The Option Investor Newsletter Thursday 11-09-2000 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/110900_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-09-2000 High Low Volume Advance/Decline DJIA 10834.30 - 72.80 10902.10 10618.50 1.11 bln 1088/1726 NASDAQ 3200.35 - 31.35 3230.00 3087.06 1.94 bln 1260/2606 S&P 100 739.21 - 4.11 743.32 721.79 totals 2348/4332 S&P 500 1400.14 - 9.14 1408.65 1369.68 35.2%/64.8% RUS 2000 495.33 - 5.35 500.68 485.97 DJ TRANS 2751.34 - 25.73 2775.20 2719.33 VIX 29.64 + 1.36 31.68 28.62 Put/Call Ratio 0.78 ****************************************************************** Ok here is the plan, heads its Bush, tails its Gore. You know the story, you have heard it over and over all day until you are almost to the point of wishing you had voted for Nader. (I said almost!) As I write this 97% (65 of 67 precincts) have been recounted and the Bush lead has slipped to only 225 votes. Sheeesh! Talk about a nail biter. If it was only a matter of the Florida recount being completed tonight and a winner named we would almost be out of the woods. Unfortunately for traders the outlook is still grim. Regardless of the final count tonight there are numerous suits already filed and recounts underway in other states besides Florida. The closer we get to a tie in the Florida recount the more importance the absentee ballots will become. The Bush camp says those ballots come from a lot of military personnel and will add to the Bush totals but the Gore camp says a lot will come from Israel and be for Gore after the Clinton effort to help in the recent conflict. The bad news, they can come in up to ten days after the election and still be counted as long as they were postmarked on Nov 7th. The bottom line, we are not done having fun yet. Other than election news, yes there was some, the PPI report this morning was mixed with a headline number increase of +0.4% which was far more than the +0.1% that analysts expected. The major reason was higher food and energy costs. The core rate which is more important came in at -0.1% which was less than expected. The mixed numbers had very little impact on the market with all the real attention being focused on the election results. The Fed meets next week and today's numbers were a non-event as far as the Fed is concerned. Dell did what everyone feared after hours tonight. Dell met analyst's estimates with earnings of $.25 but guided analyst's earnings lower for the future. Dell feels they will achieve a +27% growth for the full year going forward which is decent growth. The bind here is what we were worried about with CSCO on Monday. They have been growing at a +50% clip for so long that anything less than that is viewed as a negative. Dell dropped to $26 in after hours trading from a close of $28.38. With Nasdaq futures down -50 already for tomorrow you can bet Dell is a substantial reason. Intel dropped -1.50 in after hours after the Dell guidance. Fewer computers sold by Dell mean fewer Pentiums sold by Intel. CSCO dropped about -.50 for no reason we can find. MSFT lost about -$1.00 after the announcement and SUNW only -.50. SUNW is likely to benefit from the impression that they are getting more server business than Dell. Today was tough for the Internets with YHOO dropping over -$6 as the leader by default of the Internet sector. After the missed earnings and warnings from last night the carnage was widespread and severe. CMGI -3.81, ICGE -5, SFE -2.69, DCLK -3.25. Anything related to Internet advertising revenue took a serious hit and many hit the lows for the year. The shock wave from that bubble bursting is still being felt as investors login to see that their Internet stocks which could not go any lower actually did. Even the largest profitable Internet company took a hit but from a different source. AOL dropped -$4 after the government said they were delaying the decision on the TWX/AOL merger. AOL is not as susceptible to advertising revenue as most other companies and the TWX merger will make them even stronger going forward but there are many hurdles they must cross before that happens. If you were sitting in front of your PC today when the Gore team started talking trash about the election and all the suits and recounts and irregularities then you are well aware of the intraday havoc they caused. The Nasdaq, which had been trading sideways since the opening drop, promptly headed south to the tune of -144 points and a low of 3087 before rebounding to close dead on 3200. The low was about +6 points above the low of 3081 set on October 26th. In my book it was another successful retest of the entire series of October lows from the 13th, 18th and 26th. With any kind of resolution of the election crisis we should move up from here. The Dow dropped almost -300 points to a low of 10618 and rebounded after the press conference to close at 10834. Volatility anyone? The prospect of the election crisis dragging out days, weeks or even months had traders running for the sidelines. Did you buy the dip like I suggested last night? I did. Here are my reasons which with $3.00 will buy you a cup of coffee but they are my reasons. I think 3100 is strong support and 3000 even stronger. I think our downside from here is slim. Yes the election news is grim. What is the worst case? One of them will finally be declared the winner and the market will rebound. The possibility of Gore being the winner has now been priced into the market. If a possible Bush win had added several hundred points to the indexes then the two day sell off has corrected that. This does not mean new news cannot cause further problems but almost every possibility has been priced in at this point. Then there is the wildcard. The Fed. If the markets keep bouncing all over the place could the Fed possibly be a little more open to a rate cut next week to soothe the markets until the election is resolved? Who knows but I would not put it past the current administration to put pressure on Greenspan to cool the markets while the Gore team goes about trying to find enough votes to claim victory. Is that a conspiracy or just good politics? After all, you take the pressure off the markets and you take pressure off the timing of the results. Maybe I am just skeptical but Greenspan has been known to ride in on his white horse in times of crisis in the past and save the day. What is the worst case? They raise the rate again next year if the economy is still growing too fast. Add to this the high VIX at 30 and the put/call ratios near .80 and you have a great possibility for a positive market on the right news. What should you do tomorrow? If I knew the answer without a shadow of a doubt Austin and Wendy would both be driving new Jaguars on Monday. Nobody knows and nobody can predict due to the enormous possibilities of more press conferences by the dueling election teams and the possibility of each trying to grab the headlines with multiple forms of sensationalism. What if Florida completes the task and Bush is still the winner, by 50 votes? What is Gore is the winner by 50? What about the absentee votes? What about the suits? There is simply no way to know which way this election will go and that could impact the market either way. If the Florida recount is completed tonight then Friday could be a decent market day. HOWEVER, any negative headlines that will lead to weeks of uncertainty my cause a flight to cash before the close on Friday. With two days of dueling headlines before the market opens again, skittish traders will be looking for safety. What you do on Friday depends on your risk profile and there may be a great opportunity to profit from that risk. As I said before I think the downside is between 3000 and 3100 but that is just my opinion. This event has never happened before and there are no historical precedents. Greed however is alive and well and will jump in when the outlook is the worst. You can count on that! I am. Good luck and don't buy too soon. Jim Brown Editor ************************* REGIONAL SEMINAR SCHEDULE ************************* Only one seminar 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 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 **************** Back To School By Austin Passamonte How many times will we need to retest these stupid market lows? Our fellow bulls wonder why we can't retest recent highs a few times around as well! Right now the highs seem to have learned their lesson better. It might take a bit more prodding before we're sure a firm bottom sits beneath our feet. The presidential debacle is our latest news event to give good reason for traders to sell the farm. Any hint of weakness these days results in a swift and immediate market drop. Such action is swiftly met with vigorous buying at once. What does this tell us? More volatility ahead. As noted in Tuesday's "Market Sentiment" daily charts, all major indexes were (and still are) screaming of weakness with bearish price/stochastic divergence clearly shown. Those who backed up the truck and bought puts across the board (Molly Evans?) are whistling their way to the bank less than two sessions later. And so are those who bought calls this afternoon! Why such market action occurred can be speculated, debated and explained on a fundamental basis until the cows come home. All of these may be valid but on a trade-entry basis, does it really matter? We think not. It's still our opinion that there will be further broad market declines over the next several sessions or weeks before a major, sustained rally can emerge. This is based on technical and fundamental analysis to cover all bases. Daily charts of all major equity indexes have turned decidedly negative while respective weekly charts went neutral. This must reverse before we can identify any uptrend in these markets. Downside support is firm just above the most recent lows and should hold but does not have to. Support is much easier to break than resistance has been since August. From a candlestick perspective we see the creation of bullish hammers with long tails in the Dow, SPX and OEX with NASDAQ markets closing their gap-down open and ending with bullish dojis as well. These signs point to further strength tomorrow from here. Only the Dow rests above its major moving averages with the other indexes still looking up at their M/A ceiling's overhead. On the fundamental front, investors and traders need a solid catalyst to drive these markets into a sustained rally. Who wins Florida and the presidency would help but is far from the cause or cure. Market bulls need good news from leadership companies on fourth- quarter earnings in order to justify strong buying. First we must wash out all of the warnings from this quarter and survive the next round of confessions and the dead space in between. Eager buying ensues at prices lower than current but what will cause the same buying volume to continue far above such "bargains"? S&P 500 commercials are still historically short as of last week to be reviewed again tomorrow night. Their gamble to hold fast through the deepest plunge so far is perplexing but worth noting. Odds are we should see a tradable rally to continue today's action on Friday. That does not negate the long-term view but it may be best to make money on a daily basis for now and face the long-term as it unfolds. Today was another remarkable occurrence, which has become almost common this year. It proves there is a plethora of willing buyers out there but at what price levels? There are also many negative forces to pressure more selling ahead, but to what depths? We will play this market day by day. Puts and calls worked well this session. Calls should do so tomorrow morning. After that, only the charts will tell as we continue the eternal quest for market direction with conviction! ***** VIX Thursday 11/09 close: 29.64 30-yr Bonds Thursday 11/09 close: 5.84% 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 (11/09/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 780 - 765 13,145 708 18.57*** 760 - 745 15,371 8,302 1.85 OEX close: 739.21 Support: 735 - 720 6,323 11,012 1.74 715 - 700 1,540 11,389 7.40 Maximum calls: 800/6,112 Maximum puts : 700/5,278 Moving Averages 10 DMA 745 20 DMA 735 50 DMA 761 200 DMA 777 NASDAQ 100 Index (NDX/QQQ) Resistance: 85 - 83 50,296 34,262 1.47 82 - 80 60,159 47,041 1.28 79 - 77 12,403 61,047 .20 QQQ(NDX)close: 76.25 Support: 75 - 73 5,694 53,542 9.40 72 - 70 1,689 21,803 12.91 69 - 67 193 5,784 29.97 Maximum calls: 84/25,633 Maximum puts : 80/31,301 Moving Averages 10 DMA 80 20 DMA 80 50 DMA 86 200 DMA 93 S&P 500 (SPX) Resistance: 1475 14,801 4,767 3.10 1450 11,305 8,561 1.32 1425 10,261 13,102 .78 SPX close: 1400.14 Support: 1375 13,343 19,259 1.44 1350 8,395 23,014 2.74 1325 2,467 9,774 3.96 Maximum calls: 1400/28,985 Maximum puts : 1400/31,761 Moving Averages 10 DMA 1415 20 DMA 1395 50 DMA 1428 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 to net-short positions. New data Friday night! ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/110900_1.asp ************** TRADERS CORNER ************** President or No President, It's Still The Economy By Molly Evans Last week - same time, same place, we began the revisit of "What Moves the Markets" highlighting key economic reports that tell the tales of the U.S. economy. As I had alluded, the markets are propelled in both directions by key market pillars: economy, corporate earnings, interest rates and liquidity. Today's markets are quite volatile. Oftentimes, they surge or they drop so abruptly that investors are stunned with how quickly they've appreciated or depreciated in net worth. These past couple of months have seen violent rallies but tops come quickly. People shake their heads and wonder why. Why? It's because the markets are pretty smart. They are quick to lead or at least react to developments in these market pillars. The small investor may often feel helpless and victim to the volatile times. They think they have no edge and are destined to follow the coattails of the big money when they start to buy again. That's just not true. You too can read what is going on and anticipate the market's reactions. You can be prepared for those swings and you CAN make money on both up and down days. If the Denver seminar attendees took nothing else away from their time out there, hopefully they did learn that. Puts in a bear market (Nasdaq) are as golden as calls were in the fall's bull market. When people are trading their own money, they've got to strive for objectivity in their interpretations of the key market pillars. Let's consider this: In the words of the great George Soros, "Economic history is a never-ending series of episodes based on falsehoods and lies, it represents the path to big money. The object is to recognize a trend whose premise is false, ride that trend and step off before it is discredited." That's a very strong statement! Think about that! First you have to believe there exists a false premise; then you must consciously discredit that premise with the truth but you have to accept it as truth so that you can act upon it. So, to come into the big money, you have to study and understand the basics of economics, look around to identify trends denying the truths; ride the trend, and then get out when it appears that the lot of other market participants are about to realize they've been conned! The markets are smart but opportunity lurks in many, many corners. Austin has shown you how to spot divergences in stock price versus technical indicators. Lee has taught you to recognize mispricings in options. I've been trying to show you that economics are important, valuations do matter, and the markets don't have to climb to the sky for you to make money. These are just a smattering of the brainpower printed here. You have the tools if you'll just use them. So what is the present ill of the markets? It's still the economy. It's still the valuations of tech stocks. The presidential hoopla does nothing to add to the optimistic side for the bulls but it's just an excuse to sell. Once the ball starts rolling, it gains momentum down the mountain. "But we've already come down so far! It's the time for the fall rally that we get every year!" you say? Historically, maybe so. That doesn't mean that it's a guaranteed thing. Folks are still queasy about oil prices and their heating bills this winter. No, the extra oil hasn't shown up in the reserves yet. OPEC promised and the market has priced it in but it's still not here yet. Consider the retail sector. The last three years, retail stocks have rallied from October into the first quarter. Will they this year? So far, no. Are consumers gearing up to be full of holiday cheer and in a spending sort of mood? You tell me. Consumer spending has been a big part of the economic expansion we've enjoyed these past several years. Monetary ease and booming markets made the consumer feel rich. Yet now, consumer debt is at staggering, nosebleed levels. The safety net of real savings is down to all time lows and lo and behold, consumer confidence is grinding down. The government's consumer confidence report for October dropped 7.3 points, a big one-month drop and consequently the lowest reading in over a year. Ills of October again? Retailers will hope so. The economy reigns supreme in determining market performance. However, corporate earnings, which are certainly intertwined with economic reality, are still an independent pillar of market moving events. There are many, many great companies who have magnificent growth prospects and real earnings. That's undisputed. The trick is to be proactive and smart. Find those companies that are consistently surprising to the upside, become intimate with their tape action through the daily cycles and then apply your favorite long investment strategies during market pullbacks. As Dick Arms asserted, we've moved into a cycle of trading ranges. There are still great corporate earnings, the problem is that share price had gotten ahead of fair valuation in so many stocks. That's awfully easy for me to say now that we know how the market has chopped them up recently. But, what we should consider going forward is that in the coming quarters, might year ago comparisons become difficult? Economic conditions were generous in late 1999 and early 2000, allowing earnings per share (EPS) for the S&P 500 to grow 20%. However, cost pressures from the tight labor market, transportation costs and adverse market conditions (for corporate investment portfolios) conjoined with higher interest rates and tightened lending by banks might just serve to slow the EPS growth into the next year. This year has certainly witnessed more earnings disappointments than surprises. The shakeouts are serving to compress valuations. It's buyer beware. If you buy, be sure you hedge, sell premium and take profits when presented with such gifts. Next pillar...interest rates. The Fed meets to decide fiscal direction on the 15th. What's it going to be? I can't count the number of times I've heard the pundits on CNBC say that the Fed's next move is to ease their tightening bias at the very least, if not lower rates. I'm no expert but...I don't think so! The latest reported average hourly earnings for payroll workers is at the highest level it's been in over eight years. The picture is splashed with mixed signals. It would be pretty surprising to see them raise rates but the mixture of inflation, deflation and stagflation indicators must signal to them that they've mastered a "just right" slowing of the economy and thus will remain guard dog vigilant. Indeed, the Fed's own minutes reflect that very sentiment as evidenced from the minutes of their last committee meeting, "many members emphasized that the Committee needed to be prepared to act promptly should inflationary pressures appear to be intensifying." The last pillar is liquidity. Liquidity is probably the least understood entity of market moving factors. The analysis of liquidity is tracking the change of the float of stock and the movement of cash. Mary Redmond has been so good about keeping you informed of cash flow to and from mutual funds and money market accounts. We all keep hearing it, "Money is piling up on the sidelines!" Maria shouts it every single day. How come we keep testing this bottom then? How come the big boys are ten year extreme net short? Show me the money. They are right though. It may be lighter inflow than in years past but nonetheless, inflows are still greater than outflows. Continue to follow Mary's information. This past week has been very interesting. I'm listening to Chris Matthews on Hardball as I type this. He says we're in a crisis as we don't know who's going to lead this country over the next four years. I don't know if it's a real crisis but I did think that there was one precious moment the other night as I watched the election returns. Bob Pisani was taking emails from viewers and in a true sign of the times, one befuddled viewer wrote in, "Watching these events unfold tonight is much like watching my internet stocks during the day." There's never a dull moment in this world. Stay tuned, be very suspicious of just where that elusive bottom lies and be trigger happy if the trade turns on you. There's always another one out there. ************************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: ***** RIMM $70.50 +1.00 (+1.82) While portable computing and wireless net-ready appliances are still considered the wave of the future, the tide has turned for net appliance stocks, at least for now. While RIMM held up well in yesterday's stormy markets, the stock dropped almost 11% today over 150% of ADV. The Nortel effect is a factor that also continues to weigh heavily on RIMM. As both stocks are large caps in the Toronto Stock Exchange (TSE), Index players can have a dramatic influence on the stock price, regardless of strong fundamental factors or technical support levels. With that, RIMM has fallen below our stop at $99. As a result we are no longer recommending this play. PKI $110.44 -5.81 (-5.50) Ongoing election jitters contributed to heavy selling in the broader markets and finally broke the back of PKI's narrow trading range. Recall that our play was struggling to clear resistance near $120, after setting a new high last week. The consolidation had been taking place in a fairly narrow range ($115-119), as we awaited the catalyst which would propel the stock higher. Alas, a different catalyst arrived in the form of more market weakness, and PKI investors went along for the ride today, subjecting the stock to nearly a $6 loss on the day, clearly violating our $113 stop and bringing our play to a decisive close. LXK $41.50 -3.06 (-2.75) Our attempt to capitalize on LXK's extended rebound and low volatility in options came to an end today as the stock gapped below support at the $44 level. Unfortunately, the stock's slide continued past our stop at $43. The broad weakness in the markets today was too much for recent bulls in LXK. As such, we are no longer initiating new positions in the stock. However, LXS's slide lower in the past two days came on extremely light volume, which could lead to a snap-back rally should the bulls return with strength. We'd use any strength in the coming trading days to exit existing positions. CFLO $120.88 -15.13 (-15.69) The post-election decline was sharp and CFLO got whipsawed. The sellers far outweighed the buyers amid the so-called uncertainty. Today, CFLO saw the underside of the 10-dma ($124.58) and an intraday low of $117.75 before it resurfaced above the $120 level. Our $134 stop was clearly violated and we're dropping the play this evening. There is support at the current level, so look for a relief rally if you failed to exit open positions and are looking to repair losses. VRTS $139.25 -5.25 (-14.69) Investors took more than a few profits off the stock's recent gains. The definitive slide under $150 kept even the more aggressive call traders at bay yesterday. The weakness extended today. Buyers didn't start nibbling on VRTS until it hit the $135 level. The transgression through our $139 stop and the strong inclination for further losses amid the jittery marketplace places VRTS on our drop list. If by chance you have open call plays, it might be wise to consider selling into any intraday strength. The next level of support is quite a ways down near the $120 mark. PUTS: ***** GSPN $55.13 +3.25 (-18.34) Showing amazing relative strength over the past 2 days, GSPN has refused to break down further, even in the face of the weakness seen in the broader markets. While we saw the NASDAQ challenge its October lows today, our play recovered almost immediately from a minor gap down open, managing to chalk up a $3.25 gain by the closing bell. Although we got a great ride from GSPN when it cratered earlier this week, it looks like the selling pressure has diminished significantly. We're more than happy to take our profits off the table and bid a fond farewell to GSPN tonight. ************************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. 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The Option Investor Newsletter Thursday 11-09-2000 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/110900_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 $70.88 +1.44 (+2.19) MSFT demonstrated tremendous strength in a weak and uncertain market environment over the last two days. Excellent profits could have been taken Wednesday morning when the stock popped over the $72 level before dropping on election uncertainty back to support at $68. MSFT's 5 and 10-dmas are almost converging, with the former at $69.75 and the latter at $69.31. It is a sign of technical strength that MSFT was able to stay above support at $69 today, even when the market weakened. Volume came in above average at 45 million shares, above the three month average. MSFT is on its way to clear the 200-dma of $73.44, and, if it is successful, could be on its way to July's high of $80. Remain cognizant of continuing election uncertainty, which could persist for longer than expected, and continue to use the $64 level as a stop should MSFT close below that level. Aggressive entries might be found should MSFT rally above the $71 level early tomorrow, while a strong move above resistance at $72 could provide a more conservative play. ADBE $83.19 +2.94 (+2.50) Yesterday, ADBE received a double-dose of positive comments. First, Montauk Securities issued a report in which it described ADBE as a fundamentally strong company with tremendous growth opportunity. As well, Robertson Stephens analysts Aleksandar Sasa Zorovic and Lowell Singer reiterated their Buy rating, stating, "The company is uniquely positioned to capture on the needs of publishers, corporations, and consumers to publish seamless across media and devices and (we) believe this opportunity is still not fully reflected in the stock price." Kind words were little help as the stock fell $2 on a shaky day for the market overall. Or perhaps there was a delayed reaction as today, ADBE bucked the downtrend and rallied on over 150% of ADV. For conservative traders, look for a stronger market to carry ADBE above $85 with volume before entering. Aggressive traders may try target shooting the 5-dma at $81.90 and the 10-dma near our stop at $79, but make sure the stock closes above this level as it remains our stop. EMC $85.00 -3.63 (-12.75) Election uncertainly and general market weakness, especially in the land of the big cap Tech stocks yesterday led to EMC declining $8.94 on 125% of ADV. Today, the selling continued but upon hitting the rock-solid support level of $80, the stock bounced strongly as bargain hunters stepped in to bid shares back up to close right on support at $85. Despite closing below our stop of $86, we are keeping this call play for a number of reasons. First, the bounce off support today was convincing, with high volume suggesting that a bottom was found. Second, candlestick analysts will note that EMC has formed what could be a morning doji star pattern. A strong move up tomorrow would complete this pattern. If so, a recovering market tomorrow with continued buying in EMC could make current levels an attractive entry. A more aggressive entry could be had on another test of $80. For the risk averse, wait for EMC to break through its 100-dma at near $90 before initiating a new position. However, further weakness in the stock would result in an end to our play. IMGN $41.88 -1.94 (+3.81) Yesterday, in the face of a declining broader market and uncertainty in the macroeconomic and political landscape, IMGN bucked the trend to close up $2.25 or 5.41%, with volume clocking in at twice the ADV. This was largely thanks to an announcement from the company, reporting favorable results of one of their Tumor-Activated Prodrugs (TAP). The drug, used to treat small-cell lung cancer, was successful and well-tolerated, not only in monkeys but in mice as well. While this is a long way from FDA approval or even Phase 3 trials, it is a step in the right direction. While IMGN did give some of its gains back today, the up-trend remains intact. A bounce off the 5 and 10-dmas at $40.82 and $38.51, respectively, are possible aggressive entry points while a break through resistance at $45 on volume would allow for a safer entry. At present, we are keeping our stop at $37 so make sure IMGN closes above this point when entering on a bounce. PSFT $45.94 -0.63 (-0.81) As Bill Clinton remarked yesterday, the People have spoken - we just don't know what they are saying yet. With a market that doesn't like uncertainty, traders took profits on PSFT yesterday, after encountering resistance at $50, closing the stock down $3.13 or 6.29% on less than 75% of ADV. Considering the low volume, we were not concerned. Today, with continued weakness in the NASDAQ, PSFT offered what could turn out to be a rare and ideal entry point, bouncing strongly above our stop at $42. Despite closing down fractionally, the strong buying conviction this morning has us thinking that there is strong buying interest in this stock. With volume coming in at about 115% of ADV, most of it was to the upside. There is support at $45 and on a bounce backed by volume, this could allow for an aggressive entry. Another test of $42 support is not very likely but if it happens, make sure PSFT closes about this level when considering a play. For traders who want to enter on strength, wait for PSFT to break through its 5-dma at $42.29 with conviction before jumping in. However, since PSFT closed ever so slightly below our stop we would view continued weakness tomorrow as a sign PSFT's run is over. IMCL $59.44 -2.88 (-8.19) Our earnings play is apparently running out of time, as IMCL is expected to release its results in the first half of next week. Although the company is still not providing an exact date, investor relations is guiding us to expect its report by the middle of next week. The price action in IMCL has continued to reflect investor nervousness, with the stock trading below $56 today before bouncing at the 30-dma ($56.25) and recovering with the rest of the Biotechs this afternoon. Volume is continuing to increase with more than 200% of the ADV trading hands today. Ending the day fractionally above our $59 stop level, IMCL is skating on thin ice, and a close below that level tomorrow will mean it gets dropped this weekend. While an aggressive entry could have been had when the stock bounced near $56 this morning, we would recommend waiting for the stock to clear $62 (the top of today's opening gap) before initiating new positions. MANU $109.06 -0.94 (-11.44) Alright, don't go running to your keyboard with allegations of treachery. Yes it's true, MANU is still on our call list in despite of the STOP violation. Our position on MANU remains the same - if the share price demonstrates more weakness tomorrow and conclusively moves to the underside of $110 at the close, we'll exit the play. In this particular case, we kept MANU because it made a valiant attempt to move to the topside of $110 in the last hour of trading today. This behavior coupled with the oversold conditions present the possibility of a relief rally. There's plenty of room for upside action tomorrow. A moderate approach is to buy into strength as MANU moves through the 5 and 10-dmas at $118.30 and $115.84, respectively. If you're more cautious in these markets, look for MANU to rally above the $120 level on strong volume before starting new plays. MLNM $75.50 -7.56 (-9.56) Let's give a cheer for MLNM! Yesterday's strong trading action at the $88 and $89 level provided convincing sentiment that the stock is well positioned for a break through the $90 resistance. A more cooperative market would, of course, provide the propulsion to launch MLNM through its 52-week record of $84.25. Today however, was quite a different story. Talk about a close encounter of the worst kind! The wobbly market, lots of money moving to the sidelines, and investors growing anxiety over the recent election stripped MLNM down to bare bones. MLNM saw the low $70s before a late- day upswing brought the share price back above our $75 Stop! We remain bullish on the issue and believe MLNM will rise to the occasion in coming sessions. However, trade smart. Wait for the uptrend to resume before jumping back into positions. ******************* PLAY UPDATES - PUTS ******************* IDTI $36.13 -3.56 (-14.25) There's nothing like a down market to help a put play. To use the classic balloon in an elevator analogy, not only was the balloon a lead one, but the elevator was going down as well. Downward momentum continued for IDTI on Wednesday as the stock opened at its high of the day, and proceeded to head lower to close down $2.56 or 6.07% on stronger than average volume. The move below $40 gave conservative traders entry points. Today, the selling picked up as the stock gapped down at the open and continued lower on high volume. With help from negative sector sympathy, IDTI closed down 8.89% on over twice the ADV. For conservative traders, a break through $35 could allow for an entry point while aggressive traders could watch for a failure to rally above resistance at $40 before making a play. In both cases, confirming direction with sentiment in the Chip sector before entering would not be a bad idea, and be aware that we have moved our stop lower to $41. SLR $40.00 -0.88 (-4.19) Shares of original equipment manufacturers got slammed this week as Cisco reported a high inventory level for certain electronic components. This worked out beautifully for our SLR put. SLR receives about 10% of its sales from Cisco, and was already weak from the investment community's disappointment with its takeover of NatSteel. The Cisco earnings report and the general market environment served to push SLR off a cliff below support at the 200-dma of $41.69. SLR is now situated well below the 50-dma at $44.86, the 10-dma at $43.98 and the 5-dma at $42.27. Volume is heavier on down days. It looks as if SLR may be in for a fairly prolonged sell off. However, the stock shows a consistent pattern of gradual one and two point daily moves. Consider taking new positions on a failed attempt to clear $40, and consider closing all positions if the stock closes above our stop at $44. ADI $45.88 -1.06 (-16.44) Heaping even more misery on the already beleaguered Semiconductor sector this morning, Banc of America Securities analyst, Rick Whittington, cut his ratings on nearly a dozen chip stocks, including ADI. Pointing to supply and demand coming into parity due to slowing demand, Whittington lowered his price target for ADI from $110 to $60, and the sellers piled on again, extending yesterday's losses. The stock finally found some support after the lunch hour, bouncing from the day's low of $42.63 to close out the day with a loss of only $1.06. Volume has been heavy the past 3 days, hitting more than double the ADV today. The pattern changed a bit today however, with heavier volume coming on the buy side, than the sell side. This points to a possible bottoming pattern, so to preserve our profits, we are moving our stop loss down to $49. Aggressive players can consider new entries on a rollover from intraday resistance either at $45 or $49-50. More cautious players will want to wait for further weakness to materialize though. In this case, wait for ADI to penetrate today's low, and then jump aboard as the stock heads down to challenge its next support level near $37. LVLT $38.38 -1.19 (-1.44) Growing concerns about tech growth and the general uncertainty in the markets added more pressure to LVLT's share price. The weakness was certainly visible in today's session. A mini rally during amateur hour failed to push the share price through $40, and subsequent attempts to gain upward momentum quickly lost steam around the $39 level. A high-volume decline through the 5-dma ($38.14) would portend that LVLT could see the underside of $35 once again. If that scenario transpires, aggressive traders might consider taking positions into the downward momentum. A definitive slide under today's intraday support at $36.50 would however provide better confirmation of further weakness. Take entries according to your risk portfolio. Any bullish close above $41 and we will exit the play - currently, the 10-dma ($41.03) is in-line with our stop loss. Although it had no effect on trading, be advised that Deutsche Ban Alex Brown reiterated a Buy recommendation on LVLT today. ************************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: SDLI - SDL, Inc. $238.31 +19.00 (-24.19 this week) SDLI was the first company in the world to successfully commercialize the integration of multiple lasers on a single semiconductor chip and ever since, has been a leader in integrating lasers with other optical or optoelectronic elements such as lenses, mirrors and light amplifiers. Their technological leadership is illustrated by the more than 125 patents held, backed by an emphasis on continued research and development. Ever since Nortel's earnings report, stocks in the Optical Networking sector have taken it on the chin. While the report was fantastic for the most part, analysts focused on the revenue number, which fell short of the high side of Street estimates, much to the chagrin of traders who were long Networking issues. Since then, SDLI has twice tested what appears to be a rock-solid support level at the $200 level. Today's early-morning bounce, backed by strong buying volume, to close near the highs of the day, up 8.66% on over 125% of ADV, suggests that the worst may be over. Fans of candlestick analysis will note the bullish piercing pattern on the daily chart. As Jim Brown mentioned this past Sunday, SDLI is really a play on JDSU. With a 3.8-to-1 share exchange, any move on JDSU will result in 3.8 times that move in SDLI. This makes SDLI a highly leveraged play, and with intra-day swings of over 20 points more often than not a daily occurrence, this is a highly tradable stock indeed. But make no mistake. This is a high-risk, high-reward recovery play. While SDLI has strong support at $200 and $220, allowing for an aggressive entry if it bounces off those levels again, we are setting our stop at $216 to compensate for the wide swings in volatility. If SDLI closes below this point, it could signal the possibility for more downside and as a result, we would no longer recommend this play. However, a break through resistance at $245, backed by strong buying volume could be a sign that positive momentum has returned to the stock, allowing for a conservative entry point. From there, it could be a quick trip up to $260, where SDLI will meet its next challenge in the form of its 200-dma. ***November contracts expire next week*** BUY CALL NOV-230 QJV-KF OI= 549 at $20.88 SL=15.00 BUY CALL NOV-240*QJV-KH OI= 385 at $15.63 SL=11.25 BUY CALL NOV-250 QJV-KJ OI= 595 at $11.13 SL= 8.25 BUY CALL DEC-240 QJV-LH OI=2812 at $29.00 SL=21.00 BUY CALL DEC-250 QJV-LJ OI= 574 at $24.75 SL=18.00 SELL PUT NOV-220 QZL-WD OI=171 at $ 6.63 SL= 6.50 (See risk of selling put in play legend) Average Daily Volume = 4.84 mln TLAB - Tellabs Inc $55.56 +2.31 (+2.00 this week) Tellabs is an optical networking firm. Its equipment is used throughout the world to manage and transmit data, voice, and voice signals. Customers include telecommunication companies, cable operators, corporations and government agencies. Baby Bells account for nearly one-third of sales with another third generated outside the US. TLAB just might be the archetypal under-valued stock. This networking issue toppled from its July pinnacle of $77.25 as the summer doldrums took hold of the marketplace. While of the stocks in the communications equipment market, like Ciena (CIEN), went on a tear, TLAB continued to drift lower. When the networking equipment market showed signs of slowing, it was more salt on the open wound. The relentless punishment saw TLAB hit lows of $37 and $38 in October. But as is the cycle of most things, there was a turnaround in sentiment. As the dust settled following Nortel's (NT) warning and the resulting sell- off in the sector, many investors seized the opportunity to bargain hunt. During the past two weeks, shares of TLAB have seen a significant rise from recent lows. It wasn't a trick on Halloween when TLAB broke the $50 resistance. TLAB is currently channeling between $52 and $56 on respectable volume - we will use the low end of that channel at $52 for our stop. The steady action this week points to another potential breakout, if the markets head higher in the near-term. We're looking for a break above $56 and the 200-dma ($57.55) over the short-term to confirm an uptrend. A conservative approach is to wait TLAB to move through the resistance before beginning a play. On the analyst front, Robinson-Humphrey reiterated a Buy recommendation and issued an $85 price target. ***November contracts expire next week*** BUY CALL NOV-50 TEQ-KJ OI=3014 at $6.13 SL=4.00 BUY CALL NOV-55 TEQ-KK OI=3124 at $2.44 SL=1.25 BUY CALL DEC-55*TEQ-LK OI=1350 at $4.88 SL=3.00 BUY CALL DEC-60 TEQ-LL OI=3829 at $2.75 SL=1.25 BUY CALL JAN-60 TEQ-AL OI=2605 at $4.88 SL=3.00 BUY CALL JAN-65 TEQ-AM OI= 688 at $3.25 SL=1.50 Average Daily Volume = 5.39 mln ************* NEW PUT PLAYS ************* AGGRESSIVE: RSAS - RSA Security $48.00 -4.25 (-9.44 this week) RSA Security Inc. is a trusted name in e-security, helping organizations build secure, trusted foundations for e-business through its two-factor authentication, encryption and public key management systems. As the global integration of Security Dynamics and RSA Data Security, RSA Security has the market reach, proven leadership and unrivaled technical and systems experience to address the changing security needs of e-business and bring trust to the new, online economy. Feeling the pressure of renewed selling in the Internet sector, RSAS is accelerating its rollover from the double top completed last week. Despite other stocks in the Internet Security space finding support and tenuously moving higher, RSAS is continuing to head lower due to a bearish imbalance between selling volume and buying volume, and has now given up nearly 20% over the past week. On above average volume, the stock plunged through both the 30-dma ($51.56) and the 50-dma ($51.06) today, as it headed down to close at $48, fractionally above the day's low. Positive news like new and enhanced products, as well as the company's penetration into new market areas is being ignored, with investor nervousness still the dominant factor. This nervousness is being fueled by concerns about revenue in the Internet space, as well as apprehension about the results of the presidential election. As long as this uncertainty remains unresolved, RSAS is likely to continue downwards, with support at $39-40 a likely target. Today's candle pierced the lower Bollinger band, so an oversold bounce is possible. Consider a failed rally to the $51-52 level as an attractive, but aggressive entry point. We have placed our stop at $52, near the top of today's opening gap, and a close above this level will indicate that our play is on the mend. If the stock continues to decline from today's lows, use a move below $47 as a conservative entry point. ***November contracts expire next week*** BUY PUT NOV-50*QSD-WJ OI= 180 at $3.63 SL=1.75 BUY PUT NOV-45 QSD-WI OI= 32 at $1.06 SL=0.00 BUY PUT DEC-55 QSD-XK OI= 605 at $9.13 SL=6.25 BUY PUT DEC-50 QSD-XJ OI= 0 at $5.63 SL=3.50 Wait for OI!! Average Daily Volume = 462 K ********************* PLAY OF THE DAY - PUT ********************* IDTI - Integrated Device $36.13 -3.56 (-14.25 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). Most Recent Write-Up There's nothing like a down market to help a put play. To use the classic balloon in an elevator analogy, not only was the balloon a lead one, but the elevator was going down as well. Downward momentum continued for IDTI on Wednesday as the stock opened at its high of the day, and proceeded to head lower to close down $2.56 or 6.07% on stronger than average volume. The move below $40 gave conservative traders entry points. Today, the selling picked up as the stock gapped down at the open and continued lower on high volume. With help from negative sector sympathy, IDTI closed down 8.89% on over twice the ADV. For conservative traders, a break through $35 could allow for an entry point while aggressive traders could watch for a failure to rally above resistance at $40 before making a play. In both cases, confirming direction with sentiment in the Chip sector before entering would not be a bad idea, and be aware that we have moved our stop lower to $41. Comments With DELL down in after-hours and the Presential Election being contested, it looks like uncertainty will prevail once again tomorrow. IDTI fell well below the $40 level today and continues sliding lower in its downtrend. To play this put, look for entries on any bounces up to resistance at $39, or even lower at $37, accompanied by a rollover. With the NASDAQ futures down in after hours, watch for IDTI to break down again. A break through today's low near $34 on strong volume would warrant even a conservative entry. ***November contracts expire next week*** BUY PUT NOV-40*ITQ-WH OI=646 at $5.75 SL=4.00 BUY PUT NOV-35 ITQ-WG OI=481 at $2.69 SL=1.50 Average Daily Volume = 4.10 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 ************************ Another day of waiting... Stocks closed lower today amid concerns over corporate earnings and uncertainty about the outcome of the Presidential election. Wednesday, November 8 Technology stocks fell precipitously today as investors worried that valuations in the group are too high given the slowdown in corporate earnings. In addition, uncertainty over the outcome of the presidential elections dragged the broader market lower. The Nasdaq closed down 184 points at 3,231 and the Dow finished down 45 points at 10,907. The S&P 500 ended down 22 points at 1,409. Activity on the Nasdaq was light at 1.6 billion shares, with declines beating advances 2,516 to 1,316. Trading volume on the NYSE reached 895 million shares, with losers outpacing winners 1,477 to 1,307. In the bond market, U.S. the 30-year Treasury rose 9/32, pushing its yield down to 5.87%. Tuesday's "Reader's Request" plays (positions/opening prices): AT&T T J02-30C/J30C $2.38 debit calendar Genesco GCO DEC15C/DEC17C $2.00 debit bull-call Island ISLD DEC17C/DEC10P $0.12 credit synthetic The downward trend in technology issues provided favorable entry opportunities in each of the new "Reader's Request" positions. AT&T (T) was in the news, with officials announcing that the company is mulling several major, non-strategic asset sales over the next few months to pay off corporate debt and increase shareholder value. Portfolio Plays: The broad market slumped today as investors became consumed by uncertainty over the outcome of the presidential election. The Oval Office position hangs in the balance pending a vote recount in the state of Florida and election officials said the results are unlikely to be determined until late Thursday. The Nasdaq ended sharply lower due to weakness in Internet, semiconductor, and networking stocks. Analysts said Cisco Systems (CSCO) was the primary cause of the decline as traders expressed concern about the company's inventory buildup and its implications for demand in the semiconductor sector. The sell-off spilled over to suppliers of advanced gear for data transmission and most of the companies in that group endured substantial losses. In the Internet sector, EBay (EBAY) slid to $51 after the Wall Street Journal reported that the auction house laid-off about 15% of its staff. Priceline.com (PCLN) slumped to $3 on news the head of the auto sales division has left the company. On the Dow, Merck (MRK) led the gainers, rising $4 to $90 after analysts at Lehman Brothers upgraded the company. Exxon-Mobil (XOM) edged higher and Philip Morris (MO) also rallied in anticipation that Republican George W. Bush would become the next U.S. president. Pharmaceutical giants Merck (MRK) and Johnson & Johnson (JNJ) led the drug sector, limiting blue-chip losses but Intel (INTC), J.P. Morgan (JPM) and American Express (AXP) pulled the index lower. Financial stocks slumped after Bear Stearns downgraded Morgan Stanley Dean Witter (MWD) and also cut future estimates for Lehman Brothers (LEH) and Goldman Sachs (GS). Traders said healthcare, drug and tobacco stocks are responding well because the House and Senate stayed in Republican hands. Our portfolio experienced the same outcome as the broad market with a rally in healthcare and drug companies, and a slump in technology issues. Curagen (CRGN), Glaxo-Wellcome (GLX), and Pharmacyclics (PCYC) were the winners in the pharmaceutical group and in the case of GLX, we may need to make an adjustment if the issue breaks above the current resistance area near $60. Our bearish credit spread is profitable with the stock price below $61, but a continued rally in GLX's share value may occur if George W. Bush is named President. Unitedhealth (UNH) also continued higher as investors learned that the House and Senate would remain in Republican hands. A GOP-controlled congress is seen as favorable to healthcare companies because they support limiting the industry's exposure to lawsuits and are also less inclined to enact a healthcare "bill of rights." In technology issues, the scene was horrid in almost every sector. Although the networking group has been the focus of many negative news items, other sectors are performing poorly and the majority of new economy stocks have retreated substantially in the past few sessions. Analysts believe that the recent recovery rally may be a short-lived technical rebound in a fundamentally bearish market and that doesn't bode well for technology investors in the coming months. Thursday, November 9 Stocks closed lower today amid concerns over corporate earnings and uncertainty about the outcome of the Presidential election. The Nasdaq ended down 31 points at 3,200 and the Dow closed down 72 points at 10,834. The S&P 500 index finished down 9 points at 1,400. Trading volume on the NYSE reached 1.1 billion shares, with losers outpacing winners 1,732 to 1,092. Activity on the Nasdaq was extreme at 2.34 billion shares traded, with declines beating advances 2,608 to 1,265. In the bond market, the 30-year Treasury rose 9/32, pushing its yield down to 5.85%. Portfolio Plays: The stock market extended its recent losses today with technology issues pacing the decline as investors struggled with a slew of disappointing earnings reports. Groups that rallied on Wednesday in anticipation of a Bush Presidency also retreated as uncertainty over the election results continued to escalate. Apparently, the delayed outcome will extend for a greater period than Wall Street had expected as the Democrats have reportedly asked for additional measures in the tally of Florida voters. The news plagued traders and analysts alike, and the market languished for most of the day before recovering from early losses. Among the Dow stocks, Walt Disney (DIS) led on the downside, sliding $5 to $33 in response to a Merrill Lynch downgrade. The entertainment giant had announced better than expected quarterly results but the revenue outlook was disappointing to analysts. Retail stocks fell after a 35% plunge in shares of Best Buy (BBY). The supplier of name-brand consumer electronics, home office equipment and appliances was the primary culprit behind the losses in the group after the company said it would miss third quarter earnings. Gap (GPS) also took a beating, losing almost $2 after reporting earnings that matched consensus expectations, but were lower compared to last year's numbers. In technology stocks, hardware and Internet issues saw the biggest losses and across-the-board selling battered the Nasdaq for the fourth session in a row. A drop in shares of Dell Computer (DELL) and International Business Machines (IBM) weighed heavily on many computer hardware companies, driving the sector lower. Dell's earnings, due out after the close of trading, are expected to be in the range of $0.25 a share but the PC giant has already warned of slower sales growth in the third quarter. IBM fell during the session after reporting that per-share earnings would be up 19% by year's-end if current projections are met. At the same time, company officials would not comment on how sales are progressing, given the measly 3% growth rate in the third quarter. In other sectors, the business-to-business group was hammered on news of unfavorable results from Internet Capital Group (ICGE) and the majority of Internet advertising stocks fell following negative reports from Engage Technology (ENGA) and 24/7 Media (TFSM). CMG Inc. (CMGI), which has a majority stake in Engage, also tumbled during the session. In the broader market, almost every industry saw losses with the downtrend led by retail, biotech and cyclical issues. Our portfolio witnessed carnage in both Industrial and technology issues. However, there were some signs that a bottom is forming and a number of analysts have suggested that any tests of recent lows will likely be successful as trading volume during the downward movement has been decreasing. That trend is a bullish signal for the market and once a support range is established, any future rallies will have much greater strength. There were a number of surprising moves in today's session. Broadcom (BRCM) rebounded $10 to close at $162 after the semiconductor maker said it was comfortable with analysts' fourth-quarter estimates of $0.31 per share. Officials also said they were comfortable with analysts' estimates of a sequential quarterly percentage revenue growth rate in the mid-teens, a level of growth representing a revenue increase of 125% over last year's fourth quarter. The company said it made the statement in the wake of recent concerns expressed by some analysts regarding potential reduced demand in the current quarter for certain communications chips. Another slumping technology issue, JDS Uniphase (JDSU) recovered $5 to $73 as investors began to speculate on networking companies and providers of advanced fiber-optic components and modules. Our (staff contributed) credit spread has a cost basis near $76 and the play may result in a profitable outcome if the technology group begins to recover in the coming sessions. Microsoft (MSFT) continued higher today, and shareholders affirmed their outlook for the company's future, voting to grant additional employee stock options to offset the fall in MSFT's shares. The measure passed with 74% of the vote and shareholders also defeated new proposals that would have forced the software giant to detail political contributions and take a vocal stance on human rights abuses in China. Both of these actions were seen as positive declarations by stock owners and based on the recent technical indications, Microsoft's share value may be bracing for further upside activity. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** BSC - Bear Stearns $58.31 *** More Merger Speculation! *** The Bear Stearns Companies through its subsidiaries, primarily Bear, Stearns Securities and Bear, Stearns International Limited, is an investment banking, securities trading and brokerage firm serving corporations, governments, institutional and individual investors worldwide. The company operates in three principal segments: Capital Markets, Execution Services and Wealth Management. The word on the Street is that it's just a matter of time before Bear Stearns goes on the auction block and earlier this week, the Financial Times reported that U.S. securities firm Lehman Brothers Holdings (LEH) was considering a bid for the company. Bear Stearns has a large securities clearing business and a sizable operation advising companies on merger deals, making it an attractive target for American financial institutions as well as European banks who are prowling for U.S. acquisitions. In addition, Bear Stearns needs to find a buyer because it is not large enough to keep up with powerful rivals such as Merrill Lynch (MER) and Morgan Stanley Dean Witter (MWD) in a rapidly consolidating industry. The recent speculation has boosted activity in the company's stock and options and the increased interest has generated some excellent disparities in front-month option premiums. The most attractive option appears to be the NOV-$60 Call and with the Implied Volatility in this position at record highs, we have decided to offer a bullish speculation play on the popular issue. PLAY (aggressive - bullish/diagonal spread): BUY CALL DEC-50 BSC-LJ OI=65 A=$10.50 SELL CALL NOV-60 BSC-KL OI=5223 B=$2.43 INITIAL NET DEBIT TARGET=$7.88-$8.00 INITIAL TARGET ROI(max)=25% ****************************************************************** RAL - Ralston Purina $26.31 *** Premium Play! *** Ralston Purina is a producer of dry dog and dry and soft-moist cat foods. The company is also a producer of other pet products including cat box filler. Ralston has a number of trademarks, such as Purina, Ralston, the Checkerboard logo, Chow, Dog Chow, Cat Chow, Golden Cat and Tidy Cat, among others, and the company considers those assets of substantial importance and which it uses individually or in conjunction with other trademarks. The company is presently comprised of three Business Segments: North American Pet Foods, International Pet Foods, and Golden Products. Early this year, the company completed the spin-off of Energizer Holdings, the world's largest manufacturer of primary batteries and flashlights and a global leader in the dynamic business of providing portable power. In early October, Pet food maker Ralston Purina said its fiscal fourth quarter earnings from continuing operations were higher than pro-forma results in the year-ago period. The producer of Puppy Chow and Cat Chow said it earned $79.8 million, or $0.28 per share, compared with $73.6 million, or $0.24, in the period one year ago; an increase of 17%. Analysts had expected the company to earn $0.27 a share, so the results are hardly the cause of the recent bullish activity. Regardless of the reason for new buying interest, traders are speculating on an upward movement in the issue and the increased activity in the stock and underlying options suggests their outlook may be correct. With favorable disparities in the December premiums, this play offers an excellent speculation play for traders who are bullish on the issue. PLAY (conservative - bullish/calendar spread): BUY CALL MAR-30 RAL-CF OI=123 A=$2.00 SELL CALL DEC-30 RAL-LF OI=780 B=$1.00 INITIAL NET DEBIT TARGET=$0.88 TARGET ROI=50% ****************************************************************** - STRADDLES - ****************************************************************** AFCI - Advanced Fibre $35.50 *** Technicals Only! *** Advanced Fibre Communications designs and manufactures end-to-end distributed multi-service access solutions for the portion of the telecommunications network between the carrier's central office and its subscribers, often referred to as the "local loop." The company's Universal Modular Carrier 1000 is a global product family consisting of a variety of multi-service access platforms with integrated optics and unique customer premises equipment. The platform utilizes a hybrid asynchronous transfer mode/time division multiplexing (ATM/TDM) architecture, which provides a variety of loop interfaces for narrow-band analog and digital services including plain old telephone service (POTS), integrated services digital network, high speed, point-to-point dedicated digital circuit (T-1/E-1), high bit rate digital subscriber line (HDSL/HDSL2), and asymmetric digital subscriber line (ADSL) services. This position meets our criteria for a favorable straddle; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the foremost combination of low risk and potentially high reward. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - neutral/debit straddle): BUY CALL MAR-35 AQF-CG OI=171 A=$7.50 BUY PUT MAR-35 AQF-OG OI=112 A=$6.25 INITIAL NET DEBIT TARGET=$13.25-$13.50 TARGET ROI=50% ************************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=926 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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