The Option Investor Newsletter Tuesday 11-07-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110700_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-07-2000 High Low Volume Advance/Decline DJIA 10925.20 - 25.00 10996.50 10926.00 879 bln 1463/1326 NASDAQ 3415.79 - 0.42 3435.13 3360.26 1.70 bln 1841/1993 S&P 100 756.30 + 0.86 760.29 751.55 totals 3304/3319 S&P 500 1431.87 - 0.32 1436.22 1423.26 49.9%/50.1% RUS 2000 506.01 + 2.05 506.01 501.36 DJ TRANS 2770.57 - 22.65 2796.45 2756.26 VIX 26.81 - 0.22 27.15 26.17 Put/Call Ratio 0.58 ****************************************************************** What if the markets opened and nobody traded? That was the case today as everyone sat on the fence and waited for the election results. Only 876 million shares traded on the NYSE and only 1.6 billion on the Nasdaq. After pulling back some on the slaughter of chip stocks and fiber optics as a result of comments by CSCO last night, the Nasdaq finally pulled into positive territory in late morning but bled points until just before the close. The Dow was no better trading in a narrow 50 point range all day. Just simply election jitters with most traders unsure which way the vote will go and moving to the sidelines until tomorrow. The stocks which moved the most were not election related. The acknowledgement by CSCO that they were overstocked on some chip components and telecoms were ordering less than previously expected was not the kind of news traders wanted to hear. Big chip companies were hammered as traders fled them in droves. Broadcom was the hardest hit with a -$42 drop followed closely by PMCS -25, GSPN -17, IDTI -10. The fiber optic stocks also lost ground on news of slower buying. SDLI dropped -10, QLGC -8, JDSU -3, GLW -2. Some networkers and contract manufacturers also fell with RBAK -16, JNPR -8, JNIC -6, JBL -6, CLS -4. The CSCO conference call was positive in spite of the bloodshed above. CSCO projected stronger revenue going forward and did not disappoint traders with current earnings. CSCO had traded down as low as $53 at the open but rallied on relief as traders decided 50% growth was still 50% growth regardless of the exact sub sector it came from. The recovery of CSCO was largely a factor for the recovery of the Nasdaq. When investors saw the rebound they decided things must not be as bad as they thought the day before and even with the election in progress they took advantage of possibly the last opportunity to buy CSCO before a fall rally. If you are a news and event investor and have been expecting a Bush win there were plenty of sectors in which to position yourself for post election returns. Drugs, Defense, Energy, HMO, and of course Microsoft. Most of those sectors saw evidence of profit taking the last two days as traders took profits just in case things did not go as planned. Microsoft has probably seen the biggest gains in anticipation of a possible easing of the attack in a Bush presidency. MSFT has gained +22 from the October low of $48 and was up +$1 today. A Gore win is sure to take some of the wind out of their sails. Puts at the open might be a good plan if that happens. Either candidate winning will not help Pets.com which said it was going to close its online store and lay off 255 of its 320 employees. As the latest dot.com to throw in the towel it joins the ranks of the fire sale asset sellers. Pets.com said it would sell inventory, distribution equipment, Internet addresses and its sock-puppet brand icon and other intellectual property. Now what exactly does the intellectual property consist of? Speak and spell toys for dogs? Dog whoopee cushions? Odds are good that there will not be a huge list of bidders. IPET may go down as one of the quickest boom to bust Internet stories. IPET went public in February at $11, zoomed to $14 and closed today at $.22 cents. The only real news today was the CSCO aftershocks from last night and the election. The markets tomorrow will be powered entirely by the results tonight. A Gore win is anticipated to cause some drastic reactions in the short term but long term the status quo will be maintained and the markets will recover. If Bush wins we could see some immediate gains but the long term impact may be more subdued. Until the investing public sees what changes Bush can actually ram through congress there may not be any huge bull rallies. I am not saying the markets will not go higher after the election of either candidate, it is just we know what Gore will do as an extension of the current administration and we don't know exactly what Bush will be ABLE to do. The markets are not fond of economic change and the unknown may slow investors coming back into the markets. I am not an election pundit and you should look at somebody else who lives politics for the real cause and effect for each party. I am only interested in what the short term market impact will be and how to trade it. That being said I think we could see, regardless of who wins, a buy the rumor, sell the fact event on Wednesday. Everybody has placed their bets and are waiting. Once the outcome is known those on the wrong side will change sides and those on the right side will take profits. With the PPI and Dell earnings on Thursday investors will immediately refocus back on economic matters and we will moved based on those factors. We are moving quickly to include the changes I spoke about on Sunday and beginning tonight we have some Low Volatility and Long Term plays. Be sure to check them out and let us know if we are headed in the right direction. We should have all the changes made by the weekend so be sure and look for them. 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 **************** Newton's Law Of Physics By Austin Passamonte What can't go up must come down. That centuries-old natural law holds true for everything in the universe including our beloved markets. Bulls are in dire need of a serious catalyst to push this thing towards recent highs. Which thing? All of them. We see weakness across the board within the big indexes that lead all others. In particular there is now bearish stochastic/price action divergence in the Dow, SPX and OEX. We take the unusual step of adding charts to this section for a reason: this market signal is and always will be our #1 market forecast tool. It is not infallible but remains the highest-odds market direction signal known to us. It has worked in commodities, stocks and options so far. Invent another market we can chart and it will work there, too. As shown in the Dow and also the SPX (not shown), daily charts record higher stochastic highs with lower price-action highs at respective extremes. The hourly OEX chart is channeled in a bear-flag that shows divergence as well. This is a clear signal our highest odds of next major market action lies to the downside. Notice we said higher odds. That is the very best any trader can hope to do. Quantify odds and carefully wager trades in that direction. Over and over again. Wash, rinse, repeat. Tuesday's action saw very few block-trades in the OEX, SPX or QQQ until late afternoon when some pretty big blocks of long puts were opened, including 600 SPX Nov 1400 puts @11.25 - a $675,000 position from someone following purchases of 200 and 300 more just prior. The 300 block seems to be a spread between the 1400/1425 puts for 7 points, which happened to be near the debit-spread bid at the time. The credit-spread bid at the time was near 5 so we are inclined to believe a major player has wagered $210,000 we will soon be at or below his 1418 breakeven point in the SPX with only nine sessions left until expiration. Nothing but doom & gloom? How could there be if we're option traders? Equal profits or loss are there for the taking in both directions depending on how we play it. On a bullish note, we still see long-term strength in most major index weekly charts except for the NASDAQ's, but they are within the oversold extreme and much closer to a bottom than top at this point in time. Market Sentiment still looks for all-time market highs in the SPX, OEX and possibly the Dow by year's end. NASDAQ record highs would surprise everyone for sure. Call options will certainly have their place in the sun before long but don't ignore the opposite side of your option applet just yet. Newton's Law is alive, well and showing up on our charts. Trade with the market trend and prosper! ***** VIX Tuesday 11/07 close: 26.81 30-yr Bonds Tuesday 11/07 close: 5.88% 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. Tuesday (11/07/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 795 - 780 12,889 239 53.93*** 775 - 760 8,763 2,202 3.98 OEX close: 756.30 Support: 750 - 735 15,069 9,788 .65 730 - 715 6,393 11,747 1.84 Maximum calls: 745/5,924 Maximum puts : 700/5,381 Moving Averages 10 DMA 741 20 DMA 733 50 DMA 764 200 DMA 777 NASDAQ 100 Index (NDX/QQQ) Resistance: 91 - 89 28,954 10,944 2.65 88 - 86 29,612 16,233 1.82 85 - 83 46,983 37,171 1.26 QQQ(NDX)close: 82.04 Support: 81 - 79 29,163 50,168 1.72 78 - 76 10,456 56,150 5.37 75 - 73 4,553 51,519 11.37 Maximum calls: 84/25,457 Maximum puts : 80/29,238 Moving Averages 10 DMA 80 20 DMA 80 50 DMA 87 200 DMA 93 S&P 500 (SPX) Resistance: 1500 12,254 3,840 3.19 1475 14,763 4,766 3.10 1450 11,373 8,645 1.32 SPX close: 1431.87 Support: 1400 27,731 29,722 1.07 1375 13,382 19,132 1.43 1350 8,403 23,037 2.74 Maximum calls: 1400/27,731 Maximum puts : 1400/29,722 Moving Averages 10 DMA 1407 20 DMA 1389 50 DMA 1432 200 DMA 1441 ***** CBOT Commitment Of Traders Report: Friday 11/03 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 (Current) (Previous) (Current) (Previous) Open Interest Net Value -1066 +89 +657 -483 Total Open Interest % (11.56%) (1.07%) (2.84%) (2.34%) net-short net-long net-long net-short NASDAQ 100 Open Interest Net Value -448 -262 -927 +85 Total Open Interest % (2.40%) (1.48) (1.89%) (.21%) net-short net-short net-short net-long S&P 500 Open Interest Net Value +60112 +57,031 -70603 -66,429 Total Open Interest % (31.64%) (31.05%) (11.10%) (10.72%) net-long net-long net-short net-short What COT Data Tells Us: Commercial positions in S&P 500 remain at their ten-year extreme short levels while small specs held their net-long positions as compiled Tuesday 10/31 by the CFTC. Commercials have reversed position albeit modestly on the DOW, and have now gone to a net-long position while the small specs have turned net-short positions ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/110700_1.asp *********** OPTIONS 101 *********** Optical Illusions By David Popper About 12 years ago, I defended a businessman that caused the collapse of a small bank. "John" owned ten fast food restaurants, each of which was extremely successful. Each restaurant was a separate corporation and each restaurant had its own banking relationship with a separate bank. John also had a central bank account from which all monies from all of the ten satellite flowed. This way, each restaurant stood on its own but through the central bank, money could be transferred to one restaurant or another as needed. It really was an efficient system. Sometime around late 1989, John developed an extremely extravagant lifestyle which was beyond his means. John began draining one satellite account after another and covered the overdrafts with a check from another satellite bank. Eventually money from all of the satellite banks were empty so John began to kite checks from one satellite bank to another and cover that bad check with a bad check from yet another satellite bank. John actually got away with this for several months, not realizing the geometric increase in the debt that he was creating. Eventually John contacted the president of the central bank and explained that from time to time he would need from one to two million dollars in checks covered. The president agreed and for his kindness he received a $100,000 gift of "appreciation." Well it all fell apart when John and the president went away, together with their wives one weekend. Checks that were normally personally cleared by the president bounced and a chain reaction was initiated, which led to the conviction of John and the bank president. The bank itself collapsed due to this bad loan. The FDIC examined the issues and issued a report. The FDIC concluded that the cause of the bank's collapse was that the rule of concentration was violated. This rule requires the bank to limit its exposure to any one client to a small percentage. Isn't it funny how rules related to everyday life and to business situations apply equally to the market. You can learn a lot about life from the market. It is just common sense for a bank not to overload its lending portfolio with too much risk from any one customer or type of customer. Too much concentration in one customer or sector can lead to collapse. This explains in part the savings and loan debacle of the late 1980's. Sure the tax reform act played a role, but the simple fact of the matter is that overexposure to a sector places you at risk to suffer from the unexpected. Lately, the same lesson was visited upon traders who were overextended in the optical sector. As I recall, one month ago, the projections for the optical sector were of unlimited growth. Yeah September was bad, but the analysts said just wait until earnings season, the numbers will be tremendous and the stocks will rocket. Traders piled into calls and fortunes were ready to be made, but someone forgot to tell NT. NT reported a chink in the armor of the optical sector and you know the rest of the story. Fortunes were lost by people, who let greed blind them from the common sense rule of avoiding excessive concentration. Now for the really tough part, the optical sector is still a great sector with growth projections that most sectors would die for. It will take off again, just not in time to save the day for the holders of expired October calls. The sector may very well be a buying opportunity now or in the near future. What a shame not to have some cash on hand now to take advantage of the dip. What a shame to have too much of a portfolio in a sector that took a fall. I have been there and it is painful. Are there any solutions? Probably a million of them. My solution is to adopt a business attitude to my portfolio. I am not in it to make a killing this month, rather I am in it to make steady growth each year. Therefore, I don't have enough invested in any one sector to inflict serious long term damage to my account should the unexpected happen. If there are not enough stocks that I like, I still don't overbuy, instead, I simply wait in cash until things become more attractive. No, this approach may not be as dramatic, but it keeps you in the game. By maintaining a cash position, you can buy LEAPs on great stocks when they are down. By maintaining some cash, dips are no longer feared. Instead they provide the opportunity to exploit a buying opportunity. Besides a little bit of a volatile stock can go a long way. For example, QLGC has recently rebounded 50 points as did VRTS and SUNW. There is value in being patient and in not violating the rule of concentration. For me, it's just all part of my maturation as a trader. Now if only my trading can match my rhetoric. ************** TRADERS CORNER ************** Market Indicators: What's a Trader to Believe? By Scott Martindale Today is Election Day. This is good. At least one market-moving uncertainty has been removed. Others are perpetual. What are these widely discussed indicators that make investors worry and have the power to turn markets upside down? In honor of our nation's favorite quadrennial event removing one uncertainty, and despite the fact that everyone else seems to be talking about them as well, I'll give my own take on these market-moving parameters and what they might be telling us for the markets going forward. Some refer to the Four E's, some the Five E's. Molly is describing the four "Key Market Pillars" in a series of articles. Whatever you call them or however you count them, to my mind the market movers and earth shakers include: Corporate earnings Economic growth Interest rates Money supply (liquidity) Inflation Energy prices Euro strength Presidential election We all have seen how skittish the market is with respect to earnings reports. Anything that can be perceived as anything but wonderful news is treated as bad news and the stock is punished, sometimes severely. This is especially true when a highly valued stock like AAPL, NT or JDSU remarks about a possible slowing of demand, building of inventories, or an inability to meet demand. NT and the whole networking sector got creamed when they commented about a revenue shortfall not due to slowing demand but due to their inability to keep up with demand because of a shortage of trained staff. Even though many companies have been forced to lower earnings expectations, profit margins in most sectors are still at the highest levels seen in a long time. Plus, B2B e-commerce is still quite early in its rollout, so the benefits like higher productivity and cost reduction have not yet been realized on most companies' bottom lines. Is the economy really slowing? Third quarter GDP growth looked pretty slow. But a recession? Doubtful. The overall health of the economy is still quite strong, and it appears likely that the Fed is probably done raising interest rates for a while, now that it has accomplished its goal of slowing economic growth to more manageable levels. In fact, if the Euro remains weak, the Fed may have no choice but to cut rates to make the dollar relatively less attractive and help keep Europe out of a recession. Thus, the Euro is unlikely to remain weak, and we might get a rate cut to boot. Plus, money supply is not being tightened and inflation is showing no signs of accelerating. Energy prices are a real wild card. Will oil go up further? Or will oil fall back to the $25 level? How much does it really matter? Well, despite all the rhetoric, oil is still cheap compared to historical prices. In today's dollars, oil was actually over $35-40 from the mid-1970's through the mid-1980's, peaking at $90 around 1980. Furthermore, since the 1970's, the U.S. has moved from spending about 2% of GDP on oil imports to only about 0.5% today, so the impact of oil prices is much less today. However, the impact is greater in Asia, and OPEC knows from recent experience what recession in Asia can do to oil demand and market prices (like $10/bbl). Thus, OPEC is unlikely to force Asia into a recession by keeping oil prices too high. A greater risk to U.S. growth is our limited and aging refining capacity and oil tankers. We are currently running at 95-97% of refining capacity, and no new domestic refineries have been built in over 25 years. Tankers, too, are near full utilization. The election has finally passed, and the skittish market will make any last minute adjustments to account for whoever is elected. Of course, a Bush victory will likely ameliorate oil prices due to his stance on encouraging domestic production. No matter who wins, however, growth in new technologies will continue. Semiconductors, the foundation components of the new economy, continue to show 25% demand growth despite the fact that the chip foundries are already running at full capacity. But despite all this, aren't valuations still too high? An interesting argument to consider is the "liquidity crisis theory." This is not a reference to tightening of national money supply by the Fed. Rather, as capital continues to flow into the stock market at record levels, there are not enough publicly traded industry-leading companies to absorb the dollars, i.e., a lot of money is chasing a small group of stocks. The share prices become highly volatile due to demand imbalances. Because portfolio managers feel they must invest aggressively in growth with all this cash to win the competition among fund managers, the "best bets" get bid up to high valuations. But this works the other way as well when the shares sell off and everyone wants to preserve their gains. No one wants to be the last one out in a correction. But they need to come back eventually. This new money has to go somewhere. How long can it stay in cash or 5.7% bonds? Will it keep going into the old economy stalwarts like KO, CAT, PG, and T? Judging by the recent performance of the Dow vs. Nasdaq, you might think so. As I mentioned last week, the November issue of Bloomberg Personal Finance includes an article that suggests that the best way to time the market is to avoid buying at the peaks, and you do that by focusing on low P/E's, i.e. buy value and avoid the popular momentum stocks. Nevertheless, the reason that value investing has fared so poorly in recent years is that growth in many of these value companies is stalling as the economy shifts to new areas. When you look at past performance and expected earnings growth rates for value companies vs. new-technology companies, it seems clear that both the aggressive money and long-term growth money will continue to chase the best of the high-growth tech stocks in search of substantially higher-than-average returns. But beware, the cruel reality is that the second-tier tech companies (many of which are sporting the same high valuations) will be filtered out of this market. You need to combine value with growth, and growth in the global economy is driven by technology. Can the highly valued stocks that everyone wants to own really be considered to have "value" at current prices? Although valuations are still at historically high levels, new technology has spurred growth, not limited it. Investors have simply chased the growth created by this technology. And if share prices remain flat while earnings growth continues to accelerate, the leaders would soon be undervalued. So who wants to keep all their money in T-bills and wait for that to happen? Not I. ************************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=903 ************************************************************** 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: ***** MEDX $70.88 -0.63 (+2.06) Nobody likes a wise guy. As we mentioned over the weekend, MEDX was being tight-lipped about their earnings release date, but pointed us towards the middle of the month. Yesterday, the answer was just as vague, with the company stating that they had not set the date yet. But apparently somebody knew, because the price gapped up at the open on Monday, moving briefly above $74 before settling down to close at $71.50. Then surprise! There we go with the company announcing their third quarter results this morning. The stock seemed to move very little after its earnings report, but did drop as low a $68.38 this afternoon. While still technically a viable play, we endeavor not to hold over earnings. Since we got surprised, we have to drop this one after the fact, but drop it nonetheless. Fortunately for those caught unaware, MEDX recovered into the close, ending the day with a loss of less than $1. PUTS: ***** DGX $103.56 +5.38 (+6.81) DGX gapped up and made a bold run through the 10-dma ($97.09) on respectable volume in today's session. The bullish momentum pushed DGX to the topside of the $100 level early on Election Day. There was no company-specific news to forewarn the intraday climb. The positive close at $103.56 clearly violated our Stop set at the century mark. We're exiting the play this evening as the markets trade in higher territory. ************************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=916 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Thursday 11-07-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110700_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=904 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** MSFT $70.50 +1.00 (+1.82) MSFT burst out of the gate on Tuesday, clearing $70 easily. The stock found resistance at $71.50 mid morning and fell back as the markets slowed down on election jitters. MSFT is in good shape from a technical standpoint, as it remains firmly above the 50-dma of $64, and support at higher lows near $68. However, the wild care is the election results. Many analysts believe that a Gore presidency would be a disappointment for MSFT shareholders, and that a Bush presidency would mean that the case would be dropped. A new president will mean a new cabinet, a new attorney general, and new advisors, most of whom must be approved by the Senate. We will most likely not see a definitive answer in the monopoly trial issue for many months, and in the meantime, the market may react in a volatile fashion to perceived developments. A strong post election rally could easily lift all stocks, where entries above the resistance level at $72 could be taken. Also, consider taking positions on a bounce off the 5-dma of $69.63, or the 10-dma of $67.94, but step away from the play if MSFT closes below the 50-dma of $64. ADBE $82.25 -1.00 (+1.56) Yesterday was a busy day for ADBE, as the company held an an analyst meeting, increasing its operating margin target from 31 percent to 32 percent for fiscal 2001 due to expected decreases in research and development Needless to say, shares of ADBE moved higher on Monday, closing up $2.56 or 3.18% on almost 250% of ADV. Today, we had a small giveback, but the stock found support and buyers willing to enter at the $77 level. In the interest of preserving profits, we are moving our stop higher to $79. A bounce off the $79-80 level would be an aggressive entry point but make sure ADBE does not close below $79. A bounce off the 5-dma at $81 is another entry possibility. For conservative traders, wait for ADBE to move above $85 with conviction before initiating a play. BRCD $256.50 +1.06 (+2.75) With lack of company-specific news and traders holding their collective breath in advance of Cisco's earnings and the election, BRCD had a relatively quiet Monday. After the strong bounce from its low of $200 last week, a little breather is healthy, if not necessary. With a trading range of "only" 15 points on Monday, aggressive traders who bought the morning dip were amply rewarded with an entry point, with the stock closing up $1.69 on average volume. For those who missed yesterday's opportunity, BRCD touched its 5-dma today before attempting to break through and close above $260. While BRCD was unsuccessful, it did make progress, as the stock closed slightly higher for the day on average volume. What we are looking for is either a close above resistance at $260 or a break through to new all-time highs on strong volume for a conservative entry. For aggressive traders, support can be found at the 5-dma near $247. There is also support in increments of $5, from $255 down to $235, but be aware that we have placed a stop at $235 and would no longer recommend the play if BRCD closes below that level. CMVT $117.81 -1.19 (+0.31) Resistance at $120 is proving to be formidable indeed, but the good news is, the stock appears to be consolidating for a breakout. Trading in a narrow range of 3 points Monday, the stock got as high as $120.75. And while there was volume upon getting to that point, the volume was on the sell side, as traders took their profits. Today, CMVT once again traded in a tight range, and while it closed down 1 percent for the day, volume was low, at only 57% of ADV. The willingness of buyers to lend support to the stock at $115 is a good sign however, as is the last minute buying at the end of the day. For aggressive traders, a bounce off the 5 and 10-dmas, at $117.59 and $112.25 respectively, are targets to shoot for but confirm with volume. Conservative traders will be waiting for CMVT to punch through $120 resistance, backed by strong volume to the buy side before taking a position. As a note, we have placed a stop at $110 support. If CMVT closes below this level, we will most likely close out the play. EMC $97.56 +2.75 (-0.19) Simply put, EMC has found support at important technical levels. On Monday, traders took some of last week's profits ahead of Cisco and Federal Election uncertainty. Closing down $2.94, the stock was technically strong, bouncing off support from the 5-dma (now at $95.26) and closing just above the 50-dma (now at $94.80). Today, on the heels of news of an alliance with leading Scientific Data Management System (SDMS) provider NuGenesis Technologies, EMC gained back 2.9 percent. While volume was light, 85% of ADV, the tenacity with which EMC is holding its moving averages is a bullish sign indeed. For conservative traders, the number to watch is the psychological $100 level. A break through that level with conviction will be a signal to take a position. Aggressive entries can be found on bounces off the 5, 10 and 50-dmas, as well as support at $95 and $90. Just be aware of our stop at $86, as a close below could spell more downside and leave us no choice but to exit the play. PSFT $49.69 +2.38 (+2.94) While people will be awaiting the results of the election tonight in suspense of who will win, there is no surprise with PSFT. Investors and traders alike have been voting with their dollars and the result is decidedly bullish. Yesterday, PSFT took a pause to refresh, but even in its resting state it managed to gain 1.2% on 68% of ADV. Today, while the NASDAQ for the most part was undecided, PSFT moved higher to make a new all-time high. Hitting resistance at $50 intra-day, the stock gained a little over 5 percent, thanks to news of an alliance with web marketplace maker Embark. It should be noted however, that today's move higher was on light volume, only 58% of ADV. If volume picks up tomorrow and pushes PSFT past $50, this could allow for a conservative entry. For aggressive traders, a bounce off 5 and 10-dma support, near $46 is a target to shoot for. At present, our stop on PSFT is also set at $46. Make sure that PSFT closes above this level when considering a play. RIMM $112.50 +8.00 (+3.25) With an uncertain market yesterday and profits being taken from PALM yesterday after its addition to the NASDAQ 100, RIMM moved lower, closing down $4.75 or 4.35% on 83% of ADV. RIMM was also likely dragged down by Nortel, one of the large caps stocks in the Toronto Stock Exchange (TSE). The low volume on Monday's decline was a welcome pause, after last week's strong performance. As well, RIMM managed to close firmly above its major moving averages. Today, strong buying pressure helped RIMM eclipse the Nortel Effect, closing up 7.66% on strong volume, clocking in at 120% of ADV. In doing so, RIMM put itself back above resistance at $110. For aggressive traders, a pullback to this resistance level or a bounce off the 5 and 10-dma, currently at $105.66 and $102.02 are possible entry points but confirm make sure a bounce is backed by buying volume. A break through $115 resistance, helped by a strong market (we recommend watching the TSE) would allow for a conservative entry. Looking to protect our profits, we have moved our stop up to $99. Make sure that RIMM stays above this level when making a play. IMCL $62.63 -2.06 (-5.00) Consistent with its recent pattern, IMCL ran up to its upper Bollinger band on Friday, only to pull back for some consolidation early in the week. Volume on the pullback has dropped off considerably, clocking in right at the ADV over the past 2 sessions. Recall that it had risen to more than triple the ADV in Friday's session as the stock hit $68.38, its highest level since early March. Conservative traders will want to wait for the buyers to return, propelling the stock back above Friday's high. The stock has pulled back to our expected support level ($61-62). The highs from late September and late October formed a double-top at $61, which the stock broke through last Thursday, and a bounce from this level looks like a good aggressive entry point. Consistent with this support level, our stop level remains $59, and a close below there will be cause for IMCL's expulsion from the call list. We are still playing IMCL for a run into earnings, but we need to convey caution. While the best information from the company indicates the report SHOULD be out next week, they have not provided a firm date. The prudent approach will be to keep those stops in place as we continue to endeavor to extract a firm earnings date as the week continues. PKI $116.50 -2.31 (+0.56) Apparently waiting for the outcome of the presidential election, PKI has gone nowhere fast over the past week, consolidating between $115-119. Reflecting investor indecision, volume was particularly light in today's trading session with only half the average number of shares trading hands. Hopefully with the election behind us, investors will decide whether they truly want to push shares of PKI higher. While a volume-backed bounce from the $115-116 level (supported by the 10-dma at $115.50) still looks like an attractive entry, the cautious approach may be more prudent at this point. If that fits your style, wait for buying interest to push PKI above $121 before playing. Our stop level is still sitting at $113, and a close below this level will spell doom for our play, moving it onto the drop list. We've been patient up to this point, waiting for the election to be over, but if the stock can't get moving soon, we may have to let the play go for lack of interest. VRTS $159.94 +5.44 (+6.00) Volume picked up pace this week as VRTS tested the higher trading levels. VRTS is however finding $160 a tough mark to penetrate. Despite its inability to crack that first line of opposition, it's maintaining a bullish position above the dma technicals and recent resistance levels. On intraday downdrafts, $152 and $153 are offering support on a pullback and could provide the aggressive trader an entry. Higher, $157 is evolving as a shorter-term support. Watch for strength to develop above this level. Traders might consider buying into a surge as VRTS moves through $160 and challenges the upper resistance at $166.81, a recent high. Our stop near the $139 level remains in place. ITWO $176.19 +1.44 (+5.75) Just as we predicted, ITWO broke to the upside of $180 resistance. As the NASDAQ came off an early morning weakness today, ITWO surged and shattered the upper resistance. It tagged $183.50 before experiencing mild profit taking. The downside action returned ITWO to a solid position at near-term support. A more enterprising entry is lower at the intersecting 5, 30 & 50 dma lines near $172 or a bounce off major support at $170 should ITWO pull back. Consider aggressively target shooting for entries during a volatile session; however should ITWO close under $160, it's time to exit. MANU $130.00 +8.13 (+9.50) The momentum behind MANU's remarkable recovery from a recent low of $61.75 continues to propel it higher. Today's powerful surge through the all-time high of $126.25 confirmed MANU could stretch into new territory as it approaches December earnings. The 52-week record now stands at $130.75. Support is relatively firm at the $120 level, but a return to $110 is not out of the question if profit takers surface. Be cautious of a close at $110 or below. Weakness of that magnitude would prompt us to exit the call play. Consider taking more moderate entries off the rising 5-dma, currently at $122.34 on intraday bounces. MLNM $86.50 +4.69 (+1.43) Yesterday's action saw MLNM set another in a series of 52-week highs as it peaked at $88.56 on respectable volume. The late day weakness on the NASDAQ however, took MLNM down to the vicinity of the 5-dma ($82.50) by the finish. The mild downswing provided an opportune entry point for the more adventurous traders. Today's trading was rather flat. MLNM channeled in a tight range of $84 and $85 before it resumed its uptrend and closed smack on the daily high of $86.50! Traders might consider buying into the momentum if MLNM demonstrates strength above the current level and challenges the new resistance. A more conservative approach is to wait for a breakthrough the $90 level. While the overall bullish trading above historical resistance at $80 is encouraging, let's keep our stop set at $75 for protection. AKAM $57.75 +1.25 (+3.69) AKAM managed to continue its uptrend in the face of an unchanged NASDAQ. It didn't get caught up in the uncertainty of the Election and the traders' lack of conviction. Today's modest advance has positioned AKAM on the verge of a breakout of its bullish wedge traced over the past two weeks. The key $60 support level is the only barrier preventing AKAM from busting out. As such, watch closely for a breakout above $60 on strong volume. However, should AKAM pullback in sympathy with the tech sector look for the stock to bounce off support at $57, or slightly lower at the $56 level. Additionally, if AKAM should suffer from an extended pullback we would use a close below the $53 level as a stop out of the play. ******************* PLAY UPDATES - PUTS ******************* SLR $42.56 -1.38 (-1.62) Solectron exhibited a clear pattern of lower highs in the last week. In fact, the chart looks like a staircase heading downward. SLR has had three failed rallies in the last several days. Last week, the stock tried to clear the 50-dma at $44.9, but rolled over. On Monday, it rolled over $44.44 in the morning, tried to clear $44 in the afternoon, and rolled over again. On Tuesday, SLR opened with a big bearish red candlestick, and rolled over on an attempt to clear $43.00. The trend is clearly down, and it is likely that SLR will hit the 200-dma near $41.75 at some point in the next several days, depending on market conditions. Consider taking new positions on a rollover near the 5-dma at $43.81. However, a strong market rally could lift all boats, so be prepared to step aside if SLR closes above $48. LVLT $38.00 +3.00 (+1.81) We saw LVLT significantly weaken right out of the gate on Monday. The downtrend gained momentum as shares sunk to an intraday low of $34.25 before they stabilized at $35 and $36. Trading activity was heavy at 3.2 times the ADV on the decline. The robust volume continued today, but in contrast, it was the bulls taking LVLT off the recent lows. An influential Buy upgrade coupled with a $59 price target issued by Kaufman Brothers incited the buying spree. Today's reassuring press release by Level3 Communication's CEO, James Q. Crowe, also had a positive effect on trading. In response to the recent concerns about LVLT's stock weakness, the CEO pledged that the company would meet estimates despite the growing concerns in the telecommunications industry. However convincing the sentiment, LVLT couldn't push through $39.25. On the day, LVLT ended below the 5-dma ($39.41) and $41, our current stop. Keep in mind, a bullish close above $41 signals the end of this put play. Consider taking an entry on further weakness under $38 or more conservatively, on a high-volume move to the underside of $36. Watch for opposition at $34.25, the most recent low. GSPN $50.25 - 17.56 (-23.22) Wow, what a ride! If you jumped aboard our play yesterday, you are likely having a hard time wiping the grin off your face. Today's 25% plunge dwarfed the nearly 10% loss in yesterday's session, as the stock sold off in response to comments made in the CSCO conference call following their earnings report. CSCO is the company's top customer and news that the Networking giant would be reducing inventory did not sit well with investors, as GSPN slid to its lowest level since mid-April. Volume was huge today at nearly 6 times the ADV, and despite some last minute buying, the stock settled very close to its low of the day. Below current levels, the stock may find support near $42, the site of the April lows followed by more historical support at $37. In order to preserve our profits, we have moved our stop down to $56; closing higher than that will be our trigger to move on to other plays. If the negative sentiment continues though, GSPN could head even lower. Consider new entries as the stock falls below $49, enroute to its next support level. MNMD $62.75 -2.13 (-4.94) Proof that the trend is your friend, MNMD has continued to sell off leading up to the election. The rollover that took place at the $75 resistance level (also the site of the 50-dma) a week ago has accelerated since then, pushing our play down close to the 200-dma (currently $61.63) by the close of today's session. This level is also where the stock found support during the selloff 3 weeks ago. The selling over the past three days has come on heavy volume, indicating that there may be more to come. The only point of concern is that the stock has not violated its 200-dma since early February, so it may find buyers waiting near that level. Any recovery will find intraday resistance at $65, and then $68, so these may be attractive levels for initiating new positions if the bulls run out of steam. Due to the sharp drop this week, we have moved our stop down to $68 to preserve our profits. Conservative players will want to wait for MNMD to break down through the $61 level before initiating new positions. ************************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=917 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: IMGN - Immunogen, Inc. $41.56 -2.44 (+3.50 this week) Founded in 1981, ImmunoGen develops products that deliver chemotherapy directly to cancer cells. Called Tumor-Activated Prodrugs (TAPs), ImmunoGen's products are small-molecule-based anti-cancer agents with high potency and reduced toxicity. They are produced by combining extremely potent chemicals with monoclonal antibodies that recognize and bind directly to tumor cells. ImmunoGen's product portfolio is focused on TAPs for colorectal cancer, small-cell lung cancer and other aggressive malignancies. In preclinical studies, all of ImmunoGen's products have proven to be more potent and less toxic in animals than existing chemotherapeutics. There are many reasons to like Immunogen. Aside from fighting a much-dreaded nemesis in cancer, it does so in a unique and patented way, by using a research platform that actually makes the blood supply unusable by tumors. IMGN also has strong backing from the Ivy League, as its largest shareholder is Harvard University. Along with this, the company has a collaboration agreement with Smithkline Beecham, which in IMGN's most recent quarter, helped to generate revenues of over $4 million. IMGN will soon add a significant cash position to its war chest, by selling 4 million shares of its stock. The pricing for this secondary offering is slated for November 13. Considering the timing, of the two events, it appears that good news may be in store. This cash will most certainly be welcome, as the company has recently been ramping up their research and development. Technically the chart is beautiful, with a long-term up-trend forming a lower-left to upper-right pattern. Today, IMGN broke through resistance at $40 on over 120% of ADV. Continued strength from strong buying carrying the stock above $42 will provide conservative traders with an entry while a bounce off support at $40, the 5-dma at $39.39, and the 10-dma at $37.50 could allow for an aggressive entry. There is also support at our stop level of $37 but make sure IMGN is able to close above this level to confirm continued upward momentum. ***November contracts expire next week*** BUY CALL NOV-35 GMU-KG OI= 665 at $8.38 SL=6.00 BUY CALL NOV-40*GMU-KH OI= 852 at $5.25 SL=3.25 BUY CALL NOV-45 GMU-KI OI=1562 at $3.00 SL=1.50 BUY CALL DEC-40 GMU-LH OI= 123 at $7.88 SL=5.75 BUY CALL DEC-45 GMU-LI OI= 120 at $5.88 SL=4.00 Average Daily Volume = 874 K CFLO - CacheFlow $144.69 +4.81 (+8.13 this week) CacheFlow designs, develops and markets appliances that accelerate and manage the flow of information over the Internet through a process called Internet caching, the storing of popular objects closer to the individuals requesting them. The applications increase intranet efficiency, speed response times, and handle traffic surges. Clients include ISPs such as Swisscom and Global One and other blue chip companies like Hewlett- Packard and Xerox. We're initiating coverage on CFLO as it makes a convincing momentum run and heads into earnings this month. CFLO saw its share price vanquish last month as tech investors took no prisoners and sold off issues with a vengeance. The shares have since recouped their recent value and are now at a crucial level. Recently on October 19th, the share price pushed through the $140 level and closed at $145 before it became a casualty of the above-mentioned tech correction. This week, the bullish action took CFLO through this first line of opposition at $140 and the growing momentum launched CFLO upwards to the $147 mark. Volume was above the norm on the upswing and indicates the buying may not be over. As we approach the company's earnings' release, which is confirmed for November 21st (after the market), we're anticipating that excitement will mount. Look for sensible entries into this earnings run as CFLO climbs off the current level and challenges $150. Be cautious of taking aggressive entries below the $134 mark. We will exit on a close below this level. The ultimate objective is to breakout above September 26th's peak of $161.38, a formidable line of resistance. In light of the current price level and the fact that CFLO has 200 mln shares authorized and only 39.6 mln outstanding, there's also the potential for a stock split in the near future too. ***November contracts expire next week*** BUY CALL NOV-140 FUJ-KV OI=145 at $13.75 SL=10.25 BUY CALL NOV-145*FUJ-KW OI= 48 at $10.88 SL= 8.25 BUY CALL NOV-150 FUJ-KX OI=465 at $ 8.75 SL= 6.00 BUY CALL DEC-145 FUJ-LW OI=110 at $22.50 SL=17.50 BUY CALL DEC-150 FUJ-LX OI= 0 at $20.38 SL=14.50 Average Daily Volume = 994 K ELNT - Elantec Semiconductor $107.81 -13.94 (-8.06 this week) Elantec is engaged in the design, manufacturing and marketing of high performance analog integrated circuits, primarily for the video, optical storage, and DSL markets. The company offers approximately 150 products such as amplifiers, drivers, faders, transceivers and multiplexers, most of which are available in multiple packaging configurations. ELNT targets high growth commercial markets in which advances in digital technology are driving increasing demand for high speed, high precision and low power consumption analog circuits. In the wake of CSCO's earnings report, Semiconductor companies that supply the Networking sector came under severe selling pressure today. Prompting the negative sentiment was CSCO's reference to increasing inventory, leading investors to believe that sales would slow for companies that supply the components used in networking products. ELNT has been in an upward trending channel over the past several months, and after closing above the upper bound of this channel yesterday, some profit taking was to be expected. Towards the end of the day, shares of the company bounced from the center of its channel on increasing volume, leading us to believe the selloff was overdone. While this is an aggressive play, we are looking for a quick rebound. If ELNT can continue its late-day recovery, it looks like it could quickly move back to new highs. Use today's low (near $103) as an aggressive target for initiating new positions, but make sure that buying volume remains robust. A slightly more conservative entry strategy will be to wait for shares to move through intraday resistance near $111 before taking a position. The top of the channel currently sits at $120, and with yesterday's high of $123, it looks like the stock will find resistance in this area. Since this is an aggressive play, we have set a fairly tight stop. If ELNT closes below $99, we will take it as a sign that we were wrong about the play, and will move it onto the drop list. ***November contracts expire next week*** BUY CALL NOV-105 UET-KA OI= 82 at $11.50 SL= 8.75 BUY CALL NOV-110*UET-KB OI=383 at $ 9.25 SL= 6.50 BUY CALL NOV-115 UET-KC OI=191 at $ 7.38 SL= 5.25 BUY CALL DEC-110 UET-LB OI= 36 at $16.63 SL=12.00 BUY CALL DEC-115 UET-LC OI= 24 at $14.50 SL=10.75 Average Daily Volume = 918 K LONG TERM: TWX - Time Warner $85.42 +2.02 (+5.99 this week) Time Warner's agreement to be acquired by the Internet powerhouse AOL will blend legendary brands with online dominance. Time Warner owns 75% of Time Warner Entertainment, which included Warner Brothers and Time Warner Cable. Time Warner's other subsidiaries operate such brands as CNN, Time and People Magazines, Warner Music Group, and even the Atlanta Braves baseball organization. The mega-merger between AOL and Time Warner edged one step closer to regulatory approval Monday. The two companies made progress with antitrust regulators on the issue of open access to cable lines. Investors are beginning to warm up to the prospects of an AOL-Time Warner combination as has been witnessed in the narrowing of the spread between the deal. Arbitrageurs have adjusted positions accordingly and reflected the likelihood of the deal receiving approval. As the two companies continue to appease regulators, the long-term outlook for the combined entity could present profit opportunities for patient options traders. New positions can be entered either on a pullback or a continued advance in TWX. If you choose to wait for a pullback, watch for TWX to bounce off support near the $80 level. A near-term bounce off the $85 level might also provide additional entries. Furthermore, an advance above the $87 level on strong volume could provide entries into strength. Make sure to confirm direction in shares of AOL before entering new plays. Should TWX suffer an extended pullback, use a close below the $77 level as a stopping point. ***November contracts expire next week*** BUY CALL NOV-85 TWX-KQ OI=2944 at $3.00 SL=1.50 High Risk!! BUY CALL DEC-85*TWX-LQ OI= 657 at $6.30 SL=4.25 BUY CALL DEC-90 TWX-LR OI=1862 at $3.90 SL=2.50 BUY CALL JAN-85 TWX-AQ OI=4353 at $8.30 SL=6.00 BUY CALL JAN-90 TWX-AR OI=4531 at $6.40 SL=4.50 BUY CALL MAR-90 TWX-CR OI= 122 at $8.70 SL=6.25 Average Daily Volume = 3.89 mln KANA - Kana Communications $27.88 +0.38 (+2.00 this week) Kana Communications makes software that helps businesses manage electronic communications with customers. Its products manage incoming customer communications, e-mails, and instant messages. Its customers include American Airlines, Dow Jones, eBay, and The Gap. Kana has been expanding its product line by growth and recent acquisitions. Kana's third-quarter revenues increased by 975% from the year-ago period! The enterprise relationship manger market is growing by leaps and bounds and Kana is in the middle of the mix capitalizing on that explosion. After reporting such bullish numbers, several Wall Street analysts bestowed KANA with positive comments. Reginal Kind, Chase H&Q analyst, said, "Investors looking for long-term winners should buy Kana." The stock has been on a tear since reporting such positive numbers and is poised to breakout above a key resistance level, which could set KANA up for a generous year-end rally. The key resistance level for KANA to clear is located at the $29 level. New positions could be entered on a volume-backed breakout above $29. A pullback to support at $26, or lower near the $24 level (around the 10-dma) would provide a favorable entry upon a bounce. We'll use $23 as the stopping point should KANA close below that level. ***November contracts expire next week*** BUY CALL NOV-25 URW-KE OI= 884 at $4.00 SL=2.50 High Risk!! BUY CALL DEC-25*URW-LE OI= 618 at $5.88 SL=4.00 BUY CALL DEC-30 URW-LF OI=2375 at $3.25 SL=1.75 BUY CALL MAR-25 URW-CE OI= 195 at $8.75 SL=6.25 BUY CALL MAR-30 URW-CF OI= 641 at $6.75 SL=4.75 Average Daily Volume = 2.73 mln LOW VOLATILITY: WIN - Winn-Dixie $20.69 +0.75 (+0.88 this week) Winn-Dixie operates 1,000 stores in 14 states. The company specializes in general merchandising and larger marketplaces which offer amenities such as pharmacies, photo labs, and food courts. Winn-Dixie also runs Thriftway, The City Meat Markets, and Buddies stores. A few months back, the company said it would acquire over 100 stores from grocer Jitney-Jungle Stores of America. Since announcing its "Plan of Restructuring" in early October, shares of Winn-Dixie have been on a steady climb. The stock has advanced nearly 50% in that time and looks to have more upside potential. Investors have been shopping for bargains in the Retail sector recently, and shares of Winn-Dixie are directly benefiting from that buying interest. We're looking to take advantage of the stock's steady rise and low volatility in options. Given the stock's recent run-up, we'd look to enter on a pullback to the $19.50 to $20 support area. However, aggressive entries might be found if the stock rallies above the $21 level - its high from last spring. If your entry strategy is to buy into strength, make sure to confirm that volume is there to support the move. Finally, we'd use a close below the significant support level at $18.50 as a sign WIN's momentum has run out. ***November contracts expire next week*** BUY CALL NOV-20 WIN-KD OI=89 at $1.06 SL=0.50 High Risk!! BUY CALL DEC-20*WIN-LD OI=32 at $1.69 SL=0.75 BUY CALL JAN-20 WIN-AD OI=81 at $2.06 SL=1.00 BUY CALL APR-20 WIN-DD OI=68 at $2.94 SL=1.50 Average Daily Volume = 214 K RE - Everest Re Group $59.00 +1.56 (+4.81 this week) Everest Re group is engaged in the underwriting of property and casualty reinsurance on a treaty basis. The company's products include the full range of property and casualty coverage, including marine, aviation, surety, errors & omissions liability, medical malpractice, and other specialty lines. The company operates extensively in both international and domestic markets. The insurance sector has been on fire this year! Believe it or not, shares of Everest have advanced by 120 percent in the last 52-weeks. We're looking for the sector momentum to carry shares of Everest even higher into the end of the year. The stock closed at a new all-time high Tuesday at the $59 mark, as such, a pullback may be in order. If the stock pulls back on light volume, look to enter new positions near support levels at $58, or lower near $56. A bounce off either level would mark a continuation of RE's year-long trend of higher lows. More aggressive entries might be found if the stock crosses the $60 level in the coming days, but make sure to confirm new highs with healthy volume before entering on strength. On a cautionary note, if RE should suffer an extended pullback and close below the $54 support level we would no longer initiate coverage on the play. ***November contracts expire next week*** BUY CALL NOV-60 RE-KL OI= 0 at $1.50 SL=0.75 High Risk!! BUY CALL DEC-55 RE-LK OI= 0 at $6.13 SL=4.00 BUY CALL DEC-60*RE-LL OI=10 at $3.38 SL=1.75 BUY CALL JAN-60 RE-AL OI=59 at $4.25 SL=2.50 Average Daily Volume = 1.58 mln LXK - Lexmark International $46.81 +3.00 (+2.56 this week) Lexmark is a leading maker of computer printers and related products. Its printer line include laser printers and ink jet printers. Unlike many of its competitors, the company develops and manufactures its own devices, thereby speeding product cycles. The company also makes supplies for Compaq, Fujitsu, and Samsung. Shares of Lexmark are on the mend. Since beating Wall Street's reduced estimates for its third-quarter, Lexmark has fallen back into favor with investors. As a result of the company's restructuring efforts, Lexmark guided analysts to higher than expected profits in its upcoming fourth-quarter. The company's bullish guidance has boosted its stock by over 60 percent since late October, and it may still have room to run as there is an unfilled gap up to the $52 level. The low volatility in Lexmarx's options combined with the prospects of an extended rebound have attracted us to the play. Entries might be found if LXK moves above the $48 level on strong volume early tomorrow. Additionally, a pullback to support at $45, or lower near $44 might provide additional entry opportunities. However, a close below $43 would signal an end to the play as it's the site of our stop loss. ***November contracts expire next week*** BUY CALL NOV-45 LXK-KI OI=1398 at $3.38 SL=1.75 High Risk!! BUY CALL DEC-45*LXK-LI OI= 390 at $5.50 SL=3.50 BUY CALL DEC-50 LXK-LJ OI= 60 at $3.38 SL=1.75 BUY CALL JAN-50 LXK-AK OI=2352 at $3.50 SL=1.75 Average Daily Volume = 1.58 mln ************* NEW PUT PLAYS ************* IDTI - Integrated Device $42.25 -10.69 (-8.13 this week) The company's high-performance semiconductor products and modules are found in computers, peripherals, and communications and networking devices. About 70% of sales are from communications and high-performance logic components, specialty memory, clock management circuits, and networking devices. IDTI also makes static random-access memories (SRAMs). The last time IDTI graced the hallowed halls of our recommended list, it was as a call play, and a highly profitable one at that. But ever since hitting its all-time high in mid-September, it's been all downhill for this OEM chipmaker. Many factors led to IDTI's decline, most notably weakness in the overall Semiconductor sector during the late summer months. A stellar earnings report in October was largely ignored as the stock continued to head ever lower, breaking through its 50, 100 and 200-dmas, currently at $80, $72.16 and $56.91, respectively. A downgrade on October 27th by Banc of America Securities, from a Strong Buy to a Buy rating, did not help the stock either. Most recently failing to rally above resistance at the 200-dma, the stock has since moved deeper into negative territory on the backs of the 5 and 10-dma (now at $49.88 and $54.19). Today's sharp decline of over 20% on over 350% of ADV can be explained in three simple words: The Cisco Effect. While Cisco's earnings were for the most part solid, analysts noted the significant increase in inventories. This suggests that Cisco has been stockpiling raw materials and that companies who supply the networking giant are likely to see significant slowdowns in demand going forward. With Cisco being a large customer of IDTI, this is most certainly bad news for the company, which is good news for our put play. Aggressive traders will be watching for a failure to break above the 5- and 10-dma as a possible entry point but make sure IDTI does not close above our $49 stop price. For conservative traders, continued weakness in the Semiconductor sector leading to a break below $40 on strong volume could be the signal to enter this play. ***November contracts expire next week*** BUY PUT NOV-45*ITQ-WI OI=492 at $5.88 SL=4.00 BUY PUT NOV-40 ITQ-WH OI=364 at $3.38 SL=1.75 Average Daily Volume = 4.10 mln ADI - Analog Devices $53.94 -8.06 (-8.38 this week) Analog Devices is a leading maker of analog (linear and mixed-signal) and digital integrated circuits (ICs), including digital signal processors. The company's broad line of ICS incorporate analog, mixed-signal and digital signal processing technologies that translate real-world phenomena such as pressure, temperature, and sound into digital signals. ADI's products are used in communications equipment (40% of sales), computers and peripherals, and medical and scientific instruments. Among ADI's more notable customers are Motorola, Dell, Lucent, and Sony. Semiconductor investors haven't been having much fun lately, as many stocks in the sector have been unable to break out of persistent downtrends. ADI completed a double-top formation near $100 at the end of August, and since then has proceeded to trace a series of lower highs and lower lows. Support had begun to develop between $58-60, and even after a downgrade from JP Morgan last Wednesday, it actually looked like the stock might be able to recover from there. Then CSCO's comments in its conference call last night about increasing inventories, sent another shockwave through the Broadband Semiconductor sector with leading stocks like BRCM and PMCS giving up 19% and 17% respectively. In its weakened state, ADI went along for the ride, crashing through support on its way to a 13% loss for the day. Today's closing price represents the lowest point for the stock since February, eclipsing the lows from April and May, and opening the door for more downside. While the stock may find some support near $52, it appears likely that ADI may have to revisit the $46-47 level before finding support sufficient to halt its decline. Should the bulls try to rally the stock after today's sharp decline, they will run into formidable resistance at the $58 level, so this is where we have placed our stop for the play. The best entry point will likely come from a failed rally attempt near resistance. Use any such recovery as an opportunity to initiate new positions as the bears reassert control and drive the stock lower. Those looking for a more conservative play will wait for selling pressure to push the stock below today's low before jumping on board. ***November contracts expire next week*** BUY PUT NOV-55 ADI-WK OI=1636 at $5.50 SL=3.50 BUY PUT NOV-50 ADI-WJ OI= 323 at $2.75 SL=1.50 BUY PUT DEC-55 ADI-XK OI= 774 at $7.75 SL=5.50 BUY PUT DEC-50 ADI-XJ OI= 435 at $5.00 SL=3.00 Average Daily Volume = 3.90 mln ********************** PLAY OF THE DAY - CALL ********************** RIMM - Research In Motion Ltd. $112.50 +8.00 (+3.25 this week) Based in Waterloo, Ontario, Canada, Research In Motion Limited is a leading designer, manufacturer and marketer of innovative wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, RIMM provides solutions for seamless access to time-sensitive information including email, messaging, Internet and intranet-based applications. RIMM technology also enables a broad array of third party developers and manufacturers in North America and around the world to enhance their products and services with wireless connectivity. Most Recent Write-Up With an uncertain market yesterday and profits being taken from PALM yesterday after its addition to the NASDAQ 100, RIMM moved lower, closing down $4.75 or 4.35% on 83% of ADV. RIMM was also likely dragged down by Nortel, one of the large caps stocks in the Toronto Stock Exchange (TSE). The low volume on Monday's decline was a welcome pause, after last week's strong performance. As well, RIMM managed to close firmly above its major moving averages. Today, strong buying pressure helped RIMM eclipse the Nortel Effect, closing up 7.66% on strong volume, clocking in at 120% of ADV. In doing so, RIMM put itself back above resistance at $110. For aggressive traders, a pullback to this resistance level or a bounce off the 5 and 10-dma, currently at $105.66 and $102.02 are possible entry points but confirm make sure a bounce is backed by buying volume. A break through $115 resistance, helped by a strong market (we recommend watching the TSE) would allow for a conservative entry. Looking to protect our profits, we have moved our stop up to $99. Make sure that RIMM stays above this level when making a play. Comments In a day that the NASDAQ was essentially unchanged, RIMM proved that the Election wouldn't phase it. With technically bullish trading today, we think that the Election results won't matter much to RIMM. Look for entry on bounces from $109, or $105 if profits are taken. A break through $113 would also be playable. ***November contracts expire in 2 weeks*** BUY CALL NOV-105 RUL-KA OI=321 at $12.50 SL=10.00 BUY CALL NOV-110*RUL-KB OI=645 at $ 9.38 SL= 7.00 BUY CALL NOV-115 RUL-KC OI=799 at $ 7.00 SL= 5.25 BUY CALL DEC-110 RUL-LB OI=331 at $16.63 SL=13.00 BUY CALL DEC-115 RUL-LC OI=150 at $14.38 SL=11.50 SELL PUT NOV-100 RUL-WT OI=329 at $ 3.00 SL= 4.25 (See risks of selling puts in play legend) Average Daily Volume = 2.00 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 ************************ The Sidelines Were Crowded... The market closed virtually unchanged today as investors awaited the results of the political elections. Monday, November 6 Shares of blue-chip stocks moved higher today while technology issues consolidated. The Dow finished up 159 points at 10,977 while the Nasdaq closed down 35 points at 3,416. The S&P 500 index ended up 5 points at 1,432. Activity on the Nasdaq was mild at 1.6 billion shares exchanged, with declines outpacing advances 2,148 to 1,804. Trading volume on the NYSE reached 924 million shares, with losers beating winners 1,424 to 1,387. In the bond market, the U.S. 30-year Treasury dropped 12/32, pushing its yield up to 5.89%. Sunday's new plays (positions/opening prices/strategy): Hewlett Packard HWP JAN40C/NOV47C $6.50 debit diagonal Flowers Ind. FLO DEC15C/DEC15P $1.31 debit straddle Glaxo-Wellcome GLX NOV65C/NOV60C $0.88 credit bear-call JNI Corp. JNIC NOV85P/NOV90P $0.31 credit bull-put Global Crossing GX NOV30C/NOV15P $0.43 credit strangle There was little favorable activity in our new spread positions on Monday. Glaxo-Wellcome and Hewlett Packard were the only plays that met our target entry prices. The Flowers straddle did not trade for less than $1.31, well above our target debit. JNIC jumped $3 at the open and traded higher throughout the day. There was no opportunity to participate in the bullish credit spread but we will monitor the position for future entry opportunities. The initial premium in the Global Crossing strangle was much lower than expected and we did not open the play. Surprisingly, there was a 1000 contract trade late in the day on the NOV-$15 Put. Is that an indication of things to come? Portfolio Plays: Industrial stocks rallied today, led by gains in blue-chip issues as traders went on the defensive ahead of Cisco's earnings. The technology giant slumped to $55 at the close, before reporting a first-quarter profit of $0.18 a share, which beat the estimates by a penny. The fear of poor results took its toll on a number of companies in the group with networking and computer software issues leading the way down. The industry was also dragged down by software developer VA Linux Systems, after the company issued a report warning that slack sales from new customers would crimp quarterly results. On the Dow, a well-known general rallied the troops as General Motors (GM) surged to $60 amid a market-wide flight to safety issues. Alcoa (AA), United Technologies (UTX) and Caterpillar (CAT) also participated in the bullish activity. Blue-chip techology companies were also in demand. Intel (INTC), the world's #1 semiconductor maker, and International Business Machines (IBM), the world's #1 computer maker, both moved higher. Software giant Microsoft (MSFT) rallied to just short of the $70 mark and those of you in the original long-term bullish position (JAN03-$50C/DEC00-65C) may need to adjust the outlook for the play, based on the recent bullish activity. In broader trading, strength was seen in drug, retail and defense issues while bank and financial stocks slumped ahead of the Presidential election. Our portfolio mirrored the market with blue-chip issues moving higher while technology positions retreated. Mercury Interactive (MERQ) was the top performer, up $13 to $126 after the company's LoadRunner system was awarded two Reader's Choice Awards. The awards were presented to superior products as selected by more than 13,000 professional developers and LoadRunner took honors as the "Most Innovative" and "Best Testing" solution. Our neutral credit strangle needed the boost and now the issue is back in the maximum profit range. However, if the rally continues, plan to cover the short option at $145 on any "heavy volume" move through the resistance area at that strike price. In the Health Services sector, Unitedhealth Group (UNH) rebounded from a recent bout of profit-taking as buyers of HMO industry stocks speculated on a Republican dominated outcome in Tuesday's election. Analysts say that Democratic passage of a healthcare "bill of rights" would increase litigation for improper denial of care and in addition, Vice President Al Gore has strongly backed the expanded right for patients to sue. Most Republicans support limiting the industry's exposure to lawsuits and they currently hold narrow majorities in both houses. The managed care industry is one of many groups that will be affected by the Presidential election and the dozens of congressional races, and it will be interesting to see how the market is influenced by the results in the coming sessions. Tuesday, November 7 The market closed virtually unchanged today as investors awaited the results of the political elections. The Nasdaq finished at 3,415 and the Dow ended at 10,952. The S&P 500 index closed almost where it started at 1,431. Activity on the Nasdaq was relatively light at 1.7 billion shares traded, with declines edging advances 1,999 to 1,839. Volume on the NYSE reached 876 million shares, with winners beating losers 1,467 to 1,328. In the bond market, the 30-year Treasury fell 5/32, pushing its yield up to 5.89%. Portfolio Plays: The broad market ended relatively unchanged today as investors chose to remain on the sidelines during the Presidential and Congressional elections. Technology stocks managed small gains with much of the activity coinciding with a recovery in shares of Cisco Systems (CSCO) after its better-than-expected earnings report. The networking giant's shares fell to $53 early in the session before closing near $57, up almost $2. Cisco was also the most active stock on the Nasdaq with more than 90 million shares exchanged. Advances in computer hardware, software and Internet stocks also boosted the technology group but shares of semiconductor companies remained under pressure amid concerns of declining demand going forward. Industrial stocks edged higher on strength in Honeywell (HON), International Paper (IP), Dupont (DD), Eastman Kodak (EK) and General Electric (GE). Blue-chip technology issues also participated in the upside activity with International Business Machines (IBM) and Hewlett Packard (HWP) closing up for the day. Leading the Dow on the downside were shares of United Technologies (UTX), Merck (MRK) and Disney (DIS). General Motors (GM) also lost ground after Goldman Sachs lowered its rating on the company and removed GM from its "recommended" list. In the broader market, bank, utility and airline shares retreated while most oil service, biotech, brokerage and paper issues closed higher. Analysts said there was little to be made of the lackluster session and technical indications suggest the market will continue its recent recovery once the elections and the upcoming FOMC meeting are completed. Our portfolio enjoyed a number of big winners during the "Super Tuesday" session. Handspring (HAND) was the top performer, up $7 to $90 as the handheld wireless sector recovered from recent selling. Vertex Pharmaceuticals (VRTX) was the leading issue in the drug group, up $5 to close near $96. Data storage companies Seagate (SEG), Maxtor (MXTR) and EMC Inc. (EMC) rallied and our recent entry in the managed care industry, WellPoint (WLP) also experienced favorable activity. Mercury Interactive (MERQ) was again the leader in the Computer Software sector and the short option (NOV-$145C) will need to be monitored closely to protect profits in the neutral credit strangle. The surprise in today's session was Broadcom (BRCM). The company's stock plummeted to $176 amid weakness in high-speed communication chip-makers after Cisco Systems reported it was planning to reduce its inventory. Equipment sales to Cisco account for about 15% of BRCM's total revenues and the move would substantially affect their earnings. In addition, BRCM announced that it has signed an agreement to acquire privately held SiByte; a semiconductor company focused on the development of network processing technology based on the MIPS architecture. The two news items were more than investors could tolerate and the stock tumbled in the midst of analysts' downgrades. Rather than close our bullish position at $185 for a loss, we decided to roll out and down to the DEC-$165 Put for a small debit. Our cost basis in the issue is slightly above $160 and we will make additional adjustments as the stock finds a new trading range in the coming sessions. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - With little indication of the future direction of the market, we decided to offer a change of pace with some plays on issues that have been identified by our faithful readers. ****************************************************************** GCO - Genesco $19.75 *** Earnings Rally! *** Genesco is a retailer and wholesaler of branded footwear. The company operates a number of unique business segments including: Journeys; Jarman, comprised of the Jarman, Underground Station and Stone & Company retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy stores and wholesale distribution; Licensed Brands, comprised of Dockers and Nautica Footwear; Other Retail, comprised of the Jarman Leased departments, which was closed earlier in the year, and Leather. In April of last year, the company operated more than 675 retail stores and leased footwear departments throughout the United States and Puerto Rico. Genesco also designs, sources, markets and distributes footwear under its own and licensed brands, including Johnston & Murphy, Nautica and Dockers. Genesco recently said it expects to exceed third-quarter earnings estimates of $0.30 per share by at least 10%, based on strength in the company's operating results. Genesco also plans to open as many as four new stores during the first quarter of next fiscal year using a concept called, "Journeys Kidz," targeting customers between five and 12 years of age. The company expects to report third-quarter earnings on November 16 and based on the recent activity in the underlying issue, investors believe the outcome will be favorable. Today's rally to a new all-time high suggests the trend will continue and the previous highs near $17-18 should provide adequate support for any future corrections. PLAY (conservative - bullish/debit spread): BUY CALL DEC-15.00 GCO-LC OI=252 A=$5.38 SELL CALL DEC-17.50 GCO-LW OI=119 B=$3.25 INITIAL NET DEBIT TARGET=$1.88-$2.00 ROI(max)=25% ****************************************************************** T - AT&T $22.38 *** Bottom Fishing! *** AT&T Corporation provides voice, data and video communications services to large and small businesses, consumers and government entities. AT&T and its subsidiaries furnish a range of domestic and international long distance, regional, local and wireless communications services, cable television and Internet services. AT&T also provides billing, directory and calling card services to support its communications business. AT&T's primary lines of business are business services, consumer services, broadband services and wireless services. In addition, AT&T's other lines of business include network management and professional services through AT&T Solutions and international operations and ventures. AT&T recently completed the acquisition of MediaOne Group and with the addition of MediaOne's 5 million cable subscribers, AT&T becomes the country's largest cable operator, with about 16 million customers. AT&T has endured some rough treatment over the past few months, falling to record lows along with other giants in the telecom industry. Strangely enough, there has been a recent increase in bullish options activity and traders are at a loss to explain the rise in call option interest. One thing is clear, the activity suggests that someone believes there is future upside potential in the issue. At the same time, the upper limits of any rally are significantly affected by the resistance at the sold strike price; a perfect condition for a time selling position. Those of you who enjoy speculative plays can use the favorable option premiums to initiate a long-term calendar spread. PLAY (conservative - bullish/calendar spread): BUY CALL JAN02-30 WT-AF OI=36358 A=$2.93 SELL CALL JAN01-30 T-AF OI=34032 B=$0.43 INITIAL NET DEBIT TARGET=$2.38 TARGET ROI=100% Calendar Spread Basics: The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. A less neutral and more bullish type of calendar spread is when the underlying issue is some distance below the strike price of the options. The outlook is aggressive with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. The strategy is best initiated when the near-term 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. ****************************************************************** ISLD - Digital Island $12.63 *** Ready To Rebound? *** Digital Island offers a global network and related services for companies that are using the Internet to deploy key business applications worldwide. ISLD's services makes it easier for companies to globalize their operation and to provide a higher quality of service and more functions than the public Internet. The company targets corporations that are increasingly relying on the Internet to conduct business but are constrained by its unreliability, slow performance and limited range of functions. Its global private network and expert services enable customers to effectively deploy and manage global applications by combining the reliability, performance and range of functions available in private intranets operated by individual companies for their own users, with the global access of the public Internet. ISLD also offers service level guarantees, network management and other high quality services designed to improve the applications deployed on its network. ISLD is another issue that has experienced recent bottom-fishing activity and the increased interest in call options suggests that traders are anticipating a rebound in the company's share value. Earnings are due tomorrow and this position provides an excellent opportunity to speculate on the outcome of the announcement. PLAY (speculative - bullish/synthetic position): BUY CALL DEC-17.50 SUH-LW OI=163 A=$1.38 SELL PUT DEC-10.00 SUH-XB OI=147 B=$1.25 INITIAL NET CREDIT TARGET=$0.00-$0.12 ROI TARGET=50% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $375 per contract. ************************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. 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