The Option Investor Newsletter Thursday 12-07-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/120700_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-07-2000 High Low Volume Advance/Decline DJIA 10617.40 - 47.00 10689.00 10583.20 1.12 bln 1439/1386 NASDAQ 2752.66 - 43.84 2794.53 2707.96 1.75 bln 1551/2362 S&P 100 710.29 - 14.84 717.29 708.64 totals 2990/3748 S&P 500 1343.55 - 2.32 1353.50 1339.26 44.4%/55.6% RUS 2000 461.10 - 2.44 463.54 459.88 DJ TRANS 2796.04 - 19.67 2815.34 2794.59 VIX 28.98 + 1.04 29.51 28.11 Put/Call Ratio 0.78 ****************************************************************** Waiting to exhale Traders and candidates alike held their collective breath on Thursday waiting for decisions from three key court cases and the all important Jobs report on Friday. Discretion was the better part of valor for traders faced with multiple unknowns and another flurry of earnings warnings. Volume was very light with only 1.7 billion shares traded on the Nasdaq and 1.1 billion on the NYSE. It was clearly a standoff between the bulls and bears as both decided to hold all bets until the judges named the winner. With only four days left in the election conflict the possibility of a wild card victory from left field just provided more cautionary feelings than the recent sell off. The leading warning from today was Motorola which said business was still good but profits were going to be down for a variety of reasons. After dropping -$2 at the open MOT actually closed near its high for the day with only a -.06 loss. Costs were higher than expected but sales are still strong. There was a lot of activity on Motorola as institutional traders felt that $16 was about as low as it would go. Why? At $16 it is trading below book value and the market cap is below the estimated sales for next year. At those numbers it could also be a take over target. Other warnings included National Semi which beat the street by a nickel but warned that excess inventory at customers locations would reduce sales by -7% next quarter. NSM also closed well off its lows on positive sentiment that the current 52-week low was pretty much the bottom. Do you see a recurrent theme here? Other not so fortunate included MSFT which had earnings cut and was downgraded today. Claiming the soft PC sales could not help but depress software sales analysts are running from MSFT. The stock dropped -3.56 to $53.12 which is only $5 from the 52-week low. The so called Bush premium has been flushed from the stock based on recent Gore wins and the weaker earnings expectations. Yahoo also was the recipient of more bad news as more analysts climbed on the downgrade bandwagon. The Internet ad sales model has deteriorated to almost all CPC (cost per click) or CPA (cost per acquisition) pricing. With most banner ads ignored by readers the CPM (cost per thousand impressions) model is dead. It is not page views any more but qualified leads that draws advertising revenue and that narrows the YHOO advantage. YHOO dropped to a low of $31.50 intraday but rebounded by faithful buyers to close at $34.94. A significant bounce but driven by those that remember YHOO at $200 and are still in denial. BVSN was hit by a rumor today that GE-Capital had pulled all its business from BVSN and the stock dropped -2.75. Both GE and BVSN publicly refuted the rumor but the stock did not recover. Seems that investors hoping to get back to previous levels of $35 to get out alive were not eager to buy the dip and average down again. MANU announced that it would meet or exceed estimates going forward but the stock still got hit with a -2.75 drop on questions about an acquisition currently in progress. BBY announced an acquisition of Musicland today and analysts dumped the stock in waves. BBY dropped -5.88 or -20% on the news. Three Five Systems (TFS) warned that sales of components were lower than expected and earnings would suffer. The stock dropped -3.75 on the news. CDWC warned after the close that sales were slumping and earnings would drop to only +.40-42 cents compared to estimates of $.50. CDWC dropped -3.42 on the news. Banks were still weak along the lines of the cockroach theory. Where one is having trouble others in the same business are assumed to be having the same or worse results but have not felt the need to make it public yet. JPM dropped almost -$4 again. Mad cow again? Macdonald’s has been hit by the mad cow fears again in Europe and analysts are cutting estimates. MCD has an analyst meeting scheduled but the forecast is not expected to be positive. The higher Euro has been a problem in the past and higher beef prices for certified safe beef is sure to impact costs. Just not any safe plays anymore. Liar, liar pants on fire. After reaffirming estimates and saying they were not going to warn, INTC went back on its word after the close today with a warning that slowing sales would knock about -4% to -6% off 4Q revenue. Saying that gross margins would remain at 63% but revenue would be flat for the 4Q. Not only were chip sales weak but orders are being cancelled world wide at an alarming rate. Expenses are rising and capital equipment costs are up for next year. Also the vaunted INTC investment stock portfolio was down between -66% to -75% from prior levels. The bear market bites big investors as well as small. Interest income from investments is also going to be down to only $675 million from almost $950 million last quarter. Having trouble collecting those debts big guy? Remember last week, I warned that there were many more big cap companies that could warn and MOT and INTC were only two. We still have exposure to the likes of IBM, MSFT, YHOO, AA, AOL, AXP, CSCO, C and dozens of others. This is not new news but each new warning ripples through each sector as investors decide if there is more downside or in the case of NSM and MOT the worst news is already factored in. When INTC opened for trading in after hours it dropped as low as $30 before bouncing on high volume from bargain hunters thinking $30 was a real steal for long term holders. If this bottom holds overnight then the impact for tomorrow will be muted. Once the market decides that all the bad news is priced in then everyone else can warn and we will see no real impact. Come on now, did anyone not expect INTC to warn after all the bad news from the last two weeks? Probably not. This is just a follow through from the sector weakness. Other box makers were flat in after hours after an initial dip so there does not appear to be a major reaction. The QQQs dropped to $65.27 on the news but rallied back to $67.50 shortly thereafter. With the low volume on the Nasdaq today it is clearly apparent that we are being held hostage by the payroll report and the final election decisions. The employment report will be announced at 8:30 Friday morning and it is widely expected to be market friendly with only +150,000 new jobs and unemployment rising slightly to 4% from 3.9%. The component the Fed will watch is the average hourly earnings which are projected to rise by +0.3%. Any strength in the jobs or wages numbers will put the Fed back on inflation watch and endanger the hoped for neutral bias change. As important as the employment report may be we will be more influenced by the expected decisions on the election. The Florida Supreme Court is expected to rule on the Gore appeal to reverse the Circuit Court decision from Judge Sauls. A negative verdict is expected to bring a concession speech but with the two counties still in court with election winning absentee vote cases I doubt he will concede until those cases conclude. The good news, all three cases are expected to conclude on Friday. This is the make or break day for Gore and Bush. One will win, one will lose but the market will be free to trade without the cloud of uncertainty. A favorable employment report and an early announcement on all three cases could set the stage for another rally like we saw on Tuesday. Negative results from the employment report and a decision on the election that the market does not like and we could be seeing another retest of the recent lows. As an investor I plan on buying any Intel induced dip at the open ASSUMING the election news is also positive. Without positive news I can afford to wait until Monday. Even a +200 point Nasdaq day can be erased in a heartbeat if the election news turns horribly negative. It is just not worth the risk in this market to be long without a good reason. Is it a good reason just because many analysts are claiming 2500-2700 the bottom? No! 2500 could (and should) be the bottom but that does not mean we could not visit it again with the wrong market/election news. It is good business to wait for a trend not try and pick a bottom. We all know how hard that task has been lately. Many investors have blown up their accounts buying every dip since September. If we are really going to have a Santa Claus rally then we can afford to wait an extra day for all the news to settle. There will be more warnings and you never know who will be next. Heck, Intel said early this week they would not warn. Who are you going to believe? We feel that we are at a bottom or very close. My favorite stocks were up today and it took a lot of self control to keep from betting on an outcome I can't control. I can't control the employment report and I can't control the election outcome. I can't control earnings warnings either but those are less life threatening between now and tomorrow morning for the stocks I follow. I make it a habit that I don't bet tens of thousands of dollars on situations I cannot control like the Friday morning news. The market could go either way. One way you lose thousands, the other you make thousands. It is out of your control. You might as well lay $10,000 on your desk and flip a coin. Heads you put it in your pocket, tails you burn it. That is the same risk you take when betting on news events on which you have no control. Think about it! As of 6:PM all of the Intel inspired after hours dips on stocks like RMBS, IBM, DELL and MU have all recovered to the same level where they closed. This bodes well for the open on Friday assuming the news is also positive. This would confirm to me that we are at a bottom when major companies can warn and have no market impact. Of course we still have a lot of dark before morning and anything can happen. After hours trading can be only a vague hint of the morning direction but it appears to be positive at this point. Intel is trading over its closing price now and that is very bullish. Keep your fingers crossed and start looking for Santa Claus. Good luck and don't buy too soon. Jim Brown Editor ************************************ JOHN DESSAUER "Dream Seminar at Sea" ************************************ You have seen me write about John Dessauer, a newsletter editor with a 20-year history. John spoke at our March Expo here in Denver to about 600 attendees. John uses a common sense bottom up method of stock picking and has been very successful. He has asked me to speak at his "Dream Seminar at Sea" in March. The itinerary looks more like a vacation than a seminar with stops in Aruba, Caracas, Grenada, Dominica, St Thomas and San Juan but John will manage to keep us busy. If you have interest in this event visit this link: http://www.cruzproductions.com/dessauer/ *************************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 **************** Is Anyone Making Money? By Austin Passamonte We don't mean traders... we're talking corporations! Should we simply call off the fourth-quarter earnings season and call it a loss? No pun intended but aptly fits. Is there a technology company out there that made a dime this year? Please stand up and be counted amongst the few & proud. We'll leave our shoes and socks on for this one. Plenty of smoke and mirror earning games that bias bulls shrugged off over the last two years have now been blown away. All that investment income MSFT, INTC and others earned in tech portfolios got buried in their figures while happy traders turned away heads. Wonder if anyone still owns INTC above $70 from August? This recent earnings washout has all the makings of a multi- year bottom falling into place. The final pieces of a bear market puzzle is depressed earnings across the board and widespread capitulation and fear. We have yet to see total capitulation regardless what talking heads try to purport. There are more disappointments ahead beyond MSFT and INTC. Traders may begin to shrug off these warnings and actually consider it good news. Certainly it means that the Fed will cut rates on December 19th. The only question is, will it be 25 or .50 basis points? Should that come to pass we will indeed see the next bull- market rally immediately begin. Should that not come to pass, what might traders think about the weakened companies they continue to hold? How might they feel about waiting weeks and months before the next chance for interest rate relief? Many readers have recently asked how & why COT commercial traders continue to short the SP00S futures index. Let's share a scenario here for a moment: Say you were a large institution and learned that major funds and investors wanted or needed to begin dumping large blocks of stock. You also realize that techs are seasonally weak during the summer and interest rates coupled with the bubble burst may result in considerable downside for weeks and months ahead. What might you do? Massive selling if it comes to pass would surely send the broad indexes down, possibly to some unseen recent levels. Why not go over to the Chicago Mercantile Exchange and sell a few thousand S&P 500 futures contracts short? You know this sell-off is about to begin because it flows through you & your peers. Scaling out of stocks at lowering prices is offset and then some by the appreciation of those leveraged futures contracts. Not a bad way to hedge at all! When to cover these shorts? Why not wait until institutional buying activity ensues to base the market and turn prices up with strength? What's the rush in covering shorts if no one with power to push the pile is interested in buying? Does this give an idea why commercial activity is so important to monitor for long-term direction? They literally make the trends. Too bad when this current historical holding breaks it will end our ability to utilize behavior afterwards for at least a year. This is not a weekly tick-by-tick study; relative comparison for the last twelve-month period or greater is what we seek. Not who's doing what around the zero line each week. We're thankful for what we have... a true barometer of where the next firm bottom lies. Market Sentiment's guess would be closer ahead than the last market highs are behind. December 20th may very well see Market Sentiment have a shift in bias from cautiously bearish to expectedly bullish. Rest assured we will trade each direction with equal aplomb before, during and after. Let us strongly suggest you consider the same! ***** VIX Thursday 12/07 close; 28.98 30-yr Bonds Thursday 12/07 close; 5.55% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. Thursday (12/07/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 750 - 735 17,528 1,971 8.89*** 730 - 715 16,540 10,607 1.56 OEX close: 710.29 Support: 705 - 690 3,449 9,792 2.84 685 - 670 246 11,031 44.84 Maximum calls: 730/7,246 Maximum puts : 640/9,758 Moving Averages 10 DMA 710 20 DMA 715 50 DMA 730 200 DMA 773 NASDAQ 100 Index (NDX/QQQ) Resistance: 76 - 74 43,160 39,217 1.10 73 - 71 28,202 19,691 1.43 70 - 68 103,737 36,932 2.81 QQQ(NDX)close: 66.50 Support: 65 - 63 27,436 39,938 1.46 62 - 60 11,208 25,123 2.24 59 - 57 5,774 6,323 1.10 Maximum calls: 70/52,164 Maximum puts : 80/33,580 Moving Averages 10 DMA 66 20 DMA 69 50 DMA 76 200 DMA 90 S&P 500 (SPX) Resistance: 1425 29,140 14,837 1.96 1400 54,561 50,512 1.08 1375 22,890 23,818 .96 SPX close: 1343.55 Support: 1325 6,265 16,323 2.61 1300 7,059 15,982 2.26 1275 1,938 15,754 8.13 Maximum calls: 1400/54,651 Maximum puts : 1400/50,512 Moving Averages 10 DMA 1339 20 DMA 1351 50 DMA 1381 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 Commercial positions and Small Specs on the S&P 500. DJIA sees 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/120700_1.asp ************** TRADERS CORNER ************** Oh Yes You Can!!! By Austin Passamonte Arrghh! I can't take this anymore... it's time I put my foot down. There is a fallacy alive & thriving out there costing good traders an absolute vulgar fortune and it must stop. Considering this visit's a fill-in for my little trading buddy (and OIN's beloved) Molly Evans, I think it fitting to discuss a topic she would aptly cover as well if not much better. Many times each week I get emails from traders who tell me they've been very successful trading bull markets but have no success playing the downside. It's hard, it's different and they just can't seem to do it. Let me respectfully state that this idea is 100% pure bull...ish sentiment folly. Every trader with no exception who ever profited consistently trading calls in a bull market can make just as much if not slightly more in a bear market. That's not my opinion; it is fact and I'll give you solid proof for our case. There are three basic trading methods for entering bullish trades: S/R breakouts, chart oscillators and order flow. Traders watching a market trend up the charts wait for it to consolidate, pull back to support and resume the upward trend by taking out recent resistance on rising volume. Sound familiar? Anyone ever buy calls this way? Traders watch for oscillator signals to line up in extreme oversold range and wait for them to reverse and ascend upwards before buying calls. Sound familiar? Anyone ever buy calls like this? Traders watching block trade order flow spot disparity in buying or selling pressure by big players. They verify this info with other market-timing tools and buy calls when heavy flow trades on rising market prices at the "ask". Sound familiar? Anyone ever buy calls like this? These approaches work alone or in combination when markets are moving up. Profits flow, accounts swell and all is well. As this happens, life is good. Markets are rallying and traders happy. Stocks, call options, put-credit spread strategies - everything makes money. Our step-family at CNBC is filled with glee. Maria's shrill voice is up several octaves from normal. And warmth is shared all around us. Family & friends see their retirement funds explode. Even aunt Millie with the mustache enjoys a 100% annual increase in her retirement fund. Friends, co-workers and strangers on the street are all talking stocks. Internet chat rooms are filled with instant millionaires bragging about recent tech-stock killings and all the material toys they are accumulating. Competitive juices flow - we want in! This positive sentiment feeds on itself and life takes on a glow. Everyone's happy, the sun now shines for all. Close your eyes and think back for a moment to reflect on the period from December 1998 until mid-March of 2000 if you traded calls during that time. Does any of this feel familiar? Does it feel good? Why? There are three basic trading methods for entering bearish trades: S/R breakouts, chart oscillators and order flow. Traders watching a market trend down the charts wait for it to consolidate, press against resistance and resume the downward trend by taking out recent support on rising volume. Sound familiar? Anyone ever buy puts like this? Traders watch chart signals line up in extreme overbought range and wait for them to reverse and descend downward before buying puts. Sound familiar? Anyone ever buy puts like this? Traders watching block trade order flow spot disparity in buying or selling pressure by big players. They verify this info with other market-timing tools and buy puts when heavy flow trades on falling market prices at the "bid". Sound familiar? Anyone ever buy puts like this? These approaches work alone or in combination when markets are moving down. Profits flow, accounts swell and all is well. Or is it? This time the sun doesn't shine for everyone - it hides behind a blanket of clouds. At the time occurs, life is bad. Markets tank and traders are depressed. Short stocks, put options, call-credit spread strategies - everything makes money. Still, our step-family at CNBC is filled with morose. Maria's subdued voice is down several octaves from normal. And the coldness spread all around us. Family & friends see their retirement funds implode. Aunt Millie with the mustache suffers a -30% annual decrease in her retirement fund and has to pay taxes on that to boot. She can no longer afford to have that pesky mustache waxed. Friends, co- workers and strangers on the street are all talking about pummeled stocks. Internet chat rooms are filled with former millionaires crying about recent tech-stocks getting killed and all the material toys they're shedding. Sympathetic juices flow - we want out! This negative sentiment feeds itself and life takes on a pallor. Everyone's depressed, the sun shines not at all. Close your eyes and think back for moment to reflect on the period from mid-March of 2000 until now if you traded calls during that time. Does any of this feel familiar? Does it feel bad? Why? People act on emotions and traders are people. Massive wealth flowed in equal directions with relative ease and people had a blast capturing half. Many if not most of those same traders sat like deer in headlights when the money flow reversed, paralyzed by nothing more than emotion. We often hear things like: "I'm naturally bullish" "I don't know how to play the downside" "I don't like playing the downside" "Puts never make money for me" "I'm sitting on cash until things turn" These are all incomplete statements. Let's finish the thoughts and rationalize from there. "I'm naturally bullish". No you aren't. That's not true at all. You are naturally market-neutral. That was your bias from birth until you discovered the markets. Before then you were blissfully unaware and couldn't care less which way they moved. What environmental factors caused you to create a bullish bias since then? What has been the result by now? "I don't know how to play the downside". Yes you do! It is exactly the same as playing upside with no fundamental difference. That statement really says the trader is uncomfortable or unsure trying the exact reverse of what worked in bull markets. The comfort zone is calls during rallies and people become entrenched in personal comfort zones. "I don't like playing the downside". Why? What don't they like? Do all the quick profits made and growing accounts disturb them? Or is it a feeling of betrayal by making money during a time when a majority is losing theirs. Is it betrayal trading puts and profiting hand-over-fist while watching the 401K or IRA plunge in value? What's betrayal to small investors is merely hedging by market pros and large institutions. "Puts never make money for me". Why not? Does this trader hit the same entry-point parameters via call-buying rules, set stops and honor them? Or do they pull the plug early and buy those old familiar calls on the first up-tick that moves against? Amazing how many traders will lower stops on calls to lose more money but move stops up to crowd puts out of winning trades. Why is this? Fear of loss. They fear missing out on the next rally explosion certain to be just a tick or two away. "I'm sitting on cash until things turn". Why? If you are an option trader it is equal-effort trading either direction. None is harder/easier than the other. What we perceive it to be does not equal reality. Reality is the description of entry-point methods in both directions above. Do you see one easier than the other? We copy/pasted the exact same verbiage, merely changing "calls" for "puts". What do you see that's different? I didn't ask what you feel, the question was "what do you see"? There is a monumental difference between seeing and feeling. One can make you rich and the other can make you broke. Guess which does what. The recent bull-run arguably did as much or more harm than good for most traders? How? It falsely led to believe that trees grow to the sky and neveraprayerforprofits.com had a chance because of x-number page hits. It led many to believe that markets and profits run one direction more often than another. That temporary false-belief died as many have learned with real money turned to dust since then. Markets move up, down and sideways in equal measures over time. If you expect a long trading career it's imperative to have methods that work in at least two of three. One method for one direction will not work long-term. Tuesday within Indexskybox.com Swing Trade model we entered plays on the QQQ, OEX and SPX to trigger above recent support and below resistance. Markets rose to break resistance, we bought calls across the board and made good money within hours. Wednesday we entered plays on the QQQ, OEX and SPX to trigger above recent support and below resistance. Markets fell to break support, we bought puts across the board and made good money within hours. Thursday we entered plays on the QQQ, OEX and SPX to trigger above recent support and below resistance. Markets traded all session between the two as I write and we stand ready to buy either calls or puts across the board and make money within hours tomorrow. What's the difference in this approach? We can buy calls or puts with equal ease, as can everyone. Can you trade the downside with equal success? Yes you can! I know you can! I believe in you as a complete and versatile trader. Go out there, prove us right and prosper wildly in both directions for yourself. austinp@OptionInvestor.com ************************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: ***** MFNX $11.06 -0.63 (-2.69) Despite the bullish earnings report from competitor CIENA Thursday morning, MFNX continued its slide toward its 52-week low. Volume has remained robust this week, which is a bit disconcerting considering the stock's continued slide. Although MFNX is still trading above our protective stop at $9.50, we're dropping coverage on the play tonight. Existing positions could be exited if the stock bounces higher off support at the $11 level tomorrow. If MFNX does rebound, pay close attention to how the stock trades near resistance at $11.50. PUTS: ***** CLX $41.00 +2.19 (-2.69) Although CLX didn't close above our stop (it closed right at it) we're reluctantly dropping coverage on the play in light of the stock's rebound Thursday. After the violent drop CLX experienced over the past two weeks a relief rally was in order, but we didn't expect the short covering to produce such a big move up. That said, CLX may roll over in the coming trading sessions and still provide put players with profits. On the other hand, if the stock extends its rebound early tomorrow traders might consider exiting existing positions. ************************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=1104 ************************************************************** 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. 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The Option Investor Newsletter Thursday 12-07-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/120700_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 $110.63 -5.00 (+5.88) After five straight days of gains, a little giveback could be considered a healthy move. Yesterday, after encountering resistance at $126 along with a soft NASDAQ, traders took some money off the table. With that, BRCM shed $2.56 or 2.17 percent. While volume was slightly above the ADV, considering that the recent run up has been on twice the ADV, what we are seeing appears to be orderly profit taking. Today, news of MOT issuing an earnings warning affected most of the Semiconductor sector, with BRCM pulling back 4.32%. Volume today was once again light however, and the close above support at $110 was encouraging indeed. Look for another bounce off $110 as well as our stop price at $108 for a possible aggressive entry. There is also support at the 10-dma near $105 but confirm a bounce with volume. For an entry on strength, wait for BRCM to move back above its 5-dma (now at $112.13) confirmed with a strong NASDAQ, before making a play. NTAP $75.38 -1.00 (+21.44) It's not surprising to see NTAP pull back a little after Tuesday's 40 percent move. With that, the stock has been in digestion mode for the past couple of days. On Monday, moving in sympathy with the NASDAQ, NTAP fell $5.19 or 6.36 percent on 175% of ADV. Today, US Bancorp Piper Jaffray had kind words to say about the Network Attached Storage (NAS) leader, reiterating their Buy rating and price target of $120. While the stock closed down 1.31 percent today, it appears that the selling volume from yesterday may have dried up. With a sharp drop in selling pressure, look for a bouncing NASDAQ to lift the stock higher. A conservative entry can be had on a break through $80, but confirm with volume. Aggressive traders looking to get in early could find current levels attractive. Bounces off $70 as well as the 5-dma at $69 are also possible targets to shoot for. Further down is additional support at our stop price of $65 but make sure NTAP closes above this point. QCOM $104.44 +5.06 (+21.44) QCOM is nothing if not volatile, as can be seen in the fast and furious trading action of the past two days. On Monday, traders bid up the stock in the early going but encountering resistance at $108, coupled with the drag of a shaky NASDAQ, profits were taken as the stock ended the day down fractionally on over twice the ADV. Today, the stock found support for its 5-dma near $95. The stock traded in a tight range most of the session, with news of an alliance with RFMD having little effect in the early going. But an end of day buying panic helped propel the stock up 5.09 percent, with volume clocking in at 140% of ADV. We are moving our stop price up from $90 to $95. Bounces off the psychological $100 and $95 support, confirmed with buying volume, could make for aggressive entries. For the more conservative, wait until QCOM breaks through $105 with conviction to confirm upward momentum before considering an entry. RSAS $48.25 -0.56 (+2.13) Trading volume continues to be light for RSAS, as the stock posted another couple of trading sessions on below average volume. On Wednesday, the company introduced the RSA SecurID software for the Nokia 9210 Communicator. Considering that the software will be shipped with every Nokia phone, this is good news indeed. Traders were indifferent however, as the stock closed the day down $1.06 or 2.13 percent on 80% of ADV. Today, the company announced more good news on the wireless front, as mobile e-business company EZOS selected RSAS’ RSA BSAFE security software for use with its EzWAP web browser. Trading today was even less brisk, as the stock fell fractionally on less than 50 percent of ADV. In doing so, RSAS has drifted back below its 50-dma at $49.06 but managed to find support from the 5-dma at $47.91. Another bounce off 5-dma support could provide an aggressive entry as can a bounce off our stop price of $46. The more risk adverse will want to see buying strength return to RSAS, carrying the stock back above its 50-dma on volume before taking a position. ADBE $63.00 -4.19 (-4.31) Just barely avoiding a quick trip to the drop list, ADBE fell throughout today's session, before finding support right at the 200-dma ($62.75). Although the selling seemed to abate towards the close, volume for the day still came in at 5.6 million shares, more than double the ADV. We need to see the stock hold above the $62 support level to keep our play alive, but given the earnings warning from INTC this evening, that may be a tough trick in tomorrow's session. While ADBE has started to distance itself from the PC market by moving more heavily into Internet-related growth areas, the guilt-by-association could be too much for the bulls to bear (pardon the pun). Wait for the stock to bounce and hold above the 200-dma on strong volume before initiating new positions. More conservative players may even want to wait for ADBE to trade above the $65-66 resistance level before taking the plunge. Of course, all bets (and plays) will be off if the NASDAQ can't move in the positive direction tomorrow and ADBE closes below our stop at $62. JNPR $148.88 +8.59 (+17.00) Despite news that Ericsson sold a big stake in JNPR to fund its 3G efforts, our play bucked the broader technology trend today. Even the Networking Index (NWX.X) closed in negative territory for the second day in a row, but JNPR managed to move up for a modest gain. After the gap down open, the bulls quickly came charging back, pushing the stock back above the $142 support level. Following a consolidation above the $142 level, we saw our play again rally to the $149 resistance level, right at the 200-dma, before the sellers returned near the close. If it sounds like rangebound trading, you hit the nail on the head. There just hasn't been enough bullish sentiment to really get the stock moving, as investors continue to worry about what will be the next big earnings warning to appear. After the close today, INTC warned, which comes on the heels of warnings from MOT and NSM during the regular session. This has the potential to affect the entire technology sector tomorrow, so verify market and sector strength before adding new positions. Bargain hunters can consider new entries on a bounce from $142 or $138. Our stop is still resting at $136, and a close below that level will kick JNPR out of its tenuous recovery trend. At this point, the conservative approach may be best; if that fits your risk profile, you'll want to wait for buying volume to push the stock through $150 before playing. MEDX $41.88 +2.13 (-0.75) CSFB rewarded Medarex's conference call on Wednesday with a new Buy rating and a lofty $81 target price. The positive coverage prompted MEDX to deliver gains it had failed to deliver during Tuesday's mammoth rally. Amid a tough marketplace that was filled with more uncertainty and earnings woes, MEDX broke through first line of opposition at $40 and climbed higher to challenge the next level of resistance at $43 and $44. The immediate resistance is reinforced by the 200-dma technical line ($44.55) and represents quite a formidable obstacle. The potential is there for MEDX to break to the upside. However, there's no question that it'll be necessary for the NASDAQ to rally into the holidays or another type of shake'em up event to act as a catalyst for MEDX to make significant gains. Some traders might consider looking for aggressive entry's on bounces off the $37 and $38 levels, if the moves are backed by bullish volume; while others looking for a more judicious entry should wait for the upward confirmation. We're maintain the protective stop at $36, and would exit positions if MEDX settled below that level. A $54.00 +2.00 (+1.00) Moderate to strong volume continues to drive A towards the objective of moving back through $60 and and into the higher trading realms seen earlier in the millennium. Tuesday's bullish action extended into the early hours of Wednesday's session and A scaled $56.94; but unfortunately, the issue couldn't defend its advances against the profit takers taking their fill of gold. A close at the intraday low of $52 was nerve-wracking yesterday, but nonetheless, offered a premium entry point into today's trading session, if you're more enterprising and your portfolio can handle the risk. News that privately-held Verano, also a pre- IPO company, will acquire Agilent's Automation Integration Software (AIS) business helped bolstered the share price in today's shaky market. As a result of the transaction, Agilent will take an equity stake in Verano; although financial details weren't disclosed. In another turn of events today, Agilent Technologies announced it reached an agreement to acquire ATN Microwave, a company specializing in microwave measurement solutions for wireless and high-speed data communication applications. Although terms weren't available, the addition of new products and expertise will allow Agilent to maintain its leading-edge position in the industry. The current news is positive and gives reason for investors to take additional positions, but it'll be critical for the NASDAQ to rise in the coming days before going long with A over the short-term. Intraday dips at the converged 5 and 10 dmas at $53.01 and $52.33, respectively, offer a level of entry for the more aggressive. If however, you're on the sidelines patiently waiting for better confirmation, look for A to shatter the above-mentioned $56.94 and for buyers to drive the share price through the $60 level. At this point in time, our protective stop is set tight at the $51 mark. BRCD $201.00 +10.00 (+33.13) After showing exceptional strength in Tuesday's tech rebound, BRCD's gains continued to accumulate in the following sessions. The impressive performance amid the last two days of adversity in the marketplace emphasizes its building fervor. The recurring tests of the $200 resistance and its ultimate break through this level today further depicts bullish behavior. In today's session, the bulls took BRCD upwards to $201.50, effectively finishing on the upside at $201. Extended gains above this significant mark would, of course, be consequential and represents a critical point of passage. Buying into strength as BRCD continues to rally warrants an entry for the more cautious players and importantly, the upswing should attract additional momentum traders. When the buyers return to the tech sector in force, BRCD is poised to lead the charge higher as it runs into its scheduled 2:1 stock split. The company's paydate of December 22nd is coming up quickly, so plan accordingly. Because the risk-reward odds aren't generally stacked in our favor, OIN doesn't recommend holding over the split date. If there's a bit of profit taking intraday or a period of consolidation, enterprising entries might be found if BRCD bounces off $185, or even lower near $180 (but that's pretty risky!). Take note that the shorter-term support is evolving at higher levels near $193 and $195. We're tightening our bottom-line and raising our protective stop to $181. With that in mind, be careful of taking entries on a deep pullback, which may portend overall weakness. Whether BRCD launches off the current level like a rocket or bobs & weaves under the $200 level, it'll be essential in coming sessions to make sure the buyers step in with volume before beginning new plays. MUSE $117.81 -1.56 (+23.69) Playing these HIGH-RISK and VOLATILE techs really takes a disciplined trader and one without a faint heart! Our early entry into MUSE was aggressive, but returned lavish profits on Tuesday. MUSE shot up 38%, or $33.50 during the NASDAQ's biggest ever one-day gain! The explosive gains in the NASDAQ didn't sustain in the following days, but MUSE demonstrated credible soundness. The issue, which typically swings violently with the market, bucked its historical pattern and maintained Tuesday's impressive gains. Please, the latter comment is by no means an invitation to begin new call plays without considering the overall market direction and sentiment! For confirmation that MUSE's momentum trend is intact, look for strength in the NASDAQ to move MUSE back through the $120 level. Better evidence of the stock's intensity would be a high-volume break of the resistance at the 30-dma, near $125. In light of today's report that the BoD finalized the dates for its previously announced 2:1 stock split, we're anticipating the initial excitement will drive the share price higher over the near-term. And in response to the recent advances, we've raised our stop to the $105 level. MUSE will begin trading on a split-adjusted basis on the morning of December 20th. Montgomery Scott LLC certified its bullish position on MUSE today with a Buy reiteration and a $205 price target. ******************* PLAY UPDATES - PUTS ******************* PAYX $44.88 +1.13 (+0.75) Paychex has been making a series of lower highs and failed rallies on a weekly and intraday basis. This started with a failed attempt to clear $48 on Tuesday. PAYX attempted to rally from $44 Wednesday morning, but rolled off a key resistance level at the 5-dma of $46.37 around mid-morning as the Nasdaq started to lose strength. From there, it closed at support just above the 200-dma at $43.55. On Thursday, PAYX failed at three attempted rallies at critical levels. The stock spiked to the 10-dma of $47, and immediately dropped to the 5-dma of $46.31. After spending most of the afternoon at support at $45.50, PAYX tried again to clear $46.31 and failed, this time rolling over to $45.75. At this point, a heavy level of selling volume pushed the stock below support at $45.50 to close at the low of the day at $44.88, with a very bearish red candlestick pattern. Intraday resistance is at $47, and intraday support is strong at $45.50. The critical support level is at the 200-dma of $43.55. A conservative entry point could be taken on a move below $43.50 on strong volume, which could lead the stock to its previous low of $41.75 in September. An aggressive entry point could be taken on a failed attempt to rally past $46.50. CSFB started coverage on Thursday with a lukewarm Hold rating. It is wise to follow the overall market trend before initiating new positions, and set stops at $48, as this would indicate the start of a trend reversal. RMBS $47.69 +0.38 (+4.25) Expectant bears were rewarded this afternoon after the market close. The other shoe dropped, as INTC released its rumored earnings warning, confirming the weakness in PC sector that has been highlighted by warnings from the likes of GTW, APPL, and DELL recently. Joined at the hip to the PC sector, RMBS will likewise feel the effect of slowing PC sales. During today's regular session, our play on RMBS was struggling for direction, locked in a tight range between $45-49, mirroring the rangebound NASDAQ trading. The stock has begun to trace a series of higher highs and higher lows over the past week, so it could be that the bears are running out of conviction. After the initial drop in the after hours session, INTC and RMBS both traded up, and this could mean that the bad news is already factored into the stock prices. Resistance at $50 and $52 should cap any upside moves, but just to be safe, we are moving our stop down to $52. New positions can be considered if the stock rolls over at resistance, but only if accompanied by strong selling volume. The prudent approach may be to wait for renewed selling before initiating new positions. A drop below the $45 support level will make for a good entry trigger, especially if confirmed by more selling in the Semiconductor Index (SOX.X). AES $45.50 -2.13 (-6.19) The market uncertainty, earnings woes, and an election drama make for a great environment to play AES. The continued losses have provided a multitude of opportunities for traders to lock in profits. Although, it can't be ignored that a bottom may be in site. Today, AES crashed through the 5- dma at $48.48, which is certainly welcome; however the repeated bounces off the $45 level raised our radar antennae. As a result of the significant decline this week, we've lowered our stop from $51 to $48.50 and are signaling caution. Keep stops tight to protect against a buying spree at these attractive price levels. If however, you have the opportunity to buy into further weakness, AES might find some historical support near the $40 level. *************************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: IDPH - IDEC Pharmaceuticals $203.06 +4.56 (+24.06 this week) IDEC Pharmaceuticals focuses on the commercialization and development of targeted therapies for the treatment of cancer and autoimmune diseases. IDEC's antibody products act chiefly through immune system mechanisms, exerting their effect by binding to specific, readily targeted immune cells in the patient's blood or lymphatic systems. In a market where it has been difficult to find much in the way of positive developments, IDEC seems to have an unlimited supply. The trend in this stock for the past four months is tough to beat anywhere else. After sellers finally took the stock lower into a capitulating move by November 20th, IDPH came right back on multiple developments. The strongest of which may be the 3-1 stock split announced on Nov 30th. This is the second split announced this year. The record date is set for Dec 26th (a nice Christmas present) followed by the ex-date on Jan 17th. IDPH's stock price has benefited as a split-run is emerging. Another positive news announcement came Tuesday out of 42nd Annual Meeting of the American Society of Hematology early this week. IDEC revealed the final results of two pivotal Zevalin trials in Radioimmunotherapy for B Cell Non- Hodgkins Lymphoma. The stock jumped up over $10 that day. In the most recent sessions, IDPH has found good support near $195, and began rallying off that level this afternoon to close right near the day high. This should clear the road for a run to the all-time high at $220 before running into resistance. Note the highest level of open interest in DEC calls is also at the 220- strikes, confirming the potential for profit-taking if IDPH trades that high in the short-term. It is prudent to keep an eye on that, but there is plenty of room for profit until then. If support at $196 doesn't hold, look for a bounce off the 10-dma at $186.25 before re-entering as we have set our stop at $187 and would drop coverage if IDPH closed below that level. ***December contracts expire next week*** BUY CALL DEC-200*IHD-LT OI= 832 at $13.25 SL= 9.50 BUY CALL DEC-210 IHD-LB OI=1498 at $ 7.50 SL= 5.00 BUY CALL JAN-200 IHD-AT OI= 252 at $25.88 SL=19.50 BUY CALL JAN-210 IHD-AB OI= 628 at $20.63 SL=15.25 BUY CALL JAN-220 IHD-AD OI= 498 at $16.50 SL=12.00 http://www.premierinvestor.net/oi/profile.asp?ticker=IDPH ************* NEW PUT PLAYS ************* AGGRESSIVE: CTIC - Cell Therapeutics $32.63 -2.63 (-10.75 this week) Cell Therapeutics is a development-stage company that researches small-molecule drugs to create more effective and less toxic treatments for various forms of cancer. In May 2000, the FDA accepted the company's New Drug Application for Arsenic TriOxide (ATO), its lead product, which is targeted at certain types of leukemia, as well as aggressive lymphomas and other cancers. Other drugs being developed include Apra, a treatment for cancers that resist chemotherapy, and an agent based on Taxol, the successful cancer fighter from Bristol-Myers. CTIC's PanGenex subsidiary airs to sift through the human genome data in hopes of identifying other possible drug applications. Leading the slide in Biotech stocks on Thursday, CTIC has been in a persistent downtrend for the past month. After completing a head-and-shoulders top in early November, the stock plunged through numerous support levels, including every one of its moving averages. Hopeful bulls stepped in to support the price near the $39 level, but their hopes were quickly swept aside as the recovery barely lasted a week. The descending trendline capped the recovery at $49 on November 27th, and has provided consistent resistance ever since. Kicking the decline back into high gear on Monday, CTIC fell more than 21%, and plunged through the 200-dma ($35.50). Selling volume has been on the rise since the stock rolled over, and today hit 1.3 million shares, nearly double the ADV. Unless the Biotechs can find a way to change their losing ways, it looks like CTIC will break the $30 support level, and with the next support level sitting at $23-24, there is still plenty of room to fall. After such a sharp drop in the past week, a relief bounce is not out of the question, and we may have seen the beginning of this today as the stock managed to recover into the close. Aggressive traders can use a failed rally at the 200-dma as an opportunity to jump into the play at as better price. We have placed our stop at $37, so any move above that will be an indication that the bears have run out of energy. More conservative players will want to wait for CTIC to fall through the $30 support level before playing, and all traders will confirm negative movement in the Biotech Index (BTK.X) before opening new positions. ***December contracts expire next week*** BUY PUT DEC-35*CUC-XG OI= 98 at $3.88 SL=2.25 BUY PUT DEC-30 CUC-XF OI=180 at $1.44 SL=0.75 BUY PUT JAN-35 CUC-MG OI= 30 at $6.50 SL=4.50 http://www.premierinvestor.net/oi/profile.asp?ticker=CTIC LOW VOLATILITY: IMGN - ImmunoGen, Inc. $21.94 -2.06 (-4.06 this week) ImmunoGen, Inc. develops innovative biopharmaceuticals, primarily for cancer treatment. The Company creates potent tumor-activated prodrugs (TAPs), consisting of small molecule, cytotoxic drugs coupled to monoclonal antibodies for delivery to and destruction of cancer cells. Shares of IMGN continue to sink lower as buyers are non-existent. Since running into resistance at $26 on Monday, buying has dried up and the descent has been quick. On an intraday chart, the limited buying is light and short-lived, indicating short covering. We are adding IMGN as a Low Volatility put which appears likely to test the $20 level and maybe even further. The 200-dma lies at $18.05. Many stocks that have been hit by selling during the past few months have retraced back to their 200-dma and IMGN seems to be on its way. This play is straight technicals. Ideal entry into this Low Volatility put play is when the shorts begin to cover and the light buying stalls the dominate downtrend. Look for a rollover from intraday resistance at $22.50 or $23.25, the site of today's rollover. If weakness continues tomorrow morning, a test of the $20 isn't far off and would warrant entry. Resistance at the $25 is strong and it happens to be our stop loss level on the play. A close above this price and we would not initiate new positions. ***December contracts expire next week*** BUY PUT DEC-110*MMM-XB OI= 26 at $1.38 SL=0.75 BUY PUT DEC-105 MMM-XA OI=405 at $0.69 SL=0.00 High Risk! BUY PUT JAN-110 MMM-MB OI= 61 at $3.38 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=IMGN ********************** PLAY OF THE DAY - CALL ********************** MEDX - Medarex, Inc. $41.94 +2.19 (-0.69 this week) Medarex is a human monoclonal antibody-based company with integrated discovery, development and manufacturing capabilities, utilizing the Company's genetically engineered mice to create fully human monoclonal antibodies. Several of their therapeutic products, which target cancers, tumors, and leukemia, are in clinical trials. Major clients include Centacor, Merck, and Aventis Behring. Most Recent Write-Up CSFB rewarded Medarex's conference call on Wednesday with a new Buy rating and a lofty $81 target price. The positive coverage prompted MEDX to deliver gains it had failed to deliver during Tuesday's mammoth rally. Amid a tough marketplace that was filled with more uncertainty and earnings woes, MEDX broke through first line of opposition at $40 and climbed higher to challenge the next level of resistance at $43 and $44. The immediate resistance is reinforced by the 200-dma technical line ($44.55) and represents quite a formidable obstacle. The potential is there for MEDX to break to the upside. However, there's no question that it'll be necessary for the NASDAQ to rally into the holidays or another type of shake'em up event to act as a catalyst for MEDX to make significant gains. Some traders might consider looking for aggressive entry's on bounces off the $37 and $38 levels, if the moves are backed by bullish volume; while others looking for a more judicious entry should wait for the upward confirmation. We're maintain the protective stop at $36, and would exit positions if MEDX settled below that level. Comments MEDX has been building a nice ascending wedge since bouncing from $30. While it has been somewhat choppy trading, the stock has powered higher above $40. Resistance lies at $44, with the 200-dma at $44.56. This wedge is very close to breaking out from this technical development. Look for pullbacks to $40 along with a bounce for entry. If the Biotechs pull back further tomorrow, watch for the 10-dma at $38.56 to provide support. A breakout above $44 on strong volume would also give an entry signal. ***December contracts expire next week*** BUY CALL DEC-40*MZU-LH OI=110 at $5.00 SL=3.25 BUY CALL DEC-45 MZU-LI OI=203 at $2.75 SL=1.50 BUY CALL DEC-50 MZU-LJ OI=222 at $1.31 SL=0.75 BUY CALL JAN-45 MZU-AI OI= 63 at $6.63 SL=4.75 BUY CALL JAN-50 MZU-AJ OI=218 at $5.13 SL=3.25 http://www.premierinvestor.net/oi/profile.asp?ticker=MEDX ************************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 ************************ Profit Warnings Continue... The stock market slumped again today as investors continued to fret over the outlook for corporate earnings. Wednesday, December 6 The market fell sharply today amid profit warnings from a number of industry leading companies. Bank of America (BAC) and Apple Computer (AAPL) were the two biggest burdens on the market with the Nasdaq closing down 93 points at 2,796 and the Dow finishing 234 points lower at 10,664. The S&P 500 index was down 25 points at 1,351. Trading volume on the Nasdaq hit 2.31 billion shares, with declines beating advances by 2,395 to 1,544. Volume on the NYSE reached 1.36 billion shares, with declines beating advances 1,674 to 1,230. In the bond market, the 30-year Treasury jumped 1 4/32, pushing its yield down to 5.51%. Tuesday's new plays (positions/opening prices/strategy): Magnetek MAG JAN15C/JAN12P $13.75 debit collar Timken TKR MAR17C/MAR12P $0.25 debit synthetic Pactiv PTV FEB10C/JAN12C $2.06 debit diagonal Our new speculation positions were not very cooperative during the bearish session. However, all of the plays were available near the target prices and we will monitor each position for additional entry opportunities in the coming sessions. Portfolio Plays: Stocks moved lower today amid profit taking in the broader market and renewed selling in the technology group. Computer hardware stocks led the losers after Apple warned of a $600 million revenue shortfall in its first quarter. Apple expects revenue of $1 billion; a net loss of between $225 million and $250 million and the magnitude of the shortfall surpassed even the lowest expectations. CS First Boston subsequently lowered its rating on Apple, Gateway (GTW), Dell Computer (DELL) and also sliced estimates on IBM (IBM) and Hewlett-Packard (HWP). Shares of Intel (INTC) also weighed heavily on both the Dow and the Nasdaq, falling to $31 after Salomon Smith Barney lowered its revenue estimates saying Intel's fourth quarter is likely to be its worst in over a decade. J.P. Morgan also issued a cautionary note on the chip sector, saying valuations are still inflated. On the bright side, wireless telecom stocks rallied on speculation the group will be one the better growth sectors the coming months. On the Dow, financial stocks also slid late in the day after Bank of America (BAC) issued a profit warning citing credit problems and a slowdown in activity in capital markets. In the broader market, retail, brokerage, consumer products, major drug and oil service shares all moved lower. The Spreads portfolio experienced bullish activity even as the broad market retreated. Our new synthetic position in Safeco (SAFC) is off to a great start, achieving a $1.75 profit in just three days as the issue rose $1.50 to a recent high near $30. In the retail sector, Home Depot (HD) continued to rally, ending up $1.31 at $45 after naming a new CEO from the ranks of General Electric (GE). Home Depot, which has struggled lately in the wake of a profit warning, named Robert Nardelli, the former CEO of General Electric's power systems unit to succeed co-founder Arthur Blank. The new chief was quick to assure investors that the #1 home improvement retailer will have a smooth transition of power and that he is committed to expanding the chain's global reach, possibly through new acquisitions. Among transportation companies, US Air (U) was a popular stock, finishing up $2.50 at $42.44 on speculation that the upcoming merger with United (UAL) will eventually be approved by the European Commission. In the healthcare sector, Cardinal Health (CAH) rebounded over a $1 to $96.56 but there remains some potential for further downside and it may be time to close the bullish spread at less than maximum profit. One of our recent winners in the straddles category, Advanced Fibre (AFCI) traded as low as $16.50 on Tuesday, and the overall credit for the straddle reached $18, a 35% return after one month in the position. That's a favorable early-exit profit to close the play. Thursday, December 7 The stock market slumped again today as investors continued to fret over the outlook for corporate earnings. The Nasdaq ended down 43 points at 2,752 and the Dow finished down 47 points at 10,617. The S&P 500 closed 7 points lower at 1,343. Volume on the Nasdaq reached 1.74 billion shares, with declines outpacing advances 2,364 to 1,554. Volume on the NYSE reached 1.1 billion shares, with declines leading advances 1,451 to 1,390. In the bond market, the 30-year Treasury rose 6/32, pushing its yield down to 5.50% ahead of Friday's all-important employment report. Portfolio Plays: Stocks slumped again today in the wake of profit warnings from Motorola (MOT) and National Semiconductor (NSM), and negative analysts' comments on Microsoft (MSFT). Among technology issues, Internet and software companies were the biggest losers and chip stocks plunged after Motorola said that it won't meet quarterly revenue and earnings expectations due to market conditions in the semiconductor industry as well as delays in achieving cost reductions in wireless phone production. National Semiconductor was also bearish on the upcoming quarter, pre-announcing a sales decline of up to 10% due to the impact of continued inventory adjustments in the distribution channel, a gradual stabilization of sales in the cell phone market, and seasonal weakness in the PC market. The announcements were the latest in a string of reports suggesting that chip inventories will be a major reason for profit shortfalls. Software shares retreated on news that Goldman Sachs lowered earnings estimates for Microsoft based on evidence of sluggish retail PC demand and Internet issues fell after WR Hambrecht lowered its rating on Yahoo (YHOO) due to a persistent weakness in the online advertising market. On the bright side, Ciena (CIEN) reported a fourth-quarter profit of $0.14 a share, beating consensus estimates by two cents. In addition, company officials said they expect Ciena's business to grow faster than the overall market, creating higher revenues. On the Dow, poor performances by Alcoa (AA), J.P. Morgan (JPM), AT&T (T) and International Business Machines (IBM) weighed on the industrial average. Inside the broad market, oil service, major drug, retail, utility and consumer stocks gained ground and financial shares also recovered after Wednesday's drubbing following the Bank of America (BAC) earnings warning. Lehman Brothers continued its cautious outlook for the sector however, saying that while interest rates appear to be favorable, asset quality is suspect and many banks are revenue challenged. In other S&P 500 groups, paper, chemical, airline and cyclical issues generally moved lower. Our portfolio saw declines in a number of categories but overall, the day was relatively uneventful. There were a few issues with excellent performances in the midst of renewed selling pressure including Juniper Networks (JNPR), which moved up $9 to $149 and Fiserve (FISV) with a $2.50 rally to close at a recent high near $59. Other notable performances were seen in safe-haven sectors with Forest Laboratories (FRX) and Baxter (BAX) leading the drug and medical equipment categories, and Quaker Oats (OAT) topping the issues in the Food and Beverage group. Among lower-priced stocks, Kellogg (K) edged higher on continued merger speculation in the sector and Biochem (BCHE) rebounded to the middle of a recent trading range as selling pressure faded. In the Reader's Request section, Sabre Holdings (TSG) has begun to consolidate from gains earlier in the week and Skywest (SKY) dropped after the company was downgraded by analysts at Raymond James and UBS Warburg. The reports suggested that quarterly estimates would be reduced and that a formal earnings warning would likely be issued in several days. Another popular OIN issue, Microsoft (MSFT) was the target of new downgrades and the company's share value slid to its lowest level in two months after a well known analyst cut MSFT's earnings estimates due to lower PC demand. Goldman Sachs' Rick Sherlund, who has been following the company since it went public, said in a report that personal computer software sales were likely to slump for the second quarter. Where have I heard that before? Microsoft responded by saying that concerns over lackluster personal computer sales were not likely to affect the company's earnings substantially, given its diverse businesses. Those of you in the bullish LEAPS/CCs position will need to make a judgment concerning the technical outlook of the issue before adjusting the diagonal spread at December options expiration. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - We received a positive comment on yesterday's speculative debit straddle in the "Big-Cap" section and a request for additional candidates in that group. Here are two positions with different time frames that offer favorable risk/reward opportunities. Both of these plays meet our criteria for favorable straddles; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the foremost combination of low risk and potentially high reward. As with any recommendations, they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** AC - Alliance Capital $49.06 *** Probability Play! *** Alliance Capital is a leading global investment management firm best known for its growth style of equity investing. Alliance Capital manages retirement assets for many of the largest public and private employee benefit plans (including a number of U.S. Fortune 100 companies), for public employee retirement funds in 31 out of the 50 U.S. states, and for foundations, endowments, banks, an insurance companies worldwide. Assets under management total more than $400 billion and Alliance Capital is also one of America's largest mutual fund sponsors, with approximately 5.8 million shareholder accounts and a family of diversified fund portfolios that are distributed globally. Alliance Holding owns approximately 42% of Alliance Capital Management, the operating private partnership. AXA Financial owns interests in Alliance Holding and Alliance Capital, amounting to an approximate 57% economic interest in Alliance Capital. PLAY (conservative - neutral/debit straddle): BUY CALL JAN-50 AC-AJ OI=180 A=$1.62 BUY PUT JAN-50 AC-MJ OI=253 A=$2.62 INITIAL NET DEBIT TARGET=$4.00 TARGET ROI=25% Note: There is also a short-term position (DEC-$50) available for approximately $2.12 debit. ****************************************************************** JP - Jefferson Pilot $71.94 *** Cheap Speculation! *** Jefferson-Pilot is a holding company engaged in the business of writing life and accident and disability insurance policies; writing annuity policies and selling other investment products; operating radio and television facilities; and producing sports programming. The company's principal subsidiaries, which are wholly-owned include: Jefferson-Pilot Life Insurance Company (JP Life), Jefferson Pilot Financial Insurance Company (JPFIC), Jefferson Pilot LifeAmerica Insurance Company (JPLA), Alexander Hamilton Life Insurance Company of America (AH Life), Guarantee Life Insurance Company (GLIC), Jefferson Pilot Securities, a full service NASD registered broker/dealer, and Jefferson-Pilot Communications Company (JPCC). PLAY (speculative - neutral/debit strangle): BUY CALL DEC-75 JP-LO OI=60 A=$0.50 BUY PUT DEC-70 JP-XN OI=50 A=$0.62 INITIAL NET DEBIT TARGET=$1.00 TARGET ROI=25% ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** QCOM - Qualcomm $104.44 *** An OIN Favorite! *** Qualcomm is a leader in developing and delivering innovative digital wireless communications products and services based on the company's CDMA digital technology. The company's business areas include integrated CDMA chipsets and system software; technology licensing; Eudora email software for Windows and Macintosh computing platforms; satellite-based systems including portions of the Globalstar system and wireless fleet management systems, OmniTRACS and OmniExpress. Qualcomm owns patents which are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by standards-setting bodies worldwide. Qualcomm has licensed its essential patent portfolio to a number of telecommunications equipment manufacturers worldwide. Over the past few weeks, Qualcomm has been listed in almost every bullish play category on the OIN's home page and with the recent break-out above a previous trading range near $85-$90, the issue appears poised for further gains. Traders who missed the run-up can speculate conservatively on the future movement of the stock with this bullish spread position. Target a higher spread credit initially, to allow for consolidation from the recent rally. PLAY (conservative - bullish/credit spread): BUY PUT JAN-75 AAF-MO OI=5096 A=$1.88 SELL PUT JAN-80 AAF-MP OI=5890 B=$2.38 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14% B/E=$79.38 ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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