at $37.25, down $14.75. Now fortunately, Microsoft received good news from the Supreme Court who sent the case to a federal appeals court Tuesday, handing the computer giant a giant victory and delaying the government's effort to split it in two. This came out just after market open and provide a nice pop in the DJIA and the Nasdaq. The action means a final decision on whether Microsoft must be broken up could be years away. Unfortunately, the rally didn't last long, for some strange reason. MSFT traded as high as $65.88 on the news, but settled back to $62.63 by the close, up only $1.44. Still, it was able to provide some support for the indices. The final numbers on the DJIA put the index at 10,631.32, or 31 points above support. This is an interesting level too because it was here that the DJIA took off on a breakout move on August 1st. You may remember the chart that Jim kept showing about the diamond formation that it had wedged itself into. The breakout occurred on the upside and it ran off to 11,400. Now we are right back to where it started. The pivot point, as some traders call it. Will it hold or fail? Tough to call, especially as we head into October, but pivot points usually produce a good move one way or the other. We will look more at the short-term possibilities below. The volume was good at 1.1 billion and decliners lead advancers by a 4-3 margin. The Nasdaq had more heart today in trying to rally. It traded up 50 points on the MSFT news, but then the slow bleed began and really never ended. Saved by the bell, you could say. The volume was stronger here as well with 1.79 billion changing hands. Decliners were more prominent with a 26-14 margin. The bad news is that official close was at 3689.10, or under the 3700 support level. If there is anything good to add, it's that we are getting closer to major support levels, especially 3500. On the chart you can see the levels we are looking for support in the near-term. The Vix continued its uptrend and closed out the day at 25. This is better movement than we have seen in the dull days of July and August when it just sat around doing nothing, but it is still in the middle of the historical range. Bonds moved up today. The 10-year climbed 9/32 to yield 5.81, while the 30-year added 15/32 to finish yielding 5.86. The only economic news out today showed a small gain in September consumer confidence from 140.8 to 141.6. The gain was likely due to the strong stock market in August, according to analysts. There is a bigger dose of news tomorrow with the Durable Goods Orders being released before the bell. This report has had some wild swings in recent months and may be one to watch. The expectation is for a 2.4% gain. 3com was the big earnings news after the close today and the news was good. In fact, just what the market may need. They turned in a loss of $0.12 cents, thoroughly beating estimates of a $0.33 loss. Sales were up 20% in the quarter, as well as margins from 26% to 36%. The comments from the CEO sounded positive as well. "The close of our first quarter marks the completion of our restructuring. 3Com is now a new company with a revitalized image and a heightened focus on growth markets. We now have one quarter of experience for the new 3Com and I'm encouraged by the results. The transformation milestones and business objectives set forth in March 2000 and reaffirmed last quarter were completed on or ahead of schedule. We are growing and favorably positioned to create shareholder value." said Eric Benhamou, chairman and CEO. If the growth is returning, it is hard not to like a company with a 5 billion dollar market capitalization, while retaining 3 billion dollars in cash. COMS ended at $14, but was trading around $15.75 after-hours. Much of the talk amongst traders this week has been about window dressing. Obviously Friday is the end of the quarter, but what impact is it really having? Is that the reason for Yahoo's decline back down to support near $100? Has YHOO finally gone from being bought ahead of the new quarter to being sold? Cisco, Nortel, Microsoft, and obviously Intel, all appear battered, but at support. I don't know if there is time left to shoot the generals for one final capitulation before a possible earnings run as soon as next week. After having made a nice profit on some QQQ puts last week due to the Intel warning, I have been sitting in cash waiting to buy when the bottom arrives. I am actually hoping we hit 3500 on the Nasdaq by Thursday. My final thought for the day has to do with a comment made on CNBC today. They had an analyst on the show taking phone calls with Maria B. moderating. If you saw this one, you already know what I am talking about. The caller was asking about Lucent and meant to say, "Should I take my loss and get on with my life?" Instead he said, "Should I take my life and get on with my loss?" Is there some sort of subliminal, contrarian indication here? I'm sure it was just one of those blunders that happen with the pressure of 15 seconds of fame on national television, but the timing was impeccable. This is the kind of quote that you will read about in books five years from now as they pin-point the exact bottom on a chart. Anyway, take it with a grain of salt. But right now I am expecting more entry points than exit points in the coming days. Ryan Nelson Editor ************************* ADVANCED OPTIONS WORKSHOP DENVER - Oct 27-30th ************************* We will be announcing the speaker lineup and the topics they will cover in the Thursday newsletter. The current list includes 16 speakers and the amount of critical option education will be incredible. The guest speakers are going to blow you away. You will not want to miss this event. The current roster of staff instructors includes: Ryan Nelson - Managing Editor, OptionInvestor.com Chris Verhaegh - Options 101/102 Writer and Option Strategist Steve Rhoads - Technical Analysis Instructor Molly Evans - OIN Staff writer Lee Lowell - OIN Staff writer Austin Passamonte - Editor IS, Staff Writer Buzz Lynn - Editor, Sector Trader, Staff Writer Mark Phillips - Leaps Editor, OIN Vince Dowd - Spreads Specialist Louis Horkan - Managing Editor, Premier Investor Steve Pekarek - Editor, SplitTrader.com Jeff Bailey - Editor, Premier Briefing Matt Russ - Editor, OptionInvestor.com Jim Brown - Head Option guy This is not the complete list. We still have several topics and sessions in the race for the final cut. Add in a roster of guest speakers, names you will recognize from routine appearances on CNBC and CNN, and you will have a weekend to remember. In March we had John Dessauer, Mark Leibovit, Harry Browne, Howard Ruff. We are going to do even better in October! The workshop is scheduled for the last weekend in October. Four days of intense, power packed option education. This is not your standard seminar. We start by putting you up in a luxury hotel and feeding you five times a day. We feed your mind from a fire hose as well with more than 15 speakers and special guests to educate you on every option strategy. There is something for everybody. Just mingling with over 15 professional option traders for four days is worth the price of admission. We even pay for the entire room, all meals and you will get a professionally produced set of videos of the entire weekend. Need we say more? If you want to learn how to be a better trader, making more and losing less then you should come to this seminar. We guarantee you will not be disappointed! For more info: http://www.OptionInvestor.com/workshop ************************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.sungrp.com/tracking.asp?campaignid=533 ************************************************************** **************** MARKET SENTIMENT **************** Where's The Beef? By Austin Passamonte We've gone from wildly bullish feeling our oats to ground chuck in a hurry. As you've witnessed, every attempt to rally has been met with a new round of eager selling. Eventually the buying dries up as traders bleed to death and walk away from the table. Technically speaking, not very pretty. Both the Dow and SPX hit their heads on 200 DMAs for the daily highs and plummeted from there. The NDX failed its overhead 200 DMA test yesterday and never came close today. The OEX is so far from the 200 DMA it might get dizzy trying to look that high overhead. Is all bullish hope lost? Not really. The inevitable bottom draws ever closer each session. The VIX pushed far outside it's upper Bollinger Band a couple sessions ago and is pinching through the upper extreme even now. We could see a bullish release from here within days. Open interest put/call disparity on the OEX is astronomical below 755. I realize we are a ways from there still and no bulls want to visit there soon but at least we can quantify some semblance of a floor. Pre-earnings confessions should abate by the endof next week but a few more like INTC and Kodak will not be good. This market is just waiting for any piece of good news to come along and give buyers a reason to do what they like best; buy. We saw the same setups occur in late-May, late July and late August. Bad news, worse news, bearish media, surprise rally. Four out of five month-ends may be our fate. No telling from here. The best news of all? These 100 and 200 point swings in the daily range are giving swing traders solid profit potential every single session. If you see the markets fail to rally again then heck, just buy some puts and ride the waves of profit swelling the seas out there in front of us. Someone is making solid gains playing the downside, we'd be thrilled if it were you! ***** VIX Sat 9/23 close; 25.08 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contrarian-sentiment indicator. Small traders are majority of equity-option players. Numbers above .75 are considered bullish, .75 to .40 neutral and bearish below .40 ************************************************************* Tues Thur Sat Strike/Contracts (9/26) (9/28) (9/30) ************************************************************* CBOE Total P/C Ratio .57 Equity P/C Ratio .54 Peak Volume (Index & OEX) CBOE Index & OEX put/call ratio is now a "smart money" sentiment indicator, as majority of buying done by institutional traders. Numbers above 1.5 are considered bearish, 1.5 to .75 neutral and bullish below .75 ************************************************************** Tues Wed Sat Strike/Contracts (9/26) (9/28) (9/30) ************************************************************** All index options .91 OEX Put/Call Ratio .67 30-yr Bonds Tuesda 9/26 close; 5.85% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 795 - 780 7,817 6,893 1.13 775 - 760 3,375 8,493 .40 OEX close: 756.87 Support: 755 - 740 82 16,100 197.55*** 735 - 720 7 9,872 1349.81*** Maximum calls: 800/6,072 Maximum puts : 750/7,580 Moving Averages 10 DMA 781 20 DMA 800 50 DMA 802 200 DMA 783 NASDAQ 100 Index (NDX/QQQ) Resistance: 98 - 96 15,038 16,849 .89 95 - 93 18,011 24,714 .73 92 - 90 21,643 29,722 .73 *** QQQ(NDX)close: 89.5/16 Support: 89 - 87 4,073 25,406 6.24 86 - 84 542 17,900 33.03*** 83 - 81 208 6,097 29.31 Maximum calls: 90/10,166 Maximum puts : 90/17,873 Moving Averages 10 DMA 90 20 DMA 91 50 DMA 91 200 DMA 95 S&P 500 (SPX) Resistance: 1475 16,313 12,060 1.35 1450 7,729 12,737 .61 1435 98 329 .30*** SPX close: 1427.21 Support: 1425 11,076 17,602 1.59 1400 1,252 10,028 8.01 1375 292 10,359 35.48*** Maximum calls: 1475/16,313 Maximum puts : 1350/23,267 Moving Averages 10 DMA 1455 20 DMA 1478 50 DMA 1476 200 DMA 1446 COT Report: (returns tomorrow, unchanged from Saturday edition) ***** Bullish: Fed's finished Benign government reports Oversold market levels now Disparity in overhead call/put ratios Rising VIX Bearish: Oil Prices (easing?) COT reports (changing?) Recent pre-warnings, downgrades (killers) Broad market's break of critical M/A support Market leaders breakdown Technical chart indicators ************** MARKET POSTURE ************** As of Market Close - Tuesday, 09/26/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,631 10,600 10,900 SPX S&P 500 1,427 1,420 1,465 COMPX NASD Composite 3,689 3,600 4,000 OEX S&P 100 756 740 784 ** RUT Russell 2000 509 500 550 NDX NASD 100 3,582 3,500 3,850 MSH High Tech 976 950 1,055 BTK Biotech 762 730 820 ** XCI Hardware 1,335 1,300 1,460 ** GSO.X Software 456 430 470 SOX Semiconductor 870 820 1,000 ** NWX Networking 1,166 1,160 1,250 INX Internet 515 510 580 BIX Banking 603 580 635 XBD Brokerage 637 610 685 IUX Insurance 754 720 765 ** RLX Retail 808 800 875 ** DRG Drug 404 365 415 HCX Healthcare 836 785 855 XAL Airline 144 140 152 OIX Oil & Gas 304 296 332 Six alarms were triggered over the past two sessions, with the BTK and IUX hitting resistance alerts. If the major indexes were to close below current support levels, that would be a reason for ongoing concern. Lowering support (OEX, XCI, SOX, RLX) Lowering resistance (OEX, XCI, SOX, RLX) Raising support (BTK) Raising resistance (BTK, IUX). *********** OPTIONS 101 *********** Above The Fray By David Popper Two years ago in January, I bought 200 shares of YHOO and witnessed the stock rocket 100+ points in one day. I was absolutely dumbfounded. All in all, that was a $26,000 day for me. I floated home believing that I was a genius. Lets see, $26,000 a day times 20 trading days in a month, at this rate I'll retire in 6 months. I told my wife about the conquest and she promptly asked if I had sold to lock in the profit. I said no we did not sell because an analyst gave YHOO an upgrade to strong buy and set a price target at $800. (At this time, I did not recognize the concepts of extreme conditions). Well, YHOO began to show signs of weakness the next day, and within two weeks it had plummeted to $130 from a high of $440. Thankfully, I sold in the low $300's, but I gave back a substantial amount of the profit. What a show, what excitement, and all for the price of $10,000. It was exciting, but not as exciting as a new car, or money in the bank, or 101 different things that could have been purchased. This episode provided me with an opportunity to pause and reflect about my real goals for my account. My real goal was to supercharge my retirement account, not buy a lottery ticket. I wanted steady returns and to be above the fray of everyday trading. I began to assess what I needed to retire and how I could achieve this goal. What does it take to retire? Everybody has a number. One friend believes that he needs two million dollars to retire. Another feels that five million dollars is a necessity. What are these people really saying? They are saying that they want to have a passive income that is equivalent to a safe return on one, two or five million dollars. Current passbook or certificate of deposit rates are somewhere between 5 and 7 percent. Therefore, what my friends really want is anywhere from $100,000 to $350,000 "risk free" income each year. Unfortunately, these dreamers have absolutely no idea how they will accumulate this type of wealth, except winning the lottery. Most view active trading as too risky and are content with their index funds. So, I ask again, what does it take to retire? It does not take one to five million dollars. Instead, it takes the ability to generate through investments, the same amount of income that one to five million dollars would generate. Active traders are practicing the very skills that can generate a comparable amount of income with far less capital. Even the most conservative trading strategies discussed in OIN could allow you to generate the synthetic equivalent of these millions on far less. For example, the conservative deep ITM calls and OTM puts section produced every Wednesday typically yield between 3% and 5% monthly. This is an uncompounded return of 36% to 60% a year. At a 36% return, you only need roughly 1/3 of your magic number to achieve the equivalent income. Where $1 mln may seem impossible to obtain, $300,000 seems far more possible, especially if you are accumulating capital through trading for years before you retire. What is the point of this pontification? It is simply the idea that it may pay to take a portion of your capital and become skilled at an income generating strategy, even if you place the majority of your risk capital into more aggressive strategies. Obviously, practice now will help you learn the subtle refinements that are only learned through experience. I, for one, will be very interested in safety when I finally decide to live on my portfolio; therefore, I want to be already skilled in conservative strategies. So what is your number? How do you plan to get there? Are the strategies that you are now employing allowing you to make steady progress to that magic number, or are your strategies merely giving you a thrill? I have dedicated a portion of my trading capital to learning the nuances of successfully writing covered calls. Nothing is risk free, therefore I want to learn every subtlety possible. For this portion of my portfolio, I will try to achieve 36% per year. The majority of my trading capital is spent trying to achieve that "magic number" by trading in more aggressive ways. The point is that trading philosophies and strategies should be designed to fit within and support your larger goals. Trading is not an island unto itself. By understanding your larger goals, one can select market strategies which are appropriate in light of those goals and current market conditions. My larger goals keep me from developing a casino mentality and keep me focused on what really matters. I realize that I do not have to be overly aggressive to achieve my goals. I do not have to make millions. I can do just fine being a synthetic millionaire. ************** TRADERS CORNER ************** Technical Indicators Work Poorly On Some Stocks By Mary Redmond Most traders use several technical indicators as tools to help guide a trading decision. Almost all technical indicators have one characteristic in common. They are based on the past trading history of a stock. Technical indicators can't perform magic. They can't predict exactly what a stock will do under various circumstances. If this were true, there would be no security analysts, no mutual funds and no newsletters. All the factors would be programmed into a computer to determine what price a stock will be at a particular point in time. There would be no need for human judgment. There are many intangible factors analysts use, including the capability and personality of the management team. Nowadays, we have to try to judge the response of the market to good and bad news on a stock, as we have seen many companies which are fundamentally sound drop to astonishingly low prices on the whim of market participants. Many technical indicators have high levels of success in predicting the future trading pattern of a stock based largely on the past behavior of a stock. This is a key point: the basis for many of the most successful and reliable technical tools is the past trading history of a stock. We not only have to chose the right technical indicators, but stocks which consistently respond well to their signals. For example, the stochastic oscillator and the MACD histogram can both be valuable tools for many stocks. The stochastic oscillator compares the present stock price to its price over a specified period of time. The stochastic can help to indicate when prices start to group around their lows in an upward market and vice versa. The moving average convergence/divergence indicator histogram measures the strength of the upward or downward movement of a stock. It can often give signals which can indicate trend reversals with significant accuracy. However, in order to compare a stock's present price with its historical trading pattern, the stock needs to have had a trading pattern for a significant period of time. These indicators usually work best on stocks which have been public for several years, have a high daily trading volume, and significant daily movement in the stock price. Bulletin board stocks, microcap stocks, recent IPOs and stocks with very low daily volume usually are not good short-term trading candidates. The technical indicators are only as accurate as the stock will allow them to be. If the stock has not been public very long, it cannot have established a trading pattern upon which the stochastic oscillator and moving average are based. In addition, a stock which is volatile and has a daily trading range of 5 to 10 points or more will often have an established daily moving average upon which indicators are based. The charts below of Greenpoint Bank show that these indicators do not show clear or accurate buy or sell signals. This may be due to the low daily trading volume, comparatively small market capitalization, and history of choppy price changes. The chart below of a bulletin board stock shows that the tools are virtually useless. The bulletin boards are usually not as liquid as other stocks, and often have wider spreads between the bid and ask prices. The best way to determine if a company's stock price responds well to the technical tools is to watch it for a period of time. Generally speaking, larger, mature, liquid companies with a high daily trading volume respond more consistently to technical indicators. After the last series of rate hikes by the Federal Reserve in 1995, we had a strong bull market which lasted until mid-1998 without a major correction. This was a market in which most sectors participated, and technology and financial stocks had superior performance. Many analysts have stated that we are on track to experience a similar bull market in the coming years, since the circumstances are similar. One factor seems different. Today we have many stocks which have gained and lost over 30 to 40% of their market value in one day. A company which disappoints the shareholders or warns of lower-than-expected earnings can lose billions of dollars in market value overnight. Also, many companies have increased their market capitalization from approximately $1 or $2 bln to $50 or $100 bln in months, not years. This speed of stock price movement has been particularly pronounced since 1998, when investors started to recognize the potential of the internet. The volatility and risk associated with it scares many people. It is exciting to watch a company quadruple in a few months, but it can be scary also. We can never be sure who the next victim of the market will be, so the share turnover is greater than it ever has been. It makes sense that investors started pouring cash into money market funds since late 1998 and early 1999, with a real acceleration in the last twelve months. The chart of the Dow since 1995 shows a smooth line, with a sharp drop in the summer of 1998, and many months following it with 1000 point moves each month. It may take a few months of a smooth uptrending market before investors feel confident enough to start depositing cash to equities as they did in the past. While we had a high level of cash flow to equity funds last week, we may need to watch this occur on a weekly basis in order for the markets to rally. ****** Another High-Potential Sector to Watch: Superconductors By Scott Martindale Well, another week, another desperate search for a market bottom. When will that much anticipated Fall rally start? Have we seen the "final capitulation," or is it yet to rear its ugly head? Certainly we've had some occasions that resembled a capitulation, but they really haven't felt "final" to me. Maybe everyone's so eager to buy the event, that we're preventing the event from occurring. No matter. I still expect a rally by year-end (ultra- major-selloff-sky-is-falling-run-for-cover-final capitulation or not). Two weeks ago, I wrote about one hot, volatile sector that might be fun to play, i.e., fuel cells (and other alternative power sources). Today I'll talk about another new-technology sector comprising a handful of high-growth companies sporting lots of buzz, lots of promise, and lots of upside potential (particularly those quite a bit off a recent high), but with relatively little further downside risk: Superconductors. Like fuel cells and other early-stage technology, this type of sector is highly news driven. Because of that, you must be nimble and ready to strike. Right now, the stock in superconductor companies is consolidating, but if a hype story comes out in a major periodical in the midst of an overall tech rally, the stock in these companies can really break out in a big way. But first, what is a superconductor, anyway? It is an element, alloy, or compound that will conduct electricity without resistance at a certain (usually very low) temperature. Once set in motion, direct current (DC) will flow forever in a closed loop of superconducting material, making it the closest thing to perpetual motion in nature. We all know about metals that conduct energy (like electricity) at room temperature, such as copper, silver, and gold. But materials like lead and mercury become superconducting at ultra-cold temperatures, making them better for superconductor cables and magnets. This requires a cryogenic system to stay cold, although new research is trying to find room temperature solutions. Some applications: 1. The super-collider project in which high-energy subatomic particles are accelerated to near light speed using superconductor magnets to study the structure of matter by recreating the cond- itions of the early universe ("Big Bang"). 2. Magnetic-levitation, such as high-speed trains that "float" on strong superconductor magnets. 3. Bio-magnetism, in which a strong superconductor-derived mag- netic field is impinged into the body to force hydrogen atoms to accept energy and then release it for internal scanning. 4. Electric power generation, in which resistance-free wire is used to create generators much more efficient and compact compared with conventional copper-wire generators. [GE estimates a world- wide market in the next decade of $20-30 bln.] 5. Electric power storage using superconductor magnets for power stability during any disturbance or surge in the power grid. 6. Superconductor-based transformers and "fault-limiters" used by power utilities to allow more current to be routed through exist- ing cable tunnels without risking disaster. 7. In the electronics industry, ultra-high-performance filters for passing desired frequencies and block undesirable frequencies in applications such as cellular telephone systems. [Wireless towers can get double range, exponentially more capacity, and the elimin- ation of "dead zones."] 8. High-speed storing and retrieving of digital information. [We're talking "Petra flops," i.e., thousand-trillion floating- point operations per second.] 9. Also, superconducting digital routers for high-speed data communications (internet), light detectors for telescopes, and gyroscopes for earth-orbiting satellites. Key players in the superconductor space include American Superconductor (AMSC), Intermagnetics General (IMG), Conductus (CDTS), Illinois Superconductor (ISCO), and Superconductor Technologies (SCON). Each concentrates on a different application. For example, AMSC and IMG focus on the electric power area, while CDTS, ISCO, and SCON focus on high-performance filters. [Currently, only AMSC, IMG, and SCON are optionable.] You can see from the charts that the companies that focus on similar products move virtually identically, with the filter- makers showing greater volatility (including a huge 3500% swing earlier this year). The buzz in February-March was caused by a combination of company announcements of supply agreements and successful tests of new technologies, news stories trumpeting the high potential of superconductors, and chat room hype. For example, on February 16th, SCON blew right through $20, closing at $30.88, up $17.75 on minimal news. Local newspapers in Santa Barbara (company headquarters) showed pictures of staff shaving their heads in celebration of reaching the $20 milestone. Within two weeks, the stock hit $115 intraday. Within another week, it was back down to $50, and a month later, it actually touched $11. It flirted with $40 for much of June before gradually settling in around $20, where it has sat for the past two months. On September 20, SCON announced some news regarding a major technology sale, but the stock price reaction was more muted, indicating that the big moves are more likely to occur within a strong overall tech market. Trading in all of the superconductor stocks has been fairly quiet lately as they consolidate. An occasional announcement or news story will start a temporary rally, but then the consolidation continues. However, they are ripe for a move at any time. Because moves in these sorts of stocks can be so sudden, fast, and brief, the opportunities are infrequent, so we don't often get them as recommended plays in the OIN. But if you stay on your toes, you can get in on these moves. When good news starts a little momentum run, consider buying more than one call so that you can take some profits along the way without having to completely exit the play. As the stock runs on the news, you'll want to lock in some gains or move up your sell stops. And always evaluate your position closely before holding it overnight. Of course, another way to benefit is to buy the stock when it has come back to rest at support, and just wait for the next move to happen. Also, while these stocks are consolidating at support, you can take advantage of their juicy options premiums by selling naked puts (as I have been doing). Alternative fuel stocks like BLDP, PLUG, and FCEL became active lately when oil prices began to look as though they might not come back down. Likewise, with growing demand for electric power, telecommunications, high-speed data transmission, and high-speed transportation, and with the associated need for greater capacity and efficiency, it appears to be only a matter of time before the superconductor sector gets another big lift. ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=547 ************************************************************** ************* SECTOR TRADER ************* Not Your Average Kodak Moment By Buzz Lynn Contact Support Investors were in no mood to smile as the profit picture at Eastman Kodak developed into a real negative. Bad puns aside, yesterday's lack of follow-through on Friday's recovery was a bad omen made worse by profit warnings, this time from Dow component EK. It shed 25% of its value at the open this morning, losing over $14 to close at $44.38. Can you guess the culprit? Yep - weak demand, falling Euro. Sound familiar? According to First Call, 64% of the companies providing estimates this quarter will mill earnings, vs. 55% for the previous quarter, as reported by briefing.com. That's a big reason to stay concerned. Unfortunately, it also says that our comfort in calling for a market bottom following last Friday's comeback was misplaced. We still trust our instruments (MACD and stochastics in this case). But 1-3 times out of 10, they will be wrong, which brings us to another important point. We noted over the weekend that stochastics had given us a clear entry signal on the OEX, QQQ and the Dow by poking up through the 20% line. We further noted that jumping the gun without benefit of a MACD confirmation on the daily chart might be an acceptable risk because all three indices behaved the same. Not this time. Those willing to wait for the MACD confirmation were rewarded by having the patience to stay out. The lesson here is that while jumping the gun on an entry can be profitable, preserving capital (our #1 job in trading) comes from playing by the rules. This is also a strong reminder not to put in a market order the morning after the newsletter comes out. It is important to wait for a confirmation. Trust ALL of your instruments. Shooting from the hip accelerates the trip to the poor house. That said, what could we expect going forward? If we knew for sure, we'd be writing this from our private island in the South Pacific, not an office in Denver. However, for the NASDAQ in particular, 3600 needs to hold, otherwise we are staring 3500 in the face. It's been down 4 days in a row and is due for a bounce. Plus the technicals are way oversold. That's why despite the slide over the last three weeks, we won't be offering any put plays. Not even news that the Supreme Court refused to expedite the MSFT case, thus kicking it into an appellate court friendly to MSFT, was able to help. Fears of slowing PC sales are further depressing DELL and INTC, while CSCO is getting clobbered from fears of slowing equipment sales to telecom providers. Lots of fear, but we still think that's a wall of worry ready to be scaled. OEX too has broken support at 770 and approached new support of 750. If that can't hold, OEX may not find its bottom with both hands until it reaches 730. The 200 and 252-dma have been violated too telling us that we may be in for more weakness. But as Jim says, it's darkest just before the dawn. Technically, OEX too is highly oversold. It is just a matter time before investors move to the other side of the boat. Sometimes it pays to stand aside until a clear direction is established. Oil prices, earnings warnings, currency risk - all will stay at the forefront at least until earnings figures start to come in. A few pleasant surprises may be what this market needs to snap out of the current funk. ***note we have the MACD set at 8,18,6 and the stochastic set at 10(3),5 for all our technical references in this section.*** ************** QQQ ************** QQQ - NASDAQ 100 $89.31 -1.16 (-3.75 this week) Like a false start at the Olympics, we wish we call this one back. No luck. NASDAQ broke back under 3800 yesterday and 3700 today, taking the QQQ with it back under $90 support. The good news is that the next support is at $88. While the stochastic breakout looked pretty good on Friday, MACD never turned positive - but oh so close! No matter, breaking the rules can get us in trouble. We should have known. In fact, in the bigger picture (some of you will hate hearing this) slowing PC and semiconductor sales, a major component of this bull market, is a logical progression. Just like MSFT and INTC replaced IBM in the late 1980's, so too will the optical revolution replace the Wintel dominant landscape. We're not saying sales are going to zero and these companies will turn to dust. Only that growth rates are slowing, while everything optical is replacing much electronic. But that's a whole 'nother story. If we intend to be good bank robbers, we have to know where the money is. The money is still in tech stocks, which dominate the QQQ. Technically, the daily stochastic is barely providing us with a positive signal, but remains above the 20% oversold mark. MACD on the other hand is flirting with turning positive, but isn't quite there yet. You can daytrade these from a 30 and 60-min charts, but we prefer the position trades from a daily chart and will wait for an entry. Calendar Spread: While the technical indicators MACD and stochastic may be telling us that an upturn is near, time decay is going to work in our favor over the next three weeks as long as we are sellers of time. We still stick to idea that long as the QQQ is oversold and can be bought at points of support, now may be the time to enter that long leg of the spread. Heck, selling the ATM or OTM short now may be a good idea too since profit warnings continue to come in at greater than expected rates. Remember our plan is to buy the long leg cheap and sell the short leg dear while letting time decay evaporate the other guy's premium right into our account, thus reducing our net debit every month. Support is at $88. Resistance is at $90-$91, then $93. Ideally we could sell when the market is overbought, but we might miss a monthly premium in the process. Time decay for October is beginning to accelerate. BUY CALL JAN- 90 QVQ-AL OI= 7056 at $ 9.50 SELL CALL OCT- 90 QVQ-JL OI=10166 at $ 4.00, ND = 5.50 or less SELL CALL OCT- 95 QVQ-JS OI= 9643 at $ 2.00, ND = 7.50 or less Long Call: Oops, not yet. We still need to wait for the MACD to turn positive before entering. Support is at $88. That might make a good spot to target shoot so long as the daily stochastic remains pointed north too. You might be able to daytrade this on a 30 or 60-min chart. However, we favor a position trade based on an entry from the daily chart with a stochastic still above 20% on its way to 80%, and a positive MACD confirmation. BUY CALL OCT- 85 YQQ-JG OI= 296 at $7.13 SL=5.00 BUY CALL OCT- 90 QVQ-JL OI=10166 at $4.25 SL=2.50 BUY CALL OCT- 95 QVQ-JQ OI= 9643 at $2.13 SL=1.00 BUY CALL NOV- 95 QVQ-KQ OI= 410 at $4.00 SL=2.50 Bullish Put Credit Spread: Yes, this play is risky. You risk $4 to make $1, but you are protected to the downside as long you are comfortable that QQQ will close over $90 by expiration date. You make money by selling a put and buying a lower strike put for protection just in case, taking in a credit in the process. It works in a flat to slightly bullish market. If bears don't maul us, it can even work in a slightly down market as long as both positions are OTM by expiration. Currently, open interests indicate that QQQ will be in the $90-$100 range at expiration. With the charts still showing an oversold market (barely), instruments tell us that we could be in for an upswing. Understand the trade before you enter. Prudence would have us wait for a positive MACD before entering. It's for the experienced trader with a margin account. SELL PUT OCT-90 QVQ-VL OI=17873 at $4.38 BUY PUT OCT-85 YQQ-VG OI=10623 at $2.63 Net Credit = $1.75 or more Average Daily Volume = 19.5 mln ************** OEX ************** OEX - S&P 100 $756.88 -9.14 (-17.20 this week) Yow! Pass the Band-Aids. Earnings warnings are starting to take their toll on the OEX. That little poke through above 20% oversold on the slow stochastic we saw on Friday proved to be a headfake. No long entries have been available from the daily chart Stochastic or MACD this week. That said, OEX remains technically oversold and ready to bounce. For that reason, much as we'd like to, we don't list puts. Boy, don't we wish we bought puts way back on September 1st?. When the market turns from its oversold position, this could be a nice ride up. In the meantime we have oil, currency, and earnings warnings working on the market psychology. Perhaps window dressing and a winding down of warning season will help out. Until then, look for support at 750, mildly at 740, then again at 730. Resistance is at 770, 780, and 800. Long Call: Our stochastic signal disappeared and the MACD is still showing two parallel lines pointed south. Despite the oversold position that looks like it should reverse any day, we won't enter a put play. Instead, we will wait for the slow stochastic to poke above 20% and for the MACD to turn positive on the daily chart. No need to belabor this since it's a simple technical entry. Those wanting a bit more action can attempt to day trade it from the 30 and 60 min charts, but we'd opt for the position trade entry noted above. BUY CALL OCT-750 OEZ-JJ OI= 52 at $23.63 SL=16.50 BUY CALL OCT-760 OEZ-JL OI= 475 at $17.00 SL=12.25 BUY CALL OCT-770 OEZ-JN OI=1071 at $12.13 SL= 9.25 BUY CALL NOV-770 OEZ-KN OI= 99 at $19.88 SL=14.50 Bullish Calendar Spread: If the OEX is going to remain flat to slightly bullish, now may still make a good time to enter the whole position. Like the QQQ above, our job is to buy the long leg cheap and sell the short leg dear while letting time decay work against the buyer of the short. If you want to try to squeeze out the last cent, you can leg in. Just make sure you dust off your timing skills first. Ideally, we'd like to wait until the technical indicators leave their oversold position. That will be apparent when the slow stochastic crosses back over the 20% oversold line and MACD turns positive. Until then, you can play support and resistance, or use a 30 or 60-min chart to daytrade in and out of the short leg BUY CALL MAR-780 OEZ-CP OI= 3 at $42.25 SELL CALL OCT-780 OEZ-JP OI=2068 at $ 7.38, ND = 34.88 SELL CALL OCT-800 OEX-JT OI=6072 at $ 2.63, ND = 39.63 Bullish Put Credit Spread: Kids, don't try this at home. It carries a fair amount of risk if you don't understand how the play works. On second thought, maybe you could help your parents understand it? Anyway, the intent is sell an OTM put and buy a DOTM put for protection in case the market sinks under your feet, which will put a net credit into your account. It's a bit like a covered call, only with a limit on the loss you would suffer. First, you must be convinced that the market has found a bottom and that a rebound is under way. That will happen when the stochastic moves above 20% oversold and the MACD turns positive on a daily chart. Again, not for the inexperienced. Understand how the play works before getting in. This is another play that can work well in a flat to slightly bullish market. SELL PUT OCT-755 OEZ-VK OI=1633 at $15.38 BUY PUT OCT-750 OEZ-VJ OI=7580 at $14.00 Net Credit = $1.38 or more Average Daily Volume = 1266 ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10631.32 -39.22 -176.83 -216.05 Nasdaq 3689.10 -62.54 -52.12 -114.66 $OEX 756.87 -8.07 -9.14 -17.21 $SPX 1427.21 -9.69 -11.82 -21.51 $RUT 509.89 -3.44 -5.49 -8.93 $TRAN 2518.07 -41.51 -37.56 -79.07 $VIX 25.08 0.23 0.68 0.91 Calls CFLO 157.00 13.84 5.97 19.81 The cash is flowing BRCM 257.00 3.50 4.75 8.25 New, difficult trading CIEN 127.13 6.81 -0.44 6.38 Prevailing optics MERQ 155.25 4.56 1.75 6.31 The MERQ is rising JNPR 230.50 2.25 2.63 4.88 New, soaring higher AFL 66.00 0.94 2.25 3.19 Another new high for AFL AGIL 83.00 3.69 -0.69 3.00 Looks strong, entry? CAH 95.06 0.31 2.38 2.69 Shattered resistance IDTI 96.94 -0.19 1.19 1.00 Bucking Chip bears QCOM 73.38 -3.00 3.38 0.38 Bulls return today SEBL 105.25 2.75 -2.50 0.25 Drug down by the NASDAQ ITWO 184.13 -3.56 1.50 -2.06 Held onto gains today CHKP 149.25 0.13 -3.31 -3.19 Mirror trading of NASDAQ ENZN 67.75 -1.94 -1.38 -3.31 Profit mongers selling FRX 114.63 -2.94 -1.88 -4.81 Expected profit taking YHOO 102.44 -5.94 -3.06 -9.00 Dropped, sellers command PEB 108.94 0.75 -10.81 -10.06 Biotech pullback today Puts OMC 72.75 -1.06 -3.00 -4.06 New, going under fast CMOS 31.88 -2.88 -1.13 -4.00 Bears are in charge EPNY 78.50 -2.13 -1.56 -3.69 Investors aren't buying MU 49.94 -6.00 3.19 -2.81 Thank you, MU! DITC 37.25 -5.56 3.31 -2.25 Support yet to be found AFCI 36.69 0.50 -1.44 -0.94 Tech sector sickness UK 37.31 0.19 0.00 0.19 Dropped, found bottom PCS 31.50 3.56 -0.06 3.50 Dead-cat-bounce Monday PWAV 38.75 3.44 1.69 5.13 Dropped, buyers step in DIGL 75.19 4.94 1.19 6.13 Dropped, short but sweet 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: ***** YHOO $102.44 -3.06 (-9.00) With a last ditch effort to drive the the stock through $112 and onto an earnings run, the buyers found resistance too strong. Sellers took a commanding control over YHOO within an hour of Monday's trading session, crushing our breakout prospects. It bled steadily throughout the day, closing near the lows of the day. With a negative NASDAQ today, YHOO found itself sliding further. Along the way, YHOO violated intraday support at $106, $104, and $102. While the stock managed to find a bounce at $100.88 and close over $102, we think that our best chances for a breakout have passed. The intraday ranges that we spoke about in the write-ups certainly were tradable, yet we were looking for YHOO to break to the next range. As a result, we are cutting YHOO loose tonight. It may provide entry for a move higher, as it has in this recent range, yet we will be moving to a better opportunity. PUTS: ***** UK $37.31 +0.00 (+0.19) The stabilizing oil prices in conjunction with government intervention in the euro have combined to stall UK's freefall. Furthermore, many analysts have recently defended UK by saying the company was not exposed to as much currency risk in Europe as initially thought. Moreover, the proposed merger between DOW and UK is expected to close very soon, which might give the stock a quick pop. At this point in our long-lasting put play, we feel the risks are beginning to outweigh the potential rewards, especially since the stock has not moved a great deal over the past few trading sessions. So, we'll gladly take our profits and run. PWAV $38.75 +1.69 (+5.13) It appears that PWAV may have found a bottom last Friday at the $33.50 level. Unable to break below that point on Monday, the bargain hunters stepped in to bid the stock up $3.44 or 10.22% on 140% of ADV. Today, PWAV continued to recover some lost ground as it gapped up at the open. Finding support near its 5-dma at $37.25, the stock managed to gain 4.55% by the day's end. Despite the fact that PWAV continues to encounter strong resistance at $40 and its 10-dma at $39.14, it appears that the worst may be over. As a result we are closing the play in search of more favorable prospects. DIGL $75.19 +1.19 (+6.13) It was short, but sweet. DIGL consistently offered entries between $75-$80 and followed up with profitable moves below the $70 mark. However, it now appears that Friday's intraday bottom of $63 incited a comeback. DIGL opened strong on Monday and extended the gains. As the broader markets fought to hold their ground, DIGL broke out of its narrowing trading range with a vengeance. DIGL's penetration of the second line of defense at the 200-dma ($76.79) and its attempt to move through $80 amid negative markets is clear evidence of an impending recovery. There's simply no denying the stock is back on the investor's shopping list. It's curtains for DIGL tonight. The company is expected to report earnings around October 17th. 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The Option Investor Newsletter Tuesday 09-26-2000 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/092600_2.asp ******************** PLAY UPDATES - CALLS ******************** IDTI $96.94 +1.19 (+1.00) IDTI's incredible relative strength continues to fend off the bears. In spite of the ongoing turmoil in the Chip sector, IDTI has held up relatively well. The stock gapped higher Monday morning on the news IDTI had joined forces with Microwave Systems (MWAR), a provider of software and services. However, despite the announcement IDTI weakened and slid lower with the broader Tech sector. The bulls and bears cannot seem to come to an agreement, which has left IDTI in a clearly defined trading range between support at the $96 level and overhead resistance at $100. With that said, the aggressive traders might look to take profits out of IDTI's trading range. Watch for a bounce off support at $96, and wait for the buyers to step in and bounce IDTI higher. The $100 level might provide a solid exit point for those trading the range. However, traders will also want to watch for a breakout back above $100. The more conservative traders might do that very thing, and wait for IDTI to rally on a volume-backed move above $100. Additionally, it could be conducive to wait for the $SOX and NASDAQ to rally before entering new long positions. ITWO $183.88 +1.25 (-2.06) It's been tough trading for ITWO this week. The stock managed to breakout from its six-month long consolidation Monday morning with its gap higher above the $190 level. However, the Tech bears proved overpowering as ITWO stumbled lower Monday afternoon along with the rest of the Tech sector. Despite the bears' relentless attacks on the Tech sector, ITWO managed to buck the market trend today, and finish in positive territory. We like the fact that ITWO was able to hold onto its gains today, while the NASDAQ suffered another loss. Robinson-Humphrey might be the reason ITWO was able to defeat the bears today. The brokerage house reiterated its Buy rating on ITWO and commented on the company's upcoming quarter. If the analysts were convincing today, the buyers might return tomorrow to lift ITWO. Aggressive traders might look to enter the play if ITWO pops back above the $185 level, while the more conservative traders might wait for ITWO to gain momentum and move back $190, the breakout point. The conservative traders might also wait to enter the play until the NASDAQ turns positive and the heavy buying volume returns to ITWO. BRCM $257.00 +4.75 (+8.25) Although BRCM gave us the breakout we were looking for, trading it has been rather difficult. The gap up yesterday morning started the day out above $255, but this continuation of Friday's rally quickly ran out of steam, banging its head on resistance at $260. The past 2 days action is a reminder of the danger of entering new positions during amateur hour - you will likely get filled at the high of the day. Today's action was a repeat, gapping up at the open and then falling back from the $260 area. Prominent earnings warnings and market jitters drove the major indices lower over the past 2 days, keeping our play from continuing to drive higher. While it hasn't been able to break above resistance at $260, it has been encouraging to see BRCM hold its ground while continuing to inch higher. Volume remains on the light side, indicating that neither the bulls nor the bears have enough conviction to drive BRCM in either direction. Support in the $250-252 area is still intact and intraday dips to this level can be considered for new entries. A more conservative approach will be to wait for an increase in buying interest to push our play through resistance. FRX $114.63 -1.88 (-4.81) Profit taking was overdue on our play as FRX had recently run up by a staggering 25%. The stock's inability to break through the $120 resistance level was the catalyst and by midday today, our play had dropped to retest the $110-112 support level. When you take out the aberration created by the LLY-induced selloff last month, FRX's trading volume is just about average. It was encouraging to see the selling abate right at support, which is also the site of the 10-dma (currently $111.75). Further support is found near $106, and if this level fails to hold, we would suggest standing aside until the dust settles. As long as the broader markets can shake off the spectre of fear, which is being fueled by a continuing stream of prominent earnings warnings, FRX should be able to power higher as the October earnings season approaches. Renewed bounces at support are buyable, so long as they are accompanied by respectable volume (over 500k shares). More conservative players will want to wait for buying volume to return in earnest, propelling FRX through the $120 level and into new high territory again. PEB $108.94 -10.81 (-10.06) It was only a matter of time before we got some profit taking on PEB, as the stock had been buried in its upper Bollinger band for well over a week. Hopefully you were able to take advantage of yesterday's opening spike to lock in profits and ready yourself for the next leg of PEB's momentum run. Yesterday's opening surge to $126.75 was the catalyst, and we have seen the stock give up 14% since that high water mark, and today's close puts our play at a critical juncture. Closing fractionally below the 10-dma (now at $109.06) for the first time in over 2 weeks, and not far above the $105-107 support level we mentioned on Sunday, PEB is in danger of breaking the momentum run that has brought it this far. A drop to support could provide a very attractive entry point for our hoped-for earnings run, but it will need to be followed by strong buying volume. Mild resistance may appear near $111-112, and more conservative players may want to wait for the buyers to scale this level before playing. CHKP $149.19 -3.38 (-$3.25) The Nasdaq continued its upward moves Monday morning, following Friday's afternoon rebound. CHKP responded positively in early trading by moving up over $4 on robust volume. As the trading day progressed Monday, choppiness became the underlying theme, as a result CHKP bounced around just above the flat-line and by day's end had closed to the upside on heavier than normal volume, using the 10-dma once again as support. The Tech sector was choppy at best Tuesday and CHKP slipped lower by $5 at mid-day, piercing through support at its 10-dma. CHKP could not regain momentum Tuesday afternoon as the Nasdaq and the Tech sector continued its slide. By day's end, CHKP had bounced off its lows for the day and closed at $149.19, down $3.38 for the day on volume of 2.4 mln shares, just below the 5-dma and 10-dma at $154.50 and $152.10, respectively. There are two ways to play CHKP from here. Aggressive traders may want to use a pullback to intraday support at the $145-$146 level followed by volume supported bounces as a way to gain entry. The 50-dma is still down at $133.30. The more conservative approach may be to wait for a move back up through the 5-dma and 10-dma accompanied by strong volume. It is imperative to watch for profit taking and to continue to monitor the Nasdaq sentiment before entering a trade. AFL $66.00 +2.25 (+3.19) The Tech sector got off to a brisk Start Monday morning, which caused the AFL speculators to rest, but by mid-day, the buyers returned, and put AFL in positive territory. Volume for Monday was a meager 495K, but AFL ended the day up $0.94 in new high territory at $63.75. Tuesday, we saw a familiar scenario develop in early morning trading. As the Tech sector weakened, buyers looked for safe havens and they were using AFL. By mid-day, AFL was up $1.75 at $65.50 on average volume. During afternoon trading, buyers started warming up to the Duck, driving it to an intraday high of $67.50 before pulling back late in the day to close up $2.44 at $66.19 (new closing high) on volume of 2.52 mln shares (2.3 times ADV). This baby could keep moving from here at which point the only resistance may be at today's intraday high of $67.50. So, aggressive traders may want to try and catch this one on the way up or use an intraday pullback as a way to gain entry. The more conservative may want to look for a pullback to support at the $63-$64 level or even back to the almost converged 5-dma and 10-dma at roughly $61.60. Use bounces from support accompanied by strong volume to enter a trade. SEBL $105.00 -2.50 (+0.25) SEBL got caught up in the selling in the latter-half of trading yesterday and finished well off its highs at $107.75, up $2.75 for the day. Tuesday morning, SEBL announced an agreement with Nokia to offer Wireless eBusiness Solutions through an alliance that will include worldwide joint marketing, collaborative selling, and the extensive development of mobile eBusiness applications. SEBL also announced that LookTrade, a leading developer of B-to-B Web sites, had signed on as a reseller for the Siebel Dynamic Commerce solutions. On the brokerage front, UBS Warburg started coverage of SEBL with a Buy rating and a 12 month target of $135. The Nasdaq weakness caught up SEBL as some profit taking took place in early trading Tuesday and by the half way point SEBL was down $2.25 to $105.50 on light volume. As we progressed to the end of the day, SEBL did pullback to an intraday low of $103.13 before bouncing to close at $105.25, down $2.50 for the day, on lighter than normal volume of 5.6 mln shares. An ideal entry point would be a pullback to the 5-dma at $103.30 followed by a bounce from there on strong volume. Be aware, there is minor resistance between here and the old intraday high of $114.25. Watch for profit taking and Tech sector sentiment before opening new trades. AGIL $83.00 -0.69 (+3.00) Monday saw volume return to AGIL and with that, the price appreciation. Bouncing off its 5-dma (now at $81.50), the stock shot up early to spend the rest of the day digesting its early morning gains, after encountering resistance at $85. Bucking the trend of a down market, AGIL closed up $3.72 or 4.63% on 269% of ADV. Today, AGIL closed the day down fractionally but in doing so, offered aggressive traders with an ideal entry point as an early morning sell-off to its 10-dma (at $78.60) was quickly bought up. From there, the stock traded sideways until some late-day volatility brought in the sellers. But buyers came in to lend some support to the stock at $82. With its up-trend firmly intact, aggressive traders may continue to target shoot bounces off the 5- and 10-dma for entry points. $85 is the next hurdle to clear and a break above with volume would make for a conservative entry point. CFLO $157.00 +5.97 (+19.81) What a way to start the week! The cash has certainly flowed into CFLO so far this week as the stock received a double-shot of upgrades. First on Monday from Credit Suisse First Boston analyst Amit Chopra, who boosted the 12-month target price from $125 to $190. This was enough to ignite a buying frenzy as the stock rocketed not only through resistance at $145, but $150 as well. CFLO ended the day up $13.84 or over 10% on almost 3x the ADV. Today, CFLO added to its gains as a reiteration of a Strong Buy rating from Robertson analyst Dane Lewis, helping the stock move 3.95% higher on over twice the ADV in a weak market. At this point, there is support in increments of $5 at $145, close to its 5-dma, at $140. Along with the 10-dma near $132, bounces off support on profit taking could serve as entry points. With volume continuing to accelerate to the upside, a break above $160 would be another possible entry. MERQ $155.25 +1.75 (+6.31) While summer may be coming to a close, the mercury continues to rise for MERQ. Yesterday, the stock not only broke through resistance at $150, but made a new all-time high, closing up $4.56 or 3.06% on 150% of ADV. Today, support at $150 held up as the stock added to its previous gains. With so much weakness across the board on Tech issues, this stock is displaying unusual relative strength. Accelerating up volume has backed MERQ's ascent but the past couple of days have seen that volume starting to dry up. With the next resistance point at $160, make sure there are plenty of buyers to support a move above this level before entering. Support can be found below in increments of $5 at $155, $150, $145 and $140. A pull-pack on profit taking to these levels or to the 5- and 10-dma (at $147.58 and $137.23) would be ideal entry points but confirm a bounce with volume before entering. QCOM $73.38 +3.38 (+0.38) Qualcomm's news beacon was flashing on Monday. China United Telecommunications Corp, China's 2nd largest mobile phone company, said it will take over and upgrade a handful of cellular networks that use Qualcomm's technology. While this is a good sign that things are moving forward in Asia, the company's CEO, Yang Xianzu, declined to comment about reviving plans for a large-scale network potentially worth billions of dollars to Qualcomm. In the acquisition arena, Qualcomm will gain a stake in Com Dev International and its new mobile high-speed wireless Internet system. Financial terms were unavailable. The stock's trading amid the promising announcements was however rather glum due to the broader market environment. On the bright side though, near-term support continued to show strength at $69 and $70. Essentially, we're looking for the bargain hunters to come back off the sidelines and take QCOM through the immediate resistance at $75 and the near-term high of $78.13. The bigger challenge is of course, $80. A powerful move through this tough opposition would generate lots of excitement ahead of the company's earnings, which are slated for November 2nd. If you're interested in taking a more adventurous approach, look for opportunities near the 10-dma ($70.35) or the 5-dma ($72.67). In this fearful market, the wisest choice may be to wait for the breakout. CIEN $127.13 -0.44 (+6.38) The optical-related stocks demonstrated prevailing strength in the face of the menacing bears this week. But the spotlight was on Ciena! After announcing a major deal with Korea Telecom to supply it with fiber-optic gear for networks in seven cities, including Seoul, the stock advanced a whopping 12.8%, or $15.50! CIEN epitomized a raging bull as it climbed to new heights once again. It also established a much higher near-term support. In a mere two sessions, CIEN's launching pad was elevated from the $113-$114 level to $124-$128. The volume was exceptional at almost three times the ADV. The big spike put some strain on getting our foot in the door, but strong bounces off intraday lows still offered entries into this momentum run. Deep dips to the 5-dma ($121.26) currently provide a more aggressive entry to target shoot. Expect some resistance at today's intraday peak of $134 and $136.25, Monday's 52-week record. ENZN $67.75 -1.38 (-3.31) After last week's advances into higher territory, the profit mongers took some chips off the table. As it turned out, ENZN fared well. The $66 and $68 marks proved to be a solid support level on a moderate-volume decline. The current share price is however just below the 5 and 10 DMAs at $69.44 and $68.47, respectively. The current level offers potential entry points on a rebound. But unless you're very aggressive, wait for ENZN to show strength above those technicals before taking positions. Our expectation is that investors will continue to look for "safer stocks" to dress their portfolios as the Tech sector gets weeded out. As it stands, this drug stock is considered by analysts to be a great value and should generate buying interest over the short-term. CAH $95.06 +2.38 (+2.69) Strong volume at 1.5 times the norm accompanied another breakout today. CAH quickly shattered resistance at $94 this morning and set another all-time high at $95.31. The bullish close, at a fraction from the record peak, matches analysts' sentiment regarding CAH's future prospects. Today, First Union Securities reiterated a Strong Buy and raised the 12-18 month price target to $105 from $97. AG Edwards also restated a Buy recommendation and upped their price target to $110 from $92 as well. Recall it was upgrades that first ignited CAH's run; therefore, today's upbeat comments should extend the gains in coming sessions. Although, take heed. Under the current market conditions and at these price levels, it's imperative to defend against profit taking. Keep stops in place. An aggressive entry would be on an intraday dip to near-term support around $92 and the 5-dma ($92.83). Consider waiting and buying more conservatively as CAH climbs through the immediate resistance on a strong rally. ******************* PLAY UPDATES - PUTS ******************* CMOS $31.88 -1.13 (-4.00) The carryover of the Semi selling transpired just as planned. The mass exodus from the Chip sector picked up steam this week as CMOS and fellow Chip Equipment makers plunged further into the mire. For its part, CMOS fell below its critical support level at $35 yesterday afternoon and kept falling today on volume that swelled with selling. As we mentioned in the weekend write-up, CMOS's pivotal point from last Fall is just below at the $30 level. We speculate that the bulls will be defending the stock at that level. However, CMOS could very well continue falling as long as the bears are in control. The stock continues to look very week with no bottom in sign yet. With that said, aggressive traders might consider entering new positions early Wednesday if the NASDAQ continues to stumble. The more risk averse traders might wait for CMOS to fall below near- term support just below at $31.50. The more conservative traders might look to enter new positions if CMOS falls below $31 and the $SOX continues falling. DITC $37.25 +3.31 (-2.25) Is that the support that DITC investors have been looking for? Continuing to sell off with the broader markets yesterday, our play fell throughout the day, closing at $33.94, fractionally above the low of the day. This morning, even with the rest of the market continuing to head south, DITC dipped to $33.75 before beginning to recover. The bulls first recovery attempt failed at $37, but after an afternoon test of the morning's lows, they managed to push through to close out the session at $37.25. As good as that sounds, a quick look at the daily chart will confirm that our play has a long way to go to get out of bear territory. Sitting below all of its moving averages, DITC still is unable to penetrate the 5-dma (currently $39.31) and the 10-dma is looming overhead at $42.88. In addition, there is formidable resistance sitting at $45. While we would like to see our play continue lower, there may be a bit of a relief rally first, so look to initiate new positions as DITC rolls over from resistance. Given the strong volume on today's recovery (triple the ADV), the morning lows could in fact be a near-term bottom, so keep your stops in place on any open positions. PCS $31.50 0.00 (+3.50) As we mentioned in Sunday's update, it was likely that PCS may see a dead-cat bounce or short covering rally some time soon. It happened Monday morning, fueled by an upgrade on the stock from Lehman Brothers. Lehman raised their rating from Neutral to a Buy, citing PCS's low valuation; ironically they cut their price target by $1 to $58. The collaboration announced Monday between PCS and PacketVideo to deliver wireless video applications to consumers may have been a catalyst for investors. Traders thought this was worthy enough news to do some buying, as PCS tacked on $3.50 to the upside on over 15 mln shares to close at $31.50. Tuesday, PCS and Brittanica.com announced an agreement that will give PCS users access to the 32-volume Encyclopedia Brittanica through a new application called Brittanica Wireless. PCS spent the morning bouncing back and forth between positive and negative territory and by mid-day was down $1 to $30.50 on average volume. Volume remained light for PCS as the day continued and it finished flat for the day at $31.50, just below its 5-dma at $32.60. Traders would be wise to watch for a failed rally up to the 5-dma on light volume as an ideal way to enter this trade. AFCI $36.69 -1.44 (-0.94) AFCI caught the Tech sector fever early Monday morning, getting out of the gates and quickly running up over $2 to the $40 level, a former support level. As the Nasdaq started to churn, the supporting buyers disappeared and by day's end AFCI was only up $0.50 to finish at $38.13 on lighter than normal volume. Tuesday morning, AFCI bounced between positive and negative territory, but by mid-day it was feeling the weak Tech sector pressure and it was down over $1.50 on light volume. By day's end AFCI had finished down $1.44 to close at $36.69 on lighter than normal volume of 1.76 mln shares (75% of its ADV). Use a continued move down through the $35-$36 level (current support) on strong volume as an ideal way to gain entry to this trade. If it decides to bounce again, use a failed rally attempt up to the $40 range as a conservative entry point. EPNY $78.50 -1.56 (-3.69) It's been said that the opposite of love is not hate, but rather, apathy. It would be difficult to find a more fitting word to describe investor sentiment in EPNY. Monday, interest in the stock continued to wane, despite positive news. An announcement from the company that it had added support for wireless devices to its E.piphany E.5 system was met with some early morning strength. The strength was eagerly sold into despite the gap open, with help from resistance at $85, to finish down almost $2.13 or 2.59% on 172% of ADV. The 5- and 10-dma (at $80.30 and $84.34) continue to offer a point of entry into this play. Those who are more cautious will want to see the stock break below $75 with conviction before entering. Today, the company announced its earnings date has been set for October 19th at 5 PM EST. While it is still too early for an earnings run, keep this date in mind when making a play. MU $49.75 +2.88 (-2.81) What a great entry point on Monday morning! With an early morning gap and spike up toward $54.50, sellers took advantage of the move and drove the stock down to $50. The INTC hangover was difficult to shake as Semi stocks tried in vain to put together a recovery. After a midday pause on Monday, intraday support at $50 gave way and now represents resistance. Today's trading activity was based on a strong earnings announcement from Micron Electronics, of which MU owns 60%. As a result, MU found some relief from its recent downtrend. We do not feel that an announcement of this sort will turn MU around. Overhead resistance at $50 continues to hold down the stock. Look for entry on a rollover from this level. If MU manages to move above $50, resistance will be encountered at $51, $52, and $53. Sellers will probably be lurking at these levels, so watch for the rollover. On the downside, MU found buyers waiting at $46, the lowest level since March 3rd. A test of this low wouldn't be out of the question, especially considering the higher selling volume that brought the stock down at Monday's close. A break of $46 leaves a downside outlook near $40, and would warrant even a conservative entry. ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=548 ************************************************************** ************** NEW CALL PLAYS ************** JNPR - Juniper Networks $230.50 +2.63 (+4.88 this week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. JNPR's flagship product is the M40 Internet backbone router, which complements the recently-introduced M20, which is a router built specifically for emerging service providers. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. While leading router companies like CSCO continue to languish with the broader markets, JNPR is soaring to new highs on the heels of positive analyst comments (see news below). Continuing its pattern of higher highs and higher lows, JNPR tagged a new all-time high of $240 yesterday, and even with weakness in the broad technology sector today, managed to post a new closing high of $230.50. Large intraday moves are the norm for JNPR, so needless to say, this play is not for the faint of heart. After reaching a near-term high of $228 in early September, profit taking set in and the stock fell 20% before finding support near $182. Then it was off to the races, as buyers have flocked to the stock, pushing to new highs again early this week. Volume on up days continues to outpace that on profit taking sessions, frequently near double the ADV of 7.47 million shares. If the pattern of the past few months remains in force, JNPR looks like it still has room to run. Stochastics have moved into the overbought zone, and the price is sitting right at the upper Bollinger band, so near-term profit taking is not out of the question. But over the past few months, JNPR has shown a propensity to stay in this area, sometimes for weeks at a time. What really gets us interested is the fact that MACD is still strongly positive and JNPR will help to kick off the first week of earnings in October. In July, the company beat analyst estimates by 100%, and investors are clearly hoping for a repeat performance when the company posts its numbers on October 12th. The 5-dma currently sits at $223, and is just above historical support at $220-222. Use intraday dips near this area as an opportunity to initiate new positions, but make sure that volume confirms the bounce. Even though JNPR has shown tremendous relative strength, no stock can buck the broader market trend indefinitely. A more cautious approach would be to wait for JNPR to break out to new highs before jumping into the play. In the wake of the Intel earnings warning, investors have moved their money into technology stocks with strong analyst ratings, adding fuel to JNPR's meteoric rise. Despite a PE north of 2600, all 18 analysts following the stock rate it either a Buy or a Strong Buy. Then last Monday, Salomon Smith Barney analyst, B. Alexander Henderson raised his price target from $245 to $310, citing extremely strong demand for the company's router products. He also expects the company to post extremely strong earnings in October and sees the company grabbing even more of CSCO's high end market share. BUY CALL OCT-230 JUD-JF OI=3178 at $18.63 SL=13.50 BUY CALL OCT-240*JUD-JH OI=1624 at $13.88 SL=10.25 BUY CALL OCT-250 JUD-JJ OI=3755 at $10.38 SL= 7.50 BUY CALL NOV-240 JUD-KH OI= 186 at $23.13 SL=17.25 BUY CALL NOV-250 JUD-KJ OI= 503 at $19.25 SL=14.00 BUY CALL NOV-260 JUD-KL OI= 213 at $15.88 SL=11.50 SELL PUT OCT-200 JUD-VT OI= 377 at $ 6.00 SL= 8.50 (See risks of selling puts in play legend) Picked on Sep 26th at $230.50 P/E = 2681 Change since picked +0.00 52-week high=$240.00 Analysts Ratings 15-3-0-0-0 52-week low =$ 30.00 Last earnings 07/00 est= 0.04 actual= 0.08 Next earnings 10-12 est= 0.09 versus= -0.01 Average Daily Volume = 7.47 mln ************* NEW PUT PLAYS ************* OMC - Omnicom Group Inc $72.75 -3.00 (-4.25 this week) Omnicom Group is one of the world's largest advertising organizations. Its companies create and produce world-class advertising campaigns for high-profile clients like PepsiCo, Anheuser-Busch, and Nissan. The company also offers marketing consultation and research services through its Diversified Agency Services unit, which includes Communications Consulting Worldwide, the world's largest public relations organization. Dial 911! OMC is going under fast! The share price sunk below historical support at $80 on rumors and speculation. On September 18th, OMC fell 4.3% on news it's in talks to buy Chicago-based True North (TNO). It's very likely talks have escalated; especially now in the midst of a billion-dollar battle over DaimlerChrysler's ad account. The bitter rivalry came about after the carmaker announced it would no longer split its business between the two firms. They have until October 6th to make their respective presentations or as is speculated, merge. According to Chris Hansen of Banc of America Securities, "If something is going to happen, they would like to have it done before the presentations. This will go down very quickly." The valuation of the deal is tough to calculate, however it's estimated that TNO is worth about $2.5 bln. Needless to say, OMC is moving steadily downward amid the acquisition scuttlebutt. Bear, Stearns & Co believes the weaknesses in the stock is unfounded. Last Thursday, it raised OMC's rating to a Buy from Attractive and issued a 12-18 month price target of $95. OMC didn't respond to the bullish comments or the broader markets for that matter. Today, OMC's 4% fall from grace dropped it under the shorter-term bottom at $74 and $75. The 5 and 10 DMAs, above at $75.63 and $77.54, represent upper resistance. However intraday resistance will likely develop lower around the $74 mark. Consider aggressive entries on high-volume moves through the 0current level or target shoot for positions on intraday spikes. BUY PUT OCT-85 OMC-VQ OI=833 at $13.00 SL=9.75 BUY PUT OCT-80*OMC-VP OI= 30 at $ 8.38 SL=6.00 BUY PUT OCT-75 OMC-VO OI= 80 at $ 4.63 SL=2.75 Average Daily Volume = 767 K ********************** PLAY OF THE DAY - CALL ********************** MERQ - Mercury Interactive $155.25 +1.75 (+6.31 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 MERQ $155.25 +1.75 (+6.31) While summer may be coming to a close, the mercury continues to rise for MERQ. Yesterday, the stock not only broke through resistance at $150, but made a new all-time high, closing up $4.56 or 3.06% on 150% of ADV. Today, support at $150 held up as the stock added to its previous gains. With so much weakness across the board on Tech issues, this stock is displaying unusual relative strength. Accelerating up volume has backed MERQ's ascent but the past couple of days have seen that volume starting to dry up. With the next resistance point at $160, make sure there are plenty of buyers to support a move above this level before entering. Support can be found below in increments of $5 at $155, $150, $145 and $140. A pull-pack on profit taking to these levels or to the 5- and 10-dma (at $147.58 and $137.23) would be ideal entry points but confirm a bounce with volume before entering. Comments Since breaking out from consolidation late last week, MERQ has been on an unstoppable climb to record highs. Big buyers are supporting MERQ's recent rally confirmed with a recent surge in volume. Despite the bears' attempts today, MERQ fought off the attack and finished the day in bullish fashion on a surge of buying. MERQ's strong finish this afternoon could position the stock to test resistance at $156 early tomorrow, where a solid entry could be found. A rebound in the NASDAQ could unleash the bulls and carry MERQ to new highs above $158. If, however, the Tech sector pulls MERQ back, aggressive traders might watch for the stock to bounce off support at $150. BUY CALL OCT-150 RBF-JJ OI=644 at $16.88 SL=12.25 BUY CALL OCT-155*RBF-JK OI= 56 at $14.25 SL=10.50 BUY CALL OCT-160 RBF-JL OI= 23 at $12.00 SL= 9.00 BUY CALL NOV-155 RBF-KK OI= 3 at $20.00 SL=14.50 BUY CALL NOV-160 RBF-KL OI=362 at $18.50 SL=13.50 Picked on Sep 24th at $148.94 P/E = 313 Change since picked +6.31 52-week high=$157.94 Analysts Ratings 9-3-1-0-0 52-week low =$ 28.38 Last earnings 07/00 est= 0.12 actual= 0.14 Next earnings 10-17 est= 0.16 versus= 0.11 Average Daily Volume = 1.85 mln ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=555 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Stocks Plunge on Earnings Concerns... Blue-chip issues led the sell-off as worries over future revenues plagued the market. Monday, September 25 The market closed lower today after staging an early rally. The retreat occurred as concerns resurfaced over quarterly earnings. The Dow ended 39 points lower at 10,808 while the Nasdaq closed down 62 points at 3,741. The S&P 500 index was down 9 points at 1,439. Trading volume on the NYSE reached 982 million shares, with declines beating advances 1,583 to 1,271. Activity on the Nasdaq was moderate at 1.77 billion shares exchanged. Technology advances beat declines 2,251 to 1,795. In the bond market, the 30-year Treasury rose 7/32, pushing its yield down to 5.89%. Sunday's new plays (positions/opening prices/strategy): Adobe ADBE OCT120P/125P $0.50 credit bull-put Delphi DFG OCT30P/OCT35P $0.81 credit bull-put Microchip MCHP OCT80C/OCT75C $0.38 credit bear-call Smith Intl SII OCT90C/OCT85C $0.75 credit bear-call The market's volatility offered a few favorable opportunities to open our new positions. However, based on simultaneous entries, the majority of initial credits were slightly lower than our targets. With luck, we should be able to achieve the suggested prices in the DFG and SII positions, during the coming sessions. Portfolio Plays: Stocks pulled back from early gains today, ending lower as the weakness in technology issues spread to other sectors in the market. In early trading, equities drifted higher amid hopes that a stable Euro and falling oil prices would help increase corporate earnings. But, the market soon reversed on concerns over profit-taking in bellwether technology issues. On the Dow, Intel (INTC) slumped as investors continued to punish the issue in expectation the company will miss quarterly earnings estimates due to weak demand in Europe. Hewlett-Packard (HWP) also slid lower in sympathy with a profit warning from industry competitor Lexmark International (LXK). Declines in shares of International Business Machines (IBM) and Microsoft (MSFT) rounded out today's retreat in blue-chip technology issues. On the Nasdaq, large-cap stocks led the group lower, with Cisco (CSCO), Yahoo! (YHOO), and Dell Computer (DELL) enduring substantial losses. Semiconductor shares also continued their recent slump. In the broader market, biotech stocks were strong after Banc of America said the sector is poised for additional growth. Wireless telecom stocks moved up after analysts said the sector has discounted recent bad news and is ready for a rebound. Consumer finance and banking stocks rallied but retail and pharmaceuticals issues pulled back after a recent rally. Oil shares consolidated with oil prices after the U.S. government's decision on Friday to release supplies from the nation's strategic reserves. The bullish activity in our portfolio was dominated by technology issues and the top performer was Research in Motion (RIMM). The issue jumped $9 to $86 as traders speculated that the company's wireless pagers were a step ahead of the competition's products. In addition, Palm (PALM), the #1 maker of hand-held electronic organizers, reported fiscal first-quarter operating results that topped analyst forecasts. Investors expect the same performance from RIMM in the company's earnings report due later this week. Commerce One (CMRC) rose $5 amid strength in business-to-business software and services providers. Other notable gains came in the fuel-cell sector with Ballard Power (BLDP) and Plug Power (PLUG) both rallying. Agile Software (AGIL) and HNC Software (HNCS) led the application software group higher and Polycom (PLCM) topped the telecom equipment sector, up $3 to $65. Our debit-spread combination in Polycom can now be closed for a favorable profit and the position achieves maximum return above $60. Read Rite (RDRT) was the surprise issue in the small-cap group, moving up $1.12 to end at $10.50. Our bullish position at $5 is expected to expire at maximum profit. Global Crossing (GBLX) was another unforeseen gainer, rising $1.75 to $30 and the current rally may create some interest in the flagging issue. The most exciting activity of the day came in Cell Pathways (CLPA), which fell $20 to $9.31 after the FDA rejected their new drug application for Aptosyn for the indication of familial polyposis. Those of you who did not close the credit strangle for favorable profits last week are faced with rolling out and down in the sold Put to recover current losses. Of course, the company will make amendments to the existing application and hope for an approval at a later date, thus creating new speculation for the issue's future. Ventro (VNTR) was another unexpected loser, down over $2 to $11.38 after the troubled operator of B-2-B trading exchanges announced it has hired Broadview, a high-tech mergers and acquisitions firm, to help it find a potential buyer or merger partner. It is not known whether Broadview is exclusively seeking a buyer for all or part of Ventro, or whether the company is also working with other advisers to somehow restructure. Traders have speculated that the recent silence concerning Ventro's future direction is a sure sign that something is cooking but the stock price suggests otherwise. Our debit-spread combination has a break-even cost basis near $10 and if the issue fails to stabilize near technical support at $11, we will consider an early exit or adjustment in the position. Tuesday, September 26 Blue-chip issues led the sell-off as worries over future revenues plagued the market. The Dow endured precipitous losses, falling 176 points to 10,631 while the Nasdaq finished 52 points lower at 3,689. The S&P 500 index ended down 11 points at 1,427. Trading volume on the NYSE hit 1.1 billion shares, with declines beating advances 1,606 to 1,247. Activity on the Nasdaq was moderate at 1.8 billion shares traded, with declines beating advances 2,600 to 1,415. In the bond market, the 30-year Treasury rose 21/32, pushing its yield down to 5.85%. Portfolio Plays: Industrial stocks extended their losses late in the session today with blue-chip issues falling in the wake of a profit warning by Eastman Kodak. The maker of imaging products said third quarter earnings will come in well short of the previously expected range and the stock was hit by downgrades from PaineWebber and CS First Boston. However, the most damaging news came when the company reported that slumping sales were unable to offset pressures from a rising dollar and increased raw material costs. Warnings from other U.S. companies substantiated the bearish outlook and gave investors new concerns that an economic slowdown may hurt profit growth in the future. Technology stocks were less affected, but they also succumbed to the selling pressure. All of the major Nasdaq groups finished lower, with semiconductor stocks holding small gains until late in the day. The broad market saw positive action in oil and oil service shares as crude oil edged higher. Utility stocks also achieved solid gains while financial, retail, biotech, computer hardware, and drug issues slumped. Analysts say that the U.S. economy will eventually achieve a soft landing but in order to see sustainable advances, the current onslaught of earnings warnings needs to be digested. As investors realize that growth in the leading companies is sustainable, the market will begin to recover. Our portfolio was a sea of red with little bullish activity worth noting. Research in Motion (RIMM) continued a recent really, up $7 to $93 after SG Cowen reiterated its "strong buy" rating on the company, noting the firm expects solid second quarter results on strong demand for a new device. Cowen said it expects RIMM's results to be in line with, or better than expected, on rising revenues and new product rollouts for Compaq (CPA) and American Online (AOL). Qualcomm (QCOM) moved up $3 to $73 after a report announced that the Chinese government will allow mobile phone companies decide for themselves which technologies they use to provide future-generation services and they will not mandate a standard. Qualcomm's cdma2000 is a rival technology that may be used in the development of the country's cellular communications system. Bullish positions in both of these issues are expected to expire at maximum profit. Read Rite (RDRT) enjoyed another positive session, ending above $11 at a new, 52-week high. The upside momentum stems from some comments made by the company's CEO, Alan Lowe, during a presentation last week at the Banc of America Investment Conference in San Francisco. The chief said he expects huge unit growth potential for Read-Rite's December quarter, as well as the possibility of profitability. He also added that the company expects to deliver additional inventory before the quarter ends and he is optimistic about Read-Rite's new independent fiber optic company, Scion Photonics, which he expects to eventually go public. There were other small gains in the section but the majority of issues ended lower. Stocks that we have recently identified as technically "poor" continued to show their weakness during the session. Engage (ENGA) was one of those unfortunate issues, falling to all-time lows on increasing volume. As suggested last week, the position in this issue is prime for early exit or adjustment. At the same time, the current consolidation is helping a number of premium-selling positions. Brocade (BRCD) has come down to earth, bringing the cost of our credit strangle back to the initial entry price. St. Jude Medical (STJ) is also drifting lower and the early-exit profit remains favorable in the bullish calendar spread. Caremark RX (CMX) is beginning to encounter resistance near $10.50 and that bodes well for the success of our neutral position at $10. In addition, our new bearish credit spread in Microchip Technology (MCHP) is off to a good start with the issue falling almost $5 during today's session. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** FDX - Federal Express $42.25 *** Bracing For A Rally? *** FedEx is a global provider of transportation, e-commerce and supply chain management services. Services offered by FedEx companies include worldwide express delivery, ground small-parcel delivery, less-than-truckload freight delivery, global logistics, supply chain management and customs brokerage, as well as trade facilitation and electronic commerce solutions. FedEx offers its integrated business solutions through a portfolio of operating companies. These include Federal Express Corporation, FedEx Ground Package System, formerly known as RPS, Global Logistics, FedEx Custom Critical, FedEx Trade Networks, and Viking Freight. FedEx serves as the holding company parent of FedEx Express and each of its other operating companies. Through its subsidiaries, along with its FedEx Corporate Services, the company is able to provide strategic direction to, and coordination of, the FedEx portfolio of companies. The world's largest air-express package shipper announced last week that its net income rose 6%, beating analysts' forecasts in the fiscal first quarter despite higher fuel prices, on volume growth in shipping and reduced costs overall. The company also said it expects earnings per share growth for the year to be at the high end of its 10-15% target. Officials noted that revenue gains previously expected from their new marketing strategy were a few months behind schedule and that additional returns would boost the company's earnings in the future. In addition, the proposed business alliance with the United States Postal Service is getting lots of attention and it appears that a deal may yet be consummated. Whatever the reason, FDX shares have broken to a recent high on increasing volume and we favor the technically bullish outlook for the issue. This conservative position offers a great way to participate in the future movement of the issue with relatively low risk. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-40 FDX-AH OI=1900 A=$5.20 SELL CALL OCT-45 FDX-JI OI=4892 B=$0.60 INITIAL NET DEBIT TARGET=$4.40-$4.50 INITIAL TARGET ROI(max)=11% ****************************************************************** VECO - Veeco Instruments $109.88 *** A Big Day! *** Veeco Instruments designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, optical telecommunications and semiconductor industries. These industries help create and distribute a wide range of information age products for today and tomorrow, such as personal computers, network servers, fiber optic networks, digital cameras, TV set-top boxes and personal digital assistants. Veeco offers two principal product lines: Metrology and Process Equipment. CVC, a subsidiary of the company, provides cluster tool manufacturing equipment used in the production of evolving tape and disk drive recording head fabrication, optical components, passive components, MRAM, bump metallization, and next generation logic devices. Veeco Instruments was "on the move" today, rallying over $15 to a new all-time high on momentum from an upgrade earlier in the week. On Monday, Banc of America initiated coverage of the provider of equipment for the manufacture of optical telecom components with a "strong buy" rating. The brokerage issued a $190 price target on the shares saying that Veeco is delivering excellent growth in its optics business and the company trades at a favorable discount to other industry leaders. Investors appear to share the positive outlook and with the move above recent technical resistance near $100, this issue is poised for further upside activity. If you agree with our bullish view of the stock, this conservative position offers an excellent entry point, considering the recent volatility. Target a higher premium in the position initially, to allow for a pullback in the stock from its current levels. PLAY (conservative - bullish/credit spread): BUY PUT OCT-85 QVC-VQ OI=20 A=$1.00 SELL PUT OCT-90 QVC-VR OI=52 B=$1.56 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=17% ****************************************************************** AHP - American Home Products $56.31 *** Trading Range? *** American Home Products is currently engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in three primary businesses, Pharmaceuticals, Consumer Health Care and Agricultural Products. The company's Pharmaceuticals segment manufactures, distributes and markets branded and generic human ethical pharmaceuticals, biologicals, nutritionals and animal biologicals and pharmaceuticals. Their Consumer Health Care segment manufactures, distributes and sells over-the-counter healthcare products. In addition, the company's Agricultural Products Group manufactures, distributes and sells crop protection and pest control products. AHP's most popular products include Triphasil, infant nutritionals, neuroscience therapies, Advil, Robitussin and Dimetapp, Centrum and Centrum Silver vitamins, and herbal products. Major drug companies have rallied in recent sessions as investors look for sectors that offer a safe haven amid concerns over high oil prices, the falling Euro, and upcoming quarterly earnings. American Home has also benefited from this movement, climbing to the top of a recent trading range last week as interest in the group peaked. Now the stock is retreating to an area where it has resided for the past six months and it appears that the rally is over in the short-term. We will use this position to speculate conservatively on the future movement of the issue. PLAY (conservative - bearish/credit spread): BUY CALL OCT-65 AHP-JM OI=4973 A=$0.25 SELL CALL OCT-60 AHP-JL OI=10881 B=$0.81 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=17% This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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