The Option Investor Newsletter Thursday 11-02-2000 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/110200_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-02-2000 High Low Volume Advance/Decline DJIA 10880.50 - 19.00 10946.50 10869.90 1.17 bln 1766/1111 NASDAQ 3429.02 + 95.63 3433.16 3370.02 2.23 bln 2512/1452 S&P 100 753.52 + 5.13 755.60 747.92 totals 4278/2563 S&P 500 1428.32 + 7.10 1433.27 1421.13 62.5%/37.5% RUS 2000 506.97 + 11.79 506.98 495.18 DJ TRANS 2789.87 + 37.10 2792.12 2747.17 VIX 26.61 + 0.05 27.66 26.34 Put/Call Ratio 0.50 ****************************************************************** Election Time, Have you placed your vote for your favorite tech? The Dow, fresh from a +1300 point gain from the October lows has now posted two days of minimal losses as traders take profits in front of Friday's Jobs Report and the Tuesday election. Meanwhile the Nasdaq is gaining strength in a broad based recovery from the pounding we have seen in recent weeks. Life is good, the outlook is positive and a peace has settled over the markets. We all know Murphy's Law is alive and well but where is he and when is it going to appear again? Don't you just hate it when I rain on your parade? Well relax. The only storm clouds on our horizon are very few and far between and I will get to them later. When Intel and Compaq both come out with positive forecasts on the same day it can't be all bad. The Nasdaq chart has been looking more like an EKG than a stock chart for the last four weeks but that is now changing. Like I said, life is good! Nobody sold the rally today, at least not seriously. There was a brief bout of profit taking around noon but buyers rushed in to buy the dip. Most of this was related to the Oracle rumor and once denied the market recovered quickly. If you did not hear it there was a rumor that Larry Ellison, the second richest man in America and the CEO of Oracle, was going to leave Oracle. That rumor knocked over -$5 off ORCL stock and rocked the markets. Oracle denied the rumor and things recovered quickly. My thought on this was "so what." Even if it was true how far can you get away from a company when you have $300 billion in its stock? Do you think in your wildest dreams that Larry will let someone else take action that could cost him $50 billion or more in one days trading? Not hardly. He could be boating in Japan and you could bet he would be plugged into the Oracle info line even if there was no CEO after his name. 149 million shares traded today. More important to me was the Intel and Compaq announcements. What better way to cure the tech flu than get injections of antibiotics from tech leaders. Intel said 2001 sales estimates were rising and that the fourth quarter was on track even though the third quarter was less than exciting. Intel gapped open almost $3 but fell back to close +1.81. Compaq said its personal computers sales in Europe to continue at the same pace as the prior quarter despite the falling Euro. The CEO said sales revenue was up +21% in Euro dollars and he was expecting the trend to continue. The positive comments by both firms calmed tech buyers and provided a positive boost to the Nasdaq. Negative news came from PSIX that surprised investors with a larger than expected loss and a forecast that the fourth quarter would be lower. The President and COO both quit and the stock was hammered with a -56% drop to $2.94. PriceLine also surprised investors with earnings that matched their already lowered forecast but they lowered their estimates going forward. Heidi Miller, the high profile CFO which moved to PCLN from Citigroup in February of this year, quit. The stock had dropped from $57 to $5 since the much publicized move. PCLN also said they expected October, a month which is normally their largest, to drop -20% in sales. Not a good sign. Delta, which had been making noises about selling their stake in PCLN, had their warrants repriced from $57 to the current market price of $5. The possible windfall for Delta only works if PCLN pulls out of the current slump and they could not do it if Delta dropped out of their network. You can't sell cheap tickets if Delta, their largest customer, leaves the network. Delta has been rumored to be joining a new discount network. In a confusing day for the retail sector JCP and GPS warned of weaker earnings while TLB and LTD said sales were better than expected. Yet they all finished positive as well as recent dogs like WMT and Sears. The losses it appears was from mark downs on goods that did not move last quarter when sales were worse. Going forward the outlook appears to be positive across the down trodden sector. Oil prices continued to fall on multiple global developments including the possibility of yet another peace initiative in the Middle East. The Transports have rallied on this all week and the possibility of peace, and I use the term loosely, is taking yet another cloud off our future outlook. Those of you who attended the Denver seminar were introduced to the Jeff Bailey leading indicator system and if you are paying attention you probably got some good trades. YHOO $68, need I say more. For everyone else Jeff Bailey is a staff analyst that produces institutional research to determine which sectors the institutions are buying before the news gets to the retail investor. Jeff showed the attendees this weekend that the institutions were buying transports and Internets when both sectors appeared to be in the tank. On Monday morning he recommended the NOV-260 DTX call at $2.69 based on institutional buying of transports. The option closed today at $19.38. The Internet sector was showing buying by institutions but when we looked at the charts there was no corresponding patterns. The option we were going to buy on Monday at the seminar based on his research was the JAN-60 call on YHOO @ $8.00. Yahoo opened down -$2 with the rest of the Nasdaq on Monday and we did not take the trade. The option traded as low as $6.63 on Monday and closed at $15.38 today. Ok Jeff, we are convinced! Beginning Monday Jeff's commentary will be appearing on OIN. Check the Sunday newsletter for his schedule as well as a ton of new features starting next week. The economic reports today were mixed with the Productivity report showing gains of only +3.8% down from +6.1% in the prior qtr. This data is not bad but productivity gains were the cornerstone of the Fed's view that the tight job market was still under control. If productivity slows then job costs will rise and inflation will grow. On Friday we will see the real numbers with the Jobs Report and a negative report could bring back Murphy. While I think almost nothing could stop the Fall rally with the amount of cash on the sidelines, it is still a significant event. With an estimated increase in jobs of only +180,000 and a small gain in unemployment to 4.0% we would see confirmation of the slow growth pattern and the Fed would go back to sleep. Much stronger, and it would have to be really strong, and the fear of inflation could come beck to life. With evidence of a slowing economy, even close to a crash, I don't think this will surprise to the upside by enough to do any damage to our rally. Still we will watch anxiously on Friday. Heard the latest election hoax? There is an Internet hoax making the rounds. The basic concept goes like this. With the presidential race so close the turnout is expected to be much stronger than normal. Polling places are bracing for overflow crowds. To solve this problem, so the hoax goes, the election has been changed to a two day event. Republicans will vote on Tuesday and Democrats on Wednesday. Obviously whoever started this rumor was not a Democrat. Now the bad news, many people actually believed it and were planning accordingly. We have plenty of chances for Murphy to appear in the next week. Just because everything looks strongly positive for our tech picnic we need to remember to watch for sudden thunderstorms. In order of appearance we have the Jobs Report on Friday, CSCO earnings on Monday, the election on Tuesday and the PPI Report along with Dell earnings on Thursday. Never a dull moment. The worry about CSCO earnings is the projected growth. With more competition the prospects of CSCO maintaining its past growth rates are slim. One analyst said the concept of CSCO increasing sales annually at the currently projected +32% rate is absurd. If CSCO was going to INCREASE sales this year by the current $6 billion estimate they would have to ADD more than TWICE the total sales of EPNY, LBRT, INKT, BRCM, RBAK, JNPR, BRCD, SCMR, CMTN combined. ($2.5bil) Next year they would have to increase by FOUR times their combined sales to maintain the +32% estimates. Don't start firing off those "I love CSCO emails" because it does not make any difference what we think. I am only mentioning this because of the potential for a market moving event on Monday when CSCO announces. The election on Tuesday is yet another possible market mover. Not especially up or down but sideways. With each candidate there are specific positive and negative results. Institutional traders will probably want to see who wins to decide what to do next. Bush is seen as more favorable to business and after a Gore election more gridlock and government programs which is market favorable also from no major changes. Either way the landscape will be different but the same. Following the election is the PPI which is our next inflation gauge. The same day we get Dell earnings. CSCO is at the same point in time Dell was two years ago. Dell has had the drop off as expectations came back to reality and now Dell is on the move again. I expect the announcement to be a non-event since they already warned they were going to miss the +30% growth targets back in October. However, we all know what the conference calls can do to a stock AND the market when a bigcap has problems. They have already lowered estimates for the fourth quarter and another lowering could be in the cards. My forecast going forward is bullish but we do have this wall of worry to climb. This is natural and good. It keeps the market on its toes and constantly shuffling shares. The Dow is showing signs of profit taking but it has not cratered from the +1300 point bounce and that is a huge positive. Once the election is over I would expect it to move upward again regardless of the winner. The key point is the money on the sidelines. The major risk all fund managers are now facing is not crashing tech stocks or who wins the election but not being in the market if we get another monster rally like we got last fall. They have to be invested and time is running out. Are you having fun yet? I am! Good luck and sell too soon. Jim Brown Editor *********************** FREE LUNCH IN PHILADELPHIA - Last one this year! November - 8th. *********************** OptionInvestor.com, Preferred Trade and E-Signal will hold a FREE seminar complete with handouts, freebies, door prizes and over six hours of solid information which can improve your trading results. Lightning trades, real time quotes, the best option strategies and a FREE BREAKFAST and LUNCH! How can you go wrong? It is free but you have to register so we can order food. http://www.OptionInvestor.com/seminar/free ************************* REGIONAL SEMINAR SCHEDULE ************************* Only two seminars left. Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of in-depth education. Don't miss it! Date City Nov 09-11 Miami FL Dec 07-09 Philadelphia Has the market been beating you up? Did you give back your gains from April/August? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ********************************Advertisement******************** Option trades starting at only $15.50, stock trades as low as $9.95! Mr. Stock provides key advantages to the serious option investor. Along with complex option trading online, fast executions, advanced charting capabilities and the ability to trade from any screen, we now offer some of the best commissions on the Internet. Our staff understands the sense of urgency required in today's market and will respond quickly to your most important trading needs. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ***************************************************************** **************** MARKET SENTIMENT **************** By Austin Passamonte Sen-ti-ment; noun. Feelings of affection; an idea, opinion, thought or attitude based on emotion rather than reason. That is the definition of sentiment straight from our dictionary. Affection: We love trading with a passion or your time would not be spent reading the work we produce and our time would not be spent producing it in the first place. What compels us to return each day for more? Idea: Trading can be a profitable venture that average people do succeed at. many of us are living proof with legions more to join us. Opinion: We think we can guess which way the market intends to go next and what approach we should take to follow. Thought: Successful trading isn't as easy as we once thought. Attitude: Our next string of winning trades begins tomorrow! Emotion versus reason: The market can, will or must behave in a certain way. The market will do exactly as it pleases to our delight or destruction. Market Sentiment does the very best it can to remain market neutral and calling near-term direction in the highest odds possible to predict. There was a time when this was easy; it's November - time to load up on bullish plays and sell them in December for massive gains. Will that work this time? We wonder. The Dow has rallied almost 1,400 points in the past two weeks and few seem to care. All eyes are on the tech stocks that continue to struggle and disappoint while fortunes were missed on those issues with fewer than four symbols. Now what? Can the NASDAQ markets pull it together and ascend to lofty ground? Market bulls hope so and may just get their wish. It is our belief that we will soon see a massive uptrend that lasts for weeks or months. Not likely to be dramatic as the past two years and perhaps mixed in with future capitulation swings as well. A pattern has developed since this year began on market rallies and declines. Rallies are a continual struggle for both the Dow and NASDAQ to advance together while declines are met with equal aplomb. This may not be new but the degree to which it occurs now is somewhat disconcerting for the bulls. Technical patterns remain diverse between markets once again. A case can easily be made for indexes to head in either direction which doesn't exactly spell strength or weakness. Tons of cash still sits on the sidelines but we've heard that for endless months along with the following. Institutional traders in the S&P 500 arena continued to hug ten year extreme net-short positions into this week and seldom lose. An updated report tomorrow will be interesting to see if it shows a significant reduction of this status as of Tuesday 10/31 when the latest figures are compiled. They began building this position at current SP00S levels and scaled their way in selling short much higher than this. Enormous profits were on the table when we tested the most recent lows twice and still they hold. It truly perplexes us but our best guess as to why is not good news for those expecting a parabolic market move up the charts. The Dow is in great shape and can easily survive a bout of profit taking. The SPX is sound but suffers from its tech components. The NASDAQ markets have charts that show signs of life but remain a technical mess. Earnings season is winding down and we haven't gathered our rally legs beneath us quite yet. Will we? Recent history says yes but we will wait to play the long- term upside on signs of latent overall strength. Frankly, we expected more than the cyclical rally the Dow has enjoyed and remain vigilant for signs of broad-based action to arrive. The question does beg to be asked; what catalyst will drive price levels higher once earnings season ends? Can we rally strong into the fourth quarter expectations without being derailed once again? It is very possible but remains to happen. Meanwhile, option traders have ample opportunity to profit every week. Market Sentiment has stated ample times it does not matter which way the markets move so long as we choose the right strategy. Three or four strategies each are all any of us need to profit wildly regardless of underlying market action. Waiting for market rallies solely to buy calls is just one part of the three-piece puzzle. A time will come when that's not enough and it may be sooner than many want to realize. The markets are kind enough to offer us profits in many forms each and every day. It is solely up to us for safe harvest of them accordingly. Regardless of our sentiment, one thing is clear; the markets will move with us in harmony or opposition of their direction. Let's be sure to choose the right one! ***** VIX Thursday 11/02 close: 26.61 30-yr Bonds Thursday 11/02 close: 5.79% 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. Thursday (11/02/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 790 - 775 9,586 295 32.49*** 770 - 755 8,921 2,941 3.03 OEX close: 753.52 Support: 750 - 735 15,412 7,215 .47 730 - 715 6,662 11,127 1.67 Maximum calls: 745/5,956 Maximum puts : 700/4,790 Moving Averages 10 DMA 736 20 DMA 731 50 DMA 769 200 DMA 777 NASDAQ 100 Index (NDX/QQQ) Resistance: 91 - 89 24,480 10,844 2.26 88 - 86 21,324 17,530 1.22 85 - 83 44,482 34,429 1.29 QQQ(NDX)close: 82.00 Support: 81 - 79 30,711 51,979 1.69 78 - 76 10,775 38,032 3.53 75 - 73 4,660 48,205 10.34 Maximum calls: 84/25,573 Maximum puts : 80/33,658 Moving Averages 10 DMA 81 20 DMA 80 50 DMA 88 200 DMA 94 S&P 500 (SPX) Resistance: 1500 11,585 3,990 2.90 1475 16,108 4,778 3.37 1450 11,186 8,695 1.29 SPX close: 1428.32 Support: 1400 27,395 32,840 1.20 1375 13,265 18,680 1.41 1350 8,413 23,774 2.83 Maximum calls: 1400/27,395 Maximum puts : 1400/32,840 Moving Averages 10 DMA 1393 20 DMA 1385 50 DMA 1438 200 DMA 1441 ***** CBOT Commitment Of Traders Report: Friday 10/27 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials DJIA futures Open Interest Net Value +89 -483 Total Open Interest % (1.07% net-long) (2.34% net-short) NASDAQ 100 Open Interest Net Value -262 +85 Total Open Interest % (1.48 net-short) (.21% net-long) S&P 500 Open Interest Net Value +57,031 -66,429 Total Open Interest % (31.05% net-long) (10.72% net-short) What COT Data Tells Us: Commercial positions in S&P 500 have held their ten-year extreme short levels while small specs increased their net-long positions as compiled Tuesday 10/24 by the CFTC. Tomorrow's data should give a clearer picture to Commercials either covering some profitable shorts or holding fast into next Tuesday. Bullish: Fed's finished Benign government reports Certain market leaders showing strength Seasonal tendency to rally Bearish: Oil Prices COT reports (tomorrow) Recent pre-warnings, downgrades Broad market's break of critical M/A support Market leaders breakdown ************** MARKET POSTURE ************** As of Market Close - Thursday, 11/02/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,880 10,250 11,100 SPX S&P 500 1,428 1,385 1,445 COMPX NASD Composite 3,429 3,150 3,550 OEX S&P 100 753 700 775 RUT Russell 2000 506 465 520 ** NDX NASD 100 3,308 2,950 3,550 MSH High Tech 945 870 975 BTK Biotech 785 680 820 ** XCI Hardware 1,288 1,230 1,310 GSO.X Software 428 385 440 SOX Semiconductor 732 600 805 NWX Networking 1,065 925 1,180 INX Internet 388 315 430 ** BIX Banking 608 545 630 XBD Brokerage 630 600 655 IUX Insurance 796 760 830 RLX Retail 819 730 860 ** DRG Drug 422 400 440 HCX Healthcare 885 865 900 XAL Airline 151 130 160 OIX Oil & Gas 301 296 320 Four alerts were triggered at resistance in the past two sessions. Raising support (SPX, COMPX, RUT, MSH, XCI, GSO.X, INX, XBD, DRG, HCX). Raising resistance (RUT, BTK, INX, RLX). We are continuing to see several sectors strengthen, but traders should continue to raise their stops to assure profits. ************** TRADERS CORNER ************** What Moves The Markets Revisited By Molly Evans It was such a pleasure to meet several of you at the recent Denver OIN conference. What a sharp bunch! I do hope that all of you are trading with more confidence and making better informed decisions about the entire process of option investing and management. It was so nice to hear that some of you do read this column! I was so pleased and flattered! Thank you! For those of you who couldn't make it this session, well, pencil it in for the spring session. These seminars are nothing short of empowering and provide a perfect backdrop to networking with other traders. My topic was a bit different from what one would typically find at a seminar. "Reading the Markets: Identifying the Twists and Turns of Momentum, Sentiment and the Resulting Price Action" was a didactic in everything from Oil Import/Export reports to market cycles and McClellan Oscillators. If I may, I'd like to recap some of the highlights of that presentation much like Lee Lowell did in his Tuesday night column. Thanks Lee! Great idea! I think that I can whip up an article in nothing flat but talking in front of over a hundred highly intelligent and intense traders and fellow staff is well...a little intimidating. Glad to be back here in my little chair here in my cozy office, fingers gliding over a keyboard. Yet, I'd do it again in a heartbeat. What a great experience. Thank you Jim and James Brown. When we think of the market, we must consider the many facets that impact it every single day. Everyone knows this. A bit of news can heavily impact a trade we have in play in just moments. However, generally speaking there are four big themes that guide market performance. We've termed these Key Market Pillars: Economy, Corporate Earnings, Interest Rates and Liquidity. The interpretation of news or events in any one of these categories has the most impact upon the moves of the market in varying time frames. There's no way that I can elaborate fairly on each of these pillars in just one column so I'm going to write just about the economy tonight. I will revisit these other themes in subsequent articles. As far as the economy goes, we had a look at benchmark reports that come out each month or quarter as it may be. Jim mentioned the National Association of Purchasing Managers report in his Tuesday evening Market Wrap column. This report is a gauge to national manufacturing activity and as Jim so aptly reported, the latest numbers have come in at a continued and persistent downtrend signaling that there is indeed a contraction of manufacturing activity. Read: the economy is slowing down! We knew that, right? A value of 50 is neutral, while over 50, the economy is expanding. Conversely, under 50, it is contracting. The NAPM values have been in a downward trend since it peaked last fall. Consider that the index value was well over 57% this time last year. October of 2000's number came in at a two year low of 48.3%, which was indeed below analyst's expectations. How does the market react to something like this? These are the million dollar questions. Does it rejoice because this report would be strong evidence to the Fed that their monetary tightening has succeeded in slowing inflationary pressures? Or, does the market get a shiver down its spine in its worrying whether this signals a "hard landing" and whispers "recession"? Even if I knew what the numbers were going to be before they were announced, I would be loath to try and guess the market's analysis. We can't make our trading decisions upon these reports but it does better enlighten us to how the macro picture is painted. Paying attention to these reports at the very least should deepen our understanding of the fundamental movements of the market. The Oil and Gas Import Report is one that piques my interest as this is tradable stuff. The report is released each Wednesday. As I explained to the attendees, the markets have been bullish for crude oil, gasoline and heating oil. While the American Petroleum Institute had assured the nation earlier that inventories would be replenished, analysts had voiced their doubts. Furthermore, the oil indices were in a downtrend. I wondered out loud that when I'm looking at these things whether I'm acting as smart money or if I'm way behind the curve and have missed something really obvious and am thus "dumb money." It seemed like a no-brainer. Shortage of oil equals rise in oil prices. If those inventory numbers came in less than expected as was the popular rumor, we could see a trend reversal in oil. Guess what? You've got it. The API reported that crude oil inventories declined by almost 750,000 barrels when the market's expectation was for a substantial rebuilding of stocks by about 3 million barrels. There is no discernible effect yet from the supposed increase of production of 800,000 barrels per day that OPEC said began on October 1st. None of that oil has shown up in inventory data. Hmmm. Where's the oil? The OIX.X had three nice up days in a row. Did I take my own trade? Regretfully, no. You know me. I was buying puts on some cursed four-letter stock! The agony! The pain! What can I say? You'd have had to be nimble though - as usual in this market. The oil indices and equities fell today as crude oil prices declined about 2% on news that an Israeli-Palestinian peace plan eased concerns that Middle East tensions would disrupt oil supplies. For those who have subscribed to the www.indexskybox.com free trial, you already know that Austin's team nailed this one - they remarked that the OIX.X could be an interesting short here. Yep. News and technicals have a funny way of turning things around. Next up: Nonfarm Payrolls. No other report released by the government is as widely watched and anticipated by the market as this one. Payroll employment is a measure of the number of jobs in more than five hundred industries in all states and 255 metropolitan areas. The report provides information on average weekly hours worked and average hourly earnings, which are important indicators of the tightness of labor markets - something the Federal Reserve pays close attention to when setting interest rates. The October numbers will be released tomorrow, November 3rd. The September numbers pointed to the economy maintaining considerable momentum but job creation had slowed compared to earlier in the year and 1999. The pool of available workers had again fallen to under 10 million. The argument is that if fuel prices remain high and productivity growth weakens, this could impact workers' bargaining positions and could spur higher wage demands. At this point, the labor market does not look to be the source of inflationary pressures. The PPI (Producer Price Index) and CPI (Consumer Price Index) are often released within a day or two of each other. The PPI precedes the CPI and is considered a guide to the CPI so it is usually not a surprise to the market. These two indices report changes in prices for nearly every goods producing industry in the domestic economy. The PPI would monitor pricing for agriculture, electricity and natural gas, forestry, fisheries, manufacturing, and mining industries. The CPI would go one step further then and report the prices on a basket of goods to the consumer. The value is in comparing prices to the consumer in terms of the prior month or the prior year. Not surprisingly, both the PPI and CPI numbers were up for September because of...drum roll please...higher energy costs! The impact of these facts are that they could ultimately induce businesses that are suffering from higher energy costs to attempt to raise their prices more aggressively. Labor may also begin to believe that the higher energy prices are here to stay and become more aggressive in their wage demands which will in turn put even more pressure on businesses to raise their prices more quickly. Unfortunately, these risks suggest that policymakers will not ease monetary policy anytime soon. And you thought a rate cut was coming? Let's see what the October numbers and beyond bring. See, I told you I couldn't give my whole presentation in one article--we're just on the tenth of 52 slides! Is this putting you to sleep? I warned the attendees that I do put people to sleep in my professional career but I had hoped that wouldn't be a problem while listening to my talk! Wake up! We're almost done. Finally, the Gross Domestic Product report is released on a quarterly basis. The GDP is a very important economic indicator yet it is generally well anticipated and subsequently has little impact upon the market. The GDP value is measured on the product side by adding up the labor, capital, and tax costs of producing the output. On the consumption side, GDP is measured by adding up expenditures by households, businesses, government and net foreign purchases. Higher growth rate numbers suggest a lead in to accelerating inflation, while lower growth indicates a weak economy. Third quarter was released just last week. It came in weaker than expected at 2.7%. Here are some of the highlights from that report: Major demand components were strong - consumer, business and export demand. Spending for new and rebuilt housing slid sharply. Government spending was also downward and inventory accumulations were as strong as in the previous quarter. This, shifts weakness into the final quarter. Yes, you better believe it. We'll be hearing about those backlog of inventories in corporate analyses next quarter and you'll be able to say that you knew about that a long time ago. Now that you've got all of this great economic information, I have a little quote for you to think about: In the words of Aldous Huxley, "Facts do not cease to exist because they are ignored." I hope you will now endeavor to pay more attention to the economic indicators so that you may realize a greater depth as a market observer as well as a trader. We'll revisit this and more next week. Get out to vote and best wishes for continued successful trading! ************************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. 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Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=858 ************************************************************** ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 10880.51 245.15 135.37 -71.67 -18.96 289.89 Nasdaq 3429.02 -86.96 178.23 -36.24 95.63 150.66 $OEX 753.52 6.59 18.16 -2.54 5.13 27.34 $SPX 1428.32 19.08 30.74 -8.18 7.10 48.74 $RUT 506.97 2.87 14.96 -2.50 11.79 27.12 $TRAN 2789.87 157.64 58.01 8.15 37.10 260.90 $VIX 26.61 -3.12 -1.80 0.57 0.05 -4.30 Calls BRCD 243.00 -18.59 19.47 1.63 14.00 16.50 Moving higher JNPR 194.88 -14.63 28.63 -11.63 11.50 13.88 Dropped MANU 123.63 -6.28 10.25 2.03 7.66 13.66 New, rally MLNM 84.00 -4.38 2.13 4.25 7.19 9.19 New, leader IMPH 77.63 2.75 4.38 -6.13 8.13 9.13 Dropped PKI 119.13 5.63 2.50 -2.19 1.81 7.75 Break out??? MEDX 70.25 -3.00 1.25 3.81 5.31 7.38 New, Biotech RIMM 106.50 -16.63 16.69 -4.13 10.63 6.56 Eager buyers EMC 94.94 -4.38 4.63 1.94 3.94 6.13 Big rebound ADBE 80.81 -5.19 6.44 1.19 3.56 6.00 Still strong CMVT 115.81 -1.50 3.44 5.50 -1.44 6.00 Buyers are in ITWO 171.44 -10.81 13.31 1.50 -0.06 3.94 Rally??? MSFT 70.31 1.38 -0.19 0.75 0.69 2.63 Above $70 PSFT 46.13 -0.94 -0.44 0.94 1.56 1.13 New, growing LEH 60.88 2.44 0.06 -3.63 0.00 -1.13 Dropped BRCM 219.94 -14.38 9.69 -7.06 4.63 -7.13 Dropped NTAP 105.88 -16.81 12.81 -9.19 -3.94 -17.13 Dropped Puts MERQ 108.13 -11.81 6.00 -2.25 -0.63 -8.69 New, brutal RMBS 50.63 -3.75 -8.50 3.69 2.00 -6.56 Dropped SLR 45.00 -0.06 -3.94 -0.56 1.56 -3.00 Relief rally LVLT 41.69 -1.19 4.50 -5.13 -0.88 -2.69 New, bugaboo TIBX 66.94 -4.88 2.94 -3.00 6.94 2.00 On thin ice PHCC 54.75 0.50 3.00 1.19 -0.19 4.50 Dropped SNDK 57.38 -2.94 4.53 -0.59 4.25 5.25 Dropped DGX 96.19 -0.75 6.50 -5.31 5.25 5.69 Rolling along 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: ***** BRCM $220.00 +4.69 (-7.13) The intraday range on BRCM continues to narrow, which has made it more difficult to take advantage of the stock's usual volatility. The $225 level continues to hinder BRCM from breaking out of its recent consolidation. Of course, the warning from Nortel Networks yesterday didn't help BRCM's case for breaking out. Although shares never traded below our stop point at $210, we're no longer initiating new positions in light of BRCM's recent basing pattern. However, if BRCM does eclipse the $225 level early tomorrow, traders should watch how the stock acts around resistance at $230. On the other hand, if BRCM breaks down below its critical support level at $210, consider stepping out of the way. IMPH $77.63 +8.13 (+9.13) Short-lived, our play on IMPH fell through our stop level during the noon hour yesterday, and couldn't mount a recovery until the buyers returned this morning. Even though the strong buying volume today yielded more than an $8 gain and another all-time high, we need to let IMPH go because of its technical violation. For those that jumped the gun and bought yesterday's dip, keep your stops tight to prevent giving back your profits. In this continuing volatile market, we need to focus on the strongest plays, and yesterday's performance kicks IMPH off that list. JNPR $194.88 +11.50 (+13.88) It has been a nip and tuck battle between the bulls and the bears as JNPR has stumbled its way out of the abyss it was thrown into when NT slammed the entire Networking sector with its disappointing earnings report. While well off of its lows near $160, we drew our support line on Tuesday at the $185 level, and the buyers just couldn't hold off the sellers as yesterday's session wore on. Normal profit taking should have halted at this level, but it wasn't to be. JNPR's recent history of sharp intraday rallies and selloffs makes it a difficult one to take a position on. Although it was encouraging to see another double-digit gain to plus side today, we need to see a more consistent trend from our successful plays. Rather than continue to nurse this seriously wounded play, we'll drop it tonight to make room for plays with a healthier trend. NTAP $105.88 -3.94 (-17.13) Despite the Buy recommendations by USB Piper Jaffray and First Albany today, NTAP continued to show weakness. But quite honestly, the play was over from the get-go yesterday. During amateur hour, NTAP sunk fast. The swift violation of the $115 mark, which was the set cut-off point from Tuesday, signaled trouble ahead. This red flag provided a warning to close positions and reassess the play. Before long, a clear direction presented itself - NTAP was headed back down to challenge its recent lows. Even today's early rally couldn't break the pattern of lower highs and the share price remained suppressed. The upward momentum is over and it's time to move out of NTAP and into a more advantageous plays. LEH $60.88 +0.00 (-1.13) LEH remained steadfast above the $60 level in today's trading, but the play was over before it began yesterday. Shares of investment banks were down across the board after two influential analysts lowered earnings estimates for the sector. LEH took it on the chin and fell hard. The share price lost 5.6%, or $3.63 by Wednesday's close. Salomon Smith Barney and Goldman Sachs cited concerns over investment banking operations and trading revenue. So while the prospects of playing LEH were exciting going forward into November, we must cut it from our call list this evening to make room for more lucrative opportunities. PUTS: ***** SNDK $57.38 +4.25 (+5.25) It appears that at least for now, traders have forgotten about SNDK's legal troubles. Yesterday, with a downgrade on ALTR weighing heavily on the Chip sector, SNDK was able to weather the storm. While it did close down 1.13%, volume was light, at less than 50% of ADV. Today, most Semiconductor stocks traded higher thanks to a bullish conference call from INTC. This helped lift SNDK even higher, with the stock rallying 8%. While the volume was once again low, clocking in at 62% of ADV, today's close put SNDK above resistance at $55 and the 10-dma at $55.23. This suggests that SNDK's downtrend may be over and with that, we are closing out this play. RMBS $50.63 +2.00 (-6.56) We jumped on the "beat up on RMBS" bandwagon Tuesday after rumors surfaced that INTC would be moving away from using Rambus DRAM products in the future. Although it is unclear whether there is really a change in INTC's stance, the selling pressure that pushed shares of RMBS as low as $36.50 on Tuesday has quickly dissipated in the wake of more Semiconductor manufacturers (Samsung and Elpida in the past 2 days) signing licensing agreements and helping to insure the stream of royalty payments will continue to flow in. Investors have responded by pushing the price back above $50, our stop loss point, and trigger for dropping the play. While it appears unlikely that RMBS will have a strong upward run anytime soon, the bearish bias seems to have dissipated, making it a poor put play as well. There are plenty of better plays out there, so we are kicking RMBS off the playlist to make room for them. PHCC $54.75 -0.19 (+4.50) After PHCC rallied with the broader markets on Tuesday, the downward momentum never returned. In recent sessions, a sideways trend above the 200-dma (54.31) clearly established itself. This pattern and the fact that PHCC is trading above the $55 mark presents more than enough evidence to drop the play tonight. If by chance you have open positions, exit on intraday weakness. It's unlikely PHCC will see the underside of $50 anytime soon. ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. 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The Option Investor Newsletter Thursday 11-02-2000 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/110200_2.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=841 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** MSFT $70.31 +0.69 (+2.63) In an impressive show of strength, MSFT rallied $0.75 on Wednesday, although both major indexes lost ground. Wednesday's volume was over 40 million shares, higher than the three month average volume of 37 million but lower than the ten day average volume of 59 million. On Thursday, MSFT cleared $70 easily and settled at a trading range between $70 and $70.50; volume came in at 33 million. MSFT is situated comfortably above the 50-dma at $63.40, the 10-dma at $66.10, and the 5-dma $69.00. However, shares may struggle to cross the 200-dma at $73.73. A breakout above this level on strong volume could mean the stock has clear sailing ahead and provide a more conservative entry point. However, consider that MSFT has rallied 40% from $50 in only a few weeks, so profit taking is likely, in which case a pull back to the aforementioned $66 level might provide a solid entry. In addition, volume has been decreasing for the last five days. Make sure the stock stays above the 10-dma, and ideally the 5-dma in order to keep the momentum. Furthermore, we will continue to use the $64 level as a protective stop. ADBE $80.81 +3.56 (+6.00) The up-trend that started for ADBE in mid-October continues into November. Yesterday, on a day of light profit taking for the NASDAQ, ADBE managed to find interested buyers, edging up $1.19 or 1.56% on 170% of ADV. Bouncing off support at the 5-dma in the early going, the stock continued rallying for the remainder of the day, closing at near its high. Today, ADBE gapped up above what had previously been resistance at the $77-78 level. From there, the stock continued higher, to close up 4.61% on almost 170% of ADV. Today's move up was especially impressive as ADBE broke out of its upward sloping regression channel to the upside. This suggests that ADBE may trade higher and in a steeper channel. For aggressive traders, a bounce off the $77-78 area could allow for an entry point, with the 5-dma at $75.72 also providing additional support. There is also support from the 10-dma at $72.59. However, if ADBE drops below the key level of $70, we would no longer recommend starting a position in this play. Conservative traders may want to wait for ADBE to break through resistance at $83 with volume before jumping in. BRCD $243.00 +14.00 (+16.50) On a day of rest for many Tech stocks, BRCD spent Wednesday defending its 50-dma support level now at $227.93. While it did manage to end the day slightly in the positive, resistance at $230 was strong, as it closed just below that level. Today, Merrill Lynch initiated coverage of BRCD with a Buy rating. Setting a 12-month price target of $250, Merrill noted that strong barriers to entry and the ability to maintain revenue and earnings growth rates of 100 percent as drivers for the stock price. With that, BRCD pole vaulted above resistance this morning as it gapped up at the open. From there, the stock spent the rest of the day moving higher to close up 6.11%. While the volume was average, it is picking up. Today's rally put BRCD back above its 10-dma at $237.03, a support level which could make an attractive entry for aggressive traders. There is also support in increments of $5 at $240, $235 and $230. As a note, we are setting a stop at $215. A move below this level would likely lead to more weakness. For conservative traders, a break through $245, back by increased volume would be a safer entry, setting BRCD up to challenge its next level of resistance at $250. CMVT $115.81 -1.44 (+6.00) While many Tech stocks took a breather yesterday, CMVT managed to open above its key support level at $110, using this area as a launching pad to blast through resistance at $115. Upon reaching this point, the buyers came in force, driving the stock higher to close up $5.50 or 4.92%, backed by almost 120% of ADV. Today the stock attempted to break through resistance at $120 but upon reaching that level, some traders decided to take some profits, though volume was low on today's slight pullback. Just in case, we are setting a stop at $110 and recommend closing out a play if it falls below this level. For aggressive traders, targets for entry can be found at the 5-dma, now at $112.50 as well as support at $115 but confirm a bounce with volume. Conservative traders will want to see CMVT break through $120 with conviction before entering this play. With news today that tensions in the Middle East are easing, this could help Israeli-based CMVT move higher. EMC $94.94 +3.94 (+6.13) On Wednesday, EMC announced that it would acquire storage software company CrosStor for $300 million. While such news usually leads to a dip in stock price, EMC moved higher as the Street applauded the deal. With the acquisition, EMC hopes to earn 20 percent of its future revenue from the higher margin software part of the Storage sector. The acquisition also puts EMC in a position to compete in the Network-Attached Storage (NAS) space, a high-growth area which NTAP currently dominates. As a result EMC gained almost $2 on over 115% of ADV. Today, comments that EMC is one of the better positioned Storage companies helped propel the stock even higher. With that, EMC added another 4.33% to its gains on over 125% of ADV. This put EMC back above its 50-dma at $94.61. A bounce off that level could provide an aggressive entry, as could a bounce off the 5 and 10-dma at $89.66 and $91.92, respectively. In entering this play off a bounce, make sure that EMC stays above key support at $86. For conservative traders, a break above $95 on volume, confirmed with a strong market would be the signal to enter, putting EMC in a position to challenge the psychological century mark. RIMM $106.50 +10.63 (+6.56) Although yesterday was a down day, it was also a constructive one. While it started the day weak, RIMM successfully tested support at the 50-dma. Finding eager buyers at that level, the bouncing strongly, narrowing the gap to close down 4.13% on over 170% of ADV. Considering that most of the volume came from buyers, this was a good sign indeed. Today, despite a downgrade of NT casting a pall on the Toronto Stock Exchange (TSE), RIMM was able to move strongly higher. Gapping up at the open, the stock ended the day near its highs, closing up $10.63 or 11.08% on over 150% of ADV. With today's close, RIMM is back above all its major moving averages. At this point, there is support from the 10-dma at $105.37, the psychological $100 and the 5-dma at $97.03. A bounce off support confirmed with buyer interest would provide for an aggressive entry but make sure RIMM stays above the key level of $95. Traders looking to enter on strength will be watching the $110 level. A break above $110 on volume would provide a conservative entry point. PKI $119.13 +1.81 (+7.75) Flat-lining for the past 2 days, PKI looks like it is getting ready to break out once again. Profit taking in yesterday's quiet session couldn't push the stock below $116.50, well above our stop loss level of $113. Although not a stellar move, it was encouraging to see the buyers step up to the plate again today, pushing up towards resistance as the NASDAQ managed to post a solid gain. Volume today came in on the light side, with only 500 K shares trading hands, but improving sentiment in the markets could be just the catalyst for our play to charge to new highs. A bounce from intraday support at $116-117 looks like a decent entry for those who like to target shoot, while more conservative players will wait for a breakout over $121 before opening new positions. Volume will likely be the key to the stock's near-term direction, so follow its trend. If the bulls are serious, strong volume should accompany any move to new highs. ITWO $171.44 -0.06 (+3.94) A convincing bounce off $162.50 early in Monday's session generated the momentum that took ITWO through the immediate resistance at $170.75 and beyond. ITWO struggled a bit at $175, but it was the $180 mark that proved impregnable. A good effort at $179.38, but no cigar! Today's momentum lost its oomph early on, but ITWO traded confidently at a higher near-term support level of $170. The stock's current position is bolstered by the intersecting 10, 30 and 50 dmas at $170.22, 173.80, and $171.86, respectively. The more enterprising traders might consider taking an entry on extended advances through these technical markers. Conservative traders, on the other hand, should wait for ITWO to clear the upper resistance at $180 as ITWO moves closer to its proposed stock split around December 4th. Else, target shoot and play a volatile intraday spread. But no matter how you choose to strategize the entry/exit, consider setting your stop no lower than $160! We consider the underside of $160 dangerous territory, despite the rosy market outlook. ******************* PLAY UPDATES - PUTS ******************* SLR $45.00 +1.56 (-3.00) SLR fell another $0.44 on Wednesday on volume of over 5 million shares. On Thursday, SLR increased $1.56 on volume of 4.2 million shares. The stock remains unable to rally above the 5-dma of $45.67, and the 10-dma of $47.00. It is situated right on the 50-dma of $45.16, and a drop below this could bring it to the 200-dma at $40.00. If it falls below this level, it is fairly safe to assume that the next stop is the long term support at $35. Volume is above average on down days. SLR looks like it is struggling to clear $46. SLR's total cash is $2.43 billion, which is exactly equal to the purchase price of NatSteel. According to Lehman Brothers, this will be dilutive by 01 to .04 cents next year. In order for this transaction to be successful, electronics outsourcing trends need to stay strong, and SLR must be able to successfully integrate a large Asian based provider. If SLR clears $48, this would be confirmation of an uptrend, and new positions should not be entered. Consider entering on a drop below $44 on strong volume. TIBX $66.94 +6.94 (+2.00) Skating on thin ice, our TIBX play is trying really hard to break out of its 4-month bearish trend. More weakness in yesterday's session was followed by a sharp rally today, propelling our play through the 10-dma ($63.69) and intraday resistance at $66. Stronger resistance sits just overhead at $68, and we are looking for sellers to materialize near this level to drive TIBX back down towards the $59-60 support level. Our play is still technically weak, and any further profit taking in the broader technology sector is likely to drive our play down again. Use a rollover near resistance to initiate new positions. Place your stops at the $68 level, and if it fails to contain the bulls enthusiasm for the stock, consider it a sign that TIBX is on the mend. More conservative players will want to use a move down through the 10-dma as their trigger for initiating new positions, as it will signify that the bears have taken control again. DGX $96.19 +5.25 (+5.69) A series of peaks and valleys describes DGX's trend so far this week. After seeing the share price slide to $83.25 on Monday and then to flirt at the $100 level on Tuesday, it could either be nerve-wracking or an optimum trading opportunity. We suppose it depends on your perspective of whether it was a half-empty or half-full glass of water and, of course, timing. The past two sessions continued the rolling pattern, but unfortunately, the $88 level held a firm bottom yesterday. The Strong Buy upgraded by Banc of America Securities and its positive comments likely influenced trading. And so, we're back to square one. Wait for DGX to resume a downtrend. A convincing break of $90 would be optimal, but a high-volume rollover at the current level is quite reasonable. If the stock tracks upward and you have open positions, keep the century mark set as a stop! ************************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=859 ************************************************************** ************** NEW CALL PLAYS ************** MEDX - Medarex $70.25 +5.31 (+7.25 this week) One of several Biotechnology companies that is using genetically engineered mice to create human monoclonal antibodies and develop therapeutic products, MEDX calls its invention the HuMAb-Mouse. Several treatments are in clinical trials; some target cancers (prostate, colon, kidney) tumors (head, neck, breast), and others are designed to fight forms of anemia and acute leukemia. The company's lead product, MDX-RA, may prevent secondary cataracts. Spreading its influence, MEDX currently has deals with more than a dozen firms, including Centacor, Merck, and Aventis Behring. MEDX has been on a steady rise since late May. April and May saw shares of Medarex test the 200-dma, but since then the stock has been posting a series of higher highs and higher lows, and the rally in the past three weeks has pushed the stock higher by more than 60%. Part of the run was likely due to investor enthusiasm for the company's announced stock split, which took place on October 18th. Rather than sell-off after the event though, MEDX shares headed higher 2 days later, possibly on news of the alliance formed with ZymoGenetics, whose strong track record of bringing products to market combined with its expertise in the field of genomics and protein therapeutics, should help MEDX to move towards profitability. The last earnings report from the company was issued on August 11th, and if the pattern holds true, we are looking for the company to release its next quarterly report in the coming weeks. Although we were unable to confirm a date with the company this afternoon, we will get a confirmed date tomorrow, and list it in the play write-up this weekend. The consolidation earlier this week at the $60 level provided an ideal springboard for the stock to launch higher, and a rally in the Biotech sector over the past 2 days was just the catalyst the stock needed. Intraday support has been building near $67, with further support at $64, a level we need to see remain intact for our play to stay healthy. Aggressive traders can initiate new positions on a bounce from this level, but need to make sure strong volume is confirming the move. Use $64 as your stop level, and if it is violated, stand aside from the play. More conservative players will wait for MEDX to continue upwards from current levels (above $71) before stepping into the play. Since splitting its shares 2-for-1 on October 18th, news has been rather sparse on MEDX. The day after the split, the company announced an alliance with ZymoGenetics to develop fully human antibody therapeutics. The combination of MEDX's fully human monoclonal antibody development technology with ZymoGenetics' expertise in the field of genomics and protein therapeutics in bodes well for bringing additional products to market. BUY CALL NOV-60 MZU-KL OI=285 at $13.25 SL=9.75 BUY CALL NOV-65 MZU-KM OI=294 at $ 9.75 SL=6.75 BUY CALL NOV-70*MZU-KN OI=301 at $ 5.88 SL=3.75 BUY CALL DEC-65 MZU-LM OI= 6 at $12.88 SL=9.75 BUY CALL DEC-70 MZU-LN OI=327 at $ 9.38 SL=6.50 Picked on Nov 2nd at $70.25 P/E = N/A Change since picked +0.00 52-week high=$103.00 Analysts Ratings 3-3-0-0-0 52-week low =$ 3.50 Last earnings 08/00 est= -0.13 actual= -0.16 Next earnings 11-09 est= -0.05 versus= -0.16 Average Daily Volume = 596 K PSFT - PeopleSoft $46.13 +1.56 (+1.13 this week) PeopleSoft's mission is to provide innovative software solutions that meet the changing business demands of organizations worldwide. Founded in 1987, PeopleSoft is a market-leading provider of eBusiness application software for Fortune 1000-class corporations. From an early focus on the enterprise applications of human resources and finance, PeopleSoft expanded its tools and application portfolio to support these core business processes: materials management, project performance analysis, supply chain planning, manufacturing operations, and eBusiness. According to their television ads, it's people that power the Internet. In the case of the company's shares, it's buyers that have helped power the stock higher. While many Tech issues have spent the past month searching for a bottom, PSFT has been making new all-time highs. For the month of October, shares of PSFT appreciated over 38 percent, using its 50-dma (now at $34.15) as its starting point and moving up on steadily increasing volume. A number of factors contributed to PSFT's rise during that time. The most important factor of all was PSFT change in strategy, shifting their focus to software that helps companies manage relationships with their customers. This was seen by the Street as a move in the right direction, and for good reason. PSFT's main business, which is software that deals with a company's internal operations such as human resource and accounting, is a low-growth sector, at 15% a year. But growth in demand for customer relations management software is estimated at 45 to 50 percent a year. Change the annual growth rate in a discount-pricing model from 15% to 50% and it's no wonder the stock has been ramping higher. The large amount of open interest, narrow bid/ask spread, and low cost of the call options make this play an especially attractive one. That being said, it is important to make sure that the technical picture is solid when initiating a play. For aggressive traders, a bounce off support at the 5- and 10-dma at $44.67 and $44.11, respectively are targets to shoot for. There is also support at $42, but a move below this point would be a signal to close out the play. A bounce off the $45 level would also provide for an entry but for a safer play, wait for PSFT to clear $48 with volume before entering. Despite weakness in rival and partner Oracle today, PSFT was able to continue its ascent. Volume for the past week has been drying up while its 5 and 10-dma are converging to provide strong support. It appears that the stock may be setting up for a breakout, with $48 as the pivot point. A break through that level would likely carry PSFT to $50 and from there, it's blue-sky territory. BUY CALL NOV-40 PQO-KH OI=1434 at $7.25 SL=5.00 BUY CALL NOV-45*PQO-KI OI=3094 at $3.50 SL=1.75 BUY CALL NOV-50 PQO-KJ OI=1399 at $1.44 SL=0.75 BUY CALL DEC-45 PQO-LI OI= 162 at $5.75 SL=3.75 BUY CALL DEC-50 PQO-LJ OI=3348 at $3.50 SL=1.75 Picked on Nov 1st at $46.13 P/E = 131 Change since picked +0.00 52-week high=$48.00 Analysts Ratings 2-7-10-0-0 52-week low =$12.00 Last earnings 10/17 est= 0.07 actual= 0.08 Next earnings 01-16 est= 0.09 versus= 0.04 Average Daily Volume= 6.36 mln MLNM - Millennium Pharmaceuticals $84.00 +7.19 (+9.19 this week) Millennium Pharmaceuticals is engaged in the commercial application of genetics, genomics & bioinformatics for treatment and diagnostics of such diseases as asthma, stroke, colitis, and Crohn's disease. It derives revenues from research and development alliances with the major drug companies. Currently Millennium's LeukoSite subsidiary has developed CAMPATH, a potential leukemia treatment that has received FDA fast-track status. Biotechs are back and MLNM is leading the pack. The stock went on a tear today and quickly shattered the immediate resistance at $80. Volume picked up pace and MLNM charged ahead for a new 52-week high at $84.25. The bullish close at $84 further signifies the buying may continue in subsequent sessions. Look for the trading activity to mimic today's strong volume at nearly twice the ADV. If the momentum extends tomorrow, MLNM should find near-term support at $82 and $83 on intraday dips. This level is way above any dma measurements or firmer support. The converged 5 and 10-day lines are in the proximity of $75 and $77, which should hold up on a deep pullback. This level is rather perilous, so please consider setting stop losses no lower than $75. With the company's recent earnings and 2:1 stock split now a thing of the past, the calendar is clear for a pure momentum run. Millennium Pharmaceuticals and Bayer AG recently announced that their collaboration to streamline the drug discovery process is a great success. Currently they're moving more than 70 disease- relevant validated drug targets into what is called their high- throughput screening or lead identification in the first two years of their five-year research alliance. This "screening" is a key step in the process of drug discovery. BUY CALL NOV-80 UMY-KP OI=717 at $7.88 SL=5.75 BUY CALL NOV-85*UMY-KQ OI=618 at $5.50 SL=3.50 BUY CALL NOV-90 UMY-KR OI=736 at $3.63 SL=1.75 BUY CALL DEC-85 UMY-LQ OI= 92 at $9.75 SL=6.75 BUY CALL DEC-90 UMY-LR OI= 50 at $7.75 SL=5.50 Picked on Nov 2nd at $84.00 P/E = N/A Change since picked +0.00 52-week high=$84.25 Analysts Ratings 6-6-2-0-0 52-week low =$17.47 Last earnings 09/00 est= -0.11 actual= -0.13 Next earnings 01-16 est= -0.06 versus= 0.01 Average Daily Volume = 2.12 mln MANU - Manugistics Group $123.63 +7.66 (+13.66 this week) Manugistics Group provides a suite of strategic, tactical, and operational supply chain planning software products. However nearly 60% of its sales is derived from consulting and other related customer support services. Their blue-chip clients are in the automotive, chemical, electronics, food, pharmaceutical, and retail markets. The rotation back into the techs last week sparked a rally that could very well take MANU into earnings next month. The strong upswing through the century mark was indeed promising, but it was the clean break of $110 on Tuesday that set the stage for a momentum run. The $110 level proved supportive in the following sessions and today was the latest in a series of all- time highs that began last Friday. This element poses to generate more enthusiasm; especially if MANU moves through $126.50 with any conviction. The potential profit taking that may come shouldn't be thought of as a negative aspect, but rather a profitable opportunity to take entry. Dips followed by strong bounces off the 5-dma ($113.38) or near-term support at $115 are reasonable entries, even for the more prudent trader. But take heed of a deep pullback to $110. Consider setting stops at this level to protect against sharp retracements. If you're a more cautious trader, then consider buying into strength as MANU mounts a campaign through the immediate resistance at $125. Earnings for the company are expected around December 21st. In the news, Manugistics Group announced it sold an additional $50 mln principal amount of 5% Convertible Subordinated Notes (due 2007) in its recent private placement that ends today. The notes will be convertible into MANU common stock at an initial conversion price of $88.125 p/s. The company will receive total net proceeds of approximately $242 mln from the completed offering and expects to use the net proceeds for working capital and general corporate purposes. BUY CALL NOV-115 ZUQ-KC OI= 8 at $18.25 SL=13.00 BUY CALL NOV-120*ZUQ-KD OI=30 at $15.75 SL=11.50 BUY CALL NOV-125 ZUQ-KU OI=61 at $12.75 SL= 9.75 BUY CALL DEC-120 ZUQ-LD OI=12 at $23.38 SL=18.25 BUY CALL DEC-125 ZUQ-LU OI=50 at $20.50 SL=14.75 Picked on Nov 2nd at $123.63 P/E = N/A Change since picked +0.00 52-week high=$126.25 Analysts Ratings 3-8-1-0-0 52-week low =$ 12.50 Last earnings 09/00 est= 0.00 actual= 0.03 Next earnings 12-21 est= 0.06 versus= -0.17 Average Daily Volume = 959 K ************* NEW PUT PLAYS ************* LVLT - Level 3 Communications $41.69 -0.88 (-2.69 this week) Level3 Communications is a global telecommunications and information services company that is building an international fiber-optic network based on internet protocol (IP). Their focus is primarily on the business market. Services include local, long distance, and data transmission as well as other enhanced services. Currently they serve 20 cities in the US and Europe. Analysts are smitten with LVLT and investors have showered the company with billions of dollars. However, the telecom "bugaboo" of late has driven LVLT below its historical support at the $60 level. The downward trend generated more momentum last week on Nortel's earnings woes and then this week, WorldCom (WCOM) shook up the sector with its 4Q growth concerns and restructuring plans. LVLT's share price vanquished amid the bad news and fickle marketplace. Take a look at AT&T's and Lucent Technologies' devastating price levels and it's easy to see where LVLT could end up over the near-term. Of course we don't want to try and guess where the bottom is, so keep stops in place to protect against a recovery. Consider setting a stop loss at the $48 level, which is currently just above the 10-dma line ($46.59). The $48 mark provides enough room to take aggressive entries on high-volume rollovers, but not enough to get hung. More conservative entries on intraday rollovers off the 5-dma ($43.93) could also prove lucrative. Today's bearish close is just a fraction from the intraday low of $41.44, so traders might want to take entries on further weakness - after amateur hour passes tomorrow, of course. LVLT hasn't seen the likes of these basement prices since January of 1999. BUY PUT NOV-50 QHN-WJ OI=276 at $9.50 SL=6.50 BUY PUT NOV-45*QHN-WI OI=395 at $5.88 SL=4.00 BUY PUT NOV-40 HGY-WH OI=559 at $3.38 SL=1.75 Average Daily Volume = 3.40 mln MERQ - Mercury Interactive $108.13 -0.53 (-8.69 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. It's been a brutal October for MERQ, and by the looks of things, November may not be much better. Ever since hitting a high of $162.50 on October 1st, shares of MERQ have traded ever lower. A number of factors have conspired to lead to MERQ's decline. Worries about decreases in capital spending by corporations in a slowing economy have been an ongoing concern. MERQ's rich valuation has also been called into question. Even with its 67% year-over-year revenue growth rate, its current market cap, a hefty $8.64 billion, has buyers shying away, with so many more attractive and sexy Tech bargains out there to be had. The large debt load is another reason, as the company borrowed $500 million just four months ago. At a going rate of 4.75%, it would take more than 25% of MERQ's yearly net income just to service the interest of that debt. For a fast-growing company, this is indeed a heavy burden, and perhaps not the best choice in raising capital. A downgrade by Prudential in mid-October, from a Strong Buy to an Accumulate rating did not help either. Nor did tensions in the Middle-East for this Israeli-based company. During this time, the stock has fallen below its 50 and 100-dma, currently at $128.37 and $113.87 respectively. Connecting the highs and lows since the beginning of October reveals a downward trending regression channel. Most recently, the stock has been encountering strong resistance at the 50-dma and having pierced the 200-dma (now at $98.32) intra-day, appears to be heading closer to that direction, on the back of the 5-dma. For aggressive traders, a failure to rally above the 5-dma, near $110, could be an ideal entry point. There is also resistance at $115 but in entering near this level, make sure that MERQ does not trade above $117. A move above this point could signal a break in its downtrend. For the more risk adverse, look for a break below $105, back by strong selling volume to confirm negative momentum before entering. BUY PUT NOV-110 RBF-WB OI=316 at $12.00 SL=$9.00 BUY PUT NOV-105*RBF-WA OI=241 at $ 9.38 SL=$6.50 BUY PUT NOV-100 RBF-WT OI=266 at $ 7.13 SL=$5.00 Average daily volume = 1.75 mln ********************** PLAY OF THE DAY - CALL ********************** ITWO - I2 Technologies $171.44 -0.06 (+3.94 this week) ITWO is a global provider of intelligent eBusiness solutions for supply chain management and enhanced business applications. On June 12, 2000 ITWO merged with Aspect Development (ASDV) to create one of the largest software providers for eBusiness and eMarketplace solutions. TradeMatrix, its Internet marketplace, provides an open digital community powered by i2's advanced optimization and execution capabilities that help manufacturers plan production and other related operations. Clients include 3M, Compaq, Ford and Nokia. Most Recent Write-Up A convincing bounce off $162.50 early in Monday's session generated the momentum that took ITWO through the immediate resistance at $170.75 and beyond. ITWO struggled a bit at $175, but it was the $180 mark that proved impregnable. A good effort at $179.38, but no cigar! Today's momentum lost its oomph early on, but ITWO traded confidently at a higher near-term support level of $170. The stock's current position is bolstered by the intersecting 10, 30 and 50 dmas at $170.22, 173.80, and $171.86, respectively. The more enterprising traders might consider taking an entry on extended advances through these technical markers. Conservative traders, on the other hand, should wait for ITWO to clear the upper resistance at $180 as ITWO moves closer to its proposed stock split around December 4th. Else, target shoot and play a volatile intraday spread. But no matter how you choose to strategize the entry/exit, consider setting your stop no lower than $160! We consider the underside of $160 dangerous territory, despite the rosy market outlook. Comments The stock closed just below the 50-dma and just above the 10-dma, so it's wedged in there at $171 pretty good. We are looking for ITWO to continue higher on its recent trendline. If the stock dips below $170, look for bounces from $165 for entry. A positive NASDAQ on the heels of QCOM earnings could help push ITWO over resistance at $179. BUY CALL NOV-165 QYI-KM OI= 471 at $15.75 SL=11.75 BUY CALL NOV-170*QYI-KN OI= 468 at $13.00 SL=10.00 BUY CALL NOV-175 QYI-KO OI= 286 at $10.63 SL= 8.25 BUY CALL DEC-175 QYI-LO OI= 20 at $18.75 SL=14.50 BUY CALL DEC-180 QYI-LP OI= 73 at $16.63 SL=13.00 Picked on Oct 31st at $170.00 P/E = N/A Change since picked +1.44 52-week high=$223.50 Analysts Ratings 13-20-4-0-0 52-week low =$ 30.69 Last earnings 09/00 est= 0.10 actual= 0.12 Next earnings 01-16 est= 0.15 versus= 0.10 Average Daily Volume = 4.43 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.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ An optimistic outlook for new economy issues! Technology stocks rallied today as bargain hunters shopped for recently downtrodden issues. Monday, November 1 Technology stocks declined today as profit warnings from Worldcom (WCOM) and Altera (ALTR) boosted investor fears about a potential slowdown in corporate earnings. The Nasdaq closed down 36 points at 3,333 and the Dow finished down 71 points at 10,899. The S&P 500 index closed down 8 points at 1,421. Trading volume on the Nasdaq reached 2 billion shares, with declines beating advances 2,117 to 1,835. Activity on the NYSE was heavy with 1.19 billion shares exchanged. Broad market declines beat advances 1,461 to 1,426. The Euro rose to a 19-day high against the dollar amid a flurry of optimism for the flagging currency. In the bond market, the 30-year Treasury rose 1/32, pushing its yield down to 5.78%. Tuesday's new plays (positions/opening prices/strategy): Curagen CRGN NOV45P/NOV50P $0.56 credit bull-put Eaton ETN NOV60P/NOV65P $0.31 credit bull-put Pharmacy. PCYC NOV40P/NOV45P $0.50 credit bull-put Vertex VRTX NOV70P/NOV75P $0.62 credit bull-put CRGN, PCYC and VRTX were all active during the session, allowing favorable entries in each position. Eaton traded in relatively small range, and the target credit was unavailable. Portfolio Plays: Stocks slumped Wednesday as investors sold for profits amid new concerns of declining revenues in technology bellwethers. The sell-off eliminated any hope that the end of October would bring relief from the fears that caused dramatic declines in the past few weeks. Analysts say the market's near-term outlook is mixed as companies continue to face slowing demand, tougher earnings comparisons and lofty valuations. Today's activity was less than outstanding and technology stocks were particularly weak after a slew of downgrades in the semiconductor sector and poor earnings from telecom giant Worldom (WCOM). Surprisingly, the damage to the broader market was fairly limited, with much less impact than the same revenue warnings would have produced at the beginning of last month. Many of the issues in the Spreads/Combos portfolio were uncommonly resilient and only a few of the bullish positions endured significant losses. Stocks that rallied in opposition to the primary trend included Human Genome Sciences (HGSI), EMC Inc. (EMC), and Home Depot (HD). In the small-cap category, Read-Rite (RDRT) and Fairfield Communities (FFD) were the top performers. One position that may need attention in the coming sessions is our long-term diagonal spread on Microsoft (JAN03-50C/DEC00-65C). The short option at $65 is now $5 "in-the-money" and as the time value declines, there is a small possibility of early exercise. While the probability of that occurrence is rather remote, it is also important to stay ahead of the issue, with regard to the outlook for our bullish spread. A move to the JAN-$70 Call (in the sold option) would incur a small debit, but it would also reduce the potential for loss on the upside, should the recent MSFT rally continue. Since there is plenty of time for the play to become profitable, it is very important to limit the negative affects of Microsoft's (near-term) bullish activity. Thursday, November 2 Technology stocks rallied today as bargain hunters shopped for recently downtrodden issues. The Nasdaq closed up 95 points at 3,429. Industrial stocks were less productive and the Dow ended down 18 points at 10,880. The S&P 500 index was up 7 points at 1,428. Activity on the Nasdaq was heavy at 2.07 billion shares traded, with advances beating declines 2,516 to 1,457. Trading volume on the NYSE reached 1.14 billion shares, with advances beating declines 1,772 to 1,115. In the U.S. bond market, the 30-year Treasury fell 3/32, pushing its yield up to 5.79%. Portfolio Plays: The Nasdaq rallied today as new buying interest in semiconductor and Internet issues helped the beleaguered index recover from a recent bout of selling. At the same time, the industrial average was boosted by respectable gains in its technology components, but losses in cyclical stocks kept the blue-chip barometer in the red. Today's activity was also centered around optimism in the biotech and financial groups, and a number of positions in the Spreads Portfolio benefited from the upward movement. The top performer was Handspring (HAND), vaulting $13 to $95 in a classic technical rebound from losses posted earlier in the week. Juniper Networks (JNPR) also recovered, up $13 to $195 as investors moved back into the downtrodden Networking sector. Our new selections in the pharmaceutical industry, Vertex (VRTX) and Pharmacyclics (PCYC) performed well and in the Data Storage sector, EMC Inc. (EMC) continued to bounce back from a recent slump. Maxtor (MXTR) also enjoyed the upside activity in data storage issues and our bullish calendar spread (JAN10C/NOV10C) should yield an excellent profit when the long option finally expires. Another small-cap leader, Fairfield Communities (FFD) continued higher today after franchising giant Cendant (CD) said it would buy the time-share resort company for $635 million in cash and stock. Our synthetic position has exceeded all expectations, returning a $1.50 profit in just under two weeks. Traders who are bullish on Cendant can hold the long options until January, as the final exchange price may increase to $16 per share, depending on the value of Cendant stock during the last 20 days before the close of the deal. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** EC - Engelhard $20.38 *** New Option Interest! *** Engelhard develops, manufactures and markets technology-based performance products and engineered materials for a wide range of industrial customers. Engelhard also provides services to precious and base-metal customers. The company's businesses are organized into five segments: Environmental Technologies; Process Technologies; Specialty Pigments and Additives; Paper Pigments; and Additives and Industrial Commodities Management. Options volume in Engelhard calls have spiked over the past few sessions with little news to explain the activity. The option prices have also climbed higher with the increase in implied volatility; a measure of how much traders think a stock can potentially move. In addition, as demand for an option rises, market-makers increase the prices paid for that position. In the case of Engelhard options, the near-term IV's have moved up significantly, as is often the case ahead of earnings or some other corporate news event. However, the increased activity in EC's options can't be earnings-related, considering they company reported third-quarter results last week. Englehard announced earnings of $0.40 a share, a 14% rise from the year-ago period. Net sales rose 34% to $1.37 billion, driven by a surge in growth from the company's industrial commodities management division. Sales from that unit increased 51% to $897 million. Traders are at a loss to explain the rise in option interest but one thing is clear, the technical indications in the underlying issue suggests there is further upside potential. At the same time, the upper limits of any extended rally are significantly affected by the resistance at the sold strike price; a perfect condition for a time selling position. Those of you who favor speculative plays can use the inflated front-month premiums to help initiate a bullish calendar spread. PLAY (conservative - bullish/calendar spread): BUY CALL JAN-22.50 EC-AX OI=23 A=$1.75 SELL CALL NOV-22.50 EC-KX OI=15 B=$0.50 INITIAL NET DEBIT TARGET=$1.06-$1.12 TARGET ROI=25% The strategy is best initiated when the front-month options are trading at a premium with respect to longer-term volatility. Most investors prefer to establish these positions at least 3-5 months before the long options expire, to allow the sale of a number of short-term options. The basic concept in this type of spread is selling time value in the call options when they are overpriced (high implied volatility) and buying it back, if necessary, when the options return to intrinsic value. Ideally, the trader would like to have the stock finish just below the sold strike when the near-term option expires. However, when the short-term position is in-the-money on the last day of the strike period, you must buy it back so that you don't have to exercise the long-term options to cover your obligation; that would defeat the purpose of the strategy. At the beginning of each expiration period, you simply sell the next month's call to further reduce the cost basis of the long position. ****************************************************************** SEG - Seagate $74.06 *** Reader's Request! *** Seagate Technology designs, manufactures and markets products for storage, retrieval and management of data on computer and data communications systems. These products include rigid disc drives, tape drives and software. Seagate's rigid disc drive products currently include rigid disc drives in the 3.5-inch form factor with capacities ranging from 4.3 gigabytes (GB) to 73 GB. Seagate sells its products to a number of original equipment manufacturers for inclusion in their computer systems or subsystems, and through distributors, resellers, dealers, system integrators and retailers. The data storage group appears to be "back on track" and one of our subscribers requested that we identify a favorable spread position in this issue. Based on the technical outlook for the sector and the underlying stock, a bullish position is in order. However, with today's rally in technology shares, there is a potential for near-term consolidation. In this case, we will use SEG's recent technical support near $60 as the basis for a conservative credit spread. The probability of the share value falling to our sold strike price appears rather low, but there is always the possibility of a major correction so monitor the issue daily for changes in momentum and character. PLAY (conservative - bullish/credit spread): BUY PUT NOV-55 SEG-WK OI=232 A=$0.81 SELL PUT NOV-60 SEG-WL OI=3442 B=$1.25 INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=11% ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** MERQ - Mercury Interactive $108.12 *** Premium Play! *** Mercury Interactive is a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications. Mercury's software products and hosted services help e-businesses enhance the user experience by improving the performance, availability, reliability and scalability of their Web sites. By using its solutions to identify and assess performance problems, e-businesses can increase their ability to attract and retain customers, and improve their competitive advantage. Their customers represent a range of industries including Internet consumer companies such as Amazon.com, America Online, Ameritrade, E*Trade, WebMD, HomeGrocer.com, Jobs.com, ShopLink.com and WingspanBank.com; Internet infrastructure providers such as Ariba, Broadbase, Broadvision, i2 Technologies and Oracle; and Fortune 1000 enterprises Apple Computer, Caterpillar, Cisco Systems, Ford Motors and Walmart. Based on the analysis of historical option pricing and technical trading patterns, this position meets our basic criteria for a potential credit-strangle. The underlying issue has a relatively well-defined trading range near the 150 DMA and heavy overhead supply at the sold option strike of $145. The recent volatility has inflated the near-term option premiums and we will use the higher prices to our advantage with this relatively conservative, neutral position. As with any recommendation, the play should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. PLAY (aggressive - neutral/credit strangle): SELL CALL NOV-145 RBF-KI OI=122 B=$1.25 SELL PUT NOV-80 RQB-WP OI=81 B=$1.25 INITIAL NET CREDIT TARGET=$2.62-$2.75 ROI(max)=10% DOWNSIDE B/E=$77.38 UPSIDE B/E=$147.62 Note: Many traders may favor a more aggressive approach, selling options that are closer to the current price of the issue, to produce a higher initial return. While that technique may be more attractive, it also increases the theoretical risk of loss. Only you can know what plays are suitable for your risk-reward tolerance and experience level. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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