The Option Investor Newsletter Monday 01-08-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/010801_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 01-08-2001 High Low Volume Advance/Decline DJIA 10621.30 - 40.70 10700.80 10516.00 1.10 bln 1613/1330 NASDAQ 2395.92 - 11.73 2397.06 2299.65 1.85 bln 1629/2224 S&P 100 677.31 - 4.36 680.76 667.28 totals 3242/3554 S&P 500 1295.86 - 2.49 1296.97 1276.29 47.7%/52.3% RUS 2000 461.64 - 1.50 463.14 457.56 DJ TRANS 3142.03 + 28.04 3142.33 3083.17 VIX 33.35 + 1.32 34.61 33.00 Put/Call Ratio 0.64 ****************************************************************** Quick To Cover In a rare display of fear, the bears brought in their shorts this afternoon after driving the Nasdaq down 300+ points following the Fed surprise last week. And was it a coincidence the bears decided to cover their shorts as the Nasdaq Composite approached 2300? I don't think so. After the Nasdaq Composite rolled over around the 2640 level last Thursday, and sank into the weekend during Friday's session, it wasn't a real big surprise the tech-heavy index gapped down this morning. Continued fears of slowing economic growth and its impact on corporate earnings kept most of the bulls at bay this morning and for the better part of the afternoon session for that matter. Add to the macro economic fears the usual bearish bliss from Wall Street's favorite weekend publication and its likely target Cisco Systems, and a morning sell-off was in the cards. But what many market participants didn't foreshadow, especially the grouchy bears, was a nearly 100 point rebound in the Nasdaq Composite (COMPX) in the final hour of trading. What's more, it was encouraging to see that massive reversal take place from the 2300 level - a level which seems like it continues to attract buyers. It's difficult to say whether or not the 2300 level is the low for the COMPX. We just don't know yet. And while we'd like to see that level continue to hold and attract buyers, we know the bears aren't going to go away without a fight. We learned that last week following the Fed's announcement. But what we may have witnessed, after today's big rebound in the COMPX, is a sense of fear among the bears and their collective reluctance to press their luck. After all, the Fed is now on the side of the bulls and it's awful difficult to fight the Fed. But the bears will continue to point to the deteriorating fundamentals in the tech sector and the poor earnings reports expected for the fourth quarter of 2000, and the first quarter of 2001. But as we all know by now, the market has an uncanny ability to discount future events out by six or nine months. And with that argument, the bulls will point to better times ahead. And the bulls argument might have gained some acceptance today among portfolio managers who are still sitting on the sidelines with plenty of cash to deploy. As I previously mentioned, the COMPX found buyers at the 2300 level today for the third time. The first buying binge at that level took place in late December and the second effort by the bulls was seen last week prior to the Fed's surprise. The Nasdaq's third bounce off 2300 this afternoon has many market participants suggesting the tech index has found a floor from which to begin the base building process. And although the COMPX still must contend with its nasty downtrend, it was definitely encouraging to see 2300 hold for the third time. As you can see on the chart above, the COMPX will face resistance at the 2400 level before extending today's rebound. And if this afternoon's short-covering rally is similar to those we've witnessed over the past five months, the Nasdaq has a good shot at clearing 2400 early tomorrow. We've seen this pattern time and again where the shorts buy back their stock and the COMPX trades up towards the high end of its descending trend. And any upward move at this point might be exaggerated by fund managers who were enticed by the Nasdaq's ability to hold 2300 today. And if the short-covering/fund manager buying scenario plays out over the next two or three days, we're likely to witness big gains in the high-flyers on the Nasdaq as many of the four-letter darlings are trading near the low ends of their respective ranges, or oversold conditions. And if you do trade any of the Nasdaq high-flyers, it's imperative to use tight stops and have clearly defined exit points. On that note, if the COMPX does advance towards the upper part of its range, be very cognizant of resistance levels near 2500, 2560, 2600 and 2640 as detailed on the chart above. But any bull must remember that the Nasdaq is still in a descending trend, made clear with the chart below. Away from the Nasdaq and tech sector, the Dow Jones Industrial Average (INDU) had problems of its own this morning. Continued concerns over the economy along with credit problems among major banks weighed on the blue chip index as Monday's session wore on. The rumors revolving around Bank of America last Friday, and the potential for bad loans on its books continued to hamper the broader finance sector today, despite the friendlier ways of the Fed. But, the same shorts who were scared into covering on the Nasdaq also bought stock back in the listed names, which gave the INDU a nice lift into the close of trading. After the INDU's head-fake above the 11,000 level following the Fed's announcement last week, the blue chip index has fallen back into its trading range between the 10,500 and 11,000 levels. Similar to the Nasdaq's bounce, the INUD's rebound off the key 10,500 level was encouraging to witness and may portend an advance back towards 11,000 barring any major blowups from the bank sector. Here again, it may pay to ease into some blue chip favorites as the INDU is oversold and may be due for a pop in the coming days. As is the case in the Nasdaq, many INDU components are trading near oversold conditions or have pulled back near key support levels such as General Electric, Citigroup, United Technologies, American Express, Home Depot and International Paper, among others. Those names are by no means a buy recommendation, but traders should be aware of their deeply oversold conditions and the possibility for a bounce in the next two or three days. After suffering three consecutive sessions of selling off, the major market averages may very well be due for a lift in the coming sessions. However, my usual mantra of remaining disciplined with sound money management and tight stops holds true even after today's impressive rebound in both the INDU and COMPX. If we do see any extension of this afternoon's short-covering early tomorrow, we may see the fund managers ease back into the market and add credence to the thesis of the Nasdaq finding a floor near the 2300 level. Any upside moves in the coming sessions in either the INDU or COMPX can be traded as long as discipline holds. Along with the oversold conditions in the broader market, there are two other factors to mention this evening, which may or may not add to the possibility of an extended advance. There are several technology conferences taking place this week where companies are letting analysts know how their business is doing in the slowing economy. Both Salomon Smith Barney and Morgan Stanley are holding tech conferences this week, with major players attending each. These conferences can be tricky to game as both good and bad news can freely flow. If the tech companies at these conferences please the analysts and refute the fears of lower earnings estimates, we may soon hear the sell-side of Wall Street reiterate buy ratings and raise earnings estimates. On the other hand, if the tech attendees to these conferences confirm the market's worst fears, we may see a retest of recent lows, which is all the more reason to stay disciplined. The second item to be aware of this evening revolves around two pre-announcements after the bell. But unlike the recent warnings we've witnessed, two well-know tech stars actually pre-announced good news after the bell this evening. Amazon.com said its sales for the holiday period totaled $960 million, which were short of the $1 billion goal, but within the range of estimates. The other major positive announcement came from I2 Technologies, who said it expected to beat analyst estimates for earnings and revenues in the fourth-quarter. Shares of Amazon closed the regular session at $14.94 and traded above $15 in after hours action. And shares of I2 closed the regular session at $41.94 and settled around $46.50 in after hours trading. In light of the positive news from I2, the bulls might want to watch the B2B sector tomorrow for signs of extended short covering. The positive news from the two aforementioned tech companies gave a nice lift to the Nasdaq futures, which were up about 30 points at time of writing. If the Nasdaq futures are a sign of things to come early tomorrow, the bears might feel a little bit more pain and be forced to buy back more stock en route to sending the market higher. Eric Utley Assistant Editor ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1290 ************************************************************** ************* NEW CALL PLAY ************* BRCM - Broadcom Corporation $93.44 +6.44 (+6.44 this week) Broadcom Corporation is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using unique proprietary technologies and advanced design methodologies, the company designs, develops and supplies integrated circuits for a number of the most significant broadband communications markets. We are initiating coverage on BRCM based on number of positive developments. While the sell-off in communication chip stocks has resulted in a series of lower highs for the stock, bullish price/volume action in recent trading, signs that the stock may have bottomed and news potentially driving the stock higher have made this an attractive play. Like most stocks last Wednesday, shares of BRCM surged on high volume, thanks to the Fed's surprise rate cut. Since then, while the stock has drifted lower, it has done so on decreasing volume, suggesting normal profit taking. Today, the company announced the acquisition of integrated circuit maker ServerWorks for $968 million. This deal was applauded by traders as they bid the stock up over 7.4 percent on almost 120% of ADV and in doing so, put BRCM back above its 5 and 10-dma, currently at $92.75 and $91.75 respectively. With earnings fast approaching on January 23rd and what appears to a firm bottom in the low 70's, the stock looks poised to move higher from here. However, connecting the highs since October reveals a downtrend line, which BRCM must still contend with. Look for this trendline, currently sitting near $105, to act as formidable resistance, especially since there is also horizontal resistance at this point. For higher risk players, a bounce off the 5 and 10-dma could provide for an aggressive entry point. There is additional support at $90 and $85 but confirm bounces with volume. We are placing a protective stop at $84, so make sure BRCM continues to close above this level. For an entry on strength, look for a break through $95 on volume, confirming positive direction with the Philadelphia Semiconductor Index (SOX) before taking a position. From there, it could be a quick trip to the psychological $100 and then, a test of the intermediate term downtrend line. ***January contracts expire in two weeks*** BUY CALL JAN- 90 RDZ-AR OI=1388 at $12.50 SL= 9.50 BUY CALL JAN- 95*RDZ-AS OI=2175 at $10.13 SL= 7.00 BUY CALL JAN-100 RDZ-AT OI=2259 at $ 7.88 SL= 5.75 BUY CALL FEB- 95 RDZ-BS OI= 571 at $16.75 SL=12.00 BUY CALL FEB-100 RDZ-BT OI= 737 at $14.88 SL=11.00 SELL PUT JAN- 85 RDZ-MQ OI=1409 at $ 6.38 SL= 9.50 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?symbol=BRCM LRCX - Lam Research Corporation $19.25 +0.94 (+0.94 this week) Founded in 1980, Lam Research Corporation is a leading supplier of wafer fabrication equipment and services to the world's semiconductor industry. In particular, Lam is a technical leader in etch products and expects similar acceptance for its Chemical Mechanical Planarization (CMP) product and applications. The Company also offers next generation solutions for CMP cleaning. Many of the technical advances that the Company introduces in its newest products are also available as upgrades to Lam's installed base of equipment. With Chip stocks in a downward spiral since last Fall, shares of LRCX were caught in the wake, forming a series of lower highs and lower lows. Recently however, the stock has broken its downtrend and heavy buying volume in the past few trading sessions suggests that more upside could forthcoming. The unexpected 50 basis point interest rate cut of last Wednesday resulted in a break through formidable resistance from its 50-dma. Despite being downgraded by Tucker Anthony Capital Markets last Thursday, from a Strong Buy to a Market Perform rating, the stock continued to advance, as buyers rushed in on mass, especially with ABN AMRO coming to defense of LRCX, upgrading the stock to a Buy. Today, in spite of a flat session for the NASDAQ, LRCX closed up over 5 percent on 120% of ADV, helped by a strong Chip sector. Currently, LRCX has numerous areas of support, with the 5, 10 and 50-dma at $17.47, $16.13 and $16.77. A pullback to these levels, followed by a bounce on strong buying volume could allow for an aggressive entry, but be aware that we have placed a stop at $16. Overhead, resistance can be found at the $20 level and its 100-dma, currently at $20.39. A break through $20 could allow for an entry, but a wait for the stock to rally above the 100-dma would be a safer entry, especially if Merrill Lynch's Semiconductor HOLDR (SMH) is also moving up to confirm upward momentum. ***January contracts expire in two weeks*** BUY CALL JAN-17.5 LMQ-AI OI= 997 at $2.44 SL=1.25 BUY CALL JAN-20 FUO-AD OI=3202 at $1.00 SL=0.00 BUY CALL JAN-22.5 LMQ-AQ OI= 348 at $0.38 SL=0.00 BUY CALL FEB-20 LMQ-BD OI= 186 at $2.13 SL=1.00 BUY CALL FEB-22.5*LMQ-BQ OI= 124 at $1.38 SL=0.75 http://www.premierinvestor.com/oi/profile.asp?ticker=LRCX **************************** NEW LOW VOLATILITY CALL PLAY **************************** MAR - Marriott International Inc. $46.69 +1.81 (+1.81 this week) Marriott International is a leading worldwide hospitality company with over 2,000 operating units in the United States and 57 other countries and territories. Marriott Lodging operates and franchises hotels under the Marriott, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites and Ramada International brand names; develops and operates vacation ownership resorts under the Marriott, Ritz-Carlton and Horizons brands; operates executive apartments and conference centers; and provides furnished corporate housing through its ExecuStay by Marriott division. Marriott has been a comfortable place for shareholders to stay so far this New Year. While the stock spent November and December of 2000 consolidating in a tight range between $38 and $43, shares of MAR recently broke out to the upside on strong volume and since then, has been making new all-time highs. Today, MAR was upgraded by Lehman Brothers to a Buy rating, with a price target of $60, citing that the price-earnings ratio for the stock should expand in the coming quarters relative to the S&P 500. An environment where interest rates are easing will also help MAR's earnings going forward and with that, Lehman upped their growth estimates for the next year. The possibility of increased earnings and earnings multiple expansion attracted investors, helping MAR to gain over 4 percent today on almost three times the ADV. For traders looking to enter on a dip, look for a bounce off support at $45.80, $45 and the 5 and 10-dma at $44.62 and $42.80, near our stop price at $43 support. If buyers continue to drive the stock higher, then a new high at $47 could be the signal to jump in. When making a play, correlate entries with movement in competitors FS and HLT. ***January contracts expire in two weeks*** BUY CALL JAN-40 MAR-AH OI= 638 at $6.88 SL=5.00 BUY CALL JAN-45 MAR-AI OI=1444 at $2.50 SL=1.25 BUY CALL FEB-45 MAR-BI OI= 125 at $3.50 SL=1.75 BUY CALL FEB-50 MAR-BJ OI= 3 at $1.19 SL=0.00 BUY CALL APR-50*MAR-DJ OI= 88 at $2.50 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=MAR ************ NEW PUT PLAY ************ MMC - Marsh & McLennan Co $106.56 -0.44 (-0.44 this week) Marsh & McLennan Companies is the world's largest insurance brokerage company. The professional services firm provides its clients with analysis, advice and transactional capabilities in the fields of risk and insurance services, investment management, and consulting. It operates worldwide through its subsidiaries and affiliates, which include Marsh, a risk and insurance services firm, Putnam Investments, one of the US's biggest money managers, and Mercer Consulting Group, a global provider of human resources and management consulting services. Another defensive play bites the dust! The diehard technology traders just keep going back for more of the high rolling, adrenaline plays. And that's good news when it comes to our put play on MMC. Today, MMC demonstrated more weakness below the $110 benchmark and shattered Friday's intraday low of $106.03 on respectable volume. The stock saw $105.06 during the last hour of trading today, which indicates the selling may not be over. A further breakdown from the current level offers a reasonable entry; although you may want to lock in gains as MMC approaches the century mark. If MMC does move to the underside of the $100 historical support, you could always jump back into the play at that time. Very aggressive traders might consider taking positions on a high-volume rollover at the 5-dma ($111.28), but that's pretty risky. We'll exit MMC on a bullish close above $113. Whichever entry/exit strategy you consider, keep an eye on the S&P's Insurance Index (IUX.X) in addition to the overall market sentiment and direction. The IUX.X is currently finding support at 750; a move below this level would indicate sector- wide weakness. In today's session, MMC diverged from the S&P's Insurance Index, which was up 8.13 points. The cross-currents within the marketplace can wreck havoc on your portfolio, so please, wait for the downward confirmation before jumping into the play. On the analyst front, Prudential Securities cut its 4Q profit estimate for Marsh McLennan to $0.95 from $0.98 and dropped its six-month price target to $130 from $150 on concerns of lower profits from its investment management operations. The company is expected to report earnings around February 1st. ***January contracts expire in two weeks*** BUY PUT JAN-110 MMC-MB OI= 66 at $6.00 SL=4.00 BUY PUT JAN-105*MMC-MA OI=312 at $3.25 SL=1.50 BUY PUT JAN-100 MMC-MT OI=144 at $1.56 SL=0.75 http://www.premierinvestor.com/oi/profile.asp?ticker=MMC ***************** STOP-LOSS UPDATES ***************** TBL - call play Adjust from $65 up to $68 AEOS - call play Adjust from $42 up to $43 COST - call play Adjust from $35 up to $39 CSC - put play Adjust from $62 down to $59 CELG - put play Adjust from $35 down to $29 PDLI - put play Adjust from $66 down to $57 TQNT - put play Adjust from $49 down to $44 ************* DROPPED CALLS ************* CAT $45.75 -0.13 (-0.13) The continued concerns over a slowing economy have caused shares of Caterpillar to pullback in recent sessions. We didn't like the big sell-off in CAT late last week, especially on such active trading. Although the pullback last Friday could have been no more than normal profit taking, we're a little distressed with CAT's inability to rebound during today's session. And although the stock finished only fractionally lower, we feel it may settle into a consolidation as Wall Street continues to debate over the future of corporate profits. That said, we're dropping coverage on CAT this evening and would exit any open positions on a bounce early in Tuesday's session. ************ DROPPED PUTS ************ No dropped puts today ************** TRADERS CORNER ************** Methodical Trade Management By Austin Passamonte (and Bill Kadlec) Phew! Glad to be home in Trader's Corner again after a two holiday break squeezed me out. Hope you've all held calls & puts when daily conditions warranted. On to our lesson for tonight: I had never in my life used a spread-sheet program before now. Those of you who know me are aware that I'm a minimalist trader dragged kicking & protesting into the technology world. Once out of my comfort zone and into the 21st century... I loved it! Bill Kadlec, contributing writer at IndexSkybox devised the spreadsheet templates within this article on his own and sent them to me. It was plain to see there were lessons to share within. We hope to demonstrate that regardless of symbols traded or current market conditions, a systematic account management allows you to profit over time if you are willing to trade both calls and puts without hesitation as prevailing trends dictate. You may wish to review my recent OI Traders Corner article "Three Steps Forward, One Step Back" from 12/04. It describes the account management approach we use to methodically increase our balances over time. You can review this within the OI Education section under "Traders Corner link. Our examples use the QQQ, OEX and SPX with parameters designed specifically for them. We choose indexes because of their frequent, dependable movement for maximum trade opportunities but I know beyond doubt that traders can apply this specific approach to any favorite symbols and accomplish much the same. Such an approach will also work trading stocks, futures or any other vehicle that requires a trading account balance to manage. First and foremost let me state that what we present here is absolutely in no way a statement of actual trade performance or suggestion of future results. These documents include and outline IS Swing Trade history for each index separately. What we portray is a hypothetical account balance of $100,000 for each of the QQQ, OEX and SPX trades taken from IS inception in September through 12/14/2000. No consideration was made or deducted for any trade costs such as commissions, slippage or other factors. This is merely raw data to illustrate an overall point and do not suggest actual profit or loss. Have we made our case for disclaimers yet? Now let's look at these hypothetical results and elaborate on some key points to learn from. The following measures are used to simulate an account taking the actual trades as documented on the site. As covered in the fore-mentioned article, we base our risk factor on a maximum 5% of our current account balance prior to each new trade. The number of option contracts we buy is determined according to how many 5% of our account balance risked will afford. A maximum number of contracts is determined for each index on a conservative basis: it is possible to be filled on many more but that goes beyond serving our lesson here. Definitions: Risk Level - The percentage of the total account value willing to be lost if a trade is stopped out at the stop price. Total account balance in play will never exceed 20% overall, even during weeks of 25% stops on contract cost. With that amount of time value remaining on contracts in play, it is virtually impossible to suffer a complete loss on the total amount of 20% account balance in play at that time. This risk exposure is lessened as expiration week approaches and total capital used is reduced. For example, Week 1 would use $20,000 of capital to open enough contracts with a $5,000 stop loss order. Week 4 would use $10,000 to risk $5,000 on stop loss order as we approach expiration. Max Contracts - The maximum number of contracts that will be traded on a single trade. When the computed number exceeds this value, this value controls. While this is not documented in the site, many online brokerages set a maximum number of shares that can be traded at the same time. Stop Levels - During each week of an option expiration cycle, different stop loss parameters are used which directly affects total $$ committed to a trade. For each index, an overall summary of performance by month, showing monthly changes in value, percentage of winning trades and the total account value change across the entire period. After the summary, a table of the trade-by-trade performance is presented. For these detailed tables the following calculations are used: Stop Risk - Amount of capital willing to lose if the trade if stopped at stop price Calculation - Account value * Risk Level Trade Amount - The amount of capital to be used in the trade based the Stop Level being used for that particular week Calculation - Stop Risk / Stop Level for appropriate week of cycle # contracts - Quantity of contracts to be purchased based on the current market price of the option and the Trade Amount specified above Calculation - Trade Amount / Buy (only the whole number portion, or INT()) Actual - The actual amount of capital committed to the trade Calculation - # contracts * Buy Exit - Value of contracts when sold Calculation - # contracts * Sell Net Acct - How much is the account worth after the trade is completed Calculation - Initial Account Value - Actual + Exit SPX Performance Overall Performance For SPX, Max Contracts was set to 40. Note that in the month of November we only managed to win 50% of our trades. That means we lost the other 50%. Use of disciplined stops and realizing greater returns than controlled losses, the month resulted in favorable performance overall. We don't always need to win more of our trades than lose but it is absolutely critical to maintain small losses. The use of wider stops or no stops at all could have easily resulted in a negative performance for the month of November instead. This is critical! Trade-by-Trade Breakdown ***** QQQ Performance Overall Performance For QQQ, Max Contracts was set to 200. Once again, note that the month of November only managed to win 50% of our trades. That means we lost the other 50%. Better than that, look at October. Swing Trade only managed to win 47% of its trades yet overall results were still positive. By using tight stops and realizing greater returns than controlled losses, those months resulted in favorable performance overall. Can you see why we always set stops and never move them away from current price action, only move them UP to minimize trade loss? Trade-by-Trade Breakdown ***** OEX Performance Overall Performance For OEX trades, Max Contracts was set to 50. Here's my favorite example of systematic account management; look at the month of November for the OEX. Swing Trade only managed to win a paltry 36% of all trades. That means we lost the other 64%. One might expect to have a negative result for the month but diligent use of tight stops to minimize each loss while enjoying larger percentage wins results in a favorable performance for the month. Trade-by-Trade Breakdown The lesson we hope to share here is that proper account management is paramount to long-term success. Cutting losses short is much more than a trading clichi... it is the foundation of a dependable, long-term approach. Also, during a period of time when many traders self-admittedly suffered financially it was possible to enjoy positive results by taking a market neutral approach. While these balances do not represent actual or possible returns, they do suggest a trader following each model closely could have enjoyed favorable results during the prevailing broad market downtrend and volatility while these models were recorded. Traders adept at using spreadsheet software can easily design trade analysis parameters catered to their specific markets. The stop-loss/sell-target percentages we use trading index options may be too tight on either side for volatile equity options. Perhaps PDLI, SDLI, ITWO and others would require a 50% stop/100% sell target regardless of which week in the expiration cycle we're in. Traders who are in adept at using spread sheets (count me in as #1) can arrive at the same conclusion by working through each trade's equation as described in the 12/04 OI Trader's Corner article. You can easily follow how I scratched out results using paper, pencil & calculator in primitive fashion to accomplish the same. If this seems like a lot of effort; it is. We've spent hours compiling this data but for good reason. Now we have a visual trading plan on paper to optimize our results and instill some much-needed confidence to see us through times of losing trades. Such an approach from late 1998 until March of 2000 wasn't mandatory, although it would have helped a tremendous amount. Traders could simply buy calls on the right symbol with enough time-value remaining and most always come out on top. Those days are long gone, most likely forever. That was a brief moment in time not indicative of long-term trading conditions as countless insistent bulls learned through the painful process of going broke since. If we are to survive and thrive our entire career during all market conditions, we must treat this as a business and not a lucky streak at Vegas. I hope that careful study of the 12/04 article on account management together with these spread-sheet trade rule parameters will allow you to customize a methodical account management approach suited for you. A good place to start might be back-testing a string of recent trades this year according to these parameters and see if the final results differ from what you actually experienced. Next Monday we will take this one step further and break down the components to make this work for any tradable market, and especially why it works from a purely mechanical standpoint. I'd like to extend a very special thanks to Bill Kadlec, an outstanding trader and software analyst for bringing this topic to light in a format we can all appreciate. Good luck designing your own personal management plan and Best Trading Wishes! Contact Support ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1280 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** NOK - Nokia $43.13 +0.81 (+0.81 this week) Nokia is the world leader in mobile communications. Backed by its experience, innovation, user-friendliness and secure solutions, the company has become the leading supplier of mobile phones, and a leading supplier of mobile, fixed and IP networks. By adding mobility to the internet, Nokia creates new opportunities for companies, and further enriches the daily lives of people. Most Recent Write-Up Considering the widespread carnage found in the technology sector Friday, Nokia demonstrated its underlying technical strength once again. The low price of the week was $38.94 on Wednesday, before the surprise rate cut was announced. Nokia immediately bounced up to resistance at $45. Nokia hit $45.50 on Thursday, and closed just above $44. On Friday, Nokia held up in the morning, but succumbed to market weakness and rumors of various crises which plagued the market, however, it held above the critical support level of $41.63. Many analysts have expressed their opinions regarding the issue of capital spending on telecom, optical Internet and other technology related spending in this slowing economy, but most agree that wireless infrastructure is one area in which corporate spending will continue at a pace of 20-30% annually, driven by upgrades to existing digital networks. Carriers continue to invest in new wireless spectrum, and as one of the top 5 vendors in this growing market, Nokia has a strong 30% position. In addition, Nokia is one of the few technology stocks which stayed above its 200-dma during December. A simple way to play Nokia is to take bullish positions upon the stock’s clearing the converged 200 and 50-dma of $43.53. After that level is cleared, Nokia has light resistance at $44, and stronger resistance at $45.00, and $45.50. Market conditions permitting, we should see Nokia clear these levels in the near future, and begin its next traverse to $50. Continue to watch the wireless telecom sector for strength, and keep stops at $40. Comments Given the tech sector's rebound this afternoon, we're coming back to NOK and its relative strength in search of profits in Tuesday's session. Shares of the cell phone giant have held up well as the fundamentals of its business improve. And with any cooperation from the Nasdaq early tomorrow, NOK has a shot at trading back up to the $45 level. New entries can be found at current levels early tomorrow if the tech sector strengthens. More conservative traders might wait for a volume-backed move above the $44 level. ***January contracts expire in two weeks*** BUY CALL JAN-42.5*NZY-AV OI=29029 at $2.81 SL=1.50 BUY CALL JAN-45 NZY-AI OI=25329 at $1.75 SL=0.75 BUY CALL FEB-45 NZY-BI OI= 2359 at $3.75 SL=2.25 BUY CALL FEB-50 NZY-BJ OI= 3244 at $2.00 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=NOK *************************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=1311 ************************************************************ ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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