The Option Investor Newsletter Tuesday 12-05-2000 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/120500_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-05-2000 High Low Volume Advance/Decline DJIA 10898.70 +338.60 10917.30 10576.80 1.40 bln 2080/840 NASDAQ 2889.80 +274.05 2889.80 2694.41 2.47 bln 2782/1200 S&P 100 732.09 + 10.42 732.09 706.82 totals 4862/2040 S&P 500 1376.54 + 0.28 1376.56 1333.47 70.4%/29.6% RUS 2000 471.17 + 20.78 471.35 450.39 DJ TRANS 2843.67 + 75.90 2847.26 2765.21 VIX 26.94 - 3.37 29.71 26.88 Put/Call Ratio 0.67 ****************************************************************** Greenspan wins recount for president! Who was that masked man? The Lone Ranger rode off into the sunset today after rescuing the markets from three months of being held hostage by the Fed bears. Alan Greenspan stepped up to the podium at 10:30 this morning and let fly with several market moving points which calmed investor fears and ignited the mother of all relief rallies. Claiming that the economy had moderated appreciably and the stock market woes had negatively impacted the wealth effect he set the stage for at least a bias change to neutral in December if not a complete rate cut. Saying the situation was not as bad as the 1998 crisis he was none the less encouraged by the change. His "don't worry, be happy, the Fed is in charge" speech lit a fire under the already exploding market. The possibility that the election was almost over after a series of setbacks for Gore had already gotten the market off to a flying start at the open and the kinder gentler Greenspan was more than traders could even dream. The bounce on Friday and then the rise this morning had shorts on the run and the unexpectedly clear good news from Greenspan sent traders into a buying panic. Anybody still short was met with a massive jump in almost all the leaders. The Nasdaq was full of double digit gainers like EMLX +33, BRCD +28, MUSE +33, PMCS +27, JNPR +26, QLGC +22, ITWO +19, CIEN +19, IWOV +24, NTAP +23, CHKP +23, and SDLI +32 to name a few. The light at the end of the tunnel turned into a possible "Santa Claus Rally." The Nasdaq rose +274 points, the biggest point and percentage gain ever. The Dow rose +338 for the third largest point gain ever. The good news was so overwhelming that almost no sector was ignored. That is except the defensive sectors which saw an outflow of funds as traders threw money at tech stocks. The possibility of lower interest rates ahead powered banks and brokers to strong gains with JPM +13 leading the list. The transport sector rallied along with the market with oil prices falling again. "Santa Claus Rally", wow! From testing new lows to S.C.R. in only 48 hours. What stretch of the imagination will the talking heads come up with next? Before you start buying calls on every double digit gainer from today lets look at the facts. Earnings are still down. Greenspan cannot change earnings with a carefully constructed string of adjectives. While he may be giving the market a green light several others on the FOMC are not convinced. Perry said this afternoon that he did see slower growth but it was too soon to be talking about rate cuts and he wanted to see lower inflation first. Mike Moscow said it was too soon and he felt the risk of inflation was greater than the risk of recession. OOPS! Looks like some dissention in the ranks. This means we will not likely see a rate cut on Dec-19th. Maybe a bias change but there is still a lot of convincing still to be done. Earnings warning season is about to heat up with the next three weeks a real serious risk. Today alone we had XLNX, COMS and AAPL confess they were not going to make estimates. XLNX had the audacity to actually gain after their warning which says something about how beat up the semiconductor sector is currently. 3Com said lower than expected sales to telecommunications customers would increase their losses to over double the current estimates. COMS dropped -25% on the news. BRCM struggled after the COMS announcement since 14% of BRCM business comes from COMS. BRCM finished up +6 for the day but without the negative news it could have easily been up double digits. AAPL warned after the close today that it would lose money this quarter for the first time in three years. Saying the inventory channels were full and holiday sales were flat the computer company confirmed what analysts were speculating for the sector over the last two weeks. Dell and Compaq both fell in after hours trading and even though AAPL is seen to be almost in a sector by itself the implications of dead holiday computer sales took some of the bloom off the rally. Holiday sales were seen as mediocre at best over the Thanksgiving weekend and according to Telecheck sales of all goods have slowed significantly since then. This news was glossed over by traders consumed by election news and Greenspanisms but it will come back to haunt us soon. Wal-Mart fell almost -$2 at the close on the AAPL news and the other retailers like BBY, FD and CC could see another round of drops on Wednesday. 3M spiked over +$16 in the last three days on the news that GE executive James McNerney Jr. had been named as its new chairman and CEO. This makes the first time in 98 years that an outsider has taken the helm of the company. When McNerney lost out to Jeffrey Immelt as successor to Jack Welch last week is was widely speculated that he would leave. Good news for MMM but +16 in three days? We feel MMM may be a little over extended with almost $7 billion in market cap being added simply due to a new CEO. He may be good but $7 billion? +338, +274, I love it but I am not convinced. Bah humbug I am not but the volume did not confirm the jump. The Nasdaq managed 2.3 billion shares and the NYSE 1.3 which is not heavy volume. Good volume yes, but not heavy. The advance decline ratio was only 2:1 in favor in advances. Now think about it. The Nasdaq was down -50% from the years highs and almost -1000 points from the Nov highs. A +274 point gain was amazing but it should have been on much closer to 3 billion shares and advancers beating declines by 3:1 or even 4:1. The problem as I see it is trader anxiety. Everybody wanted to believe it but after getting their hands slapped when buying bounces on a weekly basis for the last three months they are just cautious. A caution that comes from pain. The "ask me again Thursday" crowd wants to see more than one day of panic buying. They want to see what happens when the euphoria wears off then decide if they want to buy. Remember, earnings warnings and tax selling are still in our immediate future. Resistance on the Nasdaq is at 2900 and then again 3000. Once we close over 3000 many more traders will start to relax and feel like Santa Claus is really coming to town and start making up a Christmas shopping list. I am not saying we should not take advantage of this rally. Trade away! I just caution you that nothing material has changed. Everybody expected a bias change in December, this is just a confirmation that it might actually happen. The good news is of course the money built up on the sidelines. Add to that the retirement funds that are beginning to flow and we have all the earmarks of a possible rally now that the head of the Fed has put on his Santa's hat. So chill the champagne, get out the glasses but wait for tomorrows close before popping the cork. 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********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself: http://www.sungrp.com/tracking.asp?campaignid=1090 ************************************************************ **************** MARKET SENTIMENT **************** Santa Greenspan's Coming To Town By Austin Passamonte Who's been naughty & nice? All those massive retail shorts that failed to cover early this session saw their cash turned to lumps of coal. Make no mistake: short covering blew up these markets today. Are any market bulls feeling sorry for wounded bears? Oil falls below $30, the Bush Presidency is all but assured and our equity bull's hero Alan Greenspan came together on one given day to usher in the long-awaited Christmas rally. Right? Maybe. Market Sentiment will never discount the duration of any surprise rally. After all, most long-term rallies begin from the depths of market depravity. The technical picture has turned almost 180 degrees. As follows: Dow - Well above all major moving averages SPX - Above 10 & 20 DMAs NDX - Above 10 & 20 DMAs OEX - Above 10 & 20 DMAs, closed right on 50 DMA Comp - Above 10 DMA All indexes closed on session highs and posted very bullish long white candles on their daily charts. Volume was high across the board and up-volume swamped down-volume of course. Friday's COT report includes trading data gathered as of today's close over in the CME. Interesting to see where short interest may lie from here. Certainly shades of December 1999. Are we on track for new market highs by/before March 2001? Time will tell. It was an incredible day for the bulls to rejoice and continue to build from here. Which is exactly what the markets must do... build from here. They must continue up over the next few sessions to take out stubborn points of resistance. They must shrug off the slew of earnings warnings that certainly lie ahead across the spectrum. AAPL will be the first test. They must survive overwhelming euphoria from this day and parlay that into a string of green days on the charts. We expect further upside from here into the FOMC meeting in two weeks. As stated before and now more than ever, rumors will fly about a rate cut at that time. Traders already quietly hope for such and expectations will grow. If the Fed does indeed reduce rates at that time we expect the mother of all rallies to ensue. A simple shift in bias coupled with further earnings pressure might not be enough to support massive rumor-buying that leads up. A few clouds always hover on the trading horizon. We watched numerous large blocks of OTM SPX and OEX puts clear at the prevailing "ask" all afternoon as reported at IndexSkybox real-time alerts. This happened prior to that big price spike into the close. Millions of dollars were played on blocks of hundreds and thousands put-option contracts that are now below water but still open. Is this a collective, high eight-figures foolish gamble? Friends of ours in the futures arena warn of underlying weakness and forecast another highly volatile day in store tomorrow. What else is new? In either case we don't care. Today was an incredibly-easy trading session as 300+ point market moves usually are. Just as easy would be a plunge of equal points on another rally south. Market Sentiment holds no bias or favoritism: up or down, just let these big moves carry on forever! ***** VIX Tuesday 12/05 close: 26.94 30-yr Bonds Tuesday 12/05 close: 5.63% 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 (12/05/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 770 - 755 10,496 496 25.79*** 750 - 735 16,681 2,225 7.50 OEX close: 732.09 Support: 730 - 715 13,354 6,418 .48 710 - 695 7,985 9,876 1.24 Maximum calls: 750/5,793 Maximum puts : 640/9,896 Moving Averages 10 DMA 708 20 DMA 719 50 DMA 732 200 DMA 773 NASDAQ 100 Index (NDX/QQQ) Resistance: 80 - 78 76,747 39,409 1.95 77 - 75 46,348 37,065 1.25 74 - 72 24,351 22,951 1.06 QQQ(NDX)close: 70.6875 Support: 69 - 67 54,351 14,987 .28 66 - 64 46,556 33,127 .71 63 - 61 8,323 10,338 1.24 Maximum calls: 70/62,709 Maximum puts : 80/33,889 Moving Averages 10 DMA 66 20 DMA 70 50 DMA 77 200 DMA 91 S&P 500 (SPX) Resistance: 1450 31,743 21,663 1.47 1425 29,501 15,330 1.92 1400 64,368 50,942 1.26 SPX close: 1376.50 Support: 1350 19,811 33,161 1.67 1325 6,280 16,990 2.71 1300 7,088 27,091 3.12 Maximum calls: 1400/64,368 Maximum puts : 1400/50,942 Moving Averages 10 DMA 1337 20 DMA 1359 50 DMA 1384 200 DMA 1437 ***** CBOT Commitment Of Traders Report: Friday 12/01 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 +103 -138 -3136 2462 Total Open Interest % (+1.14%) (-1.94%) (-11.59%) (-9.76%) net-long net-short net-short net-short NASDAQ 100 Open Interest Net Value -1888 -363 +673 -223 Total Open Interest % (-8.21%) (-1.76%) (+1.17%) (-0.42%) net-short net-short net-long net-short S&P 500 Open Interest Net Value +70473 +68303 -81,194 -79145 Total Open Interest % (+31.99) (+34.74%) (-12.00%) (-11.76%) net-long net-long net-short net-short What COT Data Tells Us: The disparity remains between the Commercial positions and Small Specs on the S&P 500. The DJIA sees the Commercials increasing their net-shorts while the Small Specs turn net-long. The reverse is true on the NASDAQ 100 with the Commercials turning to a net-long position and the Small Specs increasing their shorts. Data compiled as of Tuesday 11/28 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/120500_1.asp *********** OPTIONS 101 *********** Simplicity By David Popper Every family has traditions. Over Thanksgiving we typically travel to Birmingham, Alabama to visit my wife's family. This year was a bit different because my youngest was out of school for aweek while my daughter was in school until Tuesday. The long and short of it is that my wife and son flew while my daughter and I drove. On the way, we spent the night in Bainbridge, Georgia. We ate breakfast at the local greasy spoon. It was a popular spot. Most of the men wore flannel shirts, blue jeans and a John Deere baseball cap. No one had any idea that the Nasdaq was in a horrible trend and quite frankly no one cared. They laughed, visited with neighbors, and did not rush to get to work in order to squeeze out one last dollar. Bainbridge would not be my choice of places to live, but I couldn't help but be impressed by the relative simplicity and peacefulness of their lives. Notwithstanding the fact that my income is probably larger than the average citizen there, I could not say that my life was better. One person came up to our table to talk politics. His take on things emanated from simple common sense, as opposed to tortured political rhetoric. After we left, I couldn't help but consider that as a trader, I have oscillators, proprietary indicators, Bollinger bands, moving averages and other aids galore, but sometimes substitute these for simple common sense. Sometimes simple common sense can allow me to see through the fog and correctly analyze my situation. So what is the situation? Well in these last two months I have given back a lot of money. At this point, I wish that I never heard of fiber optics and chips. I have to remember, though, that I would not have made nearly the amount of money that I did but for fiber optics and chips. My mistake was listening to the glowing reports instead of watching the charts and maintaining a selling discipline. The thing that I did well, however, was to monitor my greed by maintaining a decent amount of cash to buy the dips. So, as a position trader, who can't watch the machine all day, what are my plans? Just stay the course and continue to undergird my fundamental and technical analysis with common sense. Common sense is what will save your account when everyone else is losing money. At this point, we have experienced many two day counter- trend rallies. These rallies are bear traps which are designed to catch anxious/desperate traders into jumping too soon. Sure, short term professionals like Austin and Jim can make money in these conditions, but you have to remember that they have the time and resources to play the game during these compressed rallies. If you are only experienced in playing the long side of the market, it is best stay out of the market now, or if you can't resist, place only a small portion of your capital at risk. Wait until the general market conditions are right before committing major funds. What do I mean by favorable market conditions? Utilize your chart reading experience. When the Nasdaq, your favorite sector, and identified stock all have charts that are favorable, it would be time to heavily invest. Until then only play hit and run with a little bit. Remember that most people are wrong about the market most of the time. Most analysts upgrade after the stock has already topped. They typically downgrade after the stock is already hit. The only entities that they are protecting are themselves, their clients and the companies that used them in the underwriting process. Brokers are often wrong. I currently am involved in cases against brokers, where horrible advice was given and hundreds of thousands of dollars were lost. Often the emotion of the moment and the market's panic of the day are just noise. Your best bet is to tune out the noise and concentrate on trading only top quality stocks when the technical conditions are correct. So what if you blew it last time and are underwater in some positions? Just remember that quality stocks did not cease to be quality just because the market is experiencing a temporary spasm. Quality stocks do go up over time. Yeah, you may have lost a few months of profit, but you are not out of the game. Don't lose heart and don't try to make it all up at once. Stay the course. Maybe you can make up some ground with OTM covered calls. Most importantly, be patient and take a long term view. Do not take untoward risks with your account. I know that it isn't easy, but it is the common sense thing to do. ************** TRADERS CORNER ************** Another Beaten Down Sector To Watch: ASPs By Scott Martindale The fat lady is warming up her voice backstage of the election show. Can you hear it, too? Doe, ray, me... Judge Sauls has given the queue. Next, the Florida Supreme Court is almost certain to uphold his surprisingly firm decision, especially now that the U.S. Supreme Court has served notice that they are watching. And despite the apparent merit of the Seminole County citizen lawsuit regarding the illegal pre-handling of 5,000 Republican absentee ballots, as one Democratic partisan admitted, the remedy in that case would be too extreme, i.e., it would change the election result, which is a greater penalty than the transgression warrants. Every observer this side of the Gore trial team is now acknowledging the inevitable. This will put the election uncertainty behind us in short order. In fact, the market is already responding, at least short term. Regarding the more ominous problem of the economic slowdown and earnings warnings, help may be on the way. Greenspan hinted today of a move to a more favorable bias in two weeks, in advance of a possible rate cut in January. [Many observers had speculated earlier this year that the Fed was raising rates too much too fast, without waiting for the effect to filter through.] In fact, this was the main reason that the markets accelerated mid-day in what otherwise may have been another failed rally. Furthermore, the Fed has already accelerated the money creation process (M3), which is an even more powerful force to stop a recession than interest rate cuts. Let's keep our fingers crossed that these tactics will be enough. Many of us have felt that a market turnaround would be explosive, but...wow! The most notable aspect to me today was the lack of any significant profit taking, even near the close. Instead of panic selling we had panic buying. I'll take that for a change since I'm still heavily invested. But it's hard to chase a stock in this shaky environment. As for my short-term trading, I've been giving the QQQs a go of it lately, although it has been a bit frustrating at times. I've been getting good entry points, but I'm not always exiting at the most opportune times. You know how it is when you set a target price, and it begins to approach the target before falling off. I am still profitable, such as when I bought Jan 66 Puts for 5.50 when QQQ peaked at mid-day on Friday, and then sold when they hit my 7.75 limit order (the high price of the day) on Monday. Sometimes it works out nicely like that, but often it doesn't, such as when I closed my Dec 60 position at Monday's close after it had been eroding in time value while the QQQ gyrated around 63. [At least I got out before today, though.] I just signed up for a free trial of the Index Skybox, and today I daytraded the Dec 68 Call for a modest gain following the Swing Trader strategy. But I sold on the first signs of a pullback, and could only watch as QQQ took off again while I waited for a good dip to buy. I hate it when that happens. Let's talk about something else today. There are so many highly volatile sectors that have been beaten into dust that I'm having a hard time deciding which one to discuss. But I think I'll talk about Application Service Providers, since they are on my topic list and they happen to be getting some attention in the investment media these days. Last year, the ASP business model was held up as an example of how customers would pay for software in the future. Instead of licensing software and having in-house technology staffers maintain it, companies would pay a monthly service fee to use software developed by name-brand firms such as Oracle, Microsoft, SAP, and J.D. Edwards. It saves the customers a lot of money and gives them better IT skills, which are particularly important to small or startup businesses on tight budgets. Red Herring Magazine named enterprise ASPs as one of their Top Trends for 2000. Everyone knew that, using the Internet, ASPs simply provided a new distribution method for software, not a whole new business concept. But from the customer's perspective, software that lets you pay as you go and that's easy to license and unlicense has many advantages. Now many observers are going negative on the sector. In fact, Technology Investor Magazine named the ASP as one of its "doomed technologies." The business of hosting third-party applications for a monthly fee clearly has not taken off. And many who watch the ASP market say the model is flawed. They think it is on the verge of thinning out through shutdowns and mergers, much like what is happening now among e-tailers. ASPs that have already shut down include Pandesic and Red Gorilla. Interliant (INIT) and Futurelink (FTRL) are cutting staff. Some ASPs are in merger discussions, including Corio (CRIO) and USinternetworking (USIX). Other big names in the sector include Digex (DIGX) and Citrix Systems (CTXS). Some observers say that ASPs were accurate in that many customers want their software delivered over the Internet, but were mistaken about how to make money providing it. It's too costly to host and expertly manage a wide range of third-party software. Perhaps one way ASPs can become profitable is to turn themselves into "vertical service providers" (rather than offering the typical "horizontal" range of service), providing all technology services that can be delivered over the Internet to a particular (focused) industry sector. Some companies that develop specialized software and support it in the field are now offering the ASP hosting facility as well. We'll see if more companies begin to take this approach. In any case, all ASPs will need to work out the problems associated with reliability and security. Investors including Microsoft, Aether Systems, and GE Capital have propped up USIX, pledging $300 million in new equity and credit. When you have big players like that who still believe in the concept, it might be worth keeping on your watchlist for a good time to play. Trading in all of the ASP stocks has been fairly quiet lately as they consolidate. An occasional announcement or news story will start a temporary rally, but then the consolidation continues. All of these companies are severely oversold technically, and may be starting to show signs of life. They are ripe for a move at any time. Both CRIO and USIX closed near $3, down from 52-week highs of $21.75 and $71.63, respectively. Neither moved up at all on today's big market gains. Both DIGX and CTXS closed up nicely today in the high 20's, but are down from 52-week highs of $184 and $122, respectively. CTXS actually is profitable, sporting a P/E around 50, which may make it a relatively safer play. Of course, another way to benefit is to buy stock or long term options while it is severely oversold, and just wait for the next move to happen. Also, while these stocks are consolidating at strong support, you can take advantage of juicy options premiums by selling naked puts. ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1120 ************************************************************** 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: ***** SWY $55.19 -2.75 (-3.38) Our low volatility play on SWY came to an abrupt halt today for several reasons. First, the rebound in the tech sector carried capital away from the defensive plays such as SWY. Second, SWY announced this morning that it would acquire Genuardi's Family Markets. Third, an earnings miss from competitor Albertson's hampered the entire grocery sector. And finally, because of that Albertson's warning, Goldman Sachs downgraded shares of SWY. Needless to say, the preceding four events combined to drive SWY below our protective stop and bring an end to our play. PUTS: ***** YHOO $43.88 +5.94 (+4.94) For the first time in three weeks Yahoo was able to close over the 10-dma and therefore, stop us out of our put play. With no YHOO specific news released today, you can pinpoint the gain on the record rise for the Nasdaq. The largest one-day gain took almost everything higher on a massive short-covering rally prompted by this morning's comments from Alan Greenspan. The stock has given us profits as it continually rallied to resistance before plunging back to support at $36 over the past two weeks. This pattern produced many potential plays. Now we shift gears and try to determine which stocks will profit in the coming weeks. Of course, we will keep YHOO on the put radar as the fundamental concerns will likely linger. SLR $31.11 +2.66 (+1.50) Solectron has been a fantastic put play for us, as the stock lost thirty percent of its value, from $44.50 several weeks ago, to a low of $28.50 yesterday. However, the time has come to say goodbye to SLR as a put play. Today the stock moved up on volume of 6.5 million shares, which is about 20% more than the average daily volume. The stock cleared its 5-dma of $29.87 in the morning, and moved up from there in the afternoon, almost reaching the 10-dma of $31.81. Solectron announced today that they will acquire IBM's European repair center in Amsterdam, and the market liked the news. It is now time for SLR put players to take their profits and move to other candidates. CREE $74.38 +12.81 (+11.57) Day traders could have made a quick profit on CREE on Monday, as the stock rolled over at $66.94, and immediately dropped to $59. However, today's explosive rally brought strength back into CREE, as today's volume nearly doubled the average volume. While it may take some time before CREE can clear the 50-dma of $95, it never offered an acceptable entry point, as the stock moved to $70 very quickly this morning. In addition, CREE closed today with an unmistakable bullish candlestick pattern. So it is time to drop CREE as a short term put play and move on to more profitable plays. AKAM $37.50 +11.19 (+10.50) Starting the week off on an undecided note, traders and investors alike were cautious on Monday ahead of election news. Closing the day down fractionally on average volume, the stock did manage to make a new all-time intra-day and closing low. Today, with news that the political uncertainty may soon be over and what was interpreted as a green light from the Fed, the NASDAQ rallied and with that, the bulls took full control. With the stock jumping over 42 percent on 228% of ADV, it appears that the downtrend channel since early November has been broken. Having closed above our stop price of $31, we are dropping coverage of this play. SEBL $90.38 +16.94 (+16.00) No matter how you slice it, this was a great day for the technology bulls. Even stocks that have been experiencing weakness lately were up strongly. SEBL was lifted by the rising tide, charging through one resistance level after another. Gapping up to resistance at $78 was a precursor of the rest of the days action, as SEBL charged higher throughout the day. The initial bump came from expectation that the election uncertainty will soon be over, but Alan Greenspan sealed the deal with conciliatory comments about the economy. Once SEBL shattered our $80 stop, it was all over but the shouting. Closing right at the high of the day, just below the next level of resistance at $90. All open positions should have been taken out by stop losses today, but if you are still hanging on, use any profit taking tomorrow as an opportunity to obtain a better exit. VRSN $101.38 +14.38 (+16.50) The Internet bulls got their long-overdue relief rally, helping to launch the NASDAQ to its biggest point gain in over 6 weeks. The bears would have had a hard time pressuring VRSN to the downside in the wake of the positively received election developments from last night, but Alan Greenspan sealed the deal with dovish comments in his speech this morning. The opening gap took VRSN above our stop at $91, and after a bounce at $90, strong buying quickly pushed the stock through the $94 resistance level. With hardly a pause, the stock rallied north of $100, and managed to keep most of those gains into the close. This is precisely why we advocate always using stop losses. VRSN has been a wildly profitable put play, but if you didn't have stops set, you would have given up most of those profits by today's close. Use any profit taking as an opportunity to close out positions at a better level, but new puts on VRSN look like a foolhardy venture at this point. IBM $103.38 +5.00 (+7.75) Big Blue closed above our stop loss level of $102 today as two major news pieces hit the market today, forcing the shorts to cover. The first was the Leon Cty. Court decision last night in favor of the Bush team, and the second was the unexpected friendly words by Alan Greenspan. With this combination, IBM gapped up and never looked back. Today's gains took Big Blue over its 50-dma at $102.68 and our stop, so we are dropping this Lottery put play tonight. IRF $35.00 +3.81 (-4.31) The massive rebound across all tech sectors Tuesday brought an abrupt end to our attempt to capitalize on IRF from the short side. On top of the record rebound in the tech sector, IRF announced this morning that it would acquire Unisem, a leading supplier of analog chips. Analysts viewed the acquisition as a strategic fit to IRF, which helped propel the stock past our stop. In light of IRF's rebound and the fact the stock closed above our stop, we are dropping coverage this evening and would exit any positions on weakness tomorrow that may result from the Apple earnings warning. ************************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. 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The Option Investor Newsletter Tuesday 12-05-2000 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/120500_2.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1105 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** BRCM $118.25 +6.50 (+13.50) Buying continues to be strong for shares of BRCM. Since bouncing off support at $85 last week, the stock has moved steadily higher as willing investors have stepped in on volume. Monday was a continuation of that trend as a bounce off support at the 5-dma provided an aggressive entry point. From there, BRCM took out its 10-dma to close up $7 or 6.68 percent on twice the ADV. Today, with a renewed NASDAQ, BRCM did as we expected as it gained another 5.82 percent. Trading volume was once again brisk, over twice the ADV. This was in spite of a downgrade by Prudential from a Strong Buy to an Accumulate rating. For aggressive traders, there is strong support at $106, where the 5 and 10-dma are converged. There is also support in increments of $5 at $115, $110, $105 but confirm a bounce with volume. For the more risk averse, wait for BRCM to break through $120, confirmed by a continued NASDAQ rally, before taking a position. To protect our profits, we are moving our stop price up from $100 to $108. CELG $69.50 +7.63 (+7.48) The American Society of Hematology (ASH) Meeting, which ended today has no doubt, been a success for CELG. Yesterday, results of clinical trials for Thalomid used in combination with Dexamethason for the treatment of Myeloma were presented. The results were encouraging indeed, as the response rate was as high as 86 percent. While further studies will be needed to confirm and analyze results, those at the conference were impressed. While the stock closed down fractionally on Monday on almost twice the ADV on a volatile day, more good news today at the meeting for Thalomid along with a broad market rally helped CELG gain over 12 percent on over 150% of ADV. A break through resistance at $70 with conviction, confirmed by positive sentiment in the Biotech Index (BTK) could allow for a conservative entry while a pullback to support at $66 as well as $65 could offer an aggressive entry point. As a note, we have moved our stop price up from $52 to $63. A close below this level will lead to us taking our profits and dropping this play. NTAP $81.56 +23.69 (+27.63) As a component in the NASDAQ 100 (QQQ), where the NASDAQ goes, NTAP follows. When we started this play, we mentioned that a relief rally in the Tech index would likely see NTAP as one of the leaders. This has been the case this week as NTAP gained $3.94 or 7.3 percent on 110% of ADV on Monday ahead of the Supreme Court ruling and the Fed speech. With both influences on the market giving the green light today, it was all up for the NASDAQ. Along with comments from analysts saying that NTAP has little to worry about from EMC's Chameleon product, which launched today, the stock gained over 40% on over twice the ADV. With such a strong move up today, a pullback from profit taking is likely, which is why we have moved our stop from $50 up to $65. There is support in increments of $5 at $80 all the way down to $65. If strength in buying continues, wait for NTAP to clear $85. In either case, confirm a move with volume and with strength in the NASDAQ. RSAS $49.88 +3.38 (+3.75) RSAS started the week off with an announcement of yet another new customer, this time, American General Finance. This helped the stock to close in the positive, although only fractionally and on low volume, ahead of the Supreme Court ruling and a speech from Alan Greenspan. Today, thanks to positive news on both fronts, the bulls came out in force on the NASDAQ, helping RSAS to close up 7.26 percent. While volume was once again light, the close above the 50-dma, now at $48.85 was a good sign indeed. As well, support from the 5 and the 10-dma (now at $45.20 and $44.12 respectively) have been holding up. This should provide strong support at the $45 level but there is also support at $47. As a result we have moved our stop price from $43 up to $46. For aggressive traders, a bounce support could provide an entry but make sure a bounce is confirmed with volume. If the NASDAQ continues to move higher without pause tomorrow, then a break through $50 with conviction could allow conservative traders to enter this play. IMCL $49.75 +2.72 (+0.81) It was tough to find any losing technology stocks and the Biotechs didn't want to be left out. Although it only made it up to the $50 resistance level, buying volume was solid for IMCL, coming in 80% above the ADV. Enthusiasm was generated first by hope that the election is coming to an end, but Greenspan's positive comments about the economy really lit a fire under the bulls today. After gapping up at the open, IMCL dropped midday to confirm support at $48 before rallying into the close to end the day fractionally below the high of the day. The last 2 days action was a nice confirmation of support at the 200-dma ($47.25), so we are moving our stop up to $46. The strong market gains today are likely to be met with some profit taking in the days ahead, so aggressive traders will look for a dip to support near the $47-48 as an opportunity to initiate new positions. A safer strategy will be to wait for the bulls to clear the $50 resistance level before jumping into new positions. As always, verify strength in both the NASDAQ and the Biotechs (BTK.X) before playing. JNPR $156.00 +26.53 (+24.13) The nascent recovery in Networking stocks really got a shot in the arm today with Greenspan's kind comments, where he acknowledged the moderating economy. This came on the heels of positive election news last night, and JNPR took the ball and ran with it all day. After amateur hour, the bulls promptly pushed the stock through the $140 resistance level and didn't even pause to catch their breath as JNPR moved above the 200-dma ($148.69). The Stochastics and MACD have now turned solidly upwards and our play has now closed the gap which was left when JNPR dropped sharply on November 20th. One possible land mine to keep an eye on is Ciena, which reports earnings on Thursday morning. Any negative news in their earnings report would likely have a negative effect on the entire Networking sector. Because of the strong gains since we added JNPR last Thursday, we are moving our stop up to $136, just below the $140 level, which should provide support during any profit taking. Aggressive traders will target shoot new entries on any intraday profit-taking dip, with the 200-dma, and then the $140 level being attractive targets. With the sharp gains today, we would be hesitant to open new positions until JNPR has consolidated a little - more cautious players will then want to buy a breakout over resistance, which now sits at $156. Confirm strong buying volume and a positive trend in the Networking index (NWX.X) before jumping into this high-risk play. MLNM $54.00 +6.25 (+0.50) Although the Biotechs did not lead the technology rally today, stocks in the sector were not about to be left behind. MLNM shot higher at the open, and then slowly added to those gains throughout the day, ending fractionally below the day's high of $54.25. The gain on the day was a solid 13%, wiping out the losses from yesterday, and moving the stock ever closer to resistance at the 200-dma ($55.75). MLNM has been building a bullish wedge over the past 2 weeks, with upside resistance sitting right at the $54 level, so and volume backed move through that level will be a good trigger point for conservative entry point. The ascending trendline is resting at the recent support level of $50, and we need to see the price hold above this level in order to keep our play healthy. Aggressive traders can target shoot intraday dips to this level, but make sure buying volume supports the bounce before playing. We are moving our stop up to $50, and a close below there will be our signal to step aside from MLNM. While there was positive news out on the company yesterday regarding their LDP(PS)-341 anti-cancer agent, it likely had a negligible effect in the buying frenzy that took place today. This was a widespread rally, and for MLNM to continue higher, we will need to see continued strength in both the NASDAQ and the Biotech Index (BTK.X). MUSE $119.00 +33.50 (+24.88) Did you keep those horns and party hats from the last tech explosion? Well the celebration's begun! Money flowed into the networking sector and MUSE was one of the top recipients. Its stunning 39% advance propelled it through the overhead resistance that it was bumping into at the 5 and 10-dmas, near $92 and $93, respectively. The share price was bolstered by the $85 level during yesterday's bearish session, but after today's fantastic move, we're raising our stop from $82 to $100. And MUSE's recent list of upgrades continues to grow, too. On Monday, Bear, Stearns & Co also was there to buoy the share price with its Buy recommendation on MUSE. Let's stop drinking in the helium for a minute and remember that what the explosive market did for MUSE today, could easily take away tomorrow. At these lofty new levels, watch for profit mongers selling into extended strength. In other words, if the rally extends into tomorrow and you chose to take entries on a climb, take profits quickly so you don't get caught holding the bag. Expect some light resistance at the $120 and $125 levels, with more opposition to face at $140 and $150. MEDX $38.25 +2.25 (-4.38) In what should have been a positive day of trading for MEDX on Monday, instead was rather gloomy. The company's experimental drug, MDX-33, was found to boost levels of key blood cells in a small trial of patients suffering from a life threatening blood disorder called Idiopathic Thrombocytopenia Purpura, or ITP. The positive results of the Phase II clinical trial were presented at the Annual Meeting of the American Society of Hematology in San Francisco. MEDX initially peaked at $43.88 during Monday's amateur hour, but quickly fell sway to the overall market conditions. Today's action was respectable, but not outstanding amid the triple digit gains of the broader marketplace. The $37 level, bolstered by the 5 and 10-dmas, continued to effectively serve as shorter-term support and traders looking for a more aggressive entry might take positions there on a strong rally. But be prepared for resistance at the $40 mark, which has posed a threat of resistance in recent times. If you're taking a conservative approach, look for MEDX to rally back through the $40 level and challenge $44 before jumping in this dicey biotech play. A $55.06 +4.06 (+2.06) In the news today, Agilent Technologies introduced Bluetooth test solutions, strengthening its position as a leading-edge maker of analysis equipment. Bluetooth is a commercial specification for short-range wireless connectivity, which lets consumers connect information appliances such as printers, PDAs, headsets, keyboards, cellular phones and computers without cables. The news was welcome; although, today's gains were more likely a result of the broad market action. The steadfast momentum and consistent advances of late have prompted us to raise our stop from $44 to $51. Our new stop on this steady climber is in-line with the 10-dma ($51.39). This lower level can also serve as a practical entry point for the more adventurous traders during downdrafts. But keep in mind, taking entries at the lower end of the trading channel can pose more risk. On the upside, watch for some contention at the $55 level. While today's break through $55 is certainly bullish, the more cautious will look for the gains to extend in a cooperating market before beginning new plays. Key word - cooperating market. BRCD $189.81 +28.00 (+21.96) The leading provider of Storage Area Networking infrastructure, along with the likes of JNPR, BRCM and MUSE, took the NASDAQ by storm today. These heavy- weights led the NASDAQ into its biggest one-day gain ever. Today's monstrous $28, or 17.3%, advance and break through the 200-dma ($177.97) was more than we could have asked from Santa. The literal explosion of its share price, backed by the triple digit gains in the NASDAQ, provide the perfect synergy for BRCD to run into its 2:1 stock split, slated for December 22nd. We're looking for BRCD to rally through the $200 level and return to its more pristine price levels, seen just last month. BRCD's share price should find short-term support at $185, and perhaps lower at $180. But take note, we have raised our stop from $159 to $175 to protect against back-filling in the coming sessions. Consider new entries only if you can handle HIGH-RISK and potentially volatile trading. A move through the $200 level would entice more momentum traders to jump into the upswing. ******************* PLAY UPDATES - PUTS ******************* BLDP $74.94 +6.94 (+4.94) Carried higher with the broader technology market, BLDP managed to add 10% today, bringing it within striking distance of our stop at $76. Actually touching this level shortly before the close, we are keeping the play alive, pending profit taking tomorrow. Since there has been no company-specific news this week, it seems clear that the rally is strictly driven by the broader market. The downtrend is still intact with the descending month-long trendline resting right at the $76 resistance level. Further gains will break this pattern and kick BLDP off our put list in a hurry. On the bright side, a failure to continue higher will provide aggressive traders an attractive entry point as the stock rolls over. Wait for the bears to come back out of hibernation, and jump in as the selling volume increases. Intraday support is sitting at $72, and conservative entries can be had as this level fails to hold up under the bears' assault. Due to the fact that the stock's negative trend is still intact, we can use weakness on the NASDAQ as an indication of the likelihood of profit taking on BLDP. Don't fight the trend. Wait for the stock to roll over on increased selling volume before initiating new positions. FMKT $32.13 +6.44 (+3.31) The market turned the corner today and the B2B stocks, battered in recent weeks, were lit on fire. FMKT finished up 25%, along with Commerce One (+29%) and Ariba (+29%). The sector, as a whole, showed some of the strongest gains in today's broad market rally. The bullish gains lead us to put up a caution flag, although yesterday's strong decline from Friday's 52-week low of $28.69 to the $25 level was promising. The volume was almost double the ADV during both FMKT's ascent and descent. Therefore, it's essential to pay particular attention to the market's sentiment and direction in the coming sessions. Don't fight the trend. The stock's price level, just above the 5-dma ($30.35) and 10-dma ($31.98), is critical. A high-volume rollover followed by a return to a sub-$30 level is essential before the conservatives consider taking additional positions. Keep in mind that we will exit the play on a close above $34. *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself: http://www.sungrp.com/tracking.asp?campaignid=1091 ************************************************************ ************** NEW CALL PLAYS ************** AGGRESSIVE: QCOM - Qualcomm Inc. $99.63 +9.63 (+16.63 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. Hitting an all-time high of $200 at the beginning of this year, the wireless giant has been hibernating these past 11 months, as a spring correction led to a summer of basing. Now, it appears that the CMDA giant may be ready to wake up, just in time for a Christmas rally. One of the major on-going concerns with QCOM all year long has been whether or not China would implement the company's CDMA technology. A number of times the stock has rallied on the possibility that China would give the go-ahead signal, only to change their mind at the last minute. On Monday, the company signed a Memorandum of Understanding with China's Ministry of Information Industry. As the fastest growing wireless market in the world, with over 70 million subscribers, this is no small victory for QCOM. The Memorandum outlines a partnership between China and QCOM in developing CDMA technologies as well as the deployment of a CDMA network that will span nationwide. Add to that a cross-licensing deal with Texas Instruments and positive comments from First Union Securities and it's no wonder that the stock powered right through its last line of moving average resistance, the 200-dma ($86.47). At this point, we would advise caution in entering this play, as a pullback from the rally this week is quite possible. We have set our stop price at $90. A bounce off this level would allow for an ideal entry point, filling today's gap at the market open. There is also support at $95 and at $91.50 for the more aggressive. If the bulls continue to lead the NASDAQ higher, and QCOM breaks through the psychologically important $100 level on volume, this would allow conservative traders to enter the play. ***December contracts expire next week*** BUY CALL DEC- 95 AAF-LS OI= 7425 at $ 8.13 SL=5.75 BUY CALL DEC-100*AAF-LT OI=10738 at $ 5.25 SL=3.25 BUY CALL DEC-105 AAF-LA OI= 4124 at $ 3.25 SL=1.75 BUY CALL JAN-100 AAF-AT OI=12261 at $11.50 SL=8.50 BUY CALL JAN-105 AAF-AA OI= 2925 at $ 9.13 SL=6.25 http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM LOW VOLATILITY: KMB - Kimberly Clark $67.23 -4.57 (-3.58 this week) Kimberly Clark is a leading consumer and medical products company. Its global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Safeskin, and Kimwipes, among others. Other brands well known outside the U.S. include Andrex, Scottex, Page, Popee, and Kimbies. Kimberly Clark also is a major producer of premium business, correspondence and technical papers. The return of the tech sector should spell trouble for the recently run-up defensive sectors. Since early September, shares of Kimberly Clark have been on a steady rise as investors fled the frightening NASDAQ. However, the return of the tech bulls Tuesday shifted capital back into the techs and away from the cyclical and defensive plays such as KMB. What's more, because of its recent run-up, shares of Kimberly were downgraded by Salomon Smith Barney Tuesday morning on a valuation basis. Because of that downgrade, KMB dropped rather precipitously and may be due for a reprieve in the coming days. We'd look to initiate new positions in KMB should the stock fail to rally above resistance at $70, which is also the site of our protective stop. If KMB doesn't make it back to $70, look for a rollover near $68 or $69. Conversely, if KMB continues to sell-off look to enter on a move below support at $67, or lower at the $66 level for traders seeking more confirmation of weakness. Make sure to confirm heavy volume upon entering new positions on weakness. ***December contracts expire next week*** BUY PUT DEC-70 KMB-XN OI=135 at $3.60 SL=1.75 BUY PUT DEC-65 KMB-XM OI=675 at $0.80 SL=0.00 BUY PUT JAN-70 KMB-MN OI= 92 at $4.80 SL=3.00 BUY PUT JAN-65*KMB-MM OI=212 at $2.45 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=KMB LOTTERY: MMM - 3M Company $117.00 +11.63 (+17.38 this week) 3M is a diversified, international company with a 50-plus year health care business consisting of more than 10,000 medical, surgical, consumer and home health care, dental and pharmaceutical products. 3M Health Care is committed to supplying reliable products and services that make a difference in the practice, delivery and outcome of health care. Impressive chart, two days of incredible gains, it must be a call play, right? Nope. MMM is our new Lottery put play today and we are looking to take advantage of the excessive run-up in the stock. On Monday, the stock broke out over $100 on rumors that MMM was courting GE executive James McNerney Jr. for the CEO position. Then, today the rumor became fact as MMM announced that McNerney, who was passed over for the GE CEO position last week, will succeed 3M CEO Desi DeSimone, effective January 1st. The stock continued to soar, tacking on an additional 11%. Nothing has fundamentally changed to truly warrant these extreme moves. Consider it in these terms: MMM added $5.4 bln in market cap in the past two days. Our premise is to ride this lottery play down as traders take profits from this move. This is yesterday's news and we expect sellers to step in. To gain entry, look for weakness in the stock on either a rollover from resistance at $119 or a break down below intraday support at $115. Below that, support is thin all the way to $105. Given that this is a Lottery play, we have set a stop at $119, which was today's high, and if the stock shows strength and closes above it, we would not initiate new plays. ***December contracts expire next week*** BUY CALL DEC-110*MMM-XB OI= 26 at $1.38 SL=0.75 BUY CALL DEC-105 MMM-XA OI=405 at $0.69 SL=0.00 High Risk! BUY CALL JAN-110 MMM-MB OI= 61 at $3.38 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=MMM ************* NEW PUT PLAYS ************* No new puts today ********************** PLAY OF THE DAY - CALL ********************** BRCM - Broadcom Corporation $118.25 +6.50 (+13.50) Broadcom Corporation is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using unique proprietary technologies and advanced design methodologies, the company designs, develops and supplies integrated circuits for a number of the most significant broadband communications markets. Most Recent Write-Up Buying continues to be strong for shares of BRCM. Since bouncing off support at $85 last week, the stock has moved steadily higher as willing investors have stepped in on volume. Monday was a continuation of that trend as a bounce off support at the 5-dma provided an aggressive entry point. From there, BRCM took out its 10-dma to close up $7 or 6.68 percent on twice the ADV. Today, with a renewed NASDAQ, BRCM did as we expected as it gained another 5.82 percent. Trading volume was once again brisk, over twice the ADV. This was in spite of a downgrade by Prudential from a Strong Buy to an Accumulate rating. For aggressive traders, there is strong support at $106, where the 5 and 10-dma are converged. There is also support in increments of $5 at $115, $110, $105 but confirm a bounce with volume. For the more risk averse, wait for BRCM to break through $120, confirmed by a continued NASDAQ rally, before taking a position. To protect our profits, we are moving our stop price up from $100 to $108. Comments While other high fliers soared with $20 and $25 gains, BRCM stuck to its steady trend since bottoming at $85. The stock ran into resistance at $120 twice today, but it is building an ascending wedge and is poised to breakout very soon. To entry this call play, look for a pullback to the $115-$116 accompanied by a bounce and a continuation of the trend. Otherwise, a breakout above $120 certainly will attract buyers and warrant an entry. ***December contracts expire next week*** BUY CALL DEC-110 RDW-LB OI=2229 at $14.25 SL=11.50 BUY CALL DEC-115*RDW-LC OI= 738 at $12.13 SL= 9.50 BUY CALL DEC-120 RDW-LD OI=1334 at $ 9.63 SL= 7.25 BUY CALL DEC-125 RDW-LE OI= 693 at $ 7.50 SL= 5.75 BUY CALL JAN-120 RDW-AD OI= 214 at $20.25 SL=16.00 BUY CALL JAN-125 RDW-AE OI= 407 at $18.13 SL=14.00 SELL PUT DEC-105 RDW-XA OI= 320 at $ 4.00 SL= 5.50 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=BRCM ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1121 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Finally, Some Relief! The Nasdaq achieved a record gain Tuesday, rising more than 10% on speculation that the Federal Open Market Committee would move to a "neutral" bias later this month. Monday, December 4 Technology stocks resumed a downward trend Monday amid continued worries over the outlook for future earnings. Industrial stocks rallied sharply, however, as investors moved money into cyclical issues. The Nasdaq closed down 29 points at 2,615 while the Dow finished up 186 points at 10,560. The S&P 500 index closed up 9 points at 1,324. Trading volume on the NYSE reached 1.1 billion shares, with advances beating declines 1,436 to 1,440. Activity on the Nasdaq was moderate at 1.84 billion shares, with declines beating advances 2,524 to 1,433. In the bond market, the 30-year Treasury fell 14/32, pushing its yield up to 5.67%. Sunday’s new plays (positions/opening prices/strategy): Saber Holdings TSG DEC35C/37C $1.81 debit bull-call Compass Banc CBSS APR20C/20P $2.75 debit straddle Readers Digest RDA JAN40C/40P $4.12 debit straddle Safeco SAFC JAN30C/25P $0.06 credit strangle Albertsons ABS DEC30C/27C $0.25 credit bear-call Most of our new positions offered favorable entry opportunities during Monday's session. Some of the plays, such as the credit spread in Albertsons and the straddle in Readers Digest, required timely action in early trading to achieve entries near the target prices. Portfolio Plays: The broad market moved higher today as money continued to rotate into older, more established blue chip issues. On the Dow, heavy equipment maker Caterpillar (CAT) jumped $3 to $43 after ABN Amro reiterated its buy rating on the stock, saying the company may be in the beginning stages of a cyclical recovery. Shares of DuPont (DD) and Alcoa (AA) also rallied, and 3M (MMM) edged higher after press reports said the company plans to name General Electric's James McNerney as their CEO. On the downside, American Express (AXP), Intel (INTC), and Citigroup (C) were the big losers. On the Nasdaq, semiconductor stocks were very strong after a Merrill Lynch analyst said there has been an easing of downward pressure on DRAM spot prices. But even with the recovery in chip stocks, the Nasdaq sell-off continued and telecommunications, computer hardware and biotechnology issues all retreated. A number of networking stocks also slumped, with Cisco Systems (CSCO) sliding to $45 even as the company reaffirmed the outlook for its second quarter earnings. In the broader market, energy stocks were weak as crude oil futures fell to $32. Concerns about supply from Iraq eased following comments indicating Baghdad and the U.N. are close to an agreement on a new oil price formula and that other nations would quickly fill the gap if Iraq's export disruption persists. Our portfolio enjoyed a number of positive events during a session of bullish activity among cyclical issues. PepsiCo (PEP) reported it will now buy Quaker Oats (OAT) in a share-swap deal worth over $13 billion, giving it control of the best-selling Gatorade sports drink. Quaker Oats rose 3% to $91 and our bullish position is at maximum profit. Another food group issue that performed well in the wake of the Quaker buyout announcement was Ralston Purina (RAL). The stock moved back to a recent trading range near $27 and our bullish calendar spread at $30 is once again profitable. As the December option expiration approaches, we must determine when to roll the current position; MAR-30C/DEC-30C, to the JAN-30 calls. In the pharmaceutical group, Forest Laboratories (FRX) was the big winner, up $3.50 to $138. Our bullish credit spread is almost $20 "in-the-money." Invitrogen (IVGN) enjoyed favorable activity and companies in the consumer products industry, including Johnson & Johnson (JNJ) and Baxter International (BAX), were among the best performers. We experienced bullish movement in many broad market sectors: Home Depot (HD) led the retailers, US Air (U) topped the transportation group, and Unitedhealth (UNH) paced the healthcare domain. In lower priced issues, Landry's Seafood (LNY) moved up to $9.75, $0.25 below the strike price of our long-term synthetic position. A recent play in the time-selling category, Englehard (EC) is now approaching an area of maximum return near $22, and we will roll to JAN-$22.50 options in the next few sessions. The leading technology stock was Broadcom (BRCM), and after weeks of selling, it appears the issue may be on the rebound. Our recent adjustment to the JAN-$120 Put (short) may yet produce a positive return. One of the older debit straddles, Advanced Fibre (AFCI) reached a new peak-profit today. The original play; MAR-35C/35P at $13.50 debit, is now trading at a $16.00 credit with 3 months until expiration. Tuesday, December 5 The Nasdaq achieved a record gain Tuesday, rising more than 10% on speculation that the Federal Open Market Committee would move to a "neutral" bias later this month. The Nasdaq ended up 274 points at 2,889 and the Dow closed up 338 points at 10,898. The broader market also rallied, with the S&P 500 index finishing up 51 points at 1,376. Activity on the Nasdaq was extreme at 2.46 billion shares traded, with advances beating declines 2,788 to 1,200. Volume on the NYSE was the sixth heaviest on record at 1.39 billion shares, with advances beating declines 2,085 to 842. In the bond market, the 30-year Treasury jumped 1 15/32, pushing its yield down to 5.59%. Portfolio Plays: The stock market rallied today, after bullish comments from Fed chief Alan Greenspan gave investors new hope for the future. In addition, the Florida court ruling Monday increased optimism that an end to the presidential election is near. Greenspan said the abating wealth effect from the stock market is dampening demand, and he also noted the pace of economic expansion has moderated appreciably, as tighter financial conditions have impacted the most interest-sensitive industries. Analysts say the Fed will almost certainly shift its policy directive to "neutral" when it meets again on December 19 and the FOMC may even decide to lower interest rates at the January meeting. The major indices rallied from deeply oversold conditions with both the Nasdaq and the Dow achieving recent highs amid active trading. Blue-chip technology issues such as Microsoft (MSFT), Intel (INTC), Yahoo (YHOO), and American Online (AOL) paced the Nasdaq's advance while industrial issues were led by J.P. Morgan (JPM), 3M (MMM), Home Depot (HD), Boeing (BA), Citigroup (C), and Minnesota Mining & Manufacturing (MMM). In the broader market, biotechnology, financial, cyclical, transportation and major drug shares all moved higher. Bank and brokerage stocks were bullish on Greenspan's comments, which also produced a rally in the fixed-income market. On the downside, defensive issues including healthcare, consumer products, metals and utilities generally consolidated. Oil service companies also slumped as January crude dropped below $30, reaching its lowest level in over three months amid OPEC's assurance that it's ready to boost output to meet any shortfall in global supplies. The Spreads/Combos section saw advances in almost every category and there were a number of big winners. The networking sector was one of the popular areas for bullish speculation and Juniper Networks (JNPR) led the group with a $26 gain to close at $156. The move came amid strength in other networking companies after Cisco Systems (CSCO) reiterated that their yearly revenue will be 50%-60% higher than 2000 levels. Data storage stocks also moved higher with EMC (EMC) gaining almost $10 to finish at $90. The company unveiled a slew of hardware and software products aimed at grabbing more of the growing "networked" storage market. Our new LEAPS/CCs position is again profitable. Among pharmaceutical issues, Vertex (VERT) was the top performer, up $8 to $70, while Invitrogen (IVGN), Curagen (CRGN) and Pharmacyclics (PCYC) also moved higher. Small-cap issues participated in today's bullish activity with Central Garden (CENT), Genesco (GCO), Mattel (MAT), Medquist (MEDQ), and Miravant (MRVT) moving higher. A number of new bullish plays are off to a good start including Fiserv (FISV), Safeco (SAFC), Saber Holdings (TSG) and Skywest (SKYW). The new bearish position in Albertson's (ABS) was also on target as the company reported earnings of $0.45 a share, three cents shy of the First Call estimate. The company also lowered guidance for fourth-quarter earnings and warned that it expects to post in a range that is well short of consensus estimates. The upside trend was seen in most sectors and there are far too many issues to list. In addition, it's far more important that the recovery be used to roll-forward in some of the long-term positions and adjust or exit those plays that have not performed as well as expected. At the same time, bearish positions such as Pfizer (PFE) must be monitored for upside activity and our recent loss-limiting adjustments in Micron (MU) and Hewlett Packard (HWP) also require close attention. With any luck, the recovery will continue and the year will end profitably for the majority of OIN subscribers. Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - With today's incredible rally in the broad market, there is once again a strong possibility of near-term selling pressure. With that in mind, we have decided to offer some speculation plays on low-priced issues in a variety of "old-economy" industries. ****************************************************************** MAG - Magnatek $14.00 *** Technicals Only! *** MagneTek supplies digital power products used in information technology and industrial/instrumentation markets. The company is an acknowledged innovator in mixed-signal (analog-to-digital) power electronic sub-system design, heat reduction technology and the application of microprocessors and micro-controllers in digital power products. The products usually take the form of sub-systems. They are sold directly or through agents to original equipment manufacturers for incorporation into their products, to system integrators and value-added resellers for assembly and installation in telecommunications and other end-user systems, and to distributors for resale to OEMs, contractors and end users for repair and replacement purposes. This stock came up in our technical search/sort for potential "break-out" issues. With favorable option premiums and today's upward move, this play offers a great speculation opportunity for traders who agree with a bullish outlook. As always, current news and market sentiment will have an effect on this issue, so review each play thoroughly and make your own decision about the future profitability of the position. PLAY (aggressive - bullish/covered combination): BUY STOCK MAG LAST=$14.00 SELL CALL JAN-15.00 MAG-AC OI=10 B=$1.12 SELL PUT JAN-12.50 ECQ-MV OI=0 B=$0.62 TARGET COST BASIS=$12.00-$12.12 COMBINED ROI(approx)=25% - or - PLAY (conservative - bullish/collar): BUY STOCK MAG LAST=$14.00 SELL CALL JAN-15.00 MAG-AC OI=10 B=$1.12 BUY PUT JAN-12.50 ECQ-MV OI=0 A=$0.88 TARGET COST BASIS=$13.75 ROI(max)=9% DOWNSIDE RISK(max)=$1.25 ****************************************************************** PTV - Pactiv $12.50 *** On The Move! *** Pactiv Corporation, formerly Tenneco Packaging, is a supplier of specialty packaging and consumer products. The company makes, markets and sells consumer products, such as plastic storage bags for food and household items, plastic waste bags, foam and molded fiber tableware, and aluminum cookware. Many of these products are sold under such recognized brand names as Hefty, Baggies, Hefty OneZip, Kordite and E-Z Foil. These products, which are typically used by consumers in their homes, are sold through a variety of retailers, including supermarkets, mass merchandisers and other stores where consumers purchase household goods. In addition to consumer products, the company manufactures plastic zipper closures for a variety of other packaging applications. The consumer products sector has performed well in recent weeks and the outlook for the group is favorable as valuations return to more reasonable levels in the broader market. Pactiv has been a leader in its industry for years and the company's quarterly earnings suggest the trend will continue. In October, Pactiv reported income of $38 million, or $0.24 per share, up from $4 million, or $0.10 per share (adjusted for tax rate), last year. Product sales in the third quarter were up 4.5% and the increase was driven primarily by core product growth in the Consumer and Foodservice/Food Packaging segment. Despite significantly higher raw material costs, the third-quarter operating margin of 13.8% exceeded last year's level as a result of pricing actions and the impact of cost improvements since the company's spin-off. Gross margin continued to improve and Pactiv's shares are beginning to reflect its true earnings potential. Investors demonstrated their affinity for the company Tuesday, driving its share value to an all-time high. Traders who agree with a bullish outlook for the issue can use this position to speculate on the future movement of the stock. PLAY (conservative - bullish/diagonal spread): BUY CALL FEB-10.00 PTV-BB OI=130 A=$2.88 SELL CALL JAN-12.50 PTV-AV OI=6 B=$0.69 INITIAL NET DEBIT TARGET=$2.00 INITIAL TARGET ROI(max)=25% ****************************************************************** TKR - Timken $15.06 *** On The Rebound! *** The Timken Company is divided into two primary industry segments, anti-friction bearings and steel. Unique anti-friction bearings constitute Timken's principal industry product and the tapered roller bearing made by Timken is its principal product in the anti-friction industry segment. In addition to bearing products, Timken provides bearing reconditioning services for industrial and railroad markets both globally and domestically. TKR's steel products include steels of low and intermediate alloy, along with vacuum-processed alloys, tool steel and some carbon grades. These are available in a wide range of solid and tubular sections with a variety of finishes. This position is also based on recent technical indications and the potential for a substantial recovery in Timken's shares as investors transition to "old economy" issues. The rally above November's highs produced a bullish "w" pattern and the trend in the steel manufacturing group suggests the issue has additional upside in its future. PLAY (speculative - bullish/synthetic position): BUY CALL MAR-17.50 TKR-CW OI=70 A=$0.75 SELL PUT MAR-12.50 TKR-OV OI=70 B=$0.31 INITIAL NET DEBIT TARGET=$0.12-$0.25 TARGET ROI=50% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $375 per contract. ************************Advertisement************************* 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=1112 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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