The Option Investor Newsletter Tuesday 12-26-2000 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/122600_1.asp Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 12-26-2000 High Low Volume Advance/Decline DJIA 10692.40 + 56.80 10701.20 10597.60 804 mln 1747/1172 NASDAQ 2493.52 - 23.50 2548.75 2436.19 1.56 bln 1706/2320 S&P 100 687.00 + 2.77 690.35 679.52 totals 3453/3492 S&P 500 1315.19 + 9.24 1315.79 1301.64 49.7%/50.3% RUS 2000 466.63 + 3.64 467.00 462.45 DJ TRANS 2839.59 - 10.34 2851.27 2824.30 VIX 32.54 + 1.02 33.56 31.28 Put/Call Ratio 0.95 ************************************************************* Profit taking on low volume provides another entry point! On a very slow news day a continued trickle of year end tax selling as well as profit taking from Friday's big gains held the Nasdaq to a loss but overall the results were very acceptable. Considering the recent massive selling into every rally the very fact that the majority of the gains from Friday held was very good news. Sure there some losers but compared with the gains from Friday they were only bruised not battered. For example JNPR only lost -5.50 of the +$29 it gained on Friday and I am sure investors holding JNPR would take those ratios every day. After an opening rally to +33 the Nasdaq fell intraday to a low of 2436 or -79 points before bargain hunters started nibbling. Volume picked up into the close as traders started breathing easier that maybe Friday was going to hold. The only material tech warning today went to NTRO, a broadband and wireless access system producer, said orders from major customers had slowed, primarily from Lucent. This caused some selling in the sector on stocks like RBAK but it was not significant. JDSU was downgraded by DB Alex Brown today and traded lower most of the session but pulled back into positive territory near the close. This was a bullish sign and we should thank D.B.A.B. for another entry point into CIEN, which dropped -$11 off its high before recovering into the close. CIEN was cited in several industry articles today as a compelling value in the sector. With holiday retail sales numbers being cussed and discussed all day by the various analysts it appears that the season was marked by huge discounts and price wars to unload the huge inventory of goods. Retailers order product about nine months in advance and the retail picture was much better last Feb/Mar than it is today. Retailers stuck with billions in excess merchandise had been discounting heavily since Thanksgiving. This week retailers do as much as 10% of their yearly sales and analysts are concerned what they can do to top -50% off pre-Christmas sales. Margins are sure to suffer and Wal-Mart took the first high profile hit today. After WMT said sales were weaker than expected JP Morgan downgraded estimates for the retailer. WMT dropped -$3 to $49 on the news but recovered some by days end. Expect more of the same of others as the reporting of seasonal sales continues. Federated (FD) slipped slightly on a warning as well. Online retailers pinned their hopes on YHOO which said online sales were twice as strong as last year. YHOO jumped +$5 on the news but sold off on worries that even that would not be enough to pull others like AMZN and EBAY out of their slide. YHOO gets most of its revenue from advertising, not product sales, but the increased sales could not hurt. Still, the buy the rumor, sell the news, trend is alive and well and Internet retailers are likely to trend down now that their year is over. The Nasdaq has only three days left to gain +149 points to prevent posting its worse year ever. Currently down -39% for the year it is beating 1974 as the worst year ever. The Nasdaq needs to close above 2640 to avoid setting a new record. With the volume picking up into the close and bargain hunters feeling a little more confident, we have a good chance to better that number. After the close today there were no major warnings and most of the big caps gained in after hours trading. CSCO, SUNW, MSFT, JNPR, CIEN, INTC all gained ground slightly from their close. The key here is still volume and you could definitely tell traders were shopping instead of trading today. With only 1.5 billion shares on the Nasdaq and only 800 million on the NYSE it would be very tough to forecast any real trends from today's action. Still, only losing -23 on the Nasdaq should count as a win in our book after the very strong +177 point gain on Friday. In these market conditions only a -12% retracement of the Friday's gains is a win! For the rest of the week we can look forward to much lighter tax selling since most of the major sellers are done. Only the holdouts still in denial are left on the fence. With the Santa Claus rally a no show, traders are now focusing on a real January effect for a change. In recent years the January effect had been front run into November and December by eager traders attempting to capitalize on fund buying as the retirement cash flowed in January. Without a Nov/Dec pre-rally we could see an accelerated bounce over the next week or two. Funds that have been sitting on cash in anticipation of possible redemptions will now start to put that cash to work. The conditions are ripe for a rally. The Fed is on our side with the next move expected to be a rate cut. The Nasdaq has hopefully put in a bottom and the Dow has held 10300 numerous times. The only fly in the ointment is the expected rash of warnings next week. Historically over 40% of 4Q warnings occur in January but with the almost 800 pre-warnings for this quarter already it remains to be seen who is left of consequence. We still have SUNW, CSCO and IBM as front runner candidates but those expectations are already factored into the market to some extent. Traders are going to be holding their breath as the 2000 clock runs out on the markets. Like a severely lopsided football game with the winners in possession at the two minute warning, the losers are just trying to hold the line and prevent another penetration and score from adding further insult to injury. Traders just want to get out of 2000 alive and with the Nasdaq over 2400. A close over 2640 to avoid Y2K going into the record books as the worst year ever for the Nasdaq is immaterial. One only needs to look at their trading account to know it was a tough year and that is the only record book that counts. The bright side continues to be future. As traders we are all smarter, quicker and more resilient than we were a year ago and we will be even smarter, quicker and more resilient when 2001 draws to a close. What does not kill us makes us stronger. I don't know about you but I am pumped! Let's get ready to rumble! There is only FIVE days left to take advantage of our special annual renewal offer and get all the free stuff. Don't wait any longer! http://secure.sungrp.com/01renewal.asp Happy holidays! Jim Brown Editor ******************** TIME IS RUNNING OUT ! !! ONLY 5 DAYS LEFT !! 2001 Renewal Offer!!! Our best offer ever!! ******************** Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains: 1.) Two of our 2001 Option Expiration Calendar Mousepads (one for home and one for your office) 2.) The expanded 2001 Stock Traders Almanac 3.) A one month subscription to www.IndexSkybox.com 4.) A three month subscription to www.SplitTrader.com 5.) And of course the annual subscription to OptionInvestor.com This package has a retail value of almost $519 which includes $169 of free merchandise in addition to the annual subscription to the Option Investor Newsletter. The total price for this offer is still only $349 which is the regular annual subscription price for the newsletter. The additional $169 of merchandise and subscriptions are free as an added value! Click here for more info: http://secure.sungrp.com/01renewal.asp The terms of the offer are simple. Just renew your OptionInvestor subscription for the annual rate of $349 ($29.08/mo) by Dec-31st and you will get all the free stuff. The supply of mousepads and almanacs is limited so renew now to avoid any delay. You know the newsletter is the best source for option plays, timely market commentary and educational articles. Don't wait until the supplies are gone! Renew now! http://secure.sungrp.com/01renewal.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=1210 ************************************************************** **************** MARKET SENTIMENT **************** Seasick By Austin Passamonte Watching each tick of today's market action left us queasy once more. We expected low volume & high volatility and sure weren't disappointed. Another high/low, high/low, high/close session is behind us. Not exactly the bullish follow-through hoped for to sustain a serious rally but neither did the bottom fall out as well. The Dow showed strength in refusing to roll over and recovered from several rounds of selling to close near its high. NASDAQ's didn't fare quite as well. We thought tax selling might abate with hopes of a rally birthed last Friday but sellers remain alive & well. We may not be clear of them yet and the week could be a continued struggle between anxious buyers and eager sellers. Window-dressing, last-minute losses and low volume could give us a bumpy ride. Historical bias is to the upside and daily chart signals are turning positive as well. The VIX also remains in bullish territory itself. That being said, massive blocks of OEX and SPX calls were sold at "bid" and blocks of puts bought at "ask". Some big money has lined up to play the downside this week. Oddly enough, someone scaled into 15,000+ QQQ Jan 60 call/put straddles near 4 points on each leg, betting we will move big in one direction or the other. We'll take that bet but not with an 8-point straddle, thanks anyway! Great strategy but we prefer tying up less capital in time premium when possible. Just goes to show that someone cannot decide direction but feels we're about to pop nonetheless. Stocks are beginning to shrug off bad news and rally from intraday lows left and right. This price divergence of bad news failing to further depress prices is very bullish. It all stems squarely from the growing belief that a January rate cut is guaranteed and several of them are likely soon. CNBC is trotting out every bullish rate-cut analyst they can find. Those with less conviction are steered into making any kind of bullish forecast that can be coerced. This could effectively begin a tradable rally beyond the end of tax selling and start the vaunted "January effect". Meanwhile, other market pros continue to suggest selling into rallies and fear ultimate market lows lie below us ahead. Who is right? Until Joseph-Cohen, Meeker, Acampora and Battapaglia escape from the deserted island they're held hostage on, who knows? (Just kidding). We still feel that any rate cut by/before January 30th could launch the next sustained rally and no further action by the Fed might be a crushing blow to expectant bulls who will certainly by the rumor until then. Time will surely tell. Meanwhile, choppy seas lie ahead. One or two good entries at most will be offered this week. Avoiding the wash while trying to find them can be a challenge. Next week should see a return to high volume and our next clear market direction. Trade with care using tight stops and modest profit targets until then! ***** VIX Tuesday 12/26 close: 32.54 30-yr Bonds Tuesday 12/26 close: 5.43% 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 (12/26/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 725 - 710 9,201 3,310 2.78 705 - 690 9,744 5,127 1.90 OEX close: 687.00 Support: 685 - 670 2,220 9,869 4.45 665 - 650 1,082 5,857 5.41 Maximum calls: 700/5,576 Maximum puts : 600/9,216 Moving Averages 10 DMA 693 20 DMA 703 50 DMA 719 200 DMA 770 NASDAQ 100 Index (NDX/QQQ) Resistance: 70 - 68 68,226 18,280 3.73 67 - 65 93,383 20,052 4.66 64 - 62 26,991 34,122 .79 QQQ(NDX)close: 60.87 Support: 59 - 57 11,382 13,730 1.21 56 - 54 21,498 16,484 .77 53 - 51 921 12,641 13.73 Maximum calls: 70/49,019 Maximum puts : 60/20,106 Moving Averages 10 DMA 62 20 DMA 64 50 DMA 72 200 DMA 88 S&P 500 (SPX) Resistance: 1375 11,256 10,032 1.12 1350 35,946 34,638 1.04 1325 5,754 5,866 .98 SPX close: 1315.19 Support: 1300 4,087 18,089 4.43 1275 582 13,886 23.86*** 1250 1,341 16,585 12.37 Maximum calls: 1350/35,946 Maximum puts : 1350/34,638 Moving Averages 10 DMA 1317 20 DMA 1331 50 DMA 1361 200 DMA 1434 ***** CBOT Commitment Of Traders Report: Friday 12/22 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 -588 +179 -1646 -2089 Total Open interest % (-7.52%) (+2.24%) (-8.22%) (-5.50%) net-short net-long net-short net-short NASDAQ 100 Open Interest Net Value +3385 -1438 -4239 +1316 Total Open Interest % (+19.05%) (-4.45%) (-8.24%) (+2.11%) net-long net-short net-short net-long S&P 500 Open Interest Net Value +66148 +80633 -81998 -90398 Total Open Interest % (+36.56%) (+29.41%) (-11.60%) (-11.61%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices: The disparity remains between Commercial positions and Small Specs on the S&P 500. Commercials and Small Specs have reversed their positions on the NASDAQ 100 with the Commercials now moving to a net-short position and the Small Specs moving to a substantial net-long position. Interest Rates: Commercials are still heavily short T-Bond and T- Note futures. (Bearish) Currencies: Commercials heavily short Euro futures. May consider it artificially propped. (Bearish) Energies: Commercials are net-long Crude Oil and Unleaded Gas while net-short Heating Oil & Natural Gas. These producers are hedgers and almost always take the opposite side of expected market action to lock-in production prices. Crude Oil and Unleaded Gas (Bearish), Heating Oil and Natural Gas (Bullish) Metals: Commercials are moving from net-long towards neutral in Gold, could be under distribution. Silver, Copper and Platinum are net-short. Data compiled as of Tuesday 12/19 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/122600_1.asp *********** OPTIONS 101 *********** Happy Holidays! By Lee Lowell I'm hoping that everyone is enjoying the holiday season and I'd like to wish all of our readers a healthy and prosperous 2001. I'd like to use my article this week as sort of a year-end review of what we've seen and what we can look forward to in terms of trading options. It's been a wild ride to say the least in the financial markets this year. We came off of one of the most fantastic and shortest bull moves we've ever seen. The period of November '99 to March '00 witnessed a move in Nasdaq that will probably never been seen again. 50-100 point upmoves was the norm for some of the tech stocks and it made millionaires for some lucky souls. But it also changed the psychology of the investing public in general. We got very greedy and became oblivious to what really should move the markets - long-term growth and earnings potential of each company. But these incredible moves blindsided us and left us with the thought that tech stocks will always go up and every dip should be bought. That worked for a little while but you can see where we are now. All you had to do was buy some out-of-the-money calls and reap the returns. Not so anymore. The smart money took us all for a ride from April '00 - present. The expression, "it can't go any lower", took on a new meaning. I know I was caught many a time trying to pick a bottom on some of my so-called favorite tech stocks. I'm still hurting from that. Just look at the price of some past high fliers - YHOO, CMTN, BVSN, INSP, TERN, INTC, etc, etc. It was not only contained within the Nasdaq. Some Dow components were rocked as well - LU, IBM, MSFT, T, etc. These were companies that were supposed to be core holdings that never went down. Yeah right. We've been hit with earnings warnings up the wazoo. If someone asked you a year ago if you wanted to buy YHOO for $30/sh, you probably would've mortgaged your life for that opportunity. Well, have fun pal. Take all you want. Our thinking has changed from looking for solid growth companies to "just get me in on the next net stock." And, "If the Nasdaq let some people retire early, I want to be a part of that." We thought any internet stock that we bought would go to the moon. Some were smart and sold early while others were left holding the bag. "It's a good company, I'll just buy some more on the way down." Well, look who's still holding that stock at $2? Do I sound mad and depressed? Sure, but at least I've learned a lesson and how to avoid it in the future. Before I started trading stock options I made my living (and still do) by trading commodity options. I've learned that there's a world of difference between the two in terms of what affects the prices of the underlying securities. There's nothing inherently different about a stock or commodity option because an option is an option no matter what the underlying security. But there are many more factors to consider when it comes to trading stock options. For example, here's what I've found to affect the stock market and in turn the option prices: The Fed, interest rates, employment numbers, government reports (CPI, PPI, Retail Sales, Housing Stats), overseas markets, Presidential races, day traders, earnings reports, etc, etc. That's so much information to absorb when trying to decide on the future movement of a stock. Now the commodity markets are much simpler. It's all supply and demand. What's Orange Juice going to do this winter? Just look at the crop report. What about Coffee? Look at the Brazilian weather. How about Crude Oil? Look at the OPEC numbers. Corn, Wheat, and Soybeans? Monthly Government estimates. Sounds easy? It's really not. But there are less outside influences in the commodity markets than there are in the stock market. (*Please don't take this as advice to trade commodity markets). My point is: trading stock options requires lots of work and research. Found out as much as you can about the underlying stock before you jump into the options. In addition to the outside influences I just mentioned, make sure you check the stock's support and resistance levels, know when its earnings are released, check on its stock split calendar (if it's splitting), and always check implied volatility levels of the options. So what are we going to do in the new year? We are going to be smarter option traders. We are going to always try to increase our knowledge base. Read more books on option trading, make sure we keep up with this great website, get a good option broker, and get some good option trading tools. We will not rely on stock advice that we heard in a chat room, and we will always research our picks whether it was a self-made decision or a recommendation from someone else. Make sure you realize that option trading entails risk. You can lose your entire investment if you don't take an active role. You can always hold onto a stock indefinitely but all options expire at some point. I've made this point before: Your money is an asset just like your house, car, and life. You insure those with car, life, and health insurance, why not insure your investments? Options trading gives you that opportunity. Whether it is buying puts or selling covered calls, take an active role and use all the resources. The life of options trading is maturing nicely. More and more brokers are finally realizing that options trading is becoming increasingly popular and they are revamping their websites to accommodate this change. Make sure you are part of this wave. Don't settle for brokers that charge you an arm and a leg for a single option transaction. Direct Access brokers are good and you can specify which exchange to send your order to. That is good for single buy and sell orders. But as of this writing, Direct Access brokers don't allow spread orders on a single ticket yet. You must still use a web-based broker for that. But there are excellent brokers out there for that. My favorite is mrstock.com. Keep up with the changes. Periodically surf the web for updated information on these brokers. Some brokers even give you free streaming real-time quotes now. That's a great perk. If you do use a real-time quote vendor, make sure they have good options chains in their system. I've talked about this in the past too. What's the point of paying a few hundred bucks a month if the data feed can't give you reliable options information. Once again, a monthly web search can keep you updated on data feed providers and upgrades. Don't forget to use the option calculators that not only give you an estimated fair value of your option but also the "greeks" that go along with it. CBOE.com has just what you need for that. And of course my favorite - volatility analysis. Most people don't even know what volatility is when it comes to options trading. Volatility helps you figure out the relative "expensiveness" or "cheapness" of an option premium based on its past behavior. I've talked about it before and you know I will definitely discuss it again. I look forward to keeping my place here at OptionInvestor.com so I can supply our readers with quality educational material to enhance their trading skills. This is "Options 101" so I will continue to gear the articles toward the basics and give each reader the foundation to build a successful options trading career. Thank you and good luck. ************** TRADERS CORNER ************** New Year's Resolutions for 2001 By Scott Martindale Dear Santa, Thank you for the nice Christmas rally. Everyone else has seemed to be out to kill the markets this year, including Clinton, Greenspan, Bush, Gore, corporate CEO's, Wall Street analysts, Europe, Japan, OPEC, institutional investors, foreign investors, retail investors. But not you, Santa. You came through for us as always. Sure, Santa, I agree with Austin P. in that you should take whatever the markets give you without bias, whether up or down. In fact, didn't someone once say something like, "...if you can face both bull and bear, and treat both impostors just the same...?" Nonetheless, during market rallies, our friends and family just seem to have a little extra skip in their step, and of course our long-term stock portfolios look better, too. Most of us who trade this market can't help but feel happier making money on market strength rather than weakness. So, thank you, Santa, for giving us all a little holiday cheer. Oh, and one more thing. Do you think you can keep it going a little while longer -- and perhaps hand the baton to Greenspan, so that he can hand it to Bush, and so on? Please forgive me if I hope for a sustained rally, even if I promise not to count on it. Your friend, Scott P.S. Do you think you can make the Nasdaq hold at 2500? Okay, I've gotten my thank you note to Santa out of the way. Now I'd like to list my New Year's Resolutions. [I hope you readers don't mind if I use these annual rituals to make up this week's article.] No doubt about it, 2000 was a year for lessons and losses. For many, this was the first year to make some really good money on the short side. I certainly made more on puts than on calls. Nonetheless, my naked put strategy worked pretty well up until October/November, when I ignored the stark technical deterioration and the predictable October sell off to call a bottom and bet on a fall/post-election rally. Here is my list of things that I intend to focus on during the next year: 1. I will implement firm exit strategies. I wrote about exit strategies in a previous article. There are many ways to design them, but they certainly don't have to be complicated. Choose a couple of indicators that you trust, or merely set a percentage stop loss and stick to it. 2. I won't bet against the primary market trend. Calling a turn in market direction is foolhardy. If the long-term trend is down but a short-term rally is underway, it may be fine to play short- term calls but unwise to buy LEAPS call options for long-term spread trading. Also, a short-term rally within a primary downtrend is not a good time to sell naked puts. 3. I won't ignore the seasonal market cycles. It seems that every year we get self-fulfilling market breakdowns in April and October, with a humdrum summer in between. We also usually get a Santa Claus rally and a January effect (although this year's is somewhat suspect due to some strong external forces). I intend to play the seasonality much more conservatively next year (i.e., focus on capital preservation). 4. I won't listen to so many different market gurus. Especially with the run up in tech of the past few years, many new market gurus have emerged. I have subscribed to many newsletters of various ilks, both on an ongoing and on a trial basis. They all have very fine track records, but too many choices and hot tips can tempt you into over-trading or having an unfocused or poorly diversified trading/investing strategy. I will choose a few that I like the best (including OIN), and use their recommendations to formulate a focused plan for my short-term trading and long-term investing. 5. I will plan to attend an OIN seminar. I've never attended an OIN event, and I always feel like I really missed something when I read about them after the fact. The biggy in Denver is certainly my target, but I'll also consider attending a road show. 6. Now that the markets are showing signs of finding a bottom, I'll again start looking at buying LEAPS. I keep talking about it, but I can't get comfortable enough with any of the rally attempts. Buying shares in my long-term account is more costly, but at least there is no time value erosion to worry about. Now that the downside appears somewhat limited, particularly in tech, I only need to await two things: an apparent start to a sustained uptrend and a reduction in these inflated options premiums. [Of course, you can avoid high time premiums by buying deep ITM.] 7. I will evaluate every holding by continually asking myself, "Would I purchase this today, given its current price, technicals, and fundamentals?" If the answer is no, then it's time to sell (or at least tighten up the stops). 8. Perhaps most importantly, I will constantly remind myself that I am managing money for my family's current income and financial future. If I appear to be on a streak of bad decisions, I will focus on preserving what I have left rather than trying to "win it back" with increasingly risky moves. Let's see what 2001, the first year of the new millennium, has in store for us. But no matter what it brings, let's each resolve to be smarter traders. Make this your mantra: Use fundamentals to choose your target stocks, use technicals to time the trades, play with (not against) the primary trend, cut losses short, let profits run. Happy New Year to each of you. *************************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. 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The Option Investor Newsletter Tuesday 12-26-2000 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/122600_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=1220 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** NOK $43.63 -0.06 (-0.06) Nokia traded in a narrow range of just over $1.50 on Tuesday's lackluster Nasdaq trading. Nokia held above support at $43 in the morning, and dipped to $42.69 briefly in the afternoon. From this level, it rebounded to close just above the converged 50- and 200-dma of $43.55. This is impressive, considering that the vast majority of technology and telecommunications stocks are deeply below their major moving averages. Volume was only 43% of the average daily trading volume. Two articles in the Wall Street Journal published on the 25th and 26th described the growing market in wireless services for vehicles, and Nokia's role in a joint venture with IBM, Toshiba and Taiyo Yuden Co. Our strategy continues to monitor strength in the wireless telecom industry. Ideally, we would like to see Nokia break out above the 10-dma of $45.24, which could lead to the next resistance level of $47. A drop below the 5-dma of $42.77 would be worrisome, accordingly, we are adjusting our stop to $40, and traders should exit positions if Nokia closes below this level. COST $36.06 -1.31 (-1.31) After an attempt to rally past resistance at $37.38 this morning, Costco fell with the market indices. COST spent the last three hours of the trading day in a very tight range of a quarter point above and below the $36 level. Tuesday's volume was only two thirds of the average trading volume, which was to be expected, as many traders are vacationing this week. Costco remains above support at the 5-dma of $35.47, and below resistance at the 200-dma of $36.94. We want to see higher volume pushing this stock out of the narrow range it has been trapped in for over six months, and it appears poised to breakout upon the return of heavier volume. A breakout above $38.38 would be very bullish, and an excellent conservative entry point. A fall below the 50-dma of $34.64 would be dangerous, so we are keeping our stops set at $34. LVLT $31.00 -1.81 (-1.81) The CLEC group, which include MFNX and GX, traded relatively flat during Tuesday's low-volume session. There wasn't any company-specific news, nor any from the broader industry to effectively lift LVLT off its $30 support. Last week LVLT experienced a double bottom, testing lows in the $26 to $28 range, before resurfacing. We're now looking for an advancing market and overall bullish sentiment to incite a technical bounce. A high-volume breakout through the immediate resistance at $33 and the rising 10-dma line ($34.13) warrants an entry into this risky recovery play. More aggressive positions might be found near the current price level, but make sure the buyer's step in first. Our stop is firmly set at the $27 mark. JNJ $102.38 +0.88 (+0.88) Pharmaceutical giants JNJ and MRK helped buoy the Dow today as investors once again moved toward old economy names and the relative security of the drug sector. Defensive issues are likely to see advances over the short-term while the techs flounder amid profit-taking and the economic uncertainty. Plus, JNJ is reporting earnings in a few weeks. The company's earnings are scheduled for January 23rd, BEFORE the bell. JNJ's break above the $102 mark and strong close today also renders a bullish outlook going forward; although the inability to move through $103 does give reason to be cautious. Pick your entries carefully. There's time to be patient and wait for additional upward confirmation. If you're interested in an earlier and perhaps more risky entry, consider taking positions at the 5- & 10-DMAs, near the century mark. However take note, we'll exit the play if JNJ closes below $100. IVGN $79.75 +0.38 (+0.38) Currently in an ascending triangle pattern, volume continues to dry up as IVGN's stock price trends higher. Today was a quiet trading day for IVGN, as it closed up fractionally on 35% of ADV and in doing so, put itself just above the 5 and 10-dma (currently at $79.07 and $79.63) respectively. Pullbacks to both these support levels as well as $77 and $75 could be ideal targets for aggressive traders. Conceivably, the stock go as low as the 50-dma at $73 and still maintain its current uptrend but please note that we are moving our stop price up from $72 to $75 and as such, we would like to see IVGN close above this point. For an entry on strength, wait for volume to return to the stock to carry it above either $81 or $82, depending on risk tolerance. Once through $82, buying momentum could take the stock quickly to formidable resistance at $85. When buying a breakout or a bounce, confirm with volume and as mentioned on Sunday, look to peers such as ABI, AFFX and CRA for guidance. TXN $46.69 -0.94 (-0.94) Lack of interest was most likely the cause of today's movements for shares of TXN, as the stock ended the day down almost 2 percent on less than half the ADV. With little news to drive the stock one way or the other and a relatively quiet trading session overall for the NASDAQ, TXN traded in a tight range of less than 2 points. While the stock closed below its 10-dma, now at $47.40, support at the 5-dma (at $45.83) held up well. Another test of the 5-dma as well as support at $45 and the 50-dma at $44.72 could provide aggressive traders with possible entry points. There is also support at $43 but make sure that TXN doesn't close below our protective stop, currently at $42. For a more conservative entry, wait for buying volume to return, carrying TXN above the 10-dma, before taking a position. In either case, confirm sector sentiment with the Philadelphia Semiconductor Index (SOX) and Merrill Lynch's Semiconductor HOLDR (SMH). RFMD $25.75 -0.88 (-0.88) With many traders still on holidays, volume was light today for the markets overall and as such, in sympathy with softness in Semiconductor issues, RFMD pulled back 3.29 percent on less than half the ADV. The 10-dma, currently sitting at $27.20, continues to act as formidable resistance for the stock but the good news is, former resistance at the 5-dma, now at $25.20, is providing support. With the 50-dma just below near $23, the stock has also found support recently at $24.25. Bounces off these levels could be targets to shoot for in entering this play but make sure there is buying volume to back the move. Overhead, $28 is the level that traders will be watching for a lower risk play. A rally through $28 with conviction would not only be a definitive break through the 10-dma, but also take out a formidable resistance level and from there it could be a quick trip to its next hurdle, the $30 mark. When targeting an entry, keep in mind out stop price of $22 and confirm direction with peers BRCM, CNXT and TQNT. LH $169.50 +3.56 (+3.56) The gift that keeps on giving, LH broke out again on the day after Christmas, treating investors to a brief foray above $170 before settling down to end the day with a solid 2% gain. While it isn't the 10% gains that many momentum investors have come to expect, the stock has been a steady performer during the market gyrations of the past 6 weeks. During that period of time, the stock has rallied from the bottom of its ascending channel (near $130), and with today's move, tested the top of the channel at $170. The expanding Bollinger band is now out of the way, as it currently rests above $173. The continuing series of higher highs and higher lows allows us to ratchet up our stop, and it is now sitting at $163. After successfully clearing resistance at $165 and $167, look for intraday pullbacks to these levels to provide for fresh entry points. The strength in today's trading was clear, as LH bumped against the $170 resistance level all day. More conservative players will wait for the stock to clear this level on strong volume before adding new positions. ******************* PLAY UPDATES - PUTS ******************* PMCS $75.00 -4.25 (-4.25) PMCS remains in a strong short term down trend which began the first week in December, and today's persistent weakness in the semiconductor sector provided solid opportunities for put players. A steep sell off occurred in the first hour of trading, and brought PMCS to $72 from its opening level of $78. While PMCS rallied from its low point of $70.44, the stock needs to close above its 5-dma of $79.02 in order to signal the beginning of an uptrend. The semiconductor sector remains under pressure, and we may need to have a prominent analyst or two upgrade this sector before we see any signs of real strength. However, this play has provided us with strong profits, which we would like to protect, so we have adjusted our stop downward to $79.00. Remember to monitor SMH and SOX.X for weakness before initiating positions. BLDP $63.00 -1.00 (-1.00) Today was a light volume trading day for BLDP, as it bounced around various levels of support and resistance. Opening right at $65, the stock attempted to rally in the early going but resistance at $67 brought in the bears, who sold the stock down sharply. Finding support at $60, BLDP enjoyed a small late day bounce but nonetheless, ended the day down 1.56 percent on less than half the ADV. Today's close was just above the 5-dma (now at $62.62), putting BLDP above this level for the first time in almost two weeks. But the stock continues to struggle near its 10-dma line (now at $66.55). A failed rally off the $67, the 10-dma and $65 should provide for aggressive entries but make sure BLDP closes under our stop price of $64. A break below the 5-dma should provide for a safer entry, confirmed with direction in rival FCEL. CELG $32.05 -4.02 (-4.02) Despite an up day for most Biotech stocks, CELG's direction was clearly down, as it continued to head deeper into negative territory on the back of resistance from the 5-dma (now at $36.24). As mentioned on Sunday's write-up, CELG's recent decline has been without news, yet the volume is telling us the tale of a struggling stock. Closing the day down over 11 percent, volume was heavy, almost 150% of ADV. But CELG did find some support at $30 today, with bargain hunters buying into the oversold bounce. At this point the stock could head higher in the short term, but the 5-dma should provide formidable resistance for an aggressive entry point. There should also be resistance at $35 but confirm a rollover with volume before making an entry. For the more risk averse, wait for CELG to drop below $32 with conviction before jumping in. When making a play, keep an eye on the AMEX Biotech Index (BTK) and Merrill Lynch's Biotech HOLDR (BBH). To protect our profits, we are lowering our stop price from $45 to $37. INTU $34.94 -0.31 (-0.31) The PC and software stocks ended mixed in today's post-holiday session. As the tech stocks faltered in midday trading, INTU established a new intraday bottom at $33.25 and a lower ceiling. In the last hour of trading, the bulls stepped in with some volume, but found the $35 mark impenetrable on the attempted revival. This break through the $35 support level is certainly a bearish indication; however, we're lowering our stop to $37 for added protection against an upswing. News of poor retail sales and specifically, Intuit's TurboTax income-tax preparation software lagging behind last year's sales by more than 30% also cast a shadow going forward. SFA $35.75 +1.00 (+1.00) Shares of advanced communication networkers like BRCD, LBRT, and GMST started off the holiday week with additional losses. SFA saw a minute gain in narrow trading, however the $36 upper resistance kept a cap on the advances. In an effort to err on the side of caution, we've lowered our protective stop from $40 to $38. The trailing 5- dma, now at $37.58, still offers aggressive entry points following a high-volume rollover. But of course, a momentum move through Friday's intraday low of $33.03 provides better confirmation that SFA is on its way to pre-millennium prices. Interactive TV stocks saw incredible gains earlier this year, but investors have now realized that consumers aren't buying these services as quickly as anticipated and so, they're falling hard and fast. DGX $130.88 -7.13 (-7.13) Aggressive players had a great day with DGX today. The excessive enthusiasm that propelled the stock right through the upper Bollinger band on Friday, had no choice but to dissipate as the rubber band snapped back this morning, driving shares down as low as $129.50 before stabilizing. Friday's $14 gain was clearly overdone as other players in the sector, LH (current call play) and PPDI had much more sedate gains, and there was no news that would have been responsible for such a surge. We looked at the probabilities and saw that the stock needed to come back to earth today. Keeping a tight reign on this aggressive play, we are ratcheting our stop down to $138, just above the already-stretched, upper Bollinger band. Support held firm near $130, but any drop below this level would provide for attractive conservative entry points, but make sure that the stock is truly heading south by checking for solid volume and monitoring the action in competitors LH and PPDI. Additional rallies into the $138 range are likely to provide aggressive players with more opportunities for quick profits...wait for the rubber band to get stretched tight again, and then strike as it begins to snap back. HAND $35.88 -0.19 (-0.19) The NASDAQ's inability to extend Friday's gains, weighed heavily on shares of HAND today. After rolling over near the $36 level this morning, vigilant day traders got a nice opportunity to buy puts for the plunge down to the day's low of $30.25, before the stock recovered in the afternoon, ending the day nearly unchanged. For those keeping score, HAND still looks very ugly in the technical department. The bulls have been unable to scale even the 5-dma (currently $38.75), as the stock continues to slide down the lower Bollinger band, keeping the string of lower lows intact. We are leaving our stop at $40 to provide room for the stock to move. Aggressive entry points are likely to appear as the stock fails to penetrate this level; consider new positions as HAND rolls over, especially if accompanied by a weakening NASDAQ. Icing on the cake will be if competitors PALM and RIMM are being mauled by the bears. HAND has been the weakest of the 3 lately, so any sector weakness will hit HAND the hardest. Today's bounce near $30 may be an early indication that investors are willing to defend their positions near this major support level. If they can't manage to fend off the sellers there, consider initiating new plays as HAND heads down to test its IPO price near $22. ************************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=1211 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: CIEN - Ciena Corp $74.18 -2.81 (-2.81 this week) CIENA Corporation's market-leading optical networking systems form the core for the new era of networks and services worldwide. CIENA's LightWork architecture enables next- generation optical services to transmit signals simultaneously over the same circuit. This multiplexing system changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. About 45% of sales come from outside the US markets. Any one interested in high-risk recovery potential? Last week CIEN fell a whopping 38% after announcing its agreement to buy closely held Cyras Systems for $2.13 bln in stock and assumed debt. CIEN hit a lower bottom of $59.56 while taking its beating amid the resigning NASDAQ. Not even new BUY coverage from ING Barings could keep CIEN afloat. But then Santa Claus came to town on Friday. This large equipment stock rocketed $17.13, or 28.6% to $77 on the heels of a rallying marketplace. The momentum was solid and CIEN traded on 1.4 times its normal volume. The dynamic breakout pushed the stock through the 5-dma ($69.63) resistance ceiling. Today the share price consolidated at $70-$71 and then broke to the upside for a strong showing in the $72 and $74 range. Near-term support is established at $70, but firmer support is near the $65 level. If CIEN retraces to $65 for a weak close, we'll the exit the play that evening, so consider setting stops. Aggressive traders might consider taking entries off the supportive $70 mark on strong bounces, or better yet, buy into strength as CIEN moves above the next level of opposition at $80. Look for other optical stocks like JDSU, GLW, and SCMR to help move the sector higher over the short- term. BUY CALL JAN-70 UEE-AN OI=1042 at $11.88 SL= 8.75 BUY CALL JAN-75*UEE-AO OI=2106 at $ 9.38 SL= 6.25 BUY CALL JAN-80 UEE-AP OI=2916 at $ 7.25 SL= 5.00 BUY CALL FEB-75 UEE-BO OI=1032 at $13.75 SL=10.25 BUY CALL FEB-80 UEE-BP OI= 118 at $11.63 SL= 8.50 http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN COF - Capital One Financial $63.00 +1.31 (+1.31 this week) As one of the top 10 credit card issuers in the U.S., Capital One's secret weapon is its vast databases. The company uses this data to match a potential Visa or MasterCard customer to any one of its thousands of cards, varying in annual percentage rates, credit limits, finance charges and fees. Ranging from platinum and gold cards for preferred customers to secured and unsecured cards for customers with poor credit histories, the company has a credit card for just about anyone. The company also sells wireless phone services, mortgage services, and consumer lending products. Investors are breathing a sigh of relief with the Fed moving to a relaxing interest rate bias. Although we didn't get an actual interest rate decrease this year, the moderating economy is adding fuel to the belief that we may actually get our first cut before the FOMC meets again at the end of January. This optimistic outlook has helped Financial stocks to start moving higher again, and COF has participated to the tune of a 10% move since the low last Wednesday. Today's trading extended the strong gains from Friday, and our new play is now back over all of its moving averages, as well as the $61 resistance level, and is bumping its head on the ascending upper Bollinger band again. With stochastics just entering the overbought region, it looks like we could see more upside before the next round of profit taking. Any pullback from the upper Bollinger band could provide a nice aggressive entry point on a bounce in the $60-61 area. We are playing this one with a nice tight stop, so if the tone in Financial stocks changes, our COF play could get the boot in a hurry. But as long as the strength continues, we will take advantage of it. More conservative players will want to wait for the Bollinger bands to expand and COF to trade through the next level of resistance near $64.50, before initiating new plays. Use the Banking Index (BKX.X) to confirm buying interest is still strong in Financial issues before playing. BUY CALL JAN-60*COF-AL OI=1301 at $5.38 SL=3.25 BUY CALL JAN-65 COF-AM OI=1573 at $2.69 SL=1.25 BUY CALL JAN-70 COF-AN OI= 104 at $1.25 SL=0.50 BUY CALL FEB-65 COF-BM OI= 85 at $4.38 SL=2.75 BUY CALL MAR-65 COF-CM OI=1819 at $5.50 SL=3.50 BUY CALL MAR-70 COF-CN OI= 512 at $3.75 SL=2.25 http://www.premierinvestor.net/oi/profile.asp?ticker=COF LOW VOLATILITY: ASFC - Astoria Financial Corporation $54.13 +1.63 (+1.63) Astoria Financial Corporation, the holding company for Astoria Federal Savings and Loan Association with assets of $22.2 billion, is the second largest thrift institution in New York, and the sixth largest in the United States. Astoria Federal, through its 86 banking offices, provides retail banking, mortgage, consumer and small business loan service to 700,000 customers. Astoria commands the third largest deposit market share in the attractive Long Island market, which includes counties with a population exceeding that of 39 individual states. Astoria shares have performed beautifully since the stock crossed its 50 dma on October 27. Since that point, the chart exhibits a steady up trend with periodic pullbacks. This is a play on a leading stock in a sector which seems to be leading the financials and the overall market, on solid fundamental and technical strength, as well as the anticipation of lower interest rates. Despite its 20% gain from early November, Astoria still trades at a low P/E of 11.9, which is attracting retail and institutional investors. Savings and loans, or thrift banks, are generally not subject to the credit risk which has caused the larger banks like Chase Manhattan to warn of potential earnings shortfalls. Savings and loans typically have much lower exposure to the volatile capital markets, typically perform well in a slowing economy, and respond more rapidly to interest rate decreases than large commercial banks. Astoria is positioned solidly above the 200 dma of $35.79, the 50 dma of $42.83, the 10 dma of $49.43, and the 5 dma of $51.41. Equally importantly, the savings and loans are in a strong, steady, and slow up trend, which is unlikely to be broken any time soon. However, always watch the sector for strength before initiating positions. RKH is the regional bank share holding stock, which should give good indication to the sector's strength. Watch the other S&L companies like GPT and WM. Astoria made a big move from $49.06 on December 20th to over $54 today, so a consolidation may occur. Traders can take positions at current levels, or consider waiting for a pullback to support at $52.50. Set stops at $50, and exit positions if the stock closes below this level. BUY CALL JAN-45 AQR-AI OI=440 at $10.00 SL=7.00 BUY CALL JAN-50 AQR-AJ OI=271 at $ 5.13 SL=3.13 BUY CALL FEB-45 AQR-BI OI= 0 at $10.13 SL=7.13 Wait for OI BUY CALL FEB-50*AQR-BJ OI= 45 at $ 6.00 SL=4.00 www.premierinvestor.net/oi/profile.asp?ticker=ASFC CTAS - Cintas Corporation $53.56 +2.06 (+2.06 this week) Cintas Corporation is the leading provider of corporate identity uniform programs. Cintas' unique corporate culture has been the driving force behind this success. Cintas has grown for 31 consecutive years through all economic cycles. During this 31-year period their sales have grown at a compound rate of 25% and our profit has grown at a rate of 33%. Cintas is Recognized as one of the World's most valuable companies in The Business Week Global 1000 and ranked among Best-performing big corporations in Forbes Platinum 400 List It's been a long climb, but it's been well worth it for investors of CTAS. Ever since hitting an all-time high of $52.25 in early 1999, the stock went on an extended downtrend, going the opposite direction of rising Tech stocks. But this year, with many Tech stocks deep in the basement, shares of CTAS have not only bounced back, but are once again making new all-time highs. A record-breaking earnings report last week that matched Street consensus was well received by traders, as they bid the stock up on the news. While 17 percent year-over-year profit growth may not excite investors used to triple digit revenue figures from Tech companies, the key word is profit, something that many of those once sexy high flyers lack. The prospect of lower interest rates going forward will also help an old economy stock such as CTAS. Despite a downgrade by Barrington Research from a Long-term Buy rating to Hold last Wednesday, it appears that actions speak louder than words as the stock continues to climb higher with accelerating volume. Today, CTAS made a new intra-day and all-time high, closing up 4 percent on over 120% of ADV. A pullback at this point is likely, with a bounce off our stop price and key support at $50 (near the 5-dma) an ideal entry point for aggressive traders, but the stock may also find support at $53, $52 and $51. For conservative traders, wait for buying momentum to take CTAS to a new all-time high before taking a position. Confirm direction with that of the DOW before initiating a play. BUY CALL JAN-45 NQQ-AI OI= 655 at $9.13 SL=6.25 BUY CALL JAN-50*NQQ-AJ OI=1284 at $4.25 SL=2.50 BUY CALL JAN-55 NQQ-AK OI=1313 at $1.00 SL=0.00 BUY CALL FEB-50 NQQ-BJ OI=1141 at $5.63 SL=3.50 BUY CALL FEB-55 NQQ-BK OI= 401 at $2.56 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=CTAS ENE - Enron Corp $83.50 +2.31 (+2.31 this week) Enron is a global energy and communications company. It engages in all facets of the electricity, natural gas, and communications businesses throughout the world. The Company is also developing an intelligent network platform to facilitate online business, to provide bandwidth management services and deliver high bandwidth applications. I'm sure you've felt energy costs squeeze your wallets as the winds blew colder and temperatures dropped in recent months. The already skyrocketing oil prices coupled with the seasonal change into winter doesn't not bode well for the consumers who need heat and electricity, but it sure does wonders for energy stocks like ENE, SLB, and XOM. Plus in this case, ENE is confirmed to report solid earnings in just a few weeks. The company is confirmed to release its numbers on January 22nd, BEFORE the bell. More specifically, ENE's performance in the past two sessions forecast a run up. Volume was respectable while the share price pushed through the $80 resistance in Friday's session. The gains not only held today, but ENE extended another 2.9%. The strong sector, positive stock technicals, and an advancing marketplace give ENE a great chance of success as it approaches its earnings' date. Consider buying into strength as ENE moves through the next line of resistance near $85 and challenges the $90 highs. If you'd rather buy on dips, then look to take positions near the 5-dma ($80.70), which is now just above our protective stop at $79. BUY CALL JAN-75 ENE-AO OI=1480 at $10.00 SL=7.00 BUY CALL JAN-80*ENE-AP OI=4332 at $ 6.25 SL=4.25 BUY CALL JAN-85 ENE-AQ OI=4495 at $ 3.50 SL=1.75 BUY CALL JAN-90 ENE-AR OI=3938 at $ 1.75 SL=0.75 BUY CALL FEB-85 ENE-BQ OI= 175 at $ 6.00 SL=4.00 BUY CALL FEB-90 ENE-BR OI=1551 at $ 4.00 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=ENE ************* NEW PUT PLAYS ************* AGGRESSIVE: BOBJ - Business Objects S.A. $55.81 -2.38 (-2.38 this week) Founded in 1990, Business Objects pioneered the modern business intelligence industry by inventing and patenting a "semantic layer" that insulates users from the technical complexity of database systems. Business Objects is the world's leading provider of e-business intelligence (e-BI) solutions. The company coined the term e-BI in 1998, to describe the intersection of business intelligence and the internet. Using e-business intelligence, organizations can access, analyze, and share information across the enterprise network and in extranet and e-commerce environments, as well as for customer analytics. Despite a plethora of good news from the company recently, shares of BOBJ have been declining on accelerating volume. Ever since encountering resistance from its 50-dma (now just below $73) in mid-December, the stock has fallen ever deeper into the red, riding down resistance from the 5 and 10-dma (now at $60.80 and $65.70 respectively). An upcoming vote in February for a 3-for-2 stock split, an entry into the emerging wireless e-commerce space through an alliance with Palm-based browser software maker AvantGo and even a successful partnership with IBM all failed to lift BOBJ above that critical 50-dma line. With that, investors have been heading for the exits in increasing numbers. Last week the stock was downgraded by Prudential Securities from a Strong Buy to an Accumulate rating. This caused a massive volume sell-off as the stock pierce through a number of key support levels not seen since late 1999. At this point there is no reason why it could not go much lower. Today, on a light volume day for the NASDAQ, the stock lost another 4.08 percent on over 145% of ADV. There is strong support at $55 but with continued selling, a break below this key level could provide conservative traders with an entry on weakness. With the stock in deeply oversold territory, a technical bounce could take BOBJ back to its 5-dma, giving aggressive traders a higher-risk but higher-reward entry. We have placing our protective stop at $59 so make sure that BOBJ does not close above this level. When making a play, correlate entries with direction in Merrill Lynch's B2B HOLDR (BHH). BUY PUT JAN-60*BBJ-ML OI=15 at $8.38 SL=6.00 BUY PUT JAN-55 BBJ-MK OI=18 at $5.00 SL=3.00 http://www.premierinvestor.net/oi.profile.asp?ticker=BOBJ DY - Dycom Industries $32.13 -1.19 (-1.19 this week) Dycom Industries is a provider of specialty contracting services, including engineering, construction and maintenance services , to telecommunications providers throughout the United States. Among the company's services are the engineering, placement and maintenance of aerial, underground and buried fiber-optic, coaxial and copper cable systems owned by local and long distance communications carriers, competitive local exchange carriers (CLECs), and cable television multiple system operators. It seems like everyone is feeling the pain of the Telecom slowdown, and DY is no exception. Late August saw the stock challenge its triple-top between $56-58, before heading lower with the rest of the technology market in the post-Labor Day slide. Since then, DY has given back most of its gains of the year, and the past 2 days spelled the end of $35 as strong support. Without so much as a whimper, the stock fell through this level and looks to be getting set for a run at $30 support in the near term. Although volume has been below the ADV of 394K shares during this latest down leg, that doesn't seem to be slowing the bears down. As long as the price continues to drop and volume stays above 250K, put players should enjoy some easy profits. While $30 support may temporarily halt the stock's slide, with so many Telecom players falling on hard times in recent months, demand for the service the company provides doesn't show any signs of picking up soon. Any relief rally should be short-lived and roll over near the $34-35 support/resistance level. This will provide aggressive players with a better entry point for the next leg down on this Telecom sector infrastructure play. If $30 fails to hold as support, DY could easily test $25 before finding enough buying interest to break the downtrend. As the bears are pressuring the price right along the descending lower Bollinger Band (currently $32), more conservative players can consider entering on continued weakness, opening new positions as DY drops below $32. Weakness in the broader Telecom sector will likely continue to dominate the price action in DY, so monitor the Telecom HOLDR (AMEX:TTH) for a reading of sector sentiment. Any significant change in sentiment could be all that is needed to push DY back over resistance, so we are keeping a nice tight stop on our play, setting it initially at $34. BUY PUT JAN-40 DY-MH OI=21 at $8.25 SL=5.75 BUY PUT JAN-35*DY-MG OI= 8 at $4.13 SL=2.50 BUY PUT JAN-30 DY-MF OI=90 at $1.63 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=DY ********************** PLAY OF THE DAY - CALL ********************** JNJ - Johnson & Johnson $102.38 +0.88 (+0.88 this week) Johnson & Johnson is one of the world's largest and diversified makers of healthcare products. JNJ has three distinct business segments serving the consumer, professional, and pharmaceutical markets. As a consumer you're probably most familiar with their over-the-counter brands like Tylenol, Band-Aids, and "no tears" baby shampoo. But Johnson & Johnson reaches beyond that realm and expands all aspects of its product lines through acquisitions. Most Recent Write-Up Pharmaceutical giants JNJ and MRK helped buoy the Dow today as investors once again moved toward old economy names and the relative security of the drug sector. Defensive issues are likely to see advances over the short-term while the techs flounder amid profit-taking and the economic uncertainty. Plus, JNJ is reporting earnings in a few weeks. The company's earnings are scheduled for January 23rd, BEFORE the bell. JNJ's break above the $102 mark and strong close today also renders a bullish outlook going forward; although the inability to move through $103 does give reason to be cautious. Pick your entries carefully. There's time to be patient and wait for additional upward confirmation. If you're interested in an earlier and perhaps more risky entry, consider taking positions at the 5- & 10-DMAs, near the century mark. However, take note, we'll exit the play if JNJ closes below $100. Comments JNJ had a nice follow-through day, breaking through resistance at $102 and maintaining its gains. Friday's resistance at $102 turned into intraday support today. Look for entries on bounces from this level or on a breakout above $103, which is just above today's high. If JNJ pullbacks on profit-taking, support at $101 should provide an entry opportunity if accompanied by a bounce. BUY CALL JAN- 95 JNJ-AS OI= 7462 at $8.75 SL=6.50 BUY CALL JAN-100*JNJ-AT OI=11296 at $4.88 SL=3.00 BUY CALL JAN-105 JNJ-AA OI=10143 at $2.25 SL=1.00 BUY CALL FEB-100 JNJ-BT OI= 138 at $6.75 SL=5.25 BUY CALL FEB-105 JNJ-BA OI= 407 at $3.88 SL=2.25 http://www.premierinvestor.net/oi/profile.asp?ticker=JNJ *************************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 at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=1202 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Blue-chips Save The Day! The stock market ended mixed today with tax selling pressuring the technology segment while industrial shares pushed the Dow to a recent high. Tuesday, December 26 The stock market ended mixed today with tax selling pressuring the technology segment while industrial shares pushed the Dow to a recent high. The blue-chip average rose 56 points to 10,692 while the Nasdaq Composite index retreated 23 points to 2,493. The S&P 500 index added 9 points to close at 1,315. Volume on the Nasdaq reached 1.5 billion shares as declines beat advances 2,322 to 1,707. NYSE trading volume totaled 802 million shares, with advances beating declines 1,775 to 1,162. In the U.S. bond market, the 30-year treasury fell 18/32 to 111 30/32, pushing its yield up to 5.42%. Sunday's new plays (positions/opening prices/strategy): SpeedFam SFAM APR7.5C/APR5P $5.88 debit collar CV Thera. CVTX JAN90C/JAN85C $0.38 credit bear-call Interwoven IWOV JAN115C/JA30P $1.88 credit strangle Winnebago WGO APR17C/APR15P $2.00 debit strangle Thrre-Five TFS JAN20C/JAN15P $2.50 debit strangle Today's volatile trading activity provided some excellent entry opportunities in our new combination positions. The only plays that were difficult to open were CV Therapeutics and SpeedFam. Perhaps those issues will provide additional entry opportunities in the coming sessions. Portfolio Plays: Another day of tax-loss selling weighed heavily on the Nasdaq as technology investors opted to unload the most unproductive issues in the group. At the same time, new buyers emerged in the broad market amid optimism of cash infusions into industrial stocks and a bias toward declining interest rates. Analysts say the market has already factored in much of the future's "bad" news and with stock valuations substantially lower, a recovery rally is likely to begin with the new year. Although technology shares were under selling pressure in the hardware, software and networking groups, other sectors experienced favorable gains including oil service, major drug, utility and biotech. On the downside, retail, paper, chemical and airline issues declined. Our portfolio saw a number of excellent performances today and the leading issues were among industrial groups. The big surprise came in the energy sector as USX-Marathon (USX) announced it will acquire natural gas producer Pennaco Energy (PN) for about $417 million in cash, including $54 million in debt. The $19 a share bid represents a 30% premium to the stock's recent value and Marathon expects to begin the tender offer on January 8. Both companies' boards agreed to the merger and the deal was announced after the close of trading on Friday. Our bullish collar is now at maximum profit and can be closed for a favorable gain. Pharmaceutical Product Development (PPDI) was another big mover, up almost $4 to a new high near $52 on renewed momentum from their earnings announcement and a brokerage upgrade. Prudential Securities identified the issue as a "strong buy" after the company licensed its lead compound, dapoxetine, to Alza (AZA) for undisclosed up-front payments and future royalties. PPD also announced a plan to step-up ownership in PPGx pharmacogenetics JV in the coming months. Our "bull-put" credit spread at $35 can be closed for a favorable early-exit profit. Hanover Compressor (HC) is another issue in the industrial group that has exceeded all possible expectations. The stock has moved up 20% since it was selected for a bullish position two weeks ago and now it is trading at an all-time high near $41. Today's gain came on strength in the Energy Services and Equipment segment and there is potential for further upside activity in the near future. Waters (WAT) operates in the analytical instrument industry among other Scientific and Technical Instrument providers and the issue appears to be attempting a recovery after a recent consolidation. The stock rallied to a short-term resistance area near $78 and is now at a key moment, with regard to its technical outlook. Our position at $69 is not currently in danger, but the issue should be monitored closely. Tektronix (TEK) climbed to a 30-day high during the session and our new synthetic position is offering a favorable early-exit profit of $0.88. Speculative traders might remain in the position for another few days, but be aware of the risks as the issue has limited upside potential from this point, and the call options will quickly lose their time-value premium on any retreat. In the small-cap category, there were a number of favorable rallies including those provided by Aksys (AKSY), Magnetek (MAG), Pactiv (PTV), and Timken (TKR). One issue that consolidated in our favor was Costco (COST) and the neutral credit strangle is offering a $0.38 profit after just one week in play. Sepracor (SEPR) is another "premium-selling" position and it is also currently positive. Of course we are still monitoring the bearish spreads in Bowater (BOW) and Pfizer (PFE) for indications of further upside movement and any significant character changes. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - One of our readers asked why we haven't offered many "bull-put" credit spreads in the last few editions. As always, our readers come first, so here are three bullish plays on popular stocks in different industries. All of these positions offer favorable risk/reward potential, but they should also be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** GS - Goldman Sachs $101.81 *** Rally Underway! *** Goldman Sachs is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. The company provides Investment Banking, which includes Financial Advisory and Underwriting, and Trading and Principal Investments, which includes Fixed Income, Currency and Commodities, Equities and Principal Investments. Goldman Sachs also provides asset management and securities services. The company's activities are divided into two business segments comprised of Global Capital Markets and Asset Management and Securities Services. Subsidiary Spear, Leeds & Kellogg is engaged in the business of securities clearing and execution, floor-based market making and off-floor market making. Analysts say that financial stocks are going to benefit from any future reductions in interest rates and since Goldman Sachs is considered one of the best in the banking business, their shares will likely see exponential gains when the rally finally occurs. Surprisingly, investors appear to be anticipating the movement as the company's stock has already recovered significantly from lows in late November. Now the issue is clearly established in a new up-trend and the bullish momentum should easily propel the share value into the $110-$115 range. Traders who favor the technical outlook for the issue can speculate on its future movement with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT JAN-80 GS-MP OI=2628 A=$1.19 SELL PUT JAN-85 GS-MQ OI=1067 B=$1.69 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14% ****************************************************************** LH - Laboratory Corp. of America $169.50 *** On The Move! *** Laboratory Corporation of America Holdings is one the second largest independent clinical laboratory companies in the United States. Through a national network of laboratories, the company offers more than 2,000 different clinical laboratory tests which are used by the medical profession in routine testing, patient diagnosis, and in the monitoring and treatment of disease. The company has a network of 25 major laboratories and approximately 1,200 service sites consisting of branches, patient centers and STAT laboratories, serving clients in 50 states. Analysts are saying that health care and drug issues will be among the most productive stocks next year, because these industries are least likely to get hit by a worldwide economic slowdown and high energy costs. Fund managers and global equity strategists say the safest bets are those stocks that outperformed the broader market in the last year and pharmaceutical companies are often considered defensive plays during rough economic times; both factors that lead us to a bullish position in the issue. Shares of Laboratory Corporation of America are likely to benefit from any rally in the drug group and we see this conservative spread as an excellent hedge play for traders who favor the short-term outlook of the pharmaceutical industry. PLAY (conservative - bullish/credit spread): BUY PUT JAN-135 LH-MG OI=70 A=$1.12 SELL PUT JAN-140 LH-MH OI=72 B=$1.50 INITIAL NET CREDIT TARGET=$0.50-$0.62 ROI(max)=11% ****************************************************************** SII - Smith International $74.12 *** On The Rebound? *** Smith International is a worldwide supplier of products and services to the oil and gas exploration and production industry, the petrochemical industry, and other industrial markets. The company provides a complete line of products and engineering services including drilling and completion fluid systems, solids control equipment, waste-management services, three-cone and diamond drill bits, fishing services, drilling tools, reamers, casing exit and multilateral systems, packers and liner hangers. The company also offers supply-chain management solutions with an extensive branch network providing pipe, valves, fittings, mill, safety and other maintenance products. The company's operations are classified into two segments: Oilfield Products and Services Group; and Distribution Group. Oil stocks rallied today on speculation that the industry is poised for higher valuations in light of the increasing demand for service and equipment. Oil and gas companies plan to raise their worldwide exploration and production spending by 20% next year, creating a bullish environment for oilfield service stocks. Salomon Smith Barney recently presented the results of its E&P spending survey, saying the projected increase would be driven by continued strong growth in North America, in response to high natural gas prices, and a surge in spending in the rest of the world as companies pursue projects that were postponed in 2000. The projected increase would build on a rise of 18% last year and the outlook strongly reinforces a widespread view that the oilfield service industry is in the early stages of a multiyear growth phase. Among oilfield companies, Smith International is one of the issues expected to benefit most from exposure to the booming North American natural gas market and this play offers a conservative method for traders to speculate on that outlook. Target a higher spread-credit initially, to allow for a brief consolidation from today's gains. PLAY (conservative - bullish/credit spread): BUY PUT JAN-60 SII-ML OI=907 A=$0.62 SELL PUT JAN-65 SII-MM OI=57 B=$1.12 INITIAL NET CREDIT TARGET=$0.62-0.75 ROI(max)=14% ************************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=1178 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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