The Option Investor Newsletter Wednesday 11-22-2000 Copyright 2000, All rights reserved. 1 of 1 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/112200_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-22-2000 High Low Volume Advance/Decline DJIA 10399.30 - 95.20 10493.30 10371.60 969 mln 939/1831 NASDAQ 2755.37 -116.11 2872.64 2754.14 1.89 bln 1065/2882 S&P 100 700.72 - 12.98 713.75 700.39 totals 2004/4713 S&P 500 1322.36 - 24.99 1346.66 1321.89 29.8%/70.2% RUS 2000 457.90 - 8.89 466.79 454.26 DJ TRANS 2799.55 - 52.37 2851.92 2788.42 VIX 31.21 + 2.28 31.68 29.39 Put/Call Ratio 0.83 ****************************************************************** Tale of the tape, Nasdaq new highs 12, new lows 615. The markets did not like the Florida Supreme Court decision to allow the recounts to continue and the reaction this morning was swift. The election has been playing out like a daytime soap opera. Just today for instance, the Supreme Court overruled Florida law to allow selective recounts to continue and be counted. Gore made a speech with a completely new tone and stopped just short of a victory speech. The pendulum swung 100% in his direction. Then Cheney is admitted to the hospital with a heart attack. Bush makes a speech which could have been a concession speech and acted as though the election was over because the law had been broken. Then Miami-Dade decided to stop the recount. The pendulum swung back again. Gore is hysterical and now threatening to sue everybody. "We only want the law to be followed." Funny, they did not want the law to be followed the day before. Now the focus is even more on the absentee votes and the new war begins. Wait, the pendulum swings back again, the dimple votes now count! Suddenly Gore is the assumed winner again and the speeches are sugar coated with righteousness and legal superiority. If a play writer had scripted this event for TV it would have been impossible to anticipate all the twists and turns that occurred in this real life drama. The end result of course was yet another serious market sell off as the indecision not only lingers but intensifies. The selling continued after hours after the dimple decision. A sure sign that the markets wanted Bush and not Gore. If the dimple decision stands then Friday could be rocky again. The tale of the tape was a nightmare not a bedtime story. With advances being beaten significantly by declines on heavier than expected volume for the day before Thanksgiving the outlook is grim. The incredible imbalance of the Nasdaq new highs (12) to the number of new lows (615) is staggering. There was no rally into the close as you would expect. With the day after turkey day up about 87% of the time the trend would be to buy the close and sell on Friday. Even the hardiest of traders skipped that program this year. The Nasdaq closed at the low of the day and the Dow faired only slightly better with a close less than a point under support at 10400. The Nasdaq has now lost -9% in the last three days. The selling was intensified after several earnings reports on Tuesday carried over into today's trading. Portal Software, PRSF, announced earnings Tuesday and did not please investors. Four analysts downgraded PRSF today on the basis of lackluster revenue. PRSF lost almost -$12 or -64% of its value to close at $6.69. This revenue shortfall hammered the rest of the software stocks as guilty by association. Intuit also added to the selling after warning that lower sales were in their future. NEON fell even farther after the news from Tuesday that they took stock instead of cash in exchange for software. They lost another -2.75 to close at $6.63 after dropping from over $20 on Tuesday. CFLO followed through with Tuesday’s after hours drop with a -$39 drop today. Reactions like this are making investors very skittish. There was a rumor today that even GE was going to warn in December and they dropped over -$2. Come on, GE? If they warn it is lights out on any fourth quarter rally. GE strongly denied the rumor and said they were comfortable with estimates. Don't look now but Yahoo took another hit today with another analyst warning that the future may hold an earnings warning. YHOO dropped another -3.50 to $38.19. The rumors are continuing that YHOO will start charging for services soon to replace falling advertising revenue. The pregnant chad ruling aborted the recent rally by MSFT which dropped around -$1 in after hours trading. As the outcome is more clearly seen as a possible Gore win the MSFT gains have been changing dramatically on a daily basis. With $3 gains and losses on alternating days depending on the news, MSFT has been seen as a proxy for the election outcome. A Bush win has been seen as a kinder gentler Justice Dept and a Gore win as lights out for the software company as we know it. I am going to cut this short tonight since tomorrow is a holiday and Friday is a short day. My bullish side is broken and bleeding but still optimistic about the rest of the year. Unfortunately the bears are queuing up for yet another round and all the votes are pointing to them as probably the winner of the next round. The S&P-500 closed at a 52-week low dating back to mid-Oct 1999. The Nasdaq hit another 52 week closing low. The Dow closed right on the 10400 support line I drew last night. The intraday Nasdaq held 2750 on three attempts. My bullish bias is trying vainly to hang onto that fact as the possibility of a bottom. Unfortunately bottoms are not formed with 615 new closing lows. I looked at a several hundred charts today and there were only a few, less than 20, that appeared to have bottomed. Most were biotechs. The rest of the charts looked like a very strong PUT candidate list. This was not encouraging. While the election is given as the primary reason for the market drop it is really the earnings picture that is causing the problem. This will not go away just because a president is chosen. The Fed has raised rates six times in the last year with the last hike in June. It takes 6-9 months for each hike to filter through the economy. This means several hikes have yet to be fully felt. The same is true with rate cuts and with the next cuts now expected in the first or even second quarter of next year the outlook for earnings is shaky. The financials, normally perceived to be a leading indicator of a broad market rally, are heading south at a high rate of speed based on the earnings picture. The market rallied on the news of the Miami-Dade decision to stop the recount but quickly sold off when it was apparent that the final results could now drag out two or three more weeks with legal battles. Earnings warning season starts again in a week and tax selling season for individuals and institutions will start picking up speed in December if the market does not show a pulse soon. The picture I am painting here is one of multiple factors impacting the market negatively. There is no positive news. The market needs positive news to rally. The only bullish points continue to be the amount of money piling up on the sidelines. We are getting closer daily to the massive amounts of money that pour into funds from retirement contributions at year end. Add this to the hundreds of billions still idle due to the down market for the last several months and you have a real possibility for a strong rally. The question is when. As long as all the major stock charts end on the bottom right hand corner of the page these fund managers will wait. They do not get paid to try and pick bottoms. They get paid for results and they want someone else to get bloody trying to catch those falling knives. When the trend reverses they will invest, not until then. Our task as traders today is to do exactly the same thing. We need to see a bottom and a rebound before committing our funds. Yes, some of you will end up being chad on some trading floor from jumping in before the bottom and some of you will be lucky enough to actually pick the bottom. Our task as call only players is to wait for a clear direction before starting new plays. We have had enough bear trap trading rallies in the last three months to train everyone to wait for confirmation of a real rally before committing the majority of your funds. Sure you can speculate before then if you want but do it sparingly. Save your major purchases for the real thing. For those of you who can play puts the good news is our put pick list recently has been doing very well. I am sure you have noticed we have been very overweight in Puts lately and for good reason. The highlights this week include VRSN -$28 since picked, NEWP -20, SLR -11, ARBA -10, HAND -8.50. There is money being made daily if you are playing the right side. From surveys I know most of you don't play puts and that is okay. It just means you need to be more patient in waiting for the bounce. We are very oversold and pressure is building. It may not be Friday but there has to be a pressure relief rally soon. Think about it, did you really want to trade on Friday anyway? Eat some turkey, take a nap, make out your Christmas list. Yes, you can put some SDLI, JNPR, PDLI calls on that list but don't rush out and buy them just yet! 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 indepth 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.sungrp.com/tracking.asp?campaignid=996 ************************************************************ ************* NEW CALL PLAY ************* EXTR - Extreme Networks $70.25 +0.25 (-3.06 this week) Extreme Networks is committed to delivering switched broadband networks that adapt swiftly to change and empower the delivery of future applications for service provider data centers, networks, Web content providers, and e-commerce businesses. Extreme leverages Ethernet and the Internet protocol - today's most dominant and stable network technologies. The Networking sector has been hit hard recently over concerns of slowing telecom spending and subsequent analyst downgrades. However, despite the recent attacks, EXTR has been mounting a recovery. Since establishing support at $63 early Monday morning, (after having its price target lowered by Morgan Stanley Dean Witter) EXTR has been climbing back in the face of a weak overall Tech sector. In fact, the stock has managed to close with gains in the last two days, while the NASDAQ continued to trace lower lows. With the possibility of an oversold rebound, or a relief rally transpiring in the NASDAQ in the coming days, EXTR's recent strength could very well portend higher prices in the near-term. We'll be looking for EXTR's recent relative strength to boost the stock further with cooperation from the broader Tech sector. There are several possible entry strategies for this play. First, look for EXTR's recent pattern of higher relative lows to hold and consider entering new positions on a pullback to support at the 200-dma at $69, or slightly lower near the $68 level. Also, consider entering new positions at current levels only if the NASDAQ and Networking sector show signs of strength. Use EXTR's competitors CSCO, JNPR, and RBAK as confirmation. Finally, for the more conservative traders, watch for EXTR's rebound to build steam and consider entering on a breakout above resistance at $73, but make sure to confirm strength in the NASDAQ and aforementioned networkers. In light of the market's nervousness and EXTR's volatile trading, we're giving the stock room to operate and will set our stop at the $63 level - EXTR's relative low traced last Monday. BUY CALL DEC-65 EUT-LM OI= 405 at $11.38 SL= 8.25 BUY CALL DEC-70*EUT-LN OI=2143 at $ 9.00 SL= 6.25 BUY CALL DEC-75 EXR-LO OI= 577 at $ 7.88 SL= 5.75 BUY CALL JAN-70 EUT-AN OI= 4 at $14.00 SL=10.50 BUY CALL JAN-75 EXR-AO OI= 34 at $11.75 SL= 9.00 http://www.premierinvestor.com/oi/profile.asp?ticker=EXTR CELG - Celgene $56.75 +2.25 (+4.63 this week) Celgene is a pharmaceutical company with a major focus on the discovery, development and commercialization of small molecules for cancer and immunological diseases. Celgene's medical research and development team is working to extend the boundaries in the areas of small molecule immunotherapeutic and biocatalytic chiral chemistry by developing pure versions of existing drugs. Despite the recent weakness in the broader markets, CELG has continued along its path of relatively higher lows. The simple fact that CELG has managed to hold up during the recent market turbulence bodes well for an extended rebound. The stock recently rebounded off its 200-dma at the $50 level and looks poised to trade higher. In fact, CELG tacked on a respectable gain in Wednesday's session despite another triple digit loss on the NASDAQ. What's more, several of CELG's competitors in the Biotech sector managed to follow suit with impressive relative strength. As we search for entry points into this new play, it may be conducive to monitor those very competitors and their trading before initiating positions in CELG. Watch the action in AMGN, CHIR, and MEDI for signs of sector strength. After confirming strength in the aforementioned, traders might consider entering new positions in CELG on a breakout above resistance just above at $57, or wait for a volume-backed move above resistance at $58. On the other hand, should CELG pull back on light volume selling, consider target shooting for entries on bounces off key support levels. Look first for CELG to bounce off support at $55, or slightly lower near the $53 level. We'll set a protective stop lower at the $49 level, which is the site of CELG's double bottom traced during the past two weeks. BUY CALL DEC-50 LL-LJ OI= 57 at $9.63 SL=6.50 BUY CALL DEC-55*LL-LK OI=187 at $6.88 SL=5.00 BUY CALL DEC-60 LL-LL OI=410 at $4.50 SL=2.75 BUY CALL JAN-55 LL-AK OI=248 at $9.63 SL=6.50 BUY CALL JAN-60 LL-AL OI=753 at $7.50 SL=5.25 http://www.premierinvestor.com/oi/profile.asp?ticker=CELG *********** DAILY DROPS *********** GE $48.56 -2.19 (-3.31) The rumor mongers were out in full force today and caused detrimental damage to our long-term GE play. The bears spread rumors this morning that GE would issue a profit warning for its upcoming fourth-quarter. Although officials at GE adamantly denied the rumor, the damage had been done. The sellers drove GE below our $50 stop level, and forced us to drop the play tonight. If today's rumor is soon forgotten, GE could easily rebound back above the $50 level. However, we are no longer initiating new positions. ADIC $16.31 -0.63 (-1.81) Analysts at First Security initiated coverage on ADIC with a Buy rating this morning, and added a 12-month price target of $30. Despite the positive praise from analysts, ADIC couldn't fend off the bears in the Tech sector and traded lower. The selling came with little conviction though, as today's volume was half of ADIC's ADV. That said, the stock could rebound quickly if the buyers return in Friday's shortened trading session. However, we are no longer covering ADIC as the stock closed below our stop at the $17 level. MSFT $68.25 +0.50 (-0.81) Although MSFT was able to fend off most of the sellers today and finish slightly higher, we are dropping the play tonight amid continued election uncertainty and broader weakness in the Software sector. MSFT rallied on the news of the halt of hand recounts in Miami-Dade this afternoon, but shed some of those gains after Gore's camp responded. Furthermore, the stock slipped further in the afterhours session as the election uncertainty mounted. We're preserving the gains we've worked hard for in MSFT and closing the play tonight. Look to exit existing positions on strength, with a rally up to the $69 level providing a good closing level for our play. Additionally, pay heed to the sentiment surrounding the election Friday when searching for exit points. QCOM $78.88 -8.63 (-9.94) The bulls that we've been trading with in QCOM left early for the holiday and left the bears free reign. The gains we had worked so hard for since picking up QCOM early last week were quickly erased today as the stock fell through several key support levels, including our recently raised protective stop at $81. Although QCOM rebounded well off its day low at $78 this afternoon, the stock's close below our stop, and weakness in the final moments of trading today leave us no choice but to drop the play tonight. Look to exit positions on any strength Friday, which may transpire in the form of a relief rally. Conversely, if QCOM continues falling, consider jumping ship if the stock trades below its intraday low of $77.50. CTXS $25.63 -2.38 (-5.25) Our CTXS play was prematurely ended today as the stock fell in sympathy with the Portal Software (PRSF). Anything software, particularly Internet-related, fell in sympathy with PRSF, which dropped an astounding 63% after providing bearish guidance. The bad news caused the recent CTXS buyers to step aside ahead of the holiday and let the stock fall under the sellers control. CTXS attempted to mount a rally midday and recover its earlier losses, but failed as the sellers regained control and took the stock lower into the close of trading. CTXS finished the day well below our protective stop at the $27 level, and if the stop didn't get out, we'd look to exit existing positions on any strength Friday morning. Watch for the stock to bounce off support at $25.50 and look for exit points near resistance at $26, or higher around the $27 level should the Tech sector rebound. JBL $43.00 -2.56 (-5.31) The weakness in the Philly Semiconductor Index (SOX.X) finally caught up with our JBL play and dragged the stock below our stop price at $44. There was no monumental news to induce the sell-off in JBL today, rather sector weakness. The stock fell on volume that was rather light. However, JBL did trade higher in the afterhours session. In fact, the stock traded as high as $44.50 on decent volume for a pre-holiday afterhours trading session. If tonight's trading is a sing of things to come on Friday, JBL could be headed for a quick rebound, which we'd use to exit positions if the close below our stop at $44 today didn't already do so. ***************** STOP-LOSS UPDATES ***************** No stop adjustments today ************** TRADERS CORNER ************** Revisiting Pivot Points By Mary Redmond While it has been difficult for traders to profit from taking positions in this market, there have been many opportunities for substantial short term profits in trading pivot points. It is difficult to profit from taking long positions in this market environment. Although many individual puts have been profitable, many strategists have stated that the market is at or approaching an oversold condition, and is due to rally. In addition, many beginning traders and some experienced traders may prefer to trade calls or long positions simply because it feels more natural. Almost all optionable stocks have a larger outstanding interest in call options than in put options. In many ways, a rising market seems more natural to people. A falling market defies our sense of social order. When you look at very long term charts of the Dow and S & P 500, the trend is up, with a few down turns along the way. Most people feel more comfortable looking at the market from the perspective that it should rally over time. Everything in the market is an exaggeration. We have overbuying on the up side, and overselling on the down side. As traders, we want to pin point the key over bought and over sold levels and use them to our advantage. Analysts are still divided about whether we will have a soft landing or a hard landing. Right now, the market seems to be anticipating the worst case scenario, an economy which is destined to crash and the Fed acting like a deer in the headlights. It seems that any positive news from the Fed would likely cause serious short covering. This might come after the election is decided. The Fed may have been hesitant to hint of policy changes without knowing what policies a new Treasury Secretary would implement, or what fiscal policies a new President would try to pass. A pivot point occurs when a stock has been selling off for a period of time. At some point, the selling abates and buyers step in. Almost every stock has a strong support point at which buyers enter the market, unless some news has been released which states that the stock is destined for bankruptcy. I learned about pivot points from an OIN sponsored seminar I attended last April, and I have found that it is one of the most reliable, low risk trading strategies for short term daily trading. A pivot point has several key characteristics. One is a tweezer bottom, with a bearish candlestick followed immediately by a bullish candlestick. Ideally, the bullish candlestick should engulf the bearish, which means it should be longer and taller. At this point, the stock stops selling off, and immediately turns around. This usually occurs at a critical support level for the stock, which is often at one of the longer term moving averages. The short term technical indicators should indicate that a move to the upside is likely. The stochastic oscillator should be heading higher, with both the short term and long term lines. The MACD histogram should be moving to the upside after finishing a downside movement. I set the time settings on 10 or 15 minutes for short term trading. Pivot points are often characterized by a movement of the stock out of its Bollinger bands, or short term trading range. Stocks sometimes move out of the Bollinger bands if the company has breaking news, like an earning surprise, and in these circumstances, the bands often expand to accommodate the move. The Bollinger bands are often insufficient indicators used alone, but can be highly accurate when used in combination with other indicators Ideally, a pivot point should accompany a turning point inboth major indexes, as it is more difficult to trade fighting the trend of the market. The Nasdaq has exhibited strong support at the 2750 level over the last couple of weeks, although it is certainly possible that this level could be penetrated. If the major indexes appear to be turning around from a critical support level, the probability of success in a pivot point increases. The market really wants closure in this election, but we may need to consider that the ruling of the Florida justices indicated that Florida’s electoral votes would almost certainly be determined by Dec. 12. We should have an answer this weekend. We need to start considering that the market might be worrying about what happens after the election. The Fed’s cycle of interest rate hikes in 1994, and subsequent rate cut in 1995, fueled a strong rally in the S & P 500 from 1995 to 1998. Many market watchers and analysts are hoping for and expecting a replay of the 1995 rally next year. It seems likely, if we have a replay of the other factors. One is a decreasing rate of inflation, measured by the CPI. Another is stable or decreasing interest rates. Another important factor is liquidity. The markets stayed flat in 1994, while we have had one of the worst bear markets in decades this year. This year may have been worse than 1994 because of the Y2K liquidity increase and subsequent drain, and the flood of IPOs and corporate debt issued in 1998 and 1999. Not only did this drain liquidity from the system, but the corporate debt rates are now so high, and the IPO market is so dry, that it is becoming almost impossible for small company stocks to get financing. The patient (the market) went into the hospital for treatment of a cancer (inflation) and it seems the chemotherapy almost killed the patient. So we may need some more nurturing from the Fed to coax the market back to health. However, while the psychology of the market is poor right now, we have a record level of cash in US money market funds of $1.8 trillion. Over $100 billion was deposited to money market funds since August, and the cash keeps pouring in. $24 billion was deposited since Oct 25. The money market fund levels and corporate debt rates usually spike when the VIX.X rises, indicating a high level of fear. While it seems as if the bull market has run out of gas, retail and institutional investors have enough cash on the sidelines to rally the market at a moment’s notice. All we need now is a catalyst. ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily, the research tool for self directed investors. http://www.sungrp.com/tracking.asp?campaignid=999 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** TQNT - TriQuint Semiconductor $42.13 -1.06 (+2.56 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). Most Recent Write-Up 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. Comments TQNT's wild action Wednesday provided traders with plenty of entry opportunities. What's more, while the broader Semi sector struggled to hold ground, TQNT battled back after its opening gap lower. If the volatile trading continues during Friday's shortened trading session, look for entries on bounces off support at the $40.50 level. Additionally, a breakout above resistance at TQNT's intraday high of $43.63 would offer a favorable entry point. BUY CALL DEC-35 TQN-LG OI= 269 at $9.38 SL=6.50 BUY CALL DEC-40*TNN-LH OI=1298 at $6.13 SL=4.00 BUY CALL DEC-45 TNN-LI OI=1053 at $3.63 SL=2.50 BUY CALL JAN-40 TNN-AH OI= 2 at $8.63 SL=6.00 BUY CALL JAN-45 TNN-AI OI= 154 at $6.38 SL=4.50 http://www.premierinvestor.com/oi/profile.asp?ticker=TQNT ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** The "good" news is that stocks can only go to zero! The stock market plunged lower today, with technology companies leading the sell-off amid fears of shrinking corporate revenues. Recent concerns that the slowing pace of economic growth will hamper company profits were confirmed during the session by a number of negative earnings reports, and the troubling forecasts included significantly lower revenue growth. Potential buyers also remained on the sidelines due to the undecided outcome of the U.S. presidency. The Florida Supreme Court prolonged the process late Tuesday, saying it would allow hand recounts of election ballots in the key state. The decision provides for acceptance of revised vote tallies through Monday, November 27, casting a new cloud of uncertainty over the market. On the Dow, the biggest losses were seen in shares of Philip Morris (MO), Citigroup (C), Home Depot (HD), and Honeywell (HON). On the upside, Coca-Cola (KO) rallied after the beverage giant pulled its offer to buy Quaker Oats (OAT). Investors were elated at the company's decision to focus on internal growth and shares of KO rebounded almost $5 to close near $60. In Nasdaq issues, software stocks were drubbed after poor quarterly results from Novell (NOVL) and Portal Software (PRSF). Both companies said they had experienced declines in packaged software sales and analysts were less than optimistic about the group's near-term future. Internet companies extended their recent declines as investors become more concerned about revenue growth among many of the leading business-to-business issues. The Semiconductor sector was one of the few bright spots, achieving a small gain amid heavy selling pressure across the technology industry. In the broader market, weakness in financial shares continued and also dragging the industrial sectors lower were drug, tobacco, retail, and defense issues. Only a few safety sectors, such as food and beverages, household and consumer products, and utility stocks enjoyed upside activity. Overall, the equity market was dominated by the bears and with the current negative outlook for earnings growth, there simply isn't a compelling reason to buy additional stock at this time. Summary of Previous Picks: NOTE: November prices as of Friday's Expiration Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NTIQ NOV 85 83.75 85.75 $1.25 5.0% ADBE DEC 68 64.44 72.31 $3.06 4.8% EMLX DEC 120 113.56 121.81 $6.44 4.7% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NTIQ NOV 80 79.31 85.75 $0.69 10.7% DCTM NOV 25 24.22 41.13 $0.78 9.0% Adj 2-1 Split AFFX NOV 70 69.56 70.00 $0.44 8.2% MANU NOV 60 59.06 115.44 $0.94 7.4% Splits 2-1 DEC 8 EMLX NOV 120 119.31 149.00 $0.69 7.4% EPNY NOV 40 39.54 51.25 $0.46 6.6% Adj 3-2 Split HAND NOV 50 48.75 62.44 $1.25 6.5% KREM NOV 65 64.06 81.00 $0.94 6.4% VRTS NOV 110 108.13 110.13 $1.88 5.9% HGSI NOV 70 68.94 71.13 $1.06 5.1% PCYC NOV 45 43.62 43.00 -$0.62 0.0% CVTX NOV 70 69.50 67.06 -$2.44 0.0% HGSI NOV 75 74.25 71.13 -$3.12 0.0% AVCT NOV 60 58.50 54.69 -$3.81 0.0% APWR NOV 40 38.56 33.25 -$5.31 0.0% VRTX NOV 70 68.81 63.13 -$5.68 0.0% ELNT NOV 75 74.25 65.38 -$8.87 0.0% PDLI NOV 105 104.12 85.00 -$19.12 0.0% Ouch! PWAV DEC 40 39.00 44.75 $1.00 8.3% SAWS DEC 35 34.12 48.81 $0.88 8.0% CMVT DEC 85 83.37 86.75 $1.63 6.7% QCOM DEC 65 63.81 78.94 $1.19 6.7% ADBE DEC 55 54.00 72.31 $1.00 5.9% SCMR DEC 40 39.31 54.44 $0.69 4.9% CRGN DEC 45 43.69 33.44 -$10.25 0.0% Close on Rally? Sell Straddles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return EXAR - Closed at breakeven. CFLO DEC 75 71.87 37.81 -$34.06 0.0% CFLO DEC 165 172.13 37.81 $7.13 23.2% Shorting CFLO on Tuesday would have covered the short put and still allow the profit on the short call. Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return RBAK NOV 120 120.75 80.75 $0.75 14.1% JNPR NOV 230 231.50 154.38 $1.50 13.0% NEWP NOV 190 191.69 69.56 $1.69 8.9% NEWP NOV 165 166.00 69.56 $1.00 8.6% JNPR NOV 260 261.56 154.38 $1.56 7.8% BRCM NOV 280 282.19 133.00 $2.19 6.3% JNPR NOV 280 281.56 154.38 $1.56 5.1% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status AFFX $87.25 $59.75 DEC50P/60P $1.12 $58.88 $0.88 Alert AGN $90.75 $88.00 DEC70P/75P $0.75 $74.25 $0.75 Open AET $66.06 $61.69 DEC55P/60P $0.56 $59.44 $0.56 Open New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH - COMBINATION PLAYS *************** APA - Apache Oil $62.44 *** Oil Sector Hedge *** Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, Apache's exploration and production interests are focused on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast, and Western Sedimentary Basin of Canada. Apache has also exploration and production interests offshore Western Australia and in Egypt and exploration interests in Poland and offshore The People's Republic of China. Apache holds interests in many of its United States, Canadian and other international properties through operating subsidiaries, such as Apache Canada, DEK Energy Company, Apache Energy Limited, Apache International, and Apache Overseas. The energy sector continues to receive bullish attention, even as crude oil trades near all-time highs. The energy industry offers a great way to hedge against the downward moves in the broader market and with the expected harsh winter now beginning in the Northeast, companies in the industry will receive more attention in the coming weeks. Analysts at Merrill Lynch and Morgan Stanley Dean Witter favor the oil and natural gas producers and the group's valuation is compelling, with plenty of upside potential. Traders who agree with that assessment can use this position to speculate on the future movement of the underlying issue. APA - Apache Oil $62.44 PLAY (conservative - bullish/credit spread): BUY PUT DEC-50 APA-XJ OI=304 A=$0.43 SELL PUT DEC-55 APA-XK OI=4605 B=$0.93 INITIAL NET CREDIT TARGET=$0.56-$0.62 ROI(max)=12% B/E=$54.43 ****** BMY - Bristol-Myers Squibb $67.94 *** Drug Sector *** Bristol-Myers Squibb, through its divisions and subsidiaries, is a major producer and distributor of pharmaceuticals, consumer medicines, nutritionals, medical devices and personal beauty care products. The Medicine segment includes sales of pharmaceuticals and consumer medicines. The Beauty Care segment includes sales of haircoloring and hair care preparations and other beauty care products. The Nutritionals segment includes sales of infant formulas and other nutritional products. The Medical Devices segment includes sales of orthopaedic implants, ostomy and wound care products and other medical devices. Bristol-Myers has been in the news recently, announcing that Proctor & Gamble (PG) plans to review the company's offering for Clairol, and considers the brand an excellent "strategic" fit. Currently, Proctor & Gamble has made no commitment but rumors suggest that the consumer-products giant, maker of Pantene and Head & Shoulders, briefly toyed with the idea of swapping its pharmaceuticals operation for the hair-care products division. The competition for Clairol is likely to be stiff as P&G's main rival, Unilever, is also interested. The Anglo-Dutch concern holds the #2 ranking for hair-care market share in the U.S. and its brands, which include Salon Selectives, Suave and Finesse, are very popular. Wella AG and Henkel GaA of Germany are also potential bidders for Clairol, as are Kao and Shiseido, two major Japanese consumer-products companies, making BMY's position very favorable. In addition, BMY recently received a patent that may allow the company to extend its exclusive marketing rights to anxiety drug BuSpar. BuSpar's patent expired in May, but the company received a six-month extension because it tested the product in children, and company officials are hoping the patent will prevent the FDA from approving a generic version of BuSpar. The technical strength of BMY is obvious and the recent move to a 6-month high suggests the trend is intact and will continue. BMY - Bristol-Myers Squibb $67.94 PLAY (aggressive - bullish/credit spread): BUY PUT DEC-60 BMY-XL OI=5794 A=$0.43 SELL PUT DEC-65 BMY-XM OI=631 B=$1.25 INITIAL NET CREDIT TARGET=$0.88 ROI(max)=21% B/E=$64.12 *************** BULLISH - BOTTOM-FISHING PLAYS *************** CHIR - Chiron $43.88 *** S&P 500 Addition! *** Chiron is a biotechnology company that participates in three global healthcare businesses: biopharmaceuticals, vaccines and blood testing. Chiron is developing products for preventing and treating cancer, infectious diseases and cardiovascular disease. The company's unique products include Proleukin, a recombinant form of interleukin-2, which the Company markets as a treatment for metastatic renal cell carcinoma and metastatic melanoma. The company manufactures recombinant human platelet derived growth factor, the active ingredient in Regranex Gel, which is marketed by Ortho-McNeil Pharmaceutical, a Johnson & Johnson company, as a treatment for diabetic foot ulcers. The company also manufactures Betaseron for Berlex Laboratories, and its parent company, Schering AG, which is marketed by Berlex and Schering AG as a treatment for multiple sclerosis. In addition, Chiron sells a line of traditional pediatric and adult vaccines. Biotechnology firm Chiron was one of the most active shares among mid-cap Nasdaq issues in today's session. The stock rallied almost $4 in regular trading in the wake of Monday's announcement that Chiron would replace wood and paper products maker Fort James (FJ) in the benchmark S&P 500 stock index. Fund managers bought the majority of Chiron shares during the afternoon, and volume increased during the last half-hour of the regular session, pushing the stock price to recent highs. Volume peaked just after the closing bell with CHIR losing a portion of the day's gains, but remaining up for the session. We feel the issue has great future potential and the recent technicals suggest our cost basis offers a favorable price to enter a new position. Target a higher premium initially, to allow for some consolidation in Friday's trading. CHIR - Chiron $43.88 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put DEC 35 CIQ XG 4167 0.69 34.31 9.6% *** Sell Put DEC 37.5 CIQ XU 848 1.13 36.38 12.1% ****** FNSR - Finisar $31.94 *** Big News! *** Finisar is a provider of fiber optic subsystems and network performance test systems that enable high-speed communications over Gigabit Ethernet LANs and Fibre Channel based storage area networks (SANs). FNSR's optical subsystems convert electrical signals into optical signals (light pulses) for high speed, reliable transmission over fiber optic lines. The company sells its optical subsystems to manufacturers of networking and storage equipment that in turn develop and market systems based on Gigabit Ethernet and Fibre Channel technology. Finisar shares rallied today after the fiber-optics systems maker beat analysts' expectations for the second quarter and announced a a slew of acquisitions. Company officials said FNSR earned $7.5 million, or $0.04 per share, for the second quarter, compared with $1.3 million, or $0.01 per share, in the same period last year. Finisar also said it was acquiring three technology companies, Demeter Technologies, Transwave Fiber and Shomiti Systems. The results exceeded consensus estimates and prompted a number of analysts to upgrade the issue. Wit Soundview today raised FNSR's earnings estimates and recommended the stock as a "strong buy," with a 12-month price target of $57. AG Edwards upgraded the issue to a "Buy" with a price objective of $45-$50, based on a belief that the company will be able to generate very high revenue growth rates as it is a leading provider of fiber optic components for the Gigabit Ethernet, Fibre Channel and SONET/SDH markets. A short-term technical reversal is underway but we will approach the position from a conservative viewpoint with a favorable cost basis. FNSR - Finisar $31.94 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put DEC 22.5 FQY XN 127 0.56 21.94 10.7% *** Sell Put DEC 25 FQY XE 729 1.13 23.88 19.8% *************** BEARISH PLAYS - Naked Calls The issues are excellent candidates in the premium-selling category of options trading. Based on analysis of historical option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for profitable naked-calls. Each issue has robust option premiums, a well defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. Many traders may favor a more aggressive approach, selling options that are closer to the current price of the issue, to produce a higher initial return. While that technique may be more attractive, it also increases the theoretical risk of loss. Only you can know what plays are suitable for your personal risk-reward tolerance and portfolio outlook. *************** CIEN - Ciena $93.25 *** Networking Sector Blues! *** Ciena is engaged in the optical networking equipment market. The company offers products for tele- and data-communications service providers worldwide. The company's customers include long-distance carriers, competitive local exchange carriers, Internet service providers and wholesale carriers. Ciena also offers optical transport, intelligent switching and some unique multi-service delivery systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. The company has pursued a strategy to develop and leverage the power of disruptive technologies to change the fundamental economics of building carrier-class communications networks, thereby providing its customers with a competitive advantage. The recent decline in Networking stocks proves that industries which were once considered bulletproof are now showing they can be affected by the economy, and the recent slowdown in spending patterns. The weakness has spread to many of the top companies in the technology group, especially within optical manufacturing. Ciena is just one of the many issues hurt by the bearish trend and now it appears there is additional downside potential for the stock in the near future. Technically, Ciena appears to be holding at its 150 dma, but the probability of it moving up through several resistance areas is low. Ciena's 30 and 50 dmas should hinder any upside move with the early October low (and November high) providing the primary resistance level, well below the recommended sold strikes. CIEN - Ciena $93.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call DEC 130 UEZ LF 1082 2.06 132.06 13.2% Sell Call DEC 135 UEZ LG 543 1.63 136.63 10.6% Sell Call DEC 140 UEZ LH 525 1.25 141.25 8.3% *** ****** EMLX - Emulex $121.81 *** Trading Range? *** Emulex is a designer, developer and supplier of a broad line of Fibre Channel host adapters, hubs, application-specific computer chips (ASICs), and software products that provide connectivity solutions for Fibre Channel storage area networks (SANs), network attached storage (NAS), and redundant array of independent disks (RAID) storage. Its products are based on internally developed ASIC technology, and are deployable across a variety of SAN configurations, system buses and operating systems, enhancing data flow between computers and peripherals. Emulex's products offer customers a combination of critical reliability, scalability, and high performance, and can be customized for mission-critical server and storage system applications. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The near-term EMLX price trend is bearish and reflects a pronounced negative divergence from an intermediate-period moving average. In addition, the decline has come on increasing selling pressure and a recent support level has been violated. With the failure at $170, a short-term "triple top" formation is in place and it appears the share value has little chance of reaching our sold positions in three weeks. EMLX - Emulex $121.81 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call DEC 170 UEL LN 625 3.75 173.75 17.6% Sell Call DEC 175 UEL LO 383 3.13 178.13 15.0% Sell Call DEC 180 UEL LP 131 2.75 182.75 13.4% Sell Call DEC 185 UEL LQ 70 2.19 187.19 10.9% *** ****** MANU - Manugistics $80.25 *** The Thrill is Gone! *** Manugistics is a global provider of intelligent supply chain optimization solutions for enterprises and evolving eBusiness trading networks. Its unique solutions, which include client assessment, software products, other consulting services for implementation and solution support, can be optimized to the supply chain requirements of companies. Their solutions provide its clients with the business intelligence to participate in various forms of trading relationships, from traditional linear supply chains to eBusiness trading networks. The company's newest generation of proven solutions help enable businesses to work in concert with their trading partners via the Internet, expanding their supply chains to eBusiness trading networks. The solutions assist customers in anticipating major trading requirements in both fixed and dynamic environments to help anticipate and meet the needs of customers, thereby maximizing client satisfaction. The recent trend in Manugistics is technically unfavorable and we will use the recent volatility and the overpriced options to initiate a bearish position in the underlying issue's options. The probability of the share value reaching our sold strikes is rather low, but there is always the possibility of a rebound from the recent trading range, so monitor the position daily for changes in technical character. MANU - Manugistics $80.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call DEC 125 ZUQ LU 78 2.69 127.69 19.0% Sell Call DEC 130 ZIU LF 147 2.06 132.06 15.0% Sell Call DEC 135 ZIU LG 0 1.75 136.75 13.0% *** ************************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=1019 ************************************************************** ******************* 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. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc