The Option Investor Newsletter Tuesday 11-21-2000 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/112100_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-21-2000 High Low Volume Advance/Decline DJIA 10494.50 + 31.90 10569.00 10415.30 1.12 bln 1381/1464 NASDAQ 2871.45 - 4.19 2921.80 2845.17 1.75 bln 1431/2483 S&P 100 713.70 + 3.66 718.73 706.25 totals 2812/3947 S&P 500 1347.35 + 4.73 1355.87 1333.62 41.6%/58.4% RUS 2000 466.79 - 3.45 472.41 465.49 DJ TRANS 2851.92 + 56.06 2851.92 2793.83 VIX 28.93 - 1.40 30.98 28.93 Put/Call Ratio 0.60 ****************************************************************** Earnings, Economy, Election, Energy, Euro! Factors beginning with an E are definitely in control of our market. The election that never ends is still causing some international investors to remain on the sidelines as well as some U.S. traders. While this horse has been dead for some time the analysts continue to beat it and claim a larger than life impact on the daily numbers. The market movers today had nothing to do with the election and will not be solved nearly as quickly. Earnings, earnings and more earnings continue to cause investors more indigestion than the election ever could. While the Florida Supreme Court has not ruled on the various issues relating to the election the news channels continue to milk the news for all it is worth. Reminds me of the Iran hostage crisis which launched Nightline as regular program. Now over 20 years later Ted Koppel is still going strong. The Desert Storm event over 10 years ago brought new life back into the news only channels with icons like the "scud stud" now history but the channels still exist. This begs the question however over what will happen to MSNBC when "Decision 2000" is regulated to the history books and the army of reporters have to actually find new news to report. Will viewers still tune in or have they already deleted MSNBC from their favorite channel list? The final election result is widely touted as the "be all, end all" for the market. The broad based year end rally is only waiting for the Florida certification to begin according to many analysts. Actually those claiming that we will have a rally at all are slowly dwindling. With each -50 point drop on the Nasdaq a few more faithful are converted to the realization that maybe there are more fundamental problems that the election is masking. While everyone, almost, still expects a relief rally upon the final announcement the possibility of it lasting more than 2-3 days is now coming into question. The economy is giving signals that has veteran economy watchers worried. Without going into the boring details the prospect of a recession is looming larger every day. Inflation is still a problem as far as the Fed is concerned but the results of the last six rate hikes are still being felt in the economy. The U.S. Trade Balance for September came in at a record deficit of -$34.26 billion. This is a huge deterioration over the August revised deficit of -$29.81 billion. Economists had expected a decline as the cooling U.S. economy motivated consumers and producers to spend less. Imports surged by almost $4 billion as consumers continued to spend their higher wages. If consumers continue to spend like there is no tomorrow when the economy is supposed to be slowing then the Fed will hold off cutting rates until the opposing forces equalize. Already there is concern that the Fed will not lower rates in December or even change their bias. This would put off until next year any good news from the Fed. This is weighing on the market more than the election news. In another view the climbing trade deficit may actually benefit the cause by knocking as much as 0.8% off the GDP numbers to be reported on Nov-29th. Some analysts expect the 2.8% estimates to possibly drop under 2.0% as a result of this deficit. Should the GDP drop that far the Fed would then face more pressure to reduce rates. See what I mean? The economy is showing enough conflicting signals that Greenspan could turn gray. That is of course if he actually had hair. The next E is energy and with oil still in the news and cold weather shutting down the north east we are seeing more upward pressure on oil prices. With prices hovering over $35 and world supplies still short there are those forecasting $40 oil before winter is over. With the impact to inflation by energy prices any further price hikes or shortages will be yet another Fed inflection point at the December meeting. Earnings for the manufacturing community will continue to come under pressure until prices ease. That brings up earnings as the next E and in reality the major market mover. Heading our earnings parade today was Lucent, capturing the prize for the most warnings in a calendar year and the most investor depression. After trading near $85 in Jan-2000 the stock, which closed today at $17.56, is now at lows not seen since Apr-1997. Welcome to the world of "it can't get any worse." Just when you think it can't and it is probably a screaming buy, Lucent announced "revenue recognition" problems with their accounting. OOPS! Yep, the second most feared words behind "accounting irregularities." Just ask MicroStrategy investors from last March or Cendant investors from 1998. The amount in question, $125 million, is miniscule compared to their $9 billion in total revenue but is causes investors to wonder what else is hidden in the woodpile. Companies this size pay millions of dollars to accountants and auditors to prevent any "misstatement" of financial numbers and when something like this occurs it calls into question then entire integrity of their financials. The positive news for this same sector came in the form of NT earnings. They reaffirmed guidance that matched Wall Street estimates and said positive things about strong growth through 2001. This eased investor fears that the telecom sector was going to reduce spending for fiber optic supplies. It also reduced fears that CIEN had stolen a large amount of NT sales from Qwest. If NT is affirming estimates and growth then things can't be all bad in the fiber sector. All the majors, JDSU, GLW, CIEN and SDLI were up on average volume. NEON had its market cap cut in half today after WIT SoundView downgraded the firm to a hold. According to WS, NEON filed a 10Q that said $10 million of their $55 million total revenue was taken in shares of stock in closely held companies. Investors worried that if NEON software sales are so weak that they have to take stock instead of cash then there is a serious problem in that product. This type of event is a prime example for stop losses. A great short term chart but an event out of the blue cuts it in half. CacheFlow, CFLO, announced earnings after the close and beat the estimates by two cents but got hammered to the tune of -$30 for the day on weaker than expected sequential revenue. The severity of the drop is just another example of the worry in the marketplace. ANY negative news is being met with very severe selling. This is evidence to many that there is still no bottom under the market and a preview of things to come. The Internet sector suffered one of the worst blows in recent memory with the double whammy of the EBAY downgrade yesterday and the YHOO warnings today. Mary Meeker and Henry Blodget both warned today that the possibility of Yahoo warning or missing earnings estimates because of the slowdown in Internet ad revenue was growing. Mary said there was a 30% chance that YHOO would miss in the next three quarters. This rippled through the sector with YHOO closing at $41.69 a two year low and pushed CMGI perilously close to single digits at $11. AMZN, EBAY, ICGE, DCLK and ENGA all suffered as well. The earnings picture for the multinationals continues to be pressured by the Euro as well as energy. There is no safe haven in the current markets with all sectors getting whacked routinely. The problems are only going to get worse according to some. I hate to break the news but earnings warning season starts again next week. It seems like we were just there and if you have been in the markets this week you probably feel like you were run over by warnings. We are not even there yet. With the prime season starting five weeks before earnings we are real close to finding out if the S&P earnings for the fourth quarter can hang onto double digits estimates. Down to 14% already from 29% six weeks ago, just another handful of warnings could push estimates below 10%. With the possibility of a recession and the S&P close to single digits the election result may produce only a trading rally. The market internals are still terrible with declines beating advances daily. The Nasdaq has only been positive two of the last twelve days and closed at a 52 week low today. Volume was light again at only 1.7 billion shares while volume on the NYSE was strong at 1.1B. While the day before Thanksgiving is normally an up day the various market factors this year may keep volume very low. With Friday only a half day traders may elect to clear the tables early Wednesday and wait until Monday for a clearer direction. For those aggressive traders who bought the dip to 2850 yesterday and today things may not be looking very bright on the surface. With the Nasdaq closing dead flat at 2875 for two days, even after being up +55 intraday, things may look pretty gloomy. That may be a good thing. Traders often make their best trades when things look worst and as long as we don't break 2850 this could be the worst. Contrary to everything I said above the Nasdaq is terribly oversold and any positive news could cause a relief rally of several hundred points. It just remains to be seem if we will get enough volume from optimistic traders on Wednesday to produce that rally. 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************************ From the hottest IPO to the latest market trends, you won't find more extensive business and financial news on the web than by signing up for Individual.com, the personalized FREE service that lets YOU choose what's news. Register at Individual.com now! http://www.individual.com/registration/ ************************************************************ **************** MARKET SENTIMENT **************** Copy & Paste By Austin Passamonte That seems like all we've done here for the past ten weeks and counting. Bearish outlook overall with a few bullish outbursts as rally attempts try to take hold. We've yet to enjoy a convincing upward move with strength across the indexes since white shoes went out of style for the year. Nor will we be polishing them up anytime soon this week. Volume will decrease and volatility increase as most traders leave for the extended weekend leaving few in charge. Expect more swings without conviction until at least next week and a president-elect apparent for good. Will that solve current market crisis? We wonder. Is a NASDAQ comp aggregate P.E. ratio of 126 or so immune to further adjustment? Can we get through December's confessional period to rally towards better earnings next time? We wonder. Might Greenspan & co. realize the wealth effect is dead and our economy may soon follow suit unless a policy or at least outlook change is announced? Don't count that out. Can these markets sell straight down to the inevitable multi-year bottom still below without a single correction to the upside? We doubt it. This is no longer a bull market in the short-term and hasn't been for a long time. However, nothing moves in one direction without pause. We are building a short-squeeze tinderbox that the next piece of bullish news may ignite. Keep in mind that most rallies appear by surprise without warning. A falling VIX and near-term chart signals suggest we will see further weakness this week. Any decision from Florida shall at least clear one hurdle for now. Market Sentiment remains neutral to bearish for this shortened week and waits to see what Monday next has to offer. Enjoy the holiday and savor your time with family & friends. You can be sure market pros will do the same! ***** VIX Tuesday 11/21 close; 28.93 30-yr Bonds Tuesday 11/21 close; 5.75% 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 (11/21/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 750 - 735 9,009 3,259 2.76 730 - 715 5,878 6,608 .89 OEX close: 713.70 Support: 710 - 695 1,982 5,722 2.89 690 - 675 45 5,776 128.36*** Maximum calls: 750/4,138 Maximum puts : 720/3,589 Moving Averages 10 DMA 725 20 DMA 733 50 DMA 746 200 DMA 775 === NASDAQ 100 Index (NDX/QQQ) Resistance: 79 - 77 15,443 7,091 2.18 76 - 74 27,483 42,577 .65 73 - 71 7,454 20,952 .36 QQQ(NDX)close: 69.75 Support: 68 - 66 1,136 13,586 11.96*** 65 - 63 6,628 20,875 3.15 62 - 60 179 1,968 10.99 Maximum calls: 80/32,910 Maximum puts : 80/35,958 Moving Averages 10 DMA 73 20 DMA 76 50 DMA 82 200 DMA 92 === S&P 500 (SPX) Resistance: 1425 29,475 15,495 1.90 1400 57,924 56,792 1.02 1375 32,662 25,571 1.28 SPX close: 1347.35 Support: 1325 4,560 19,273 4.23 1300 6,732 20,164 3.00 1275 1,798 16,504 9.18 Maximum calls: 1400/57,924 Maximum puts : 1400/56,792 Moving Averages 10 DMA 1372 20 DMA 1390 50 DMA 1406 200 DMA 1439 ***** CBOT Commitment Of Traders Report: Friday 11/17 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 +100 -1105 -2436 -792 Total Open Interest % (+1.42%) (-14.39%) (-9.60) (-3.33%) net-long net-short net-short net-short NASDAQ 100 Open Interest Net Value -733 -1999 -77 -293 Total Open Interest % (-3.58%) (-11.37%) (-.16%) (-.60%) net-short net-short net-short net-short S&P 500 Open Interest Net Value +61563 +58260 -72376 -67783 Total Open Interest % (32.17%) (+30.75%) (-10.91%) (-10.52%) 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 and have increased their net- short DOW positions. Small specs held their net-long S&P positions while changing from net-short to net-long in DOW positions as compiled Tuesday 11/14 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/112100_1.asp *********** OPTIONS 101 *********** Rudyard Was Right By David Popper "If you can keep your head when all about you are losing theirs and blaming it on you. If you can trust yourself when all men doubt you, but make allowance for their doubting too..." Rudyard Killing wrote these first few lines of the poem If over 100 years ago. He must have been trading for family and friends in a bear market. A market like this can really get inside your head. The lessons of the last 3 years are just not applicable. The moves are so violent and so sudden. So here we sit, afraid to buy because these stocks can fall further, and afraid to sell because these stocks can turn on a dime and laugh as you sold on the bottom. Many traders are frozen like a deer in the headlights having lost all confidence in their ability. So many traders just hold. The time to exit was 50 points ago right? Surely these stocks will turn around like they have before-won't they? To further complicate the scenario, the charts do not seem to provide any degree of predictability beyond the next two hours. The charts begin to look good and the rally fails in 2 days. Traders who try to trade themselves out of this mess and recoup their losses quickly find themselves sinking deeper into the quicksand. Finally, during these times I think of the technical lessons that I have learned through OIN, Investor's Business Daily and others which strongly recommend short term or position trading which requires regular monitoring of positions and cutting losses short. On the other hand I am well aware of the rich rewards those brave individuals earned holding CSCO, SUNW and others for 5 to 10 years through thick and thin. So how did I get in this mess? By violating my sell rules. How did I justify violating these rules? Simple. When I entered these positions, October was ending, the charts indicated a bottom was in place, and Bush was leading. Everyone expected the market to rally once the election was over, regardless of who won. Everyone expected a solid rally if Bush won. The probabilities of a rally were in place because the market was in an oversold condition and because election closure was near. Then the totally unexpected happened, no winner and no closure. Even worse, the rhetoric from both sides and the prospect of a weakened presidency has had a short term damaging effect on the market. So front end call buyers and fully margined traders poised to reap huge rewards were severely damaged. The rest of us find ourselves in an unusual position not of our choosing. So how did I avoid severely damaging my account. First, I always keep approximately 25% of my account in cash during a down or trendless market, just in case. Yes, it does cut into the upside potential but with volatile stocks, a little bit can go a long way. One hundred shares of JNPR, GLW, or PMCS can quickly give you thousands in profits while not risking the integrity of your account during uncertain times. Second, I only trade stocks that I would not mind owning over the long term. If stock selections are limited to potential core holdings, you are never worse off than a buy and hold investor. Any premium earned through a covered call or through short term profit taking is just gravy. What will the market do now? I don't know and neither does anyone else. All of the market experts predicted a November rally. They were wrong. Analysts upgraded the optical sector 60 days ago when the stocks were high. They apparently did not do their homework because these same stocks are now downgraded. Analysts and experts are no help. So what makes sense to do from this point forward? As for me, I am cognizant that many stocks are in a downtrend, but I realize that these stocks are long term winners. They will have their day, and when they do, they will rocket up the chart quickly. Technology is not going away. It is normal for high PE stocks to experience extreme highs and lows as analysts vacillate over the long term prospects of the underlying businesses. This is why it is wise to maintain a small position in these issues. You can not allow short term aberrations to harm you. I intend to maintain a heavy cash position until the market sorts itself out. I also intend to hold my positions. I am not going to try to make up any losses overnight. I am going to remember that people who did not panic in 1987, 1990, 1994, or 1998 were amply rewarded. Of course I would rather not be sitting on losses. I am not used to this, but I will not become impatient. Instead, I will try to play the cards that I am holding in as unemotional a manner as is possible. In short, it may pay to avoid margin and front end calls because the short term is unpredictable. However, it is not the time to lose confidence. Many of you have significant gains over the past few years and this too shall pass. ************** TRADERS CORNER ************** Deja Vu: Review of My November Plays By Scott Martindale Move aside; clear some room. I have some more to get off my chest today. Throw out the daily charts. Without a market that includes both sellers and BUYERS (remember them?), most of the momentum favorites will stay oversold. It seems that the only folks who buy on the uptick these days are the momentum day traders, who then get out on the inevitable rollover. Like a San Francisco BART train, or the Cat-Dog cartoon my kids watch, this market looks like it could go either direction at any time, with no compelling reason for either. The trend certainly has been down, but is it bottoming? Is this Nasdaq train bracing for a strong move back up to 4000 by January, or is it, "choo- choo, next stop, 2200." Right now, short-term technicals are negative or ambiguous, so you have to either stand aside or go with your gut. Well, I haven't stood aside (although my activity is definitely scaled back), and my gut has been failing me. My strategy of selling both ATM puts and deep ITM puts on my favorite stocks in anticipation of oversold bounces has not worked well for the second month in a row. And my strategy of accumulating good "stocks of the future" at relatively attractive prices in my long- term account without setting stop losses has also not been fruitful. Over the past couple of decades, it paid for long-term investors to follow the advice of those gurus who called stop losses "stop gains," since good stocks usually recovered quite quickly. But this market has been a whole other animal-something most of us haven't experienced before. Like the last two months, I shied away from buying calls. Although I concentrated primarily on calls during 1999, I began to feel early this year that I was merely churning the account, so I now focus primarily on selling naked puts, with some covered calls and protective puts. But these are bull market or trading range strategies. Without an election rally, fall rally, or Santa Claus rally, I'm just throwing away money. I got back into QQQ puts as a hedge against further Nasdaq erosion, which has been a profitable strategy, although it merely serves to offset my aggressive losses. I sold no covered calls for November expiration because I was waiting for a nice rally to sell calls into. I'm still waiting. All told, I sold 10 different naked put positions on eight different stocks: GE, TMWD, SCMR, JDSU, NT, AMAT, MSTR, and PRSF. In all cases, these were dominant or high-growth stocks that were apparently deeply oversold, and I was anticipating a post-election rally. I sold Nov 60 puts on GE based on the OIN alert when it fell to $49, and bought them back on strength, which was profitable. I sold at the money Nov 80, 70, and 60 puts on SCMR as it sold off, but only the 60's proved profitable. I got out early on the 70's for a small loss, but held the 80's because of their high delta in anticipation of an oversold bounce, which came but was not enough to prevent a significant loss. I made money on at the money TMWD Nov 20 and MSTR Nov 25 naked puts, buying them back early on stock strength. I lost a little on at the money JDSU Nov 80, NT Nov 45 and AMAT Nov 47.5's. I bought back JDSU and AMAT early on strength, but held NT too long, and was actually assigned shares the day before expiration. But by far my biggest mistake was selling deep ITM puts on PRSF, a major player in e-commerce software, in anticipation of a pre- earnings rally after it had sold off substantially. On Friday, I rolled out to December since the earnings report was today, but for some reason it is selling off even more in after-hours trading despite beating earnings estimates. It seems that they only met revenue estimates, thus the sell off. Go figure. [Never hold over earnings reports, they say.] Like last month, my plan to exit early if things went against me didn't play out as well as I planned because they gapped down too fast. It's hard to bring myself to close out for a big loss after such huge negative moves on good stocks. I decided to wait for some inevitable recovery and time value erosion before closing them. This strategy worked for some but not all of the positions. At least I sold after gap downs and when volatility and options premiums were high, which helped prevent larger losses. It seems to me that the excessive volatility and unfound bottom is due to the easy access we all have to trading. Almost all market gurus today tell us we should place stop losses. So when you consider the retail and institutional stop losses kicking in along with the short sellers and the dearth of buyers, the prices just keep dropping. It seems to me that if everyone would just stop panic selling, we might see a bottom and the strong buyers might return. But as long as you can count on another down day tomorrow, why buy today? Every day, another group of investors hits their pain threshold and sells. And the sideline cash keeps building. And some market watchers are saying really gloomy things now. For example, Tom Costello just reported that floor traders apparently are saying that margin calls are being covered by cash rather than sales of shares, which indicates to them that we are not seeing that long awaited capitulation. More ominously, we are told that today's Nasdaq P/E is around 124, but just three years ago (before the big run up) it was at the longer-term prevailing level of about 50. To get back to that level, the index would have to drop to near 1200. Although I have little confidence at this point that the year-end rally is imminent-certainly not before an end to this election crisis-I still tend to feel in my gut that Joe Battipaglia has the right general idea. When buyers return, we should see an explosive Nasdaq rally. The "new economy" revolution has really only kicked in gear over the past few years, justifying higher P/E's, and so long as a recession is avoided, Americans believe in their stock markets. And younger investors in particular don't really want to own Wrigley's and Caterpillar, even though the Dow is near its historic P/E. I don't mind holding stocks that are underwater as long as I have faith in that vision. The recent past tells me that an explosive rally in the market-favorite stocks may catapult some of them well beyond a price that I might stop out at today. But is the recent past still reliable? Keep in mind the catastrophic collapses of some of the high-flyers were completely expected, since not everyone will survive the highly competitive new-technology battlefield. But the winners should win big, and I think I'm holding some of them. ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily, the research tool for self directed investors. http://www.sungrp.com/tracking.asp?campaignid=997 ************************************************************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** NEON $9.00 -10.88 (-12.44) Our attempt to capitalize on NEON's low cost options turned for the worst today after Wit Soundview downgraded the stock on concerns over revenues recognized during the third-quarter. All we can say is thank goodness for stops as NEON lost over half its value today and finished well below our protective stop at $18. Needless to say, we're dropping NEON from our call list this evening. CLS $58.63 -1.38 (-4.81) Continued technology weakness spelled the end to our play on CLS, as the stock broke down through the 200-dma ($58.88) today. Recall that our stop was resting at $59, so we have no choice but to drop it from the call list. Weakening volume seems to indicate that while there is not a flood of selling, there is a shortage of buyers, meaning that it is not a good candidate for the bulls. There never was a decent entry point since we added it last weekend, so we'll take this opportunity to jettison CLS from the recommended list. PUTS: ***** No dropped puts today ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1017 ************************************************************** 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 Tuesday 11-21-2000 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/112100_2.asp ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily, the research tool for self directed investors. http://www.sungrp.com/tracking.asp?campaignid=998 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** TLAB $56.31 -0.75 (+0.44) Many of the telecommunications stocks got pounded on the networker downgrade Monday as the NASDAQ traced lower. Concerns about growth prospects and softening sales continued to plague the big equipment makers. But there was TLAB bucking the overall trend, trading higher throughout the session! The strong bounce off the 10-dma ($55.23), bolstered by subsequent rebounds off the advancing 5-dma ($56.24) demonstrated TLAB's strength. Today's action was a mimic of yesterday's session; with the noteworthy exception of a fractionally higher intraday peak. To play this call, look for bounces from $56, or lower at the 10-dma, if you're more enterprising. Resistance continues to be formidable in the vicinity of $58 and specifically, at $58.31. However, the persistent challenges of the 200-dma ($57.41) are encouraging and point to a potential breakout. MSFT $67.75 +0.56 (-0.37) Microsoft appears to be stuck in a tight trading range, with strong support at $66 and heavy resistance at $71. Swing traders can take advantage of these predictable moves by entering on a bounce at the 50-dma of $65.67. The markets are hanging in suspended animation, as the world awaits a ruling from the Florida State Supreme Court on the issue of ballot counting. The markets really want closure in this election, and it seems likely that the major indexes will rally upon resolution of the uncertainty. The justices said yesterday that they wanted to adhere to the deadline of Dec 12th, which gave the markets an indication that resolution is near. Consider taking new positions on a bounce off the converged 5 and 10-dmas at $68.50 in an up market. A breakout above the 200-dma of $72.88 would be a strong bullish indicator, and would very likely put MSFT on the path to its previous highs of the year. It would be prudent to watch the market's reaction to the election ruling before taking new positions, and set stops at $64. QCOM $87.50 +2.88 (-1.31) Since late last week, traders have been holding their breath, anxiously watching and waiting for QCOM to break and close above the 200-dma, now sitting at $88.46. This resistance point is proving to be formidable indeed. Morning market nervousness led some traders to take some profits, as QCOM pulled back $4.19 or 4.71 percent on 65% of ADV. This was despite a positive announcement that the company had expanded its licensing agreement with NEC, leading to higher royalty fees. Today however, the stock bounced back. Gapping lower at the open, the stock bounced strongly off support at $82, right above our stop price of $81. From there, the stock broke through the 200-dma but encountering resistance at $90 and some last hour selling on the NASDAQ, pulled back but finished up 3.4 percent on average volume. Conservative traders are still waiting for QCOM to break through the 200-dma definitively before taking a position but for aggressive traders, a bounce off support at $85, $82 and $80 are possible targets to shoot for. CTXS $28.00 +0.00 (-2.88) A shaky day in the markets yesterday led to some traders taking profits in CTXS, as the stock fell $2.88 or 9.31 percent on 130% of ADV. While the volume may seem high, this is half the volume of its recent rally to the up-trend that is still well intact. As well, the stock bounced above support at our stop price of $27. Today, with a relatively flat day for the NASDAQ, CTXS had as average a day as a stock could have, closing unchanged on average volume. While an attempt to break through resistance at $30 was thwarted, the stock made a higher low today and if not for light-volume selling into the close, it could easily have been a profitable day. At this point, another bounce off $27 support could provide aggressive traders with an entry but a more preferred entry point would be a break through 5-dma resistance at $28.68 on volume. From there, a break through $30 with the buyers returning in mass would confirm upward momentum and allow for a more conservative entry. AMGN $64.63 +1.25 (-0.50) Tossed about by the continuing election uncertainty, AMGN has had a hard time making any headway over the past week. The broad-based selloff in yesterday's market came close to pushing our play onto the drop list as it dipped briefly below our $62 stop level. Buyers came to the stock's rescue though, and turned the stock around, bringing it back above the $64 level by the closing bell today. This dip provided a nice aggressive entry point for the bulls, but the stock is still in a precarious position. The converged 200-dma ($65.31) and 50-dma ($65.44) are creating overhead resistance, and we are going to need volume to pick up again to clear this level. The remainder of this holiday shortened week is likely to see continuing light volume as investors wait for a definitive result from the Florida election process. Aggressive investors can continue to buy the dips to support, but make sure you wait for the bounce. Although unlikely, a strong move through resistance would be a good entry trigger for conservative entries. Given the time decay that will occur during the latter part of this week, conservative traders may want to stand aside until next week, when we are likely to have a resolution to the election mess. JBL $45.56 -1.25 (-2.75) Nervousness is still ruling the markets, and although JBL has not broken down, it is having a hard time moving higher. The past week has seen the stock gradually move lower, and today's close saw the stock edge closer to our stop at $44. This morning the stock actually hit solid support at $42, but there were buyers waiting to buy the dip, which keeps our play alive for one more day. Today's news that the company is strengthening its management team by naming Ron Rapp to the newly created Chief Operating Officer position may have had something to do with the recovery, but the stock is still looking precarious. The drop in price over the past 2 days puts JBL back below its 200-dma ($47), and conservative investors will want to wait for a recovery through this level before adding new positions. Above there, resistance is sitting first at $48.50, and then $50, so the bulls definitely have their work cut out for them. ******************* PLAY UPDATES - PUTS ******************* HAND $62.50 -2.35 (+0.06) HAND's previous support around $70 became the new upper resistance in yesterday's session. A rally ensued when HAND's share price flirted below the $60 level in early trading and enticed some buyers. Make no mistake, the upward momentum was steadfast. It took HAND up to $70.94 before a sharp sell-off late day on increasing volume stopped the run in its tracks. The upside move provided a beautiful rollover entry at the 50-dma ($70.30) for the aggressive and quick fingered traders. Today's action however, was rather subdued in light of Lehman Brothers' new Buy recommendation and 12-month target price of $90. In contrast to its rival Palm (PALM), HAND moved to the downside in spite of the positive comments. An early break of the $60 support, to $59.50, proved to be the stock's low for the day. But there was no question that the upper resistance established a lower ceiling. Traders couldn't move the issue through $62 with any conviction; although the volume continued to be respectable. If you're more pragmatic about taking an entry, then look for more downside confirmation below the $60 level before adding put positions to your portfolio. RATL $33.63 +1.75 (+2.13) After yesterday's market action, we significantly lowered our Stop on RATL from $44 to $33. RATL took a one-two punch right at Monday's bell and tested $31.25 on the swift decline. It then found $34 almost impregnable on attempted recoveries. Today however, RATL continuously rebounded off $32.50 on strong volume and made a bullish showing at the close. The trading behavior indicates RATL may be stabilizing at this level of historical support ($30). While it appears we may have to find another lucrative downtrend to line our pockets with cash, we're are keeping RATL on our put list tonight. If tomorrow's market sentiment takes the NASDAQ and its techs lower, there's the potential for more downside trading. If you're taking entries on subsequent weakness, consider playing it conservatively . Look for RATL to transgress $30 and challenge the $25 level. SLR $34.06 -0.25 (-0.19) After failing to hold at the key support level of $35, SLR has found temporary support at $34. However, it seems likely that this level will be broken also, as the path of least resistance is down for SLR. Volume is very heavy on down days, and light on up days, indicating that few buyers are interested in this stock at current levels. The daily MACD and stochastic indicate an oversold condition, but show no signs of moving upward at the present time. SLR is far below the 200-dma of $41.22, and the 50-dma of $42.17, and it seems unlikely that either of these levels will be reached at any point in the near term future. Consider taking positions on a roll off the 5-dma of $34.63, particularly on heavy volume in the range of 9 million shares or higher. The next major support level is $32, and then the 52-week low of $28. However, remember that we are in an oversold market which wants to rally, and that a strong rally can lift all stocks. Keep stops set at $37, and exit positions if SLR settles above that level. ARBA $72.75 +4.88 (-3.81) ARBA picked up where it left off last week, with continued selling on strong volume. News surrounding Oracle crushed ARBA and most of the B2B sector yesterday, as a key CFO was leaving the company. The news had little to do with ARBA and managed to mitigate more positive announcements from the company, though the press releases had little material effect on the company's fundamentals. For the day, ARBA lost $8.69 or 11.45% on well over twice the ADV. After four straight days of selling, a bounce from oversold was to be expected. Bouncing off support at $65, the stock gained 7.25 percent on 150% of ADV. Despite this, the stock is still well under all of its moving averages. A failed rally above its 5-dma at $77 could provide for an aggressive entry as well as at our stop price of $75. For the more conservative, a break below $70 could lead to another quick retest of support at $65. NEWP $71.69 +1.69 (+1.82) The 5-dma, now resting at $74.87, continues to serve as formidable resistance for NEWP, as the stock so far this week has failed to close above this point. On Monday, the stock tested last Friday's lows, gapping down at the open and bouncing off support at $62. From there, it spent the day moving higher from its oversold conditions. Encountering resistance at $75 near the end of the day, the stock fell to close up fractionally on 190% of ADV. Today the stock managed to inch 2.41 percent higher, on 120% of ADV but once again it encountered overhead resistance just above $75, our current stop price. Another failed test of this resistance area could allow aggressive traders to take a position but make sure the sellers back the rollover before entering. A more conservative trade would be to wait for NEWP to break below $70 on volume before making a play. VRSN $94.06 -10.56 (-19.69) The bears have been having a field day (week) with Internet stocks, and VRSN is definitely looking the worse for wear. After rolling over at the $123 resistance level last week, the decline picked up speed the past two days, and today saw the lowest close for the Internet Security firm since last December. With volume picking up to 50% over the ADV in today's session, there was no question that the bears were in control, as the stock traced yet another lower low. With the breakdown in price that has occurred we are moving our stop down to $103. Resistance has begun to form near this level, and aggressive investors could get another attractive entry point on any rally attempt that fails to penetrate that level. Support near $90-91 (the level of the spring lows) is looking precarious and if it fails, it will open the door for a test of support near $80. Conservative players can consider new positions on a drop through $90, especially if accompanied by strong volume. FCEL $55.94 +4.06 (+2.19) Day traders could have made a quick profit from a put on FCEL on Monday, as the stock dropped nearly 3 points. In contrast, FCEL rallied today on news that ABN AMRO initiated coverage with a Buy rating, and that FCEL received approval to increase the number of authorized shares from 20 million to 150 million. The shares will be used for future issuances for stock splits and as currency for future acquisitions. No impending stock split was announced. While this news was perceived as positive by the market, it looks like a bull trap in a downward trending stock. The 50-dma is at $70.25, and the 5-dma of $57.33 is below the 10-dma of $62.31. Tuesday's move was actually bearish, as the stock attempted to rally past $60 in the afternoon, but lacked the strength and fell back to close just under $56. Once the key support level of $60 was broken, the next critical support levels are $55, and $50. This market is trashing stocks which it perceives to be overvalued, and FCEL made a big move up from May to October, and has a long way down. A good possible entry point would be a failed attempt to rally past the 5-dma of $57.33, or a fall below support at $55. However, remember that a rising market can lift all stocks, and set stops at $61. ************************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=1018 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: TQNT - TriQuint Semiconductor $43.19 +1.63 (+3.63 this week) TriQuint's standard products include high-performance, low-cost digital, analog and mixed signal GaAs RFICs which are used in a wide variety of communications systems. The company also provides applications-specific and custom circuit solutions for major communications system original equipment manufacturers (OEMs). With wireless giant Qualcomm moving higher as of late, TQNT seems to be following in its footsteps, despite general weakness in the Tech sector. Strength in a soft and uncertain market is a good sign, especially when backed by strong fundamentals. As a manufacturer of Gallium Arsenide-based chips, TQNT derives half its revenues from the mobile phone sector. Nokia's recent better-than-expected earnings report has helped the stock push higher. Revenues from the broadband and optical networking sectors make up the remainder of TQNT's business. Reporting earnings in late October, the company showed no sign of slowing down, growing revenues by 90% year-over-year and net income by 191%, handily beating Street estimates by a nickel. Quarter-over-quarter, gross margins improved by 4 percent to a highly profitable 55.5%. But what analysts were interested in were the revenue growth numbers going forward, and TQNT did not disappoint. The company's conference call revealed that TQNT could exceed expectations by as much as $6 million, with sales continuing to be robust, as companies ramp up production for next generation wireless devices. That sentiment was confirmed last week by coverage initiated by CS First Boston with a Buy rating. According to analyst Michael Masdea, TQNT is well positioned to capitalize on the next-generation wireless boom. Since bouncing off support at $25-26, the stock has been on a tear, rallying on the back of the 5-dma, now at $40.60. A bounce off this level as well as support at $40 could allow for an aggressive entry point. There is also strong support at $36.50 from the converged 10 and 50-dma but make sure TQNT closes above our stop price at $38. For a more conservative entry, wait for strong buying to carry TQNT over 200-dma at $45 threshold before making a play. From there, it could be a short trip to $50. BUY CALL DEC-35 TQN-LG OI= 289 at $10.13 SL=7.00 BUY CALL DEC-40*TNN-LH OI=1320 at $ 6.88 SL=5.00 BUY CALL DEC-45 TNN-LI OI= 881 at $ 4.25 SL=2.50 BUY CALL JAN-40 TNN-AH OI= 2 at $ 9.38 SL=6.50 BUY CALL JAN-45 TNN-AI OI= 30 at $ 6.88 SL=5.00 http://www.premierinvestor.net/oi/profile.asp?ticker=TQNT ************* NEW PUT PLAYS ************* AGGRESSIVE: YHOO - Yahoo Inc. $41.69 -7.19 (-9.56 this week) Yahoo! is an industry leader in providing live audio and video streaming media services for a wide range of customers, including sports leagues, media and entertainment companies, television and radio stations, corporations, advertisers and merchants. Yahoo! delivers millions of hours of live and on demand programming each month through a highly scalable streaming distribution network designed to deliver high-quality audio and video to large audiences accessing the Internet through both dial-up and broadband connections. From hero to villain, Yahoo is now the curse to any investor's portfolio. It didn't happen overnight, but the descent to today's close at $41.69 was rapid. It used to be that investors couldn't find a weak link in the Yahoo business plan, now the only thing investors can't find is support for their stock. YHOO is at levels not seen since 1998 and the technical picture is less than encouraging. The reason for the decline this week (and for months) is due to fears over fourth quarter earnings. These aren't just rumors anymore either. Analysts like Mary Meeker and Richard Bilotti of Morgan Stanley, Jordan Rohan of Wit SoundView, and Henry Blodget of Merrill Lynch all have similar fears for the stock. The story is simple too. The concern is that revenue will be weaker due to lower advertising dollars, something that has been evident in recent months. The bottom line is that Yahoo may be more at risk due to a high concentration of revenue in Internet advertising. The light at the end of the tunnel is dim at best too. Most analysts project the problems to continue until mid-2001, but Henry Blodget is still expecting a $200 stock by the end of next year. Too bad that won't bring the buyers back in the short- term. Therefore, we expect YHOO to continue to fail, maybe even into the mid-$20s. The trick here will be the entry point. We all know that YHOO options carry high volatility and a $10 plunge in two days doesn't help. So keep your eyes open for any rebound in the stock (and Nasdaq) to enter a play, especially on light volume. But if investors want to keep dumping at this level, on this high volume, then there should be plenty of intraday plays available even at current levels. BUY PUT DEC-45 YHQ-XI OI=1364 at $6.88 SL=4.25 BUY PUT DEC-40*YHQ-XH OI= 696 at $4.38 SL=2.50 BUY PUT DEC-35 YHQ-XG OI= 312 at $2.44 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=YHOO ARTG - Art Technology Group $35.88 -5.00 (-9.81 this week) Art Technology Group offers an integrated suite of Internet customer relationship management and e-commerce software applications, as well as related application development, integration and support services. The Company's solution enables businesses to understand, manage and build online customer relationships and to market, sell and support products and services over the Internet more effectively. About 40% of sales are derived from Web site design, consulting, and other support services. Global clientele include Forbes and General Motors. ARTG's golden hue from its lofty summer price of $126.88 quickly took on a tarnished look as it fell on hard times recently. The software company that customizes advertisements and other content on Web sites, reported stellar earnings on October 26th. They beat the consensus estimate by $0.03 and came in at $0.07 p/s versus -0.10, the same quarter last year. The steep sell- off that followed the strong numbers wasn't necessarily a case of post-earnings decline, but rather, it plunged on the news it planned to sell 4 mln shares in a public stock offering. The punishment was severe and ARTG saw $52.13 before tracing higher with the NASDAQ on Halloween. Moving forward, ARTG consolidated higher at the $70 and $71, until the discordance emerged. The share price experienced significant damage on 11/7 and 11/8 after the company amended its 10-Q filing disclosing the sale of $9.6 mln in accounts receivables. Investors were incensed. ARTG tumbled $23.25 to $45.75, losing 33.7% of its value in a mere two sessions. The poor performance of the stock and the company's withdrawal of its public stock offering due to the low price levels has led many investors wondering what's next. The analysts are mixed on the issue and the rating variances can only be adding more instability to the stock's share price. Yesterday, ARTG fell through its bottom supports at the closely knit 5 and 10-dmas at $43.83 and $45.45, respectively. The technical infraction led to pure devastation today. The stock quickly violated the $40 level, which generated enough momentum to take ARTG down to $35.50, for a bearish close at $35.88! If you take a look back over time, you'll see that after ARTG broke through the $40 shackles in December of 1999, ARTG only saw a transgression of this breadth during the April correction. To play this put, either enter on downward bounces off the $38 or 39 marks or buy into high-volume selling as ARTG tumbles under $35. We have a tight stop set at $38 to protect against a buying binge. BUY PUT DEC-50 AYQ-XJ OI=80 at $16.13 SL=11.50 BUY PUT DEC-45 AYQ-XI OI=10 at $11.50 SL= 8.75 BUY PUT DEC-40*AYQ-XH OI=65 at $ 7.38 SL= 5.25 http://www.premierinvestor.net/oi/profile.asp?ticker=ARTG VRTS - Veritas Software $97.31 -9.94 (-12.81 this week) As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. A clear example of how quickly things can change, VRTS has been in a sharp downtrend recently. It was only a month ago that the stock was setting new highs above $165. The combined effect of persistent weakness in technology stocks and election uncertainty has served to slash more than 40% off the stock's value since October 20th. The past week has been particularly ugly, with a series of 4 increasing volume red candles describing the stock's woes. The tone really began to change as the 200-dma (then at $123.35) was violated last Thursday. This just opened the floodgates and the sellers piled in driving VRTS down through the $110 support level. Volume today was particularly heavy, coming in nearly 3 times the ADV. The late-day bounce today near the $93-94 support level looks like nothing more than a pause before the decline continues, with logical downside targets sitting at $85 and then $78. Shareholders approved the merger with Seagate, and although the deal should close within the week, it didn't seem to help the stock in the least. Intraday support near $100 gave way today and it looks like this will now act as resistance, reinforced by resistance at $105. Use failed rallies to either of these levels as aggressive entry points. We are setting our stop at $109, as a move through this level will indicate that the bears are losing control. More conservative traders will want to wait for selling pressure to push VRTS down through today's lows; use a drop through $93 as your trigger for new entries. BUY PUT DEC-100 VUQ-XX OI=2075 at $12.00 SL=9.00 BUY PUT DEC- 95*VUQ-XW OI=1050 at $ 9.25 SL=6.50 BUY PUT DEC- 90 VUQ-XV OI= 175 at $ 7.13 SL=5.00 http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS ********************** PLAY OF THE DAY - CALL ********************** QCOM - Qualcomm Inc. $87.50 +2.88 (-1.31 this week) Qualcomm Incorporated is a leader in developing, delivering, and enabling innovative digital wireless communications products and services based on the Company's digital technologies. As the pioneer of Code Division Multiple Access (CDMA), the technology of choice for next-generation wireless communications, Qualcomm continues to lead the industry in the development of voice, data, and wireless Internet products and solutions. Qualcomm is also transforming industries through its various satellite businesses and technology partnerships. Most Recent Write-Up Since late last week, traders have been holding their breath, anxiously watching and waiting for QCOM to break and close above the 200-dma, now sitting at $88.46. This resistance point is proving to be formidable indeed. Morning market nervousness led some traders to take some profits, as QCOM pulled back $4.19 or 4.71 percent on 65% of ADV. This was despite a positive announcement that the company had expanded its licensing agreement with NEC, leading to higher royalty fees. Today however, the stock bounced back. Gapping lower at the open, the stock bounced strongly off support at $82, right above our stop price of $81. From there, the stock broke through the 200-dma but encountering resistance at $90 and some last hour selling on the NASDAQ, pulled back but finished up 3.4 percent on average volume. Conservative traders are still waiting for QCOM to break through the 200-dma definitively before taking a position but for aggressive traders, a bounce off support at $85, $82 and $80 are possible targets to shoot for. Comments Today, QCOM traded in a wide range as it consolidated its recent gains. As low as $82.25 off the open and up to $90 in the afternoon, QCOM would have been a great intraday trade. Ideal entry on this call play would come on a pullback to the $83 level, along with a bounce. But it may only take $85 to print for the buyers to come in. Tomorrow will be an illiquid day in both the option and equity markets, so if you're trading, be prepared for a whippy day. BUY CALL DEC-85 AAF-LQ OI=5179 at $ 8.13 SL=6.25 BUY CALL DEC-90*AAF-LR OI=5731 at $ 5.75 SL=4.00 BUY CALL DEC-95 AAF-LS OI=4004 at $ 3.88 SL=2.25 BUY CALL JAN-90 AAF-AR OI=8605 at $ 9.88 SL=7.25 BUY CALL JAN-95 AAF-AS OI=5551 at $ 8.13 SL=6.25 SELL PUT DEC-80 AAF-XP OI=1770 at $ 2.88 SL=4.00 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM ************************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=1031 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Blue-chips save the day! Industrial stocks closed higher today as investors rotated to defensive issues in the wake of the recent technology sell-off. Monday, November 20 Technology stocks slumped to the lowest levels in two years after a slew of analysts' downgrades weighed heavily on the group. The Nasdaq closed down 151 points at 2,875. The Dow also plummeted 167 points to 10,462 on concerns about a slowdown in corporate earnings. The S&P 500 index finished 25 lower at 1,342. Trading volume on the Nasdaq was average at 1.7 billion shares exchanged, with declines leading advances 3,001 to 976. Volume on the NYSE hit 953 million shares, with declines outpacing advances 1,851 to 981. In the bond market, the U.S. 30-year Treasury rose 10/32, pushing its yield down to 5.75%. Sunday's new plays (positions/opening prices/strategy): Intel INTC J0230C/JAN45C $13.88 debit LEAPS/CCs Phillips P DEC70C/DEC65C $1.00 credit bear-call US Airways U DEC30P/DEC35P $1.00 credit bull-put Meridith MDP DEC25P/DEC30P $0.88 credit bull-put The market volatility provided some favorable entry opportunities in our new combination positions. The Meridith spread was the only position that did not meet our minimum (suggested) entry price, but it was a reasonable credit for those of you who are bullish on the issue. Portfolio Plays: Stocks closed lower Monday amid earnings concerns and continued uncertainty over the outcome of the Presidential election. The Nasdaq led the downward move with Networking issues registering the worst losses. Morgan Stanley analysts caused most of the grief, slashing ratings on a number of popular companies in the group because of expected slower demand from service providers. Cisco Systems (CSCO), Juniper Networks (JNPR) and Redback (RBAK) were among the biggest losers. Computer hardware and software stocks also moved lower with Dell Computer (DELL) and Gateway (GTW) falling on a downgrade by Wit Soundview, and Oracle (ORCL) slumping on news that several analysts slashed their ratings on the issue. In the Internet sector, eBay (EBAY) dropped to $34 after Lehman Brothers reduced its rating on the stock and chip companies also retreated, with Texas Instruments (TXN) leading the way after Lehman lowered its 2001 earnings estimates due to a slowdown in equipment orders. On the Dow Industrial Average, Coca-Cola (KO) was toppled by news that the company is in talks to buy Quaker Oats for about $16 billion. General Motors (GM), J.P. Morgan (JPM) and American Express (AXP) also moved lower while Merck (MRK), International Business Machines (IBM), and Johnson & Johnson (JNJ) edged higher. In the broader market, Biotechnology issues were pummeled and financial stocks also fell on concerns of potential credit problems. Oil service issues held up fairly well amid rising crude futures as the Northeast U.S. began to experience winter weather, and the recent violence in the Middle East continued. Making matters worse, the political battles moved to Florida's Supreme Court as the justices convened to determine whether post-deadline results from hand recounts should be added to the tally for the U.S. presidential election. Our new position in Quaker Oats received a boost as Coca-Cola (KO) confirmed it was in talks with the company in what is now expected to be a $16 billion deal to purchase the popular food producer. The boards of the two companies met over the weekend to discuss a stock-swap deal valued at $116.70 per share. Coke is expected to offer 1.9 shares for every Quaker share and the discussions come only two weeks after Quaker officials refused a $13.7 billion offer from KO's soft-drink rival, PepsiCo (PEP). That deal would have put the value of Quaker shares at $103.53. Paris-based food concern Groupe Danone S.A. was also courting Quaker but it appears that KO will be the winner by a knockout. Our position is at maximum profit with the issue above $90, so there is little chance of a negative outcome. Another popular stock in the Food and Beverage industry, Safeway Stores (SWY) traded above yearly highs near $59 and the issue is poised for further gains. Major drug and healthcare stocks also performed well, as investors rotated to safety issues during the technology sell-off. Our new plays in Johnson & Johnson (JNJ) and Cardinal Health (CAH) benefited from the bullish activity in the group. In smaller-cap issues, the synthetic position in MTI Technology (MTIC) is now profitable and with today's $1.12 advance to $9.25, MTIC may be approaching the upper limits of its current rally. Traders who entered the position near $0.50 debit might consider taking the excellent one-week profit, targeting a new entry if the issue consolidates. Landry's Seafood Restaurants (LNY) also enjoyed upside activity, rising to a new 52-week high at $10.62. Our bullish position in the issue, although not entered at the target debit, is already yielding a favorable return. Tuesday, November 21 Industrial stocks closed higher today as investors rotated to a defensive stance in the wake of the recent technology sell-off. The Dow closed up 31 points at 10,494 while the Nasdaq finished down 4 points at 2,871. The S&P 500 index ended up 4 points at 1,347. Volume on the Nasdaq reached 1.74 billion shares, with declines beating advances 2,488 to 1,433. Trading volume on the NYSE reached 1.1 billion shares, with declines beating advances 1,464 to 1,389. In the bond market, the 30-year Treasury rose 11/32, pushing its yield down to 5.73%. Portfolio Plays: Industrial stocks managed a small recovery today, as investors moved to defensive areas of the market, but technology issues continued to struggle, on concerns of excessive valuations. Safe-haven sectors received the majority of buying interest with consumer products, gold, major drug and healthcare shares among the best performers. On the Dow, blue-chip frontrunners included Boeing (BA), General Motors (GM), Intel (INTC), Exxon Mobil (EXOM), and Microsoft (MSFT). On the Nasdaq, networking companies regained some of yesterday's losses with Cisco (CSCO) and JDS Uniphase (JDSU) among the recovering issues. Qualcomm (QCOM), a recent OIN favorite, was also among the few bullish stocks, rebounding $3 to a technical resistance area near $87. Internet issues continued to suffer, declining for the fifth straight session after Merrill Lynch's Henry Blodget commented that "the worst is yet to come" for the online advertisers. He was only one of a number of analysts with bearish comments for the industry. In other technology groups, semiconductor stocks remained subdued while biotech issues posted a modest recovery following Monday's rout. Among industrial stocks, retail and utility shares retreated as buyers remained timid and unwilling to commit new funds, even to sectors that have performed well over the past few sessions. One market expert suggested that decelerating earnings growth and corporate revenues will likely be the overall theme well into the first half of next year and that doesn't bode well for the current market valuations. Our portfolio actually performed quite well, considering the number of catastrophic declines over the past two sessions. The leaders in today's activity were spread across many groups but the strongest moves came in defensive categories such as major drug, food and beverage, and consumer products. Safeway Stores (SWY) has been one of the most productive issues among grocery stocks and today the issue traded near an all-time high at $60. Our bullish synthetic position is now yielding a $1.00 credit and the long option does not expire until January. In the Food and Beverage group, Kellogg (K) continued to rally, up $1 to close at $28.50 on speculation over recent consolidation in the industry. The potential buyout of Quaker Oats (OAT) is the current catalyst for activity in the sector. A well-known consumer products issue, Johnson & Johnson (JNJ) climbed to a recent high near $97 after a federal jury issued an unfavorable verdict against Medtronic (MDT) in a case involving patents over a type of heart device. The jury has been ordered to determine the damages to be awarded to JNJ, including potential payments for previous stent sales and possible future royalties. Our Put-credit spread at $90 benefited from the news and the stock appears to be bracing for a rally to a higher trading range. Surprisingly, Intel (INTC) continues to perform well and the issue rallied $1.50 to $42.62, even as investors were exiting the technology industry. Our new LEAPS/CCs position is off to a good start and we expect the upside activity to continue, once the outcome of the Presidential election is decided. Microsoft (MSFT) managed to close positive and the new trading range near $70 is helping erode the sold time value in our diagonal spread. If the issue begins to move above technical resistance near $72, we will plan for an upside adjustment in the bullish position. Invitrogen (IVGN) was another popular issue today, up almost $2 to $71.38 as investors continued to search for growth companies in a market where technology stocks are being avoided like "the plague." Our bullish spread at $55 is intact, for the moment. Carter Wallace (CAR) and Biochem Pharma (BCHE) were also among the active drug issues and both of our time selling positions in those issues are currently profitable. Federal Express (FDX) is another of our older diagonal plays and traders who rolled to a JAN40C/DEC45C benefited from the stock's $3 rally to a 52-week high. The bullish position in FDX has yielded a profitable exit every month since the play was initiated. Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - The following positions are low cost speculation plays on active, small-cap issues in various sectors. Depending on your outlook for the market and its many industries, you may find a position that fits your strategic approach and trading style. ****************************************************************** PXD - Pioneer Natural Resources $14.31 *** Energy Sector! *** Pioneer Natural Resources Company is an independent oil and gas exploration and development company. The company has ownership interests in oil and gas properties among the Mid Continent, Southwestern and onshore and offshore Gulf Coast regions of the United States and in Argentina, Canada, South Africa and Gabon. The company's oil and gas producing properties includes the Spraberry oil field located in West Texas, the Hugoton gas field located in Southwest Kansas and the West Panhandle gas field located in the Texas Panhandle. Complementing these areas are the exploration and development opportunities and oil and gas production contributed by assets in the United States Gulf Coast area, Argentina and Canada. The company seeks to competitively and profitably explore for, develop and produce proved oil, NGL and natural gas reserves. In so doing, Pioneer also markets homogenous oil, NGL and natural gas units. The energy sector is a great place to hedge against the bearish moves in the broader market and with the onset of winter weather in the Northeast, companies in the industry will receive more attention in the coming weeks. Analysts at Deutsche Banc Alex. Brown recently started coverage on the company with a bullish recommendation, saying the Exploration and Production group's valuation is compelling and provides plenty of upside potential. Traders who agree with that assessment can use this position to speculate on the future movement of the underlying issue. PLAY (speculative - bullish/debit spread): BUY CALL DEC-12.50 PXD-LV OI=775 A=$2.19 SELL CALL DEC-15.00 PXD-LC OI=1556 B=$0.56 INITIAL NET DEBIT TARGET=$1.38-$1.50 ROI(max)=66% B/E=$14.00 Traders who don't mind owning the stock might also try a collar; Buy the underlying, sell a DEC-$15 Call and buy a DEC-$12.50 Put for a cost basis near $14.00. Maximum profit will be $1.00 and maximum potential loss will be $1.50. ****************************************************************** MRVT - Miravant Medical $15.94 *** On The Rebound? *** Miravant Medical is engaged in the integrated development of drugs and medical device products for use in PhotoPoint, the company's proprietary technology for photodynamic therapy. PhotoPoint is a medical procedure that integrates the use of proprietary light-activated drugs, light producing devices and light delivery devices to achieve selective photochemical destruction of diseased cells. PhotoPoint has the potential to be a safe, cost-effective, minimally invasive treatment for indications in a broad number of disease areas, including ophthalmology, oncology, cardiovascular disease and dermatology. Miravant is currently conducting trials in ophthalmology and oncology testing its leading drug candidate, SnET2 (tin ethyl etiopurpurin), and is developing products in collaboration with its corporate partners, including subsidiaries of Pharmacia & Upjohn. Biotechnology stocks were among the few bright spots in the market today and Miravant was one of the issues making solid gains. The recent recovery in MRVT's share value began last week after an announcement at the American Heart Association meeting in New Orleans. The company announced that it has achieved positive results in studies of its PhotoPoint therapy for both the prevention of restenosis and the treatment of lesions arising from common procedures such as angioplasty and stenting. Miravant presented the results of studies showing broad potential applications for PhotoPoint therapy and the results suggest that the procedure could be used as an adjunct to angioplasty and could also be useful in re-opening arteries by depleting cells in established restenotic lesions. Miravant has several other drug candidates that are showing potential in advanced pre-clinical models for prevention and treatment of unique problems such as vascular graft intimal hyperplasia and atherosclerosis. MRVT has also developed guidewire-compatible endovascular light catheters to be used in combination with its novel drugs. Based on the recent bullish activity in the issue, investors are speculating that the company is "back on track" and our position offers an excellent reward potential at the risk of owning this unique issue at a favorable cost basis. PLAY (speculative - bullish/synthetic position): BUY CALL DEC-20.00 SQD-LD OI=644 A=$0.62 SELL PUT DEC-12.50 SQD-XV OI=650 B=$0.50 INITIAL NET CREDIT TARGET=$0.00-0.12 TARGET ROI=20% ****************************************************************** MEDQ - MedQuist $15.31 *** Healthcare Sector *** MedQuist is a leading provider of medical transcription services, a key component in the provision of healthcare. Transcription is the process by which dictation is converted into an electronic medical report. The timely production of accurate reports is necessary for patient care and healthcare providers to receive reimbursement. Using thousands of transcriptionists, proprietary software, sophisticated digital dictation equipment and ability to interface with healthcare providers' computer systems, the company provides customized solutions to shorten its customers' billing cycles and reduce their overhead and other administrative costs. The healthcare service industry has performed incredibly well in recent months but although MedQuist is the largest electronic medical transcription service company in the United States, the company's share value has slumped to all-time lows. Earnings are not the cause; MedQuist generated solid results during the third quarter of 2000, despite a tough marketplace. MedQuist remains an extremely strong company, with a blue-chip client base, high recurring revenue, and strong earnings and cash flow, and their management remains committed to the company's growth prospects. Last week, a recovery began as MEDQ was raised to a near-term "accumulate" rating by analyst David Risinger at Merrill Lynch, and to short-term "outperform" by analyst Anthony V Vendetti at Gruntal & Co. Based on the recent trend, our outlook for the issue is bullish and the current upward momentum should propel the share value to a profitable range. In the event of further consolidation, this company would also be a candidate for any long-term portfolio. PLAY (speculative - bullish/synthetic position): BUY CALL DEC-17.50 QQU-LW OI=0 A=$0.62 SELL PUT DEC-12.50 QQU-XV OI=50 B=$0.38 INITIAL NET CREDIT TARGET=$0.00-$0.06 TARGET ROI=20% ************************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=1025 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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