The Option Investor Newsletter Sunday 01-14-2001 Copyright 2001, All rights reserved. 1 of 5 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/011401_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 1-13 WE 1-5 WE 12-29 WE 12-22 DOW 10525.38 -136.63 10662.01 -124.84 10786.85 +151.29 +200.60 Nasdaq 2626.50 +218.85 2407.65 - 62.87 2470.52 - 46.50 -136.25 S&P-100 687.88 + 6.17 681.71 - 4.74 686.45 + 2.22 - 5.25 S&P-500 1318.55 + 20.20 1298.35 - 21.93 1320.28 + 14.33 - 6.20 W5000 12181.30 +308.80 11872.50 -294.50 12167.00 +185.50 -112.40 RUT 485.75 + 22.61 463.14 - 20.39 483.53 + 20.54 + 4.96 TRAN 3001.98 -112.01 3113.99 +167.39 2946.60 + 96.67 +151.25 VIX 27.62 - 4.41 32.03 + 1.80 30.23 - 1.29 + .32 Put/Call .60 .63 .67 .61 ****************************************************************** Too good too last? By Jim Brown It was fun while it lasted but if you look behind the Nasdaq loss of only -14 then you may see that the stealth rally may still be in progress. While all the Nasdaq big caps suffered minor losses for different reasons the smaller sector specific stocks continued to break out of their recent doldrums. The leaders INTC, CSCO, MSFT, DELL, ORCL, WCOM, SUNW all lost ground but sector leaders like BRCM, CIEN, HGSI, BMY, RBAK continued to add to their gains. The Dow however continued to suffer. Led down by UTX -3.19, PG -2.44, MMM -2.44, HWP -1.69, DD -1.81, C -1.88, INTC -1.25 and CAT -1.75 the index traded below 10500 again late in the afternoon but rallied at the close to 10525. There were various reasons for the market weakness on Friday and most were unrelated. First there was the HWP profit warning which held the PC and software stocks down for the day. Most had been posting gains so normal profit taking was assisted by the warnings. Microsoft moved lower after the Justice Dept filed papers denying negative bias on the part of the judge. While this was not an earth moving event it did bring back into focus the fact that the case was still alive and well. SUNW was downgraded by Salomon Smith Barney to a price target of $30, which is where it closed, based on a view that even though SUNW has not warned it was facing a tough couple of quarters. Other factors influencing the drop included the PPI and Retail Sales reports Friday morning. The PPI headline rate was unchanged compared with estimates of a +0.1% increase. The core rate was up +0.3% well over the +0.1% expected increase. The crude goods category increased +8.7% which was the largest increase since August 1990. Analysts fear these costs will ripple through the broader numbers once these goods make their way into the market. The fear, which shot through the markets like a lightning bolt, is that the Fed might pull back from their aggressive rate cut posture to see if inflation has suddenly reappeared. The hope of a -.50% rate cut was suddenly dashed and now the Fed funds futures are only indicating a -.25% drop. This concerns the markets since a slower drop in interest rates could delay a recovery for six months or more. Financial stocks fell on the worries as well as old economy stocks like DD, IP, UK, MMM etc. If the recovery was off to the races we now need to wait for the FOMC meeting on Jan-31st to see if we developed a flat tire. Retail Sales grew by +0.1% when the expectations were for a decline of -0.5%. The gains were in stronger than expected auto sales and should not impact any Fed decision. William Hewlett who co-founded Hewlett-Packard in 1939 died Friday morning in California. The pair started HWP with $538 in a one car garage. The combined companies HWP and Agilent have over $61 billion in sales. Steve Jobs once worked for the pair in a summer job. Jobs said he used what he learned during that summer to build Apple Computer into a success. Well done Mr. Hewlett! The AOL Time Warner merger is history. The final approval came through on Thursday and TWX ceased trading on Friday. The combined company faces many challenges going forward but is likely to be a force to be feared in the Internet world. The combined might of the two companies will usher in a new era of Internet marketing. The stock is on almost every buy list for 2001 as the 800 lb gorilla just got a lot bigger. AOL is my guess for inclusion into the Dow to replace HON. Oil prices appear headed higher again. OPEC is going to meet Jan-17th on cutting production to maintain high prices for their products. The anticipated cuts will be 1.5 million bbls per day but with Iraq still playing tough and withholding 1.5 million bbls per day until he gets paid in Euros, Rubles, gold bars or ammo of his choosing, the impact will be 3 mil bbls per day. That could drive prices back over $30 per bbl and cause the energy related prices to soar again. Bush is applying pressure already to Saudi Arabia to hold the line. The first major crisis of his presidency will be seen as a yard stick of what to expect going forward. Good luck Mr. Bush! The Nasdaq fell at the open as a result of the PC sector earnings warnings but rallied back to within a whisker of 2700 at 2699.87 before pulling back. The end of day bargain hunting never materialized with the traders deciding that going into the long three day weekend flat was better than taking a chance of another post close blockbuster warning. The warning did not happen but the positive sentiment from as late as Thursday appeared to be changing again. The volume was strong at almost 2.5 billion on the Nasdaq and 1.26 bil on the NYSE. BUT, and there is always a but, there was no movement. After a big move high volume with no movement is often a prelude to a drop. Investors still giddy with the bullishness from this week are rushing into the market while investors holding stock are selling into the rally. The causes for the selling are the worry that the Fed will not cut as much as expected but of even more concern is the severity of the HWP and GTW forecasts. With earnings beginning in earnest next week investors are worried that there will be a flood of missed estimates and even worse a dire forecast from the big names. With the earnings list for next week reading like a who's who of the tech world any pattern of weakening forecasts could cause another sell off. Big names reporting next week include JNPR, AMCC, INTC, NVLS, RBAK, IBM, ITWO, EXTR, CMRC, EMLX, INKT, MUSE, TXN, ALTR, AMD, APPL, CTXS, LSCC, MSFT and SUNW to name just a few. If their forecasts are as dire as Hewlett-Packard's then there will be trouble on the street. Investors can ignore the HWP and GTW warnings as industry and/or company specific but if the entire tech sector starts repeating the same mantra then our fragile rally may self destruct. The historical rally for last week came to pass for the Nasdaq but not the Dow. While historical trends are just that, trends, and not a sure thing, they are useful for planning for future events. Historically there is a dip after the first week of earnings in January. We should plan on that possibility and use any bounce Monday or Tuesday to position ourselves to take profits if the market follows past trends as the week draws to a close. The reason for the dip is combined profit taking after the earnings runs and/or bad earnings news. With the possibility for bad news very high the possibility for a dip is also very high. Many analysts feel the bad news is already priced into the market as evidenced by the lack of a material sell off on HWP -1.69 and GTW -1.81. By previous standards these companies could have easily lost a third or more of their stock price. The bright side is still the strong advance/decline ratios at 2:1 on the Nasdaq even though the index finished negative. This means investors are still bidding up stock prices on the broader market even though the big caps were weak. TrimTabs.com said equity inflows amounted to over +$15 billion for the week ended Jan-10th and more cash is on the way with retirement contributions on the way. While last week provided a good base from which to rally we will be at the mercy of earnings guidance. Next week is options expiration week and that typically gives the market a bullish bias. It also provides a tremendous opportunity for aggressive traders. This is not for the faint of heart but buying slightly out of the money options can be very rewarding next week. An example would be ASYT and the Jan-17.50 call at only $.63. Only -$.69 out of the money and ASYT moved almost +$3 last week. Another $3 move would make the option worth $2.50. It is just an example but the reason I love expiration week. I will list some more possible plays in my Editor's Plays section today. My recommendation for the week would be to keep your stops tight as we get closer to Friday. If you are in a trade on a stock that announces earnings this week PLEASE consider closing those trades the day before. Earnings bombs are very destructive. Remember ARBA last week. They announced a +625% increase in earnings and beat estimates by +150% but the stock dropped -$8.19 the next day. An obscure line in the financials showed they increased their allowance for doubtful accounts and they are changing the way they recognize income. This sent investors into a stampede to exit the stock. Good earnings are not enough to prevent a trade meltdown. We recommend exiting the trade the day before earnings are announced to prevent disasters. You give up the possibility of an explosive bounce but we have found that historically only occurs in about 2 of every 20 announcements. Are you willing to risk a 90% chance of a gap down the next morning to get that possible bounce? Trade smart, enter passively, exit aggressively! Jim Brown Editor ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=1348 ************************************************************ ************** EDITOR'S PLAYS ************** I love expiration week! Options are cheap, earnings are moving the stock prices and there is money to be made. The ASYT example from the commentary today is just an example but there are so many opportunities in expiration week that you can go crazy just deciding which ones to play. I went through about 500 stocks in preparing this article and pulled out about 40 that I would not have any problem playing. Most of the options were under $1 with the stock less than $1 from the strike price. The way to play these is like a lottery play. Pick one or two and buy a couple contracts with the idea that if they expire worthless it is no big loss. If we get a market pop on Tuesday/Wednesday it would not surprise me to see the majority of these stocks move $2-$3 and double the option price. The concept here is not to hold them until Friday and sell before expiration. The concept here is to hopefully catch a spike in the stock price early in the week and have the option price double or triple as market makers scramble to avoid premiums going negative in the money before expiration. I strongly suggest picking a price to sell before you execute the buy. STICK TO THE PRICE. If you buy an option for $.75 and decide to sell it for $1.50 then SELL IT when it gets to $1.50. What goes up can come down even faster in expiration week. This is a plan to get a quick pop with little risk not got for a home run to make up for all of 2000's losses. Quick note: Unless you are using Preferred Trade, DO NOT PUT IN A LIMIT ORDER TO SELL. Many brokers send the order to the floor and the market makers have the luxury of seeing where the orders are. They can hold the price just under your limit knowing they have insurance if things don't go their way. Preferred holds the orders in their computer and only sends it to the floor when the bid hits your price. They then send it as a market order and if it is 10 contracts or less it is an automatic execution and before the market maker knows it he owns your contracts. If you are using another broker for your stop losses call them and ask how they do it before placing your limit sells. The list below was the best (cheapest) at the money options I could find on Friday night on stocks with good trends. There are better stocks but the options are still out of sight. As the week progresses we will see options on stocks like JNPR, CIEN, PMCS etc, cheapen the closer we get to Friday. Last month we had a deep V drop and recovery on Friday that was perfect for this type of trading. Still there are some really good plays on this list. Pick a couple to trade on Tuesday and then look for others to develop as the week progresses. Stock Price Strike Cost ITM ADAP 3.81 5.00 0.25 VITR 4.63 5.00 0.38 ISLD 4.69 5.00 0.50 ICGE 4.94 5.00 0.63 CMGI 5.75 5.00 1.06 ITM .75 CMTO 7.25 7.50 0.69 TIVO 7.38 7.50 0.75 CCUR 7.38 7.50 0.75 NETA 7.84 7.50 0.94 ITM .34 RHAT 8.69 7.50 1.44 ITM 1.19 ATHM 8.75 10.00 0.25 ORCH 11.44 12.50 0.63 KANA 11.94 12.50 0.81 LGTO 13.94 15.00 0.69 VC 14.12 15.00 0.38 CNC 14.69 15.00 0.50 MSTR 15.00 15.00 1.31 ICIX 15.69 15.00 1.94 ITM .69 ASYT 16.81 17.50 0.63 SSTI 16.81 17.50 0.69 MFNX 18.69 17.50 1.94 ITM 1.19 TSM 22.31 22.50 0.81 LSCC 22.94 22.50 1.69 ITM .44 ANF 23.63 25.00 0.56 T 24.25 25.00 0.44 PRIA 26.00 25.00 1.63 ITM 1.00 GPS 29.88 30.00 0.94 ARBA 35.06 35.00 2.88 PHG 41.25 40.00 2.06 ITM 1.25 MU 41.50 40.00 2.75 ITM 1.50 SYMC 42.50 40.00 3.75 ITM 2.50 CMCSK 43.63 45.00 0.75 LWIN 44.38 45.00 2.88 JCI 59.56 60.00 1.38 VECO 59.94 55.00 6.88 ITM 4.94 AT 67.50 70.00 0.75 UBS 170.00 170.00 2.90 The prices will of course change at the open on Tuesday so verify if it is still a good deal before placing your order. The higher the stock price the better chance of the stock making a major move before Friday. A $5.00 stock has to make a 40% move to move $2.00. A stock like AT can move $2 in five minutes. The option is not a good deal just because it is cheap. If the stock is not moving up with a good chance of passing the strike price then pass on the trade. Good Luck Jim Brown ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1362 ************************************************************** **************** MARKET SENTIMENT **************** Earnings (Or Lack Thereof) Season Is Upon Us By Austin Passamonte There was a time in the not-too-distant past when earnings season was a sure-thing rally waiting to happen. Buy OTM calls a few weeks ahead and sell on the day of earnings release. So methodical and easy, it was almost free money. For a little while. As always, reality sets in eventually. Blow-out earnings and especially the promise of future earnings that will catch rocketing over-valuation cannot sustain forever. Not to mention "companies" who never had a plan nor prayer for profits in the first place. Now earnings season has become once again the great unknown. We do know a few things. This quarter will be dismal. Next quarter and the entire year will be flat at best by some companies' admission already. The question investors and traders ask is, "Who will have positive performance this year"? Those that do could be treated like royalty as money waits impatiently to buy anything that can be justified. Market Sentiment expects higher closing prices this Friday night than last. The route we take to get there is most uncertain. Traders already expect bad news and selling pressure is drying up as a result. Avoidance of any catastrophic reports should allow movement to the upside. Surprisingly-negative reports could very well exist and would stall any rally dead in its tracks as witnessed last Friday. Knee-jerk euphoria at the first rate cut 10 days ago has been replaced with economic uncertainty, corporate crisis in the energy world and fear that the Fed will do anything less than cut 50 basis points again by/before Jan 31st. The wall of worry is growing almost high as PCLN & DCLK PE ratios once did. Beyond this earning's season ahead we must ask ourselves what will sustain an extended rally from there? Could any underlying turmoil exist, such as record amounts of bad debt in many sectors left as baggage from the dot.com's bubble collapse? History proves that months after the initial interest rate cycle changes from tighten to loosen, markets are higher. We wonder if history will repeat once again and what lies in store for us until then. Meanwhile, a tradable rally is long overdue and high-odds to prevail short of any more bearish surprises. White light at the end of this tunnel is either brilliant sunshine or a giant bear's gleaming teeth and we cannot yet tell which. Trade the daily trend with great caution! ***** VIX Friday 01/12 close: 27.62 30-yr Bonds Friday 01/12 close: 5.61% 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. Saturday (01/13/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 725 - 710 15,178 2,930 5.18 705 - 690 13,299 8,030 1.66 OEX close: 687.88 Support: 685 - 670 13,088 11,850 .91 665 - 650 1,562 9,723 6.22 Maximum calls: 685/8,593 Maximum puts : 640/5,359 Moving Averages 10 DMA 686 20 DMA 686 50 DMA 709 200 DMA 764 NASDAQ 100 Index (NDX/QQQ) Resistance: 72 - 70 82,533 16,290 5.07 69 - 67 68,956 6,609 10.43 66 - 64 71,724 24,723 2.90 QQQ(NDX)close: 62.73 Support: 61 - 59 82,175 49,507 .60 58 - 56 33,829 28,493 .84 55 - 53 36,406 40,078 1.10 Maximum calls: 60/60,812 Maximum puts : 60/35,539 Moving Averages 10 DMA 59 20 DMA 60 50 DMA 67 200 DMA 85 S&P 500 (SPX) Resistance: 1375 11,021 10,230 1.08 1350 36,345 31,197 1.17 1325 14,155 15,886 .89 SPX close: 1318.55 Support: 1300 6,742 14,191 2.10 1275 440 14,435 32.81 1250 1,688 12,355 7.32 Maximum calls: 1350/36,345 Maximum puts : 1350/31,197 Moving Averages 10 DMA 1313 20 DMA 1312 50 DMA 1346 200 DMA 1425 ***** CBOT Commitment Of Traders Report: Friday 01/12 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 -108 -2008 -5438 -2167 Total Open interest % (-1.37%) (-25.35%) (-21.58%) (-9.59%) net-short net-short net-short net-short NASDAQ 100 Open Interest Net Value +1861 -1028 -3982 -1825 Total Open Interest % (+11.29%) (-4.77%) (-7.13%) (-3.45%) net-long net-short net-short net-short S&P 500 Open Interest Net Value +59586 +59586 -86815 -81851 Total Open Interest % (+37.29%) (+29.89%) (-11.19%) (-11.09%) net-long net-long net-short net-short What COT Data Tells Us ********************** Indices: The Commercials show a dramatic increase in their net- short positions on the DJIA while maintaining their net-short positions on the S&P 500 and NASDAQ 100. Small Specs show a substantial reversal in their NASDAQ 100 positions going from net-short to net-long. Interest Rates: Commercials are moderately short T-Bond and T-Note futures. (mildly Bearish) Currencies: Commercials continue to build heavily short Euro futures while small specs build net long. Small specs are betting on interest rate reductions while commercials remain skeptical. (Bearish) Energies: Commercials are net-long crude & oil products at one year extremes. These producers are hedgers and almost always take the opposite side of expected market action to lock-in production prices. They expect lower prices from here. (Bearish) Metals: Commercials are moving to net-long in Gold, Silver and Copper from short positions. This has happened quickly and they expect higher precious metals soon. (Bullish) COT/CRB: This commodity index measures the entire spectrum of commodities in overall bullish or bearish outlook. It is now at a one-year high for commercial bullishness, meaning the outlook for commodities is long-term positive while equities as a mirror are considered long-term negative. Data compiled as of Tuesday 12/26 by the CFTC. www.OptionInvestor.com ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/011401_1.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=1384 ************************************************************ *************** ASK THE ANALYST *************** Debunked By Eric Utley My thesis of tech remaining dormant in the next six months was thrown back in my face last week. But one week does not make a trend and I'll continue to urge our readers to take caution in the tech space. On a quick tangent, my good friend, John Seckinger, and I were discussing how dynamic the market has become. And during our conversation, John, who is the excellent editor of www.Netbulls.com, reminded me that markets become more and more dynamic with time. His insight reinforced just how difficult it is to make near- and long-term projections in the market and why it's so important to really "listen" to the market itself. And, by the way, if you haven't read any of John Seckinger's observations over at NetBulls, I would highly recommend doing so. He puts out great ideas that help readers make money; he leaves out the fluff, too! And finally, at the risk of destroying any credibility I might have, I would urge the tech traders among our readers to pay close attention to the Nasdaq early next week, particularly its behavior around the 2700 level. In my humble opinion, beyond any other resistance level the Nasdaq has hurdled, 2700 marks a significant line between the bulls and bears - it's the site of the Nasdaq's long-term descending trend that has been in place since September. Along with a plethora of charts this weekend, I thought I'd take the time to answer a few questions I received in the past week that may be of interest to a broader audience. Please explain "...tail end of tax loss selling..." in January. Thought tax loss selling ended on 31 December. - Great service, F Judisch You are correct, Mr. Judisch, tax loss selling DOES NOT take place in January. However, tax gain selling does. Many investors choose to lock in gains in early January in an effort to defer taxes to the next fiscal year. That's why we often witness the fourth-quarter's best performing stocks sell-off in early January. Shares of Laboratory Corp. (LH) provide an example. The stock was a big winner in 2000 and performed especially well in the fourth-quarter. In fact, shares of Lab ended 2000 just seven dollars from their 52-week high. However, Lab shares now trade nearly $50 from their high due to tax gain selling. Hi Eric, I would very much appreciate if you could explain the reasons why most of the gap ups/downs should be filled? - Sophie Sophie, most gaps are filled when markets provide proper liquidity for participants. The reason is, markets don't like to trade in inefficient ranges where value is uncertain. A security, or index, may trade several deviations away from value, by way of a gap or parabolic move. Nevertheless, the security, or index, generally makes its way back to value, thus filling any gaps caused by inefficient supply or demand as a bi-product of imperfect information flow - retail investors are generally on the wrong end of that flow. I am new to your newsletter and have really enjoyed your commentary as well as your put/call plays. You almost always recommend entering into a trade (put or call) after noticing a break on higher volume from a support or resistance level. My question is how to notice this higher volume intra-day. Is the temporary spike in volume as shown in my 5 minute daily chart (relative to the previous 5 minute chart) sufficient or do I have to employ other tools. Is this the correct way of spotting higher volume (and reacting to it) even though volume at the end of the day may come up lower than ADV? - Thanks, Shanti Thank you for taking the time to write in, Shanti, and thank you for asking a really good question. Volume is a key indicator in detecting the big time buyer or seller, and it's crucial in deciphering how much force that buyer or seller has. And as you alluded to, Shanti, it's all relative. Take for example the 5-minute chart of Cisco's trading last Thursday. You'll notice that around 2:00 EST the trading activity began to dramatically increase relative to the past two hours, confirming price action. But, what if ADV ends up lower on the day? I would say consider your timeframe. If you're strictly day trading then you should only consider the volume in a shorter time period. If, on the other hand, you're swing trading with holding periods of two or three days, then you should give more weight to daily volume totals. CSCO - 5 min chart Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Audiovox - VOXX It is my 3rd request for your analysis of VOXX, can you please e-mail me back what you think if you do not feel it worthy of putting it in the newsletter. - Thank you, Bob Bob, I sincerely apologize for not completing your request early. It's a matter of time and space, and oftentimes I don't have a lot of either. But enough with my excuses, let's tackle Audiovox. The company operates in wireless communications and consumer electronics - 80 percent of sales come from the former and the remaining 20 percent from the latter. Neither wireless markets have been very friendly as of late, explaining the drastic reduction in Audiovox's earnings estimates for its fourth- quarter. The company does have a volatile earnings history, but the recent reduction for fourth estimates was extreme. That said, it will be very interesting to hear from the firm when it announces actual fourth-quarter results, which I believe are scheduled for release this Thursday. I would suggest listening closely to Audiovox's conference call to see whether the company is struggling as much as the analyst estimates suggest. If it's not as bad as the sell-side of Wall Street have predicted, shares of Audiovox may be an aggressive investment consideration down at these prices. But if they fall short of already-lowered numbers, you might want to stay away from the shares for awhile. Away from Audiovox's earnings picture, the stock's price action has been encouraging. Over the last six weeks, the stock has traced an inverse head-and-shoulders - a technical pattern that is indicative of a bottom. While the bottoming pattern is encouraging, VOXX still needs to contend with is nasty downtrend which has been in place for a year now. And it's no coincidence VOXX stopped right at that trend line last week. A breakout above that line, combined with a bullish earnings report could set the stock free to rally. VOXX - Daily VOXX - Weekly ---------------------------- EMC - EMC, Sun Microsystems - SUNW Please give me about your preview of EMC and SUNW in current and future. - Thanks, Helen Thank you for your two requests, Helen. And since EMC and SUNW are both widely held stocks, I thought it would be relevant to review both. And because the two stocks are so well known, I won't bore you with any fundamental gibberish. So let's dissect their respective charts. Shares of Sun look as if they found bottom at the $25 level. Even more interesting is the wedge that is developing. SUNW has been trading in a tightening pattern of lower highs and higher lows. And it should follow the stock will break in one direction, hopefully it's to the upside for the sake of the Nasdaq. And on that note, if the Nasdaq is able to hurdle the aforementioned 2700 level in the near future, I would expect shares of Sun to break to the upside of their wedge. SUNW Shares of EMC, like many tech stocks, are still fighting a nasty descending trend. But it does appear the stock has found a bottom. I would expect a little consolidation to take place in the coming weeks given the stock's erratic movements because I don't think it's very easy to discern where the market is placing value right now. Nevertheless, a lot of EMC's directional movement will depend upon the action in the Nasdaq. I think the safer play, if you're looking for new entries, is to wait for a pullback to a good support level. Or, if you're patient, wait for the tech sector to REALLY come back and look to enter new positions in EMC when it breaks back above its long-term descending trend line. EMC ---------------------------- CSCO Systems - CSCO Is life over for Cisco? Has a bottom been put in place? At what price is there support? Looking to accumulate for long term but I don't want to catch a falling knife. Huge volume on the downside on an up day? Appreciate your comments! - Joe In my very humble opinion, Joe, Cisco is not dead. And before I answer the rest of your questions, let me provide a bit of history. This is not the first time shares of Cisco have suffered a major setback. In early 1994, shares pulled back from a high of roughly $2.25 down to $1. In early 1997, the stock pulled back from a high of roughly $8.50 down to $5. And finally, in late 1998, the stock pulled back from a high around $17.50 back to $10. These numbers, of course, reflect several splits. In percentage terms, the most recent pullback from $82 to $32 is the greatest draw down shares of Cisco have suffered. But we must also remember that the bear market of 2000 was one of the worst in the history of capital markets. And as the above numbers remind us, the market has been wrong about Cisco in the past. Is the recent pullback any different? I don't think so, but that's just one trader's opinion! Now to address your question, Joe: "Has a bottom been put in place?" Well, that could be the multi-million dollar question, couldn't it? Judging by the stock's price action over the past four weeks, I would dare say that the bottom is in process of forming. It looks like a range is developing between support at $35 and resistance up to $40, or maybe $45. If you're accumulating for the long-term at these prices, it may be prudent to set a stop at the relative low around the $32 level just in case the market is correct about Cisco this time around. It's all about managing risk no matter the security! ---------------------------- WorldCom - WCOM I realize this was asked by Sanjay recently but you seemed to have passed right over it. Are we seeing a head and shoulders bottom on WCOM right now and what's your long-term perspective on this given the 18 month sell-off? - Thanks, Jim I didn't cover WorldCom last weekend and regret doing so, Jim, given its impressive performance last week. In fact, the entire telecom carrier sector has performed very well lately - hence the inclusion of VZ, SBC, GX, and WCOM on the OI call list. There are a couple of things going on in the carrier space that should help lift the sector in the next 18 months. My colleague, Jeff Bailey, and I discussed this very topic last week and here's what we came up with: The Ciscos of the world, who sell their products to the WorldComs of the world, are facing an inventory glut - supplies are high. And when supply is greater than demand, prices come down. So now we are witnessing the reverse of 18 months ago when the Ciscos had extreme pricing power and the WorldComs had to pay outrageous prices for networking equipment. The table has turned. Now the WordlComs are paying lower prices for equipment while their revenues should remain relatively stable, or possibly rise over the next 18 months. Plus, to put it plainly, the share prices of the WorldComs were oversold last year. These stocks are now considered value plays, while the companies are in a growth business. In short, I would expect shares of Worldcom to trade higher in the next 18 months. As for a head-and-shoulders bottom, Jim, I don't see it. But I do see pretty positive price action on the chart. WCOM broke above its long-term descending trend line, which I view as a big positive. Plus, the stock broke out above the $20 level last week, which I viewed as a key resistance level. Judging by its strong technical position, I would expect WCOM trade up to $25 or $30 in the near- or intermediate-term with help from the Nasdaq and telecom sector. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of January 15, 2000 Monday ====== None Scheduled Tuesday ======= Business Inventories Nov Forecast: 0.40% Previous: 0.60% Wednesday ========= Beige Book 17-Jan Forecast: NA Previous: NA Capacity Utilization Dec Forecast: 80.90% Previous: 81.60% Core CPI Dec Forecast: 0.20% Previous: 0.30% CPI Dec Forecast: 0.20% Previous: 0.20% Industrial Production Dec Forecast: -0.50% Previous: -0.20% NAHB Housing Index Jan Forecast: NA Previous: 57 Oil & Gas Inventory 17-Jan Forecast: NA Previous: 288.3MB Thursday ======== Initial Claims 13-Jan Forecast: NA Previous: 345K Housing Starts Dec Forecast: 1.500M Previous: 1.562M Building Permits Dec Forecast: NA Previous: 1.586M Philadelphia Fed Jan Forecast: -7.10% Previous: -4.20% Friday ====== ECRI Weekly Index 12-Jan Forecast: NA Previous: -7.00% Mich Sentiment-Prel. Jan Forecast: 99 Previous: 98.4 SEMI Book to Bill Dec Forecast: NA Previous: 1.12 Trade Balance Nov Forecast:-$33.0B Previous:-$33.2B Week of January 22nd ==================== Jan 22 Leading Indicators Jan 22 Treasury Budget Jan 25 Initial Claims Jan 25 Employment Cost Index Jan 25 Existing Home Sales Jan 26 Durable Orders Jan 26 Help-Wanted Index Jan 26 Mich Sentiment-Rev. ************************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=1389 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 01-14-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011401_2.asp ************** TRADERS CORNER ************** What's Your Game Plan? By Lynda Schuepp How many times have you heard this line? How many times have you ignored it? One of my new year’s resolutions is to develop a thorough plan, write it down and follow it. The key word here is follow. If I did that, I would make a lot more money and lose a lot less. Having a game plan is crucial if you want to stay in the trading business over the long haul. No business can run without a business plan and trading is no exception. Before developing a game plan (business plan), you have to determine what your trading style is. Are you a short-term, intermediate-term, long-term investor or some combination of the three? If you are a short-term trader you need to qualify your definition of short-term as one minute, 5 minute or hours. It is important to recognize your trading style and use the appropriate time values on your charts. If you are a swing-trader (two to 5 days), you shouldn't be looking at one or five minute charts to determine your entry or exit signals. Once you determine your trading style, then you can develop YOUR game plan. After reviewing my trades last year I have determined that my personality is more suited to the short-term. I need validation and wins, no matter how small to make me happy. The problem is with a short-term strategy you have to have the discipline to take your losses early, a lesson I have still not learned. I tend to take my profits too early and my losses too late, sound familiar? That's not to say that I don't have other accounts such as my retirement accounts where my strategy is to hold stocks and generate cash through option strategies such as spreads or covered calls. I am in the process of developing a game plan and will share it with you. You can use it as a frame of reference, but you need to develop your own, based on your own personality, amount of time you have to trade, and knowledge of different market segments, analytical tools etc. Step 1: Screen out the thousands of choices and find ten to twenty stocks that you know about and have studied and include them in your watch list. Use these stocks until they no longer serve a good purpose. Constantly do new market research and replace stocks in your list, but do the research after the market is closed. I have found that I used to get distracted from my own plays when someone would say, "look at this stock, it's going to pop." I have narrowed my field of choices to 10 stocks; I call it the Lucky Lynda List. Since my background is in tech, all my stocks are in tech. I also look at the market indices and try to trade with the trends, based on my time frame that I am currently trading. Step 2: Once you double your money, take your original investment off the table and trade using only 50% of your portfolio. Last year, I made a ton of money and later gave back a million dollars to the market. It was an expensive lesson to learn. I was told along the way by more seasoned traders to sweep the account and put half your winnings into another account like CD's, to make sure that you either have enough money to pay the taxes, if you are profitable, or if you lose the other half, you actually will make money overall. Step 3: Weed out your resources and determine which have made you money, and dump the rest. The best resources for me are: Wall Street Journal, Investors Business Daily, Option Investor and Daily Graphs Online. Step 4: Attend at least 3 seminars a year and read at least 3 books on trading, investing and money management. Step 5: Determine your strategy for entry and exit points (and follow them). First, I look at a weekly chart to get an overall picture of stock. As you can see in the chart above, EMLX is above all three moving averages, the 20-week regression line is up and the stock closed above the regression line AND all three averages. Now if I was a long-term investor, I could buy here. Actually, the perfect entry point for the long-term investor would have been when the 10 crossed above the 50 back at the end of September. You can write scans like this in programs such as TC2000 and Omega Research and others. Since my time-frame is shorter I would look at the daily chart shown below and make sure that the 20-period regression line (blue) is up and make sure the stock is at least above its 200-day moving average. Daily Chart of EMLX with 10-,50- & 200-Day moving averages (green, yellow, red) and 20-period regression line (blue): Next, the most important chart for me is the 60-minute chart, because of my shorter time frame. The reason I use criteria from the daily and weekly charts are because of my ineptness at exiting bad trades. If the stock is strong on the daily and weekly charts, it is less likely that I will get burned if I am stupid enough to stay in the trade when it has blown past my stop. Looking at the 60-minute chart of EMLX below, you can see that the 20-period regression line is up, the 10-period moving average (green) is above the 50-(yellow) and the 50- is above the 200-(red). A great entry point would have been on Wednesday, after all three moving averages converged and the 10-period headed up and the candle broke above previous support at $77. Your exit signal would have been when the candle closed below the 10-period average at about $87, for a 10 point move. I missed this move on this stock because I was busy flipping SEBL and ITWO (from my list) for 1/2 to 1 point trades. See why a game plan is important? Step 6: Determine your strategy for going long or short. When I actually enter the trade I look at the 15 minute, 5 minute and 1 minute charts. I haven't narrowed it down to a drop dead signal for entry/exit, but you can see some of the criteria I use below. From the 15 minute chart below, a buy signal on EMLX at $77 was generated at the end of the day on Wednesday. Similar signals were generated on the 5 minute charts too. Since I am reluctant to hold over the close, I would have bought the next morning at the open for about $78. As you can see in the chart below, an exit signal was generated Friday morning when the 10-period moving average crossed below the 50-period but because I don't like holding stocks overnight, I would have sold at $87.75 at the close on Thursday. Step 7: Accept your losses and move on. Develop a healthy attitude about trading by focusing on the net result--did you make money overall? Stop beating yourself up about the money you lost. I now cash out daily and keep a running total of the money I made, net of losses daily and then add to the previous day's wins or losses and keep a running weekly total. My goal is to make money weekly not daily; otherwise I get caught up in the negativity of a down day instead of the positive energy of an up week. Had I followed my game plan last week, I would have made a lot more money than I did. However, I did make money and that is my goal. I will continue to refine my game plan and follow it. Next week should be an even better week if I can convince myself to follow my own advice. www.OptionInvestor.com ***** Thinking Through The Chaos For January Earnings And Beyond By Renee White Earnings season is always the time traders come out from hibernation. Adrenaline starts pumping, volume reading picks up, and sleep deprivation increases due to late night research. Playing January earnings the past few years seemed pretty simple and made many feel pretty smart. Heck, even a monkey could throw darts and pick winning plays. But this is not the same market and to benefit, one must think through their plays from more than one perspective. For me, that means evaluating the Big Picture first. I find that many traders only focus on the second stage, the Microscopic View, zeroing in on a perspective that is so narrow; it obscures their boundaries of good judgment for entry and exits. During the uncertainty of January 2001, the hardest part is putting these two perspectives together and deciding the third stage, How To Play It. By far, the biggest mistake I have witnessed new traders of the past 2 years make consistently in Yr 2000, was turning a deaf ear to people with different opinions than what they "wanted" to hear. We all make mistakes, but also, we all must learn. There IS a big difference in only buying calls in a bull run during a stealth bull market, and only buying calls in a full-blown bear market. Last April, I wrote an article titled, "Warning, This Is Not the Market Most Beginners Learn In." In April and May, I wrote about my concerns looking forward for the year. It was my perspective of the Big Picture. I wrote that I wasn’t buying Leaps on dips and warned not to rush in this time. Back then, I could only see out to the election period in November at which time I would reassess. In hindsight, that was enough. Still, many traders with ants in their pants, including myself at times, ignored the bigger picture, only to be left bloodied and depressed. So let’s try to think things through again together. Last spring it was clear we had been in an unsustainable growth run which was ripe to end and roll-over. Now, we’re crawling on the bottom with pent up hostility, ready to run in either direction. Playing earnings is a little tougher at these levels. With desires to play and win again, we must not lose sight that strategies for January 2001 may be different than January plays in 2000, 1999 or even 1998. Momentum may not be there, and plays may be short. Everyone should be comfortable with the market's Big Picture by now. We had explosive growth in just about all sectors of technology for several years. It was aided by fear and the surge in Y2K preparation spending, which were obviously going to dry up after January 1st, 2000. That dry up would be coupled with rising oil prices and rate increases which the market had mostly ignoring. When the fun ended and the rollover began, few recognized it was the start of severe pain to come, although in retrospect, it seems clear. Those rate increases, and oil prices would have delayed effects, which would ripple through the markets in months to come. New Economy companies or not, when companies expenses increase, they tend to tighten their belts. Belt tightening affects both buyers and sellers of goods. That pullback affects inventories and turnover, which then affects profitability. Easy jobs, fat stock options and fancy toys soon follow in pain, which of course, affects someone else’s sales, jobs and individual livelihoods. Wishing and hoping replaces eternal optimism. As expected, the October earnings period was much weaker than prior quarters and now we hear that pre-earnings warnings have increased significantly for January, showing business is still declining. The delay in the corporate downturn from the initial rate increases should make us think that there will likely be a delay in a corporate profit rebound. I think it is critical for traders to realize that the pain of lower revenues has just started to become obvious as corporations review their year-end. For this reason, I suspect the post-earnings conference calls to be even more important than in the past, as corporate leaders guide estimates and growth to downward revisions for 2001. Looking further out, my guess is that next year we will have a more familiar Santa Claus rally, as the 3rd and 4th quarter should be prime for earnings surprises to begin surfacing on the upside, assuming no international crises. October is now the spookiest month to trade, making the post earnings period probably good entries for 4th quarter 2001 and 1st quarter 2002 plays. This is the good news, but we are still a long way off. I do believe in the efficient market theory, but only when looking at the Big Picture. For the intermediate future though, we face diminishing corporate earnings, more lay-offs, pullbacks and less corporate spending. Don’t lose sight at how slow recovery can be to profits. Sales have slowed and will get slower in the months to come. That means some bills have slowed too, probably both payables and receivables. The system just backs up. Although Crude Oil came down since being over $35 on October 12th, it has been rising back up from its drop under $26 on December 21st. It sits now at $30. You think your precious tech companies don’t use crude much because they don’t ship as many products by truck, well, don’t forget the rise in electricity. High tech eats electricity like body builders drink muscle boosters. Either way, if not both, energy prices affect profit margins. All jobs and performances will be under scrutiny for value to the company. As companies have more money, they will take care of necessities first before more elaborate capital spending. The Microscopic View has traders focusing more on the typical January effect of money inflow, and now their focus is making sure they are positioned for some unknown rocket with graffiti saying "rate cut" on its side to blast off. That may sound harsh, but it is important to not lose focus that we are in a bear market with expected weak earnings for at least one and possibly two more quarters. If you must play, then play the market and the trend, but don’t ignore the bigger picture. When zeroing in on intra-day or short-term 1-3 day trades, markets become less efficient and more cataclysmic with extremes to over-bought and over-sold conditions. In our current environment, these extremes can occur on the same day. Obviously, this is a nervous market. It does not matter if you only pick the best of the best. What worked last quarter may prove squat this quarter. Those prima donnas, who always beat by a penny, may only just meet expectations, and then give a whopping downward revision for the foreseeable future after the markets have closed. If you ever had the bad habit before, cure it now, don’t hold call options over earnings. Instead, force yourself to exit early from the play to be safe. If the crowd is leaving, exit with them, even if your play is underwater. Better to be underwater than vaporized! Think of every play as if you were holding a ticking time bomb. How to play it? There is opportunity here but strategy will take scrutiny. The most critical piece of this puzzle is to always know what your daily Nasdaq chart shows. I keep this within eye’s view, full of downtrend lines, support & resistance levels drawn and candles, at all times. I always start a day knowing my support & resistance levels and I’m constantly monitoring the looks of that daily chart against my intra-day charts. The down trending channel lines are major alerts and a line is drawn in the sand if one line lands on a support or resistance level. Call options are possible this quarter, but closer monitoring will be necessary. Remember, the market is stronger than any one play; it doesn’t HAVE to go up. Possible choices for calls could be companies that blew-out whisper numbers in October and those that have revised upward for 2001. My guess is that momentum traders will move there helping your plays for a few days, not weeks like before. Following volume on your company would be necessary and I would use support & resistance levels on an intra-day basis against yesterday’s numbers. When intra-day support is broken, I would consider exiting if I had gains. At a minimum, I would look at where the stock was compared to yesterday’s high, low and close. For me, a trade that drops below yesterday’s close is enough reason to exit, especially in a nervous market. Once the masses exit your company before earnings, they rarely return. This quarter, my thoughts remain with playing the downside risk. I’ll be looking for stocks that have been moving the last several days, trying to muster a run into their earning’s report. I will try to capture their highs to sell covered calls or to buy February and March puts. Potential plays here could be high PE stocks and the biggest gainers the last two weeks that are reporting earnings next week. In addition, with another half point rate cut expected in January, the markets will be expecting and demanding it. I don’t expect a 1/2 point rate cut. A 1/4 point cut could be met with a harsh sell-off in the post-earnings month of February. Even with a 1/2 point cut, since the Fed will be finished until March, February would be a perfect time for selling-on-the-news profit taking. I do not agree with the hysterics of a looming recession, but I can profit from the fear of it. One more thought. Even with general market movement to the upside near term, I will wait until I see the results of earnings before buying companies I want to hold for the long term. If you are thinking of bottom-fishing for investing purposes not trading, make sure you know the outlook on that company for the next 1-2 years. Dead money goes nowhere. In my opinion, there is still room in some defensive sectors, which have recently pulled back due to the interest rate cut...not to leave out a little help from the California utility and energy scare. Some of those companies are not affected by California, but have sold off considerably. Many have had a great year and should post strong earnings with solid growth forward. I would expect them to rally if techs sell off in early February. If we do retest recent lows in Nasdaq in February, I would expect (or hope) they would be higher lows, which I would read as an entry for long-term portfolio holds. Options are different though. The time decay could eat at Leaps, leaving them to drift downward as companies work out problems the next few quarters. The stock market is a leading indicator of economic health. Look at the yearly charts of the general markets and indices. As long as we are wallowing near the bottom, be more conservative, cautious, and keep the Big Picture in mind. www.OptionInvestor.com ************* READERS WRITE ************* Regarding Credit Strangles: Given the relatively high market volatility, your inclusion of more short strangles was excellent. Do you generally recommend that they be entered when quarterly earnings news won't affect the front month position? Secondly, if the probability of finishing between the break evens is, say, 75%, and above and below split at 12.5%, with overvalued options and no earnings news coming, would you close this type of position, say, a week early if you could close it at 90% profit? Thanks for your comments! PM ***************************** Thanks for your question, PM. Concerning risk/reward and early-exit opportunities: Earnings announcements (or other potentially significant events) should always be considered when participating in stock/option plays, even more so in limited reward/unlimited risk strategies. Of course, that's one of the primary reasons for the high IV, so I include it as part of the risk factor in evaluating the position. One of the questions I receive frequently concerns the correct timing of early exits and adjustments for spread positions. While there is no perfect answer (or solution) to this dilemma, one of the most practical closing strategies is based on the target ROI for the position. If a play originates with a 25% monthly return target and a slightly smaller but reasonable profit becomes available at an earlier time (based on a lower yield and shorter time period), the position is a candidate for early closure. Obviously, most positions that meet that criteria will appear to be so successful they can't possibly lose at expiration. This aspect, along with commission considerations and the effects of human nature - which urges you to simply hold the play and hope for maximum profit - will prevent most traders from closing the position early. As you know, even when the issue moves in the predicted direction, the position is always at risk from a variety of changes in the market. These effects are largely reduced with hedged positions but the end result can still be unfavorable. I think 90% profit easily meets the criteria for a favorable early-exit... Ray Cummins OIN ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=1349 ************************************************************ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* VRSN - VeriSign, Inc. $84.88 (+16.06 last week) See details in sector list Put Play of the Day: ******************** CB - Chubb Corporation $69.06 (-6.07 last week) See details in sector list ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1363 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS SBC $50.94 (+0.94) After the surge in shares of Telecom stocks that occurred early last week on the heels of the AT&T upgrade by Morgan Stanley, shares of SBC have run into a brick wall at the $52 resistance level. Since then the technicals have begun to weaken, and the long steady decline on Friday dropped the stock briefly below our $50 stop. Although the late day recovery allowed the stock to close above this critical level, it looks like the odds are stacked against the bulls in the near term. Rather than wait for a further deterioration, we will cut the play loose this weekend due to the plentiful selection of healthier plays. While there could be a resurgence in shares next week, we would use any bounce on Tuesday as an opportunity to exit the play at a more favorable level, rather than initiating new plays. CTXS $27.50 (+0.81) The bulls certainly made a valiant effort to take CTXS through the formidable resistance at $30; however the 200-dma ($30.36) was obviously too much of an obstacle. After two sessions of falling short of the $30 mark and a steady sell- off on increasing volume in Friday's session, it's evident that we should move on to more lucrative opportunities. Plus, the company is reporting earnings this Wednesday, after the market, which would have promptly terminated the play. PLAB $34.00 (+6.88) The stock's 25.4% gain last week resulted in whopping profits for option players. The strong volume that resulted in PLAB's bullish close on Friday's intraday high certainly bodes well going into next week; however, our concern is profit taking. The issue hasn't seen these higher trading levels since last April. Therefore, with that in mind, we're lining our pockets with cash and exiting on a profitable note. VZ $55.50 (+0.94) Well, after four days of lack-luster consolidation between $55 and $57, we believe it's time to retire VZ. We kept the stock on our call list in light of the renewed interest in telecoms like Lucent, WorldCom and AT&T. But unfortunately, the enthusiasm didn't spread to Verizon this time around. Perhaps the company's earnings' release scheduled for February 1st (before the opening bell) will ignite another breakout. In the meantime, we'll move on to other profitable plays. PUTS CSC $56.69 +1.56 (-0.94) CSC has provided profits for put players last week. However, Friday's pattern is indicative of a change in the stock's trend. After spiking up as high as $58.13 by noon, CSC rolled over to support at $56.50. In an uncharacteristic sign of strength, CSC closed up on a down day in the market, and as such, we are dropping it as a put play at the present time. IVX $34.00 (+3.00) The ride down to $30.15 proved profitable, but it's now apparent that IVX found a comfortable bottom. The evolving support at $32 and the violation of the upper resistance at the 10-dma ($33.78) clearly signifies it's time to exit. While it's true IVX didn't break through our protective stop of $35, the stock's high-volume climb Friday afternoon makes a bullish statement going into next week. If you have open positions, consider selling into any intraday weakness. P $55.13 (-0.75) Although our put play in Phillips has so far been a profitable one, we are dropping coverage for the simple reason that there are better opportunities out there for our investment dollars. Connecting the highs since the beginning of the year, we can see that P is still in its downtrend, with the 10-dma (now at $55.50) providing additional resistance. However, the stock has traded in a range of a little over 3 points this past week. As options traders, we want our positions to have a measure of volatility to overcome the premiums we pay which decay over time. While this play has so far been one of low risk, it has also been one of low reward. As such, we are taking our small gains from this play to put into better prospects. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** IDPH - IDEC Pharmaceuticals $168.63 (+13.56 last week) IDEC Pharmaceuticals is a biopharmaceutical company engaged primarily in the research, development and commercialization of targeted therapies for the treatment of cancer, autoimmune and inflammatory diseases. IDPH's first commercial product, Rituxan, and its most advanced product candidate, Zevalin (formerly Y2B8), are for use in the treatment of certain B-cell non-Hodgkin's lymphomas. The company is also developing products for the treatment of various autoimmune diseases such as psoriasis, rheumatoid arthritis and lupus. Just when it looked like the Biotech sector (BTK.X) was never going to get healthy again, the bulls came back with a vengeance. The recovery began with a solid bounce Monday afternoon, and the rally kept going right up to the closing bell on Friday. One of the strongest stocks in the sector was our new play on IDPH, and Friday's close represents a gain of 24% from Monday's low. The stock didn't move in a straight line but the intraday pattern of higher lows and higher highs is quite encouraging, with volume humming along solidly above the ADV of 1.87 million shares. Helping to kick in the afterburners on Wednesday was First Union Securities, initiating coverage with a Buy rating. Investors responded by bidding the stock more than $18 higher in the first 2 hours of trade. Despite the meteoric rise, profit taking was minimal and the fun continued on Thursday. Although we haven't had one in a while, we get to throw the added dynamics of a split run into this play. IDPH will split its shares 3-for-1 on Wednesday, January 17th, so this will obviously be a quick play. Due to the short fuse on the play, we are keeping it on a short leash and placing our stop at the $160 support level. If you're looking for another catalyst for the current uptrend, how about earnings which are scheduled for January 29th? And although the PE ratio is north of 200, at least this stock actually has earnings to report! With the recent bout of volatility, the stochastics are just starting to move out of the oversold zone, and we are nowhere near testing the upper Bollinger band. Thanks to the recent decline, the upper band is resting at $228, where it shouldn't be a factor to contend with for some time to come. The more immediate concerns are resistance at $177-178, where the stock ran out of steam on Friday, followed by the $186-188 level, which is reinforced by the converged 30-dma ($187.50) and 50-dma ($188.13). IDPH is a volatile stock, so this play is not for the risk-averse. With that being said, the more conservative entry will materialize as the stock continues its rally and clears the $178 level. Target shooting intraday dips may provide more attractive entry points on a bounce from either the $163 or $160 support levels. In either case, confirm a positive NASDAQ and BTK before playing. ***January contracts expire this week*** BUY CALL FEB-165 IDK-BM OI= 34 at $24.25 SL=18.25 BUY CALL FEB-170*IHD-BN OI=148 at $21.63 SL=16.25 BUY CALL FEB-175 IHD-BO OI= 19 at $19.25 SL=14.00 BUY CALL APR-170 IHD-DN OI= 58 at $33.63 SL=25.25 BUY CALL APR-175 IHD-DO OI=192 at $31.38 SL=23.50 BUY CALL APR-180 IHD-DP OI=522 at $29.25 SL=22.00 SELL PUT JAN-155 IDK-MK OI=196 at $ 5.00 SL= 7.00 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=IDPH MYGN - Myriad Genetics $56.00 (-3.00 last week) Like the name says, MYGN is engaged in the use of gene-based medicine to develop novel therapeutic and molecular diagnostic products. The company is focused on the emerging field of Proteomics, the study of the relationship between protein function and particular disease genes in order to understand the role this genes and their related genes play in the onset and progression of disease. So far, MYGN has identified 22 drug targets using its proprietary technologies. Based on its discovery of genes involved in breast cancer, brain cancer, prostate cancer, heart disease and dementia, MYGN has delivered 13 of these targets to its strategic partners. In case you hadn't noticed, Biotech stocks were back in favor this week, with the Biotechnology index (BTK.X) rallying an impressive 21% between Monday's low and the high on Friday. MYGN was still in free fall on Monday, with volume clocking in at more than triple the ADV of 700K shares. Volume remained heavy throughout the week, and the stock finally began moving cautiously higher on Wednesday. By Friday afternoon, the stock was solidly in rally mode, and it posted a 17% gain, with buying volume coming on strong into the close. So what prompted the swift turnaround, you ask. It seems the stock benefited from news that Hybrigenics and Cytogen, two other firms looking to turn the science of Proteomics into cash, each reached milestones in experiments designed to chart which proteins are capable of binding, or interacting with one another. The reason for the response in shares of MYGN is that of all the players in this arena, MYGN has been the most successful at turning the science into cash. Although the stock closed right at the high of the day on Friday, it also closed right at the $55-56 resistance level, and conservative investors will need to see the bulls rally the stock through this level before taking a position. Then significant historical resistance sits near $66, just below the 200-dma ($69), followed by another obstacle at $75. While it won't be an easy row to hoe, MYGN is showing the beginnings of a nice rally with the daily stochastics beginning to turn positive (although still in the oversold zone). The selling that occurred early last week came to an abrupt halt at the $45 support level, and given the sharp recovery on Friday, we don't expect to see the stock revisit this level in the near future. Instead, we are focusing on support between $51-52 as our trigger for aggressive entries. Any solid bounce in this area that is accompanied by solid volume and a positive BTK index looks like a ready-made entry point. We have placed a tight stop at $51, and any close below this level will spell an untimely demise to our play. One note of caution before setting you loose on this play. Note the unusual option pricing below. It is due to extreme illiquidity in the options, so use caution when playing. Lack of liquidity translates to wider Bid/Ask spreads, so you may want to try splitting the spread when opening new positions. The prices listed below are the most recently quoted Ask prices for the options, but the market has since moved away from them. Take this into account when evaluating your entry strategy and make sure it is consistent with your risk tolerance. BUY CALL FEB-55 QGD-BK OI=21 at $10.13 SL= 7.00 BUY CALL FEB-60*QGD-BL OI= 9 at $10.25 SL= 7.25 BUY CALL FEB-65 QGD-BM OI=30 at $ 9.00 SL= 6.25 BUY CALL MAY-60 QGD-EL OI=20 at $19.00 SL=13.75 BUY CALL MAY-65 QGD-EM OI= 2 at $17.75 SL=12.75 BUY CALL MAY-70 QGD-EN OI=11 at $16.38 SL=11.75 SELL PUT FEB-45 GSQ-NI OI=50 at $ 4.13 SL= 6.00 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=MYGN VRSN - VeriSign, Inc. $84.88 (+16.06 last week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the companys trusted service infrastructure to develop and deploy customized digital certificate services for use by an organizations employees, customers and business partners. Improving sentiment in the NASDAQ has attracted some buying in the high-flyers, helping shares of Verisign to gain almost 25 percent this past week. While analysts have been mixed on the stock, the recent rise on increased buying volume speaks louder than words. First Union Securities upgraded the stock from a Market Perform to a Buy rating, setting a target price of $90, citing incremental synergies with its Network Solutions division leading to higher EPS going forward while Robertson Stephens lowered its rating from Buy to Long Term Attractive. Connecting the highs and lows since late September reveals a downward regression channel. Since successfully testing support at the $58 level however, the stock has rallied thanks to improved sentiment in the NASDAQ, so much so that VRSN broke to the upside from its intermediate term downtrend line. While there was some profit taking ahead of the long weekend on Friday, with the stock closing down $2.56 or almost 3 percent, trading was light relative to the recent volume to the upside. Earnings are confirmed on the close of January 24th and if the stock decides to run ahead of the report, could challenge overhead resistance from the 50-dma, currently at $96.67. For now, traders looking to buy on a dip may find support at $84.50, $81.50, the 5-dma at $78.33 and our stop price at $78. If the buyers decide to return on Tuesday, driving the stop up above the $87 level on volume, this could allow for a safer entry, but correlate entries with movement in peers such as ENTU, CHKP, RSAS. BUY CALL FEB-80 XVR-BP OI=228 at $15.13 SL=11.00 BUY CALL FEB-85*XVR-BQ OI=169 at $12.63 SL= 9.25 BUY CALL FEB-90 XVR-BR OI= 80 at $10.38 SL= 7.50 BUY CALL MAY-85 XVR-CQ OI= 51 at $15.38 SL=11.00 BUY CALL MAY-90 XVR-CR OI=212 at $13.38 SL=10.00 SELL PUT FEB-75 XVR-NO OI= 85 at $ 6.88 SL=10.00 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?symbol=VRSN ARBA - Ariba Inc $35.19 (+1.13 last week) Ariba is a provider of Internet-based B2B e-commerce network solutions for operating resources. Their Web-based procurement software helps manufacturers, retailers, and distributors to track and manage supply purchases over the Internet. Blue chip clients include Dupont, Federal Express, and Hewlett-Packard. Another company beats the Street's earnings' estimates and takes a severe thrashing on future growth concerns; and in the case of Ariba, the question of ambiguous accounting resulted in many analysts lowering ratings on Friday. Ariba beat the consensus estimates with $170 mln in revenues and robust earnings of $0.05 versus the anticipated $0.03 p/s. Revenue growth was a respectable 26%, but investors continue to look for the 70 to 100% gains of the recent past despite the fact that Ariba is the first of the major Internet B2B companies to report an operating profit. As is was, investors sliced and diced ARBA of more than 20% of its share value. The bearish close near the intraday low wasn't unusual considering the astonishing volume of 84.8 mln shares exchanging (ADV=13.3 mln) on the decline. But by contrast to Friday's negative bias, we believe there's little downside to come and good upside potential as we move into next week. The influential CSFB seems to agree over the long-term as well. The brokerage firm raised Ariba's fiscal 2001 EPS estimates to $0.26 from $0.14 and 2002 to $0.56 from $0.42 - that's quite an adjustment! Take a look at last week's chart and it's easy to see that the $33 and $34 levels kept ARBA afloat before and after the earnings' adversity. Of course, we'll exit the play if ARBA demonstrates continued weakness and closes below the $32 mark. You might consider taking entries on a high-volume rebound through the 5-dma ($38.53) or if you're more cautious, as ARBA rallies above the 10-dma ($41.43). You may want to pay attention other computer service stocks like Exodus (EXDS), WebMethods (WEBM) and Akamai Technologies (AKAM) to get a feel of how the sector is responding to overall market conditions. BUY CALL FEB-30 IRU-BF OI= 224 at $9.63 SL=6.50 BUY CALL FEB-35*IRU-BG OI= 335 at $7.13 SL=5.00 BUY CALL FEB-40 IRU-BH OI= 510 at $4.88 SL=3.00 BUY CALL FEB-45 IRU-BI OI=1617 at $3.63 SL=2.00 http://www.premierinvestor.com/oi/profile.asp?ticker=ARBA ************************ NEW LOW VOLATILITY CALLS ************************ WCG - Williams Communications $19.50 (+3.82 last week) Williams Communications is North America's only exclusively carrier focused fiber optic network and the largest independent source of end to end integrated business communications solutions - data, voice or video. Their businesses also include the primary video backhaul distribution company for the media industry and an emerging broadband media services business that specializes in the management, hosting and distribution of digital information. Approximately 85% of WCG stock is held by its parent company, Williams, traded on the NYSE as WMB. After suffering through last year's horror story with the rest of the rapidly expanding telecommunications stocks, Williams has made an impressive comeback over the last week. The original stimulus was the Federal Reserve's rate cut, and the expectation of future rate cuts, which has had an immediate and dramatic impact on companies which are starved for cash, and highly dependent on the corporate debt markets for their financing needs. WCG hit a low of $11.50 on January 3, and within one day of the Fed's rate cut, the stock had crossed its 50 dma of $14.42, and never looked back. This week, several important events occurred which acted as catalysts to stimulate WCG. On Tuesday, WCG's parent company, WMB stated in a preliminary prospectus filed with the SEC, that it is considering forgiving a $975 million loan made to WCG in exchange for equity. This would raise WCG's credit line by one third, and free up room for WCG to raise an additional $1.2 B in debt. (Don't we all wish for parents like that?) WCG's bonds immediately surged on the expectation of lower debt to capital ratio. On Friday, WCG filed a shelf offering to periodically offer up to $2 billion in common and preferred stock, debt instruments and warrants to finance expansion, and investors were so enthusiastic that they pushed the stock up to $19.50 on 1.5 times the average daily volume. A pullback to $19 is likely, and would be an excellent entry point. If the telecom and business communications sectors stay strong, WCG should be able to clear $20, and begin a path to $25. Keep stops at the converged 5 and 10 dma of $17. BUY CALL FEB-17.5 WCG-BW OI= 427 at $3.50 SL=1.75 BUY CALL FEB-20 *WCG-BD OI=1380 at $2.13 SL=1.00 BUY CALL MAY-17.5 WCG-EW OI= 380 at $4.75 SL=3.00 BUY CALL MAY-20 WCG-ED OI= 273 at $4.00 SL=2.50 http://www.premierinvestor.com/oi/profile.asp?symbol=WCG ATHM - At Home Corporation $8.71 (+3.15 last week) At Home is a provider of broadband online services. As of June 30, 2000 the company had approximately 1.8 million worldwide subscribers to its @Home service, which provides high speed internet access to consumers utilizing the cable television infrastructure. The @Home service offers an "always on" connection, and features a scalable, distributed, intelligent private network designed to avoid bottlenecks frequently encountered on the internet. After reaching a 52-week low of $3.87 on December 22, At Home gave their shareholders a little excitement this week, with some help from their majority shareholder AT&T. The successful completion of the AOL-Time Warner merger this week stimulated investor attention in the stocks which offer high speed internet access through cable lines. On Thursday, the FCC unanimously approved the AOL-Time Warner merger, but set strict conditions on the deal, which included the opening of AOL's cable pipelines to competitors like At Home. In addition, several analysts have upgraded AT & T in the last few weeks, and this beaten down Dow communications conglomerate has demonstrated uncharacteristic strength, rising from the ashes of $16.50 to over $23 this week. AT & T has been acting like a much needed kind uncle to At Home, and on Friday, AT $ T announced that they would increase their stake in ATHM from 23% to 38% in a stock swap deal worth about $2.9 billion with rival cable operators Comcast and Cox Communications. This news pushed At Home up past its 50 dma of $7.24 for the first time in over a year, with nearly three times the average daily volume traded. At Home has been nearly flat for several months, which contributes to the low volatility of its options. Traders can take positions at current levels, or at a pullback to support at $8.00. The next major resistance levels are $10 and $12, and ATHM may have a chance at clearing these levels with strength in the broadband sector. Watch competitors like AOL for an indication of strength, and set stops at $7.00, as a drop below the 50 dma would signal an end to our call play. ATHM reports earnings after the close on January 25, so you want to be out of the play by that date. BUY CALL FEB-7.5 AHQ-BU OI=1408 at $2.25 SL=1.25 BUY CALL FEB-10 *AHQ-BB OI= 717 at $1.13 SL=0.50 BUY CALL APR-7.5 AHQ-DU OI= 785 at $3.00 SL=1.50 BUY CALL APR-10 AHQ-DB OI=1947 at $2.00 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?symbol=ATHM CNC - Conseco, Inc. $14.69 (+1.81 last week) Conseco was incorporated in 1979, began operations in 1982 and became a public company in 1985. Starting out, they had few assets. But they had a three-pronged mission: To be more efficient than other insurance companies. To actively manage their investments to generate greater returns with no additional risk. To develop products that meet real market needs-and find more effective channels for distributing them. With a superior array of insurance, investment and lending products, Conseco today has approximately $102 billion of managed assets and a strong middle-America franchise, reaching out to more than 50 million potential customer households. Shares of Conseco have been on the rise since bottoming out at the $5 level last October. Having almost tripled during that time, the stock broke a downtrend that had been in place since April of 1998. This once fallen angel appears to be in the process of earning back its wings. What's more, the company has found itself with a patron saint. When Warren Buffett speaks, smart people listen, and when Warren Buffett takes action, everyone takes notice. With the quintessential smart money man recently scooping up some of CNC's junk bonds, this vote of confidence from the Oracle of Omaha has helped to power the stock higher on increasing volume. A pullback to support at $14, $13.50 and our stop price of $13 could serve as potential entry points, making sure that volume backs the bounce. Sustained buying pressure leading to a break through $15 could allow for an entry on strength, but only if rivals AET and MET are also moving in the same direction. BUY CALL FEB-12.5 CNC-BV OI=5021 at $3.00 SL=1.50 BUY CALL FEB-15 *CNC-BC OI=4556 at $1.31 SL=0.75 BUY CALL MAY-12.5 CNC-EV OI=4072 at $4.25 SL=2.50 BUY CALL MAY-15 CNC-EC OI=1963 at $3.00 SL=1.50 BUY CALL AUG-15 CNC-HC OI= 692 at $3.75 SL=2.00 http://www.premierinvestor.com/oi/profile.asp?ticker=CNC ASYT - Asyst Technologies $16.88 (+2.38 last week) Asyst Technologies is the leading provider of isolation and automation technologies that enable semiconductor makers to protect their valued assets throughout the manufacturing process while increasing manufacturing productivity. Asyst offers a broad range of 200mm and 300mm solutions that enable the safe transfer of wafers and information between the process equipment and the fab line. A bullish semiconductor sector, recent gains backed by robust volume levels, and inexpensive option prices make this call play on ASYT quite attractive for our more conservative readers. The steadfast rise off the supportive 30-dma ($13.35) and subsequent trading above the resistance at the 10-dma ($15.42), raised our radar this week. It should be noted, too, that ASYT made its gains despite some negative remarks from the coveted analyst circle. Both Tucker Anthony Capital Markets and Wells Fargo Van Kasper downgraded the stock and cut price targets; although neither firm offered comments. Our concerns are not however for long-term performance and therefore, are purely based on sector strength and the stock's recent technical developments. If you're interested in taking positions into this momentum play, you might find viable entries on pullbacks near our protective stop of $15.50 or a bit higher at $16, which represents a firm level of intraday support. If you're trading style dictates waiting for the big breakout, then be patient for ASYT to rally through $17.50 and $18 in an advancing market before jumping into the play. Keep an eye on the Semiconductor Index (SOX.X) for overall sector sentiment. Asyst Technologies is expected to report earnings on January 25th. BUY CALL FEB-15 QQY-BC OI=145 at $3.00 SL=1.50 BUY CALL FEB-17.5*QQY-BY OI=352 at $1.63 SL=0.75 BUY CALL MAR-17.5 QQY-CY OI=326 at $2.44 SL=1.25 BUY CALL MAR-20 QQY-CD OI=553 at $1.50 SL=0.75 http://www.premierinvestor.com/oi/profile.asp?symbol=ASYT NETA - Network Associates $7.88 (+3.13 last week) Network Associates is the world's largest independent network security and management software company and the eighth largest independent software company overall. Network Associate's is the culmination of best-of-breed technologies from the world's leading software developers. So you're not one of those high rollers who live to take positions the more pricey and volatile technology stocks; but yet, want to take advantage of the rotation back into that explosive market. Well, here's an opportunity to ponder. On January 9th, I2 Technologies (ITWO) announced that it'd beat 4Q estimates. The titillating optimism led other software stocks like major competitors, Ariba (ARBA) and Commerce One (CMRC), to higher trading levels. But perhaps more importantly, the glowing sentiment that an economic slowdown wouldn't dampen demand for software companies that help businesses cut costs trickled down to NETA. The news literally lifted NETA from the ground floor. Trading at practically sub-zero levels, NETA rose a momentous 65.8%, or $3.12 last week. The breakout above the 5 & 10 DMAs ($6.49, $5.56) provided supplementary confirmation in regard to NETA's resurrection. If you're a stickler for better technicals, then look for NETA to close the gap (from December 26th) and make a clean break through the 30-dma ($9.67) before taking positions. Assuming NETA doesn't transcend our protective stop and close below $6.50, there's plenty of time to profit. Network Associates isn't expected to release earnings until January 25th. BUY CALL FEB-5 CQM-BA OI=1030 at $3.25 SL=1.75 BUY CALL FEB-7.5*CQM-BU OI=4981 at $1.69 SL=0.75 BUY CALL FEB-10 CQM-BB OI= 259 at $0.88 SL=0.00 High Risk! BUY CALL MAR-7.5 CQM-CU OI= 288 at $2.19 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?symbol=NETA ************************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=1390 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 01-14-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011401_3.asp ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=1350 ************************************************************ ****************** CURRENT CALL PLAYS ****************** SFA - Scientific Atlanta Inc. $50.94 (+13.07 last week) Scientific Atlanta is a leading supplier of transmission networks for broadband access to the home, digital interactive subscriber systems designed for video, high speed Internet, and voice over IP networks, and worldwide customer support and service. SFA rallied with the communications equipment stocks on Friday, and held onto its gain even when the Dow dropped over 100 points toward the close. Excellent news released this week, in combination with an analyst upgrade, and the revived interest in networking and cable TV companies, propelled SFA to hold steadily above its 50 dma of $47.50. On Thursday, CSFB reiterated their buy rating and price target of $80 based in part on Motorola's Broadband Communications segment success. Motorola shipped 2M digital set-tops during the quarter, up 11% sequentially, and 100% year over year. CSFB's projections for SFA's set-top units to be sold in 2001 remains in the range of 4.7 M units, up from 1.1 M units. SFA also introduced a variety of new interactive set top products at an electronics show this week. In addition, the newly-completed AOL Time Warner merger has renewed investor interest in companies which provide internet access through the cable TV lines, and the equipment providers for them. SFA soared all the way up to $54.44 Friday morning before falling back to support at $52.63, and stronger intra day support at $51, which is consistent with the 5 day pattern of higher lows. Aggressive traders could take positions on a pullback to support at $50. If SFA can cross resistance at $54.31, which has eluded the stock since December 11, the next major resistance level to cross is the 200 dma of $55.64. A break above this would be an excellent bullish entry point, particularly in conjunction with strength in the communications equipment sector. SFA is expected to release earnings on January 18, after the close. Projections are in the range of .39 cents per share, and traders should be out of positions before earnings. Remember to watch others like ALA and MOT to get an indication of strength in the sector. Keep stops set at $44. BUY CALL FEB-45 SFA-BI OI= 569 at $10.25 SL=7.25 BUY CALL FEB-50*SFA-BJ OI=2305 at $ 7.13 SL=5.00 BUY CALL MAR-50 SFA-CJ OI= 165 at $ 8.63 SL=6.00 BUY CALL MAR-55 SFA-CK OI= 205 at $ 6.25 SL=4.25 http://www.premierinvestor.net/oi/profile.asp?symbol=SFA EMC - Emc Corp. $68.81 (+5.82 last week) EMC Corporation and its subsidiaries design, manufacture and support a wide range of hardware and software products and provide services for the storage, management, protection and sharing of electronic information. These integrated solutions enable organizations to create an electronic information infostructure, or what EMC calls the E-Infostructure. EMC's products are sold to customers utilizing a variety of the world's most popular computing platforms for key applications, including electronic commerce, data warehousing, and transaction processing. After rallying over 18% in one week, some profit taking was inevitable, and EMC pulled back over 6% on Friday, but held above both the 5 dma of $67.17, and the 10 dma of $65.95. More importantly, EMC successfully broke out of the downward channel which began in late November, and took the stock below its 200 dma for the first time in years. After reaching a low of $54.21 on January 2, EMC has made a very healthy rebound in the last two weeks with a series of higher lows at $61.50, and today’s support level of $68.81. The stock is now in a new ascending channel, propelled by excellent news and its solid fundamental strength. After EMC’s CEO reiterated his outlook for solid growth in 2001, and sales in the range of $12 billion, several analysts upgraded the stock, and its sector. While capital spending on IT technology will slow in 2001, data storage is one of the critical areas in which companies cannot afford to cut back on expenditures. CSFB stated that EMC’s core business should grow by over 42%, fueled by strong sales of their Symmetrix 8000 line. Additional news was released regarding EMC’s planned distribution of the shares of MCDT to shareholders of record as of February 7. A pullback to support at $68.56 could be a possible entry point. Ideally, we are looking for a break above the 50 dma of $75.28, and the 200 dma of $76.41, which could confirm EMC’s up trend, and conservative traders might prefer to wait for these levels before taking positions. Keep stops set at $67, as a fall below the current 5 dma could signal a reverse of the up channel. BUY CALL FEB-70*EMB-BN OI=6399 at $ 6.38 SL=4.50 BUY CALL FEB-75 EMB-BO OI=3148 at $ 4.25 SL=2.50 BUY CALL APR-70 EMB-DN OI=1811 at $10.38 SL=7.50 BUY CALL APR-75 EMB-DO OI=2425 at $ 8.13 SL=5.75 http://www.premierinvestor.net/oi/profile.asp?symbol=EMC KLAC - KLA Tencor $39.94 (+1.62 last week) KLA Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. The company's portfolio of products, software, analysis, services and expertise is designed to help integrated service manufacturers manage yield, throughout the entire wafer fabrication process, from research and development to final mass production yield analysis. A chart of KLAC since January 3 shows that a bullish wedge pattern is developing, with a series of higher lows at $37.63, $38.69, and $39.69 and tough resistance at $42.44. This pattern almost mirrors that of the semiconductor index, SOX.X, which has been making higher lows, and encountering resistance at 700. Decent earnings from Motorola, as well as superb rebounds in stocks like BRCM are helping the chip sector. We want to see a clean breakout over $42.50 with strong volume, which could allow KLAC to clear the 200 dma of $43.58, an excellent possible entry point for conservative traders. KLAC is scheduled to report earnings after the close on Thursday, and an earnings run may very well provide this opportunity. Pay close attention to the semiconductor index (SOX.X) as a breakout over 700 would very likely help to provide the extra momentum necessary for KLAC to clear $42.50 , and make a move to the next resistance levels of $44.50 and $45.50. If these levels are broken, it looks like it could be smooth sailing all the way up to $50. Traders should be out of positions by the market close on Thursday, so this will be a fast play highly dependent on cooperation from the semiconductor index (SOX.X). Keep stops set at $38. BUY CALL FEB-40*KCQ-BH OI= 723 at $5.00 SL=3.00 BUY CALL FEB-45 KCQ-BI OI= 358 at $3.00 SL=1.50 BUY CALL MAR-40 KCQ-CH OI= 773 at $6.25 SL=4.25 BUY CALL MAR-45 KCQ-CI OI=1223 at $4.38 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?symbol=KLAC BRCM - Broadcom Corporation $123.19 (+29.75 last 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. Helped by a rallying Semiconductor sector and an advancing NASDAQ, shares of broadband chip giant BRCM posted double-digit percentage gains and in doing so, broke through formidable resistance levels on accelerating volume. An acquisition of privately held Chipmaker ServerWorks on Monday for about $1 billion in BRCM stock gave the company an entry point into the lucrative high-margin Server space, a deal which analysts applauded. WR Hambrecht & Co. rated the stock at a Buy, setting a $200 price target and commenting, "We anticipate the stock will outperform its peer group over the next 12 months." JP Morgan H&Q was also bullish on the company, saying that the deal would boost BRCM's bottom line immediately. With a five-day winning streak for the week, a pullback would not be out of the question, allowing aggressive traders to enter this play. Bounces off support at $120 and $115 are targets to shoot for but make sure the buyers return before jumping in. As long as price/volume action in BRCM remains healthy, there is no reason why this stock could not climb much further. With the 50-dma bear $125, a conservative entry point could be had if BRCM breaks above this level on volume, where it could challenge its next level of resistance overhead at $130. Currently a highly-profitable play, we are moving our stop up from $105 to $114 to protect what are already substantial profits. When making a play, look to the Philadelphia Semiconductor Index (SOX), as a benchmark to gauge sector sentiment and the NASDAQ 100 (QQQ) for a broader market perspective. BUY CALL FEB-120 RDW-BD OI= 698 at $20.25 SL=14.50 BUY CALL FEB-125 RDW-BE OI= 429 at $17.88 SL=13.00 BUY CALL FEB-130*RDW-BF OI=1598 at $15.63 SL=11.25 BUY CALL MAY-125 RDW-EE OI= 91 at $29.38 SL=21.25 BUY CALL MAY-130 RDW-EF OI= 235 at $27.38 SL=20.00 SELL PUT FEB-115 RDW-NC OI= 406 at $12.88 SL=18.00 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?symbol=BRCM LRCX - Lam Research Corporation $20.69 (+2.38 last 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. A great week for the Chip sector translated into an even better week for shares of LRCX, as the stock gained almost 13 percent on accelerating buying volume. Despite bearish sentiment from analysts on the entire sector, the Philadelphia Semiconductor Index (SOX) moved higher, spurred on by buying of Chip stocks across the board. LRCX itself was downgraded by Tucker Anthony Capital Markets and WF Van Kasper, yet the words fell deaf on investors' ears as they bid the stock higher, though ABN ANRO upgraded the company from an Add to a Buy rating. In this case, it appears that it is not what is said about a stock but rather, what is happening to it that carries greater weight. What matters here is that despite the downgrades, LRCX is rallying on increasing volume, and this could be a sign that the stock is ready to move higher, especially since it recently broke a downtrend which had been in place since April of 2000. With resistance from the 100-dma (currently sitting at $20) now surpassed, look for this level to provide support going forward. The 5-dma, now at $20.15, reinforces this level. Below that the 10-dma at $18.33, just below our stop price of $18.50 could provide for an ideal entry point for aggressive traders. For the more risk averse, a break above $21 with conviction could lead to another test of what appears to be formidable resistance at the $22.50 area. In both cases, confirm entries with movements in Merrill Lynch's Semiconductor HOLDR (SMH) before making a play. BUY CALL FEB-17.5 LMQ-BI OI= 993 at $4.38 SL=2.75 BUY CALL FEB-20 *LMQ-BD OI= 443 at $2.88 SL=1.50 BUY CALL FEB-22.5 LMQ-BQ OI= 254 at $1.81 SL=1.00 BUY CALL MAR-20 LMQ-CD OI=2688 at $3.88 SL=2.50 BUY CALL MAR-22.5 LMQ-CQ OI= 880 at $2.75 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=LRCX MER - Merrill Lynch & Co., Inc. $74.25 (+2.69 last week) Merrill Lynch & Co., Inc. has a strong client focus with a goal to deliver superior returns to their shareholders. They are determined to create value for their clients by providing wisdom and high quality services that meet their needs. Merrill Lynch has a track record of delivering strong returns to their shareholders, and has aligned employee and shareholder interests through a high level of employee stock ownership. They are leveraging the global investments they have made to sustain profitable growth. After a healthy pullback to support in the early going, shares of financial Merrill Lynch were able to make a comeback and end the week at a new all-time closing high. After the huge spike on Wednesday two weeks ago courtesy of an unexpected 50 basis point rate cut, it was no surprise that shareholders of MER needed to catch their breath. With some of them happy to take profits and call it a good year, the stock pulled back on decreasing volume but finding support at the $69, MER used its 10-dma as a launching pad and since then, has blasted off into blue sky territory. A rush of good news in the later part of the week also helped in MER's ascent. For the third quarter of the year 2000, MER was rated the top broker for municipal bonds for insurance companies. This suggests that the next earnings report, currently set for January 23rd, could yield higher than expected results. News that MER would sell its volatile energy trading unit to Allegheny and its retail brokerage Herzog to Investec in an effort to focus on its core competency of securities was also well received. At this point resistance at $75 is formidable, providing a conservative entry if MER can break through this level on volume. We are moving our stop price up from $68 to $70. For higher risk players, support at $73.50, the 5 and 10-dma (at $72.36 and $71.40) and the $70 level could be ideal areas in which to take a position, provided that buy pressure remains strong and peers such as GS and LEH confirm sector sentiment. BUY CALL FEB-70 MER-BN OI=1518 at $7.88 SL=5.75 BUY CALL FEB-75*JMR-BO OI=2549 at $4.64 SL=2.75 BUY CALL FEB-80 JMR-BP OI=1933 at $2.56 SL=1.25 BUY CALL APR-75 JMR-DO OI=5239 at $7.88 SL=5.75 BUY CALL APR-80 JMR-DP OI=7336 at $5.50 SL=3.50 http://www.premierinvestor.net/oi/profile.asp?ticker=MER MSFT - Microsoft Corporation $53.50 (+4.38 last week) Microsoft Corporation develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. Microsoft software includes scalable operating systems for servers, personal computers and intelligent devices, server applications for client/server environments, knowledge worker productivity applications, and software development tools. The Company's online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity. The race between the Four Horsemen of the NASDAQ last year was more of a limp, with CSCO, INTC, MSFT and WCOM all leading the Tech Index to 52 week lows. Decreased capital spending, legal troubles and the maturity of the PC sector all weighed on MSFT's stock price in the year 2000. So much so that at one point, the Redwood of Redmond gave up the crown as the market cap leader of the NASDAQ, falling below that of both CSCO and INTC's. But this week, Mr. Softee reclaimed its throne as the head gorilla, ending the week with a market cap of $285.3 billion to eclipse Cisco's $273.9 billion. The New Year so far has instilled renewed confidence in the software giant, thanks to an improved fundamental backdrop. A bullish outlook for the software sector courtesy of companies such as ARBA, ITWO, PSFT and RATL was also welcome news. An easing Fed and the impending release of the Xbox gaming console is also helping MSFT to move higher. Earnings are fast approaching, currently set for January 18th. As always, we will close out our position ahead of that date. But until then aggressive entries can be had on bounces off the 5 and 10-dma, at $52.42 and $49.43. There is also support at $53 and $50 but make sure MSFT closes above our stop price of $51. The return of buying volume lifting the stock past $54 could allow more conservative players to take a position. As mentioned on Thursday, MSFT is usually a leader, not a follower. With its heavy weighting in Merrill Lynch's Software HOLDR (SWH), the company also makes up over 6 percent of the NASDAQ 100 (QQQ). Nonetheless, use the action of these two indices to provide clues as to sector sentiment and movement in the large cap Techs before making a play. BUY CALL FEB-50 MSQ-BJ OI=13891 at $6.38 SL=4.50 BUY CALL FEB-55*MSQ-BK OI= 9917 at $3.50 SL=1.75 BUY CALL FEB-60 MSQ-BL OI=34975 at $1.69 SL=0.75 BUY CALL APR-55 MSQ-DK OI= 7279 at $6.13 SL=4.00 BUY CALL APR-60 MSQ-DL OI=14005 at $4.00 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=MSFT SLR - Solectron Corporation $36.05 (+2.02 last week) Founded in 1977, Solectron Corporation is the world's largest electronics manufacturing services company offering a full range of integrated supply-chain solutions for the world's leading electronics original equipment manufacturers. Solectron's integrated technology solutions, materials, manufacturing and operations, and global services offer customers competitive outsourcing advantages, such as access to advanced manufacturing technologies, shortened product time-to-market, reduced total cost of ownership and more effective asset utilization. OEM manufacturing stocks have been benefiting greatly from improving sentiment in the Tech sector, and SLR is no exception. Breaking a downtrend line that had been in place since last October, shares of SLR have been advancing on increasing volume ever since the Fed rate cut from two weeks ago. Continued easing in interest rates could translate to increased earnings going forward, with the likely result being an appreciating stock price. Shares of SLR closed above its 50-dma (now at $34.15) this past week for the first time in over two months, a bullish sign indeed. Positive press from analysts at CIBC and Merrill Lynch has increased investor awareness and interest as well. Support from the 5 and 10-dma can be found at $36.58 and $35.24 respectively. As well, bounces off the $37.50 level and $35 could allow higher risk players to initiate a play. We are inching up our protective stop, from $34 up to $35 so make sure that SLR continues to close above this point. If SLR breaks back above the $38.50 level on volume this could be a bullish sign, allowing conservative traders an ideal entry point, but just to be safe, make sure that competitors such as CLS, FLEX and JBL are also moving higher. Overhead resistance at the $40 level from the converged 100 and 200-dma is formidable but if broken, could result in a protracted and sustained rally. BUY CALL FEB-35 SLR-BG OI= 344 at $5.30 SL=3.50 BUY CALL FEB-37.5*SLR-BU OI= 293 at $4.00 SL=2.50 BUY CALL FEB-40 SLR-BH OI= 693 at $2.70 SL=1.25 BUY CALL APR-37.5 SLR-DU OI= 309 at $6.00 SL=4.00 BUY CALL APR-40 SLR-DH OI=1039 at $4.90 SL=3.00 http://www.premierinvestor.net/oi/profile.asp?ticker=SLR UBS - UBS Warburg $169.82 (-4.09 last week) UBS Warburg is a business group of UBS AG, one of the largest financial services firms in the world with 78,000 employees in more than 40 countries. In the United States, UBS Warburg's securities activities are conducted through UBS Warburg LLC and PaineWebber Incorporated, U.S.-registered broker-dealers. The firm is a leader in equities, corporate finance, M&A advisory and financing, financial structuring, fixed income issuance and trading, foreign exchange, derivatives and risk management. UBS Warburg also offers a full range of innovative wealth management services through PaineWebber, and provides private equity financing through UBS Capital. The prospect of improving interest rates late in the year 2000 had been helping top shelf financial stocks across the board to move higher, so it was with little surprise that when the Fed announced a 50 basis point intra-meeting rate cut, some profit taking ensued. However, despite the recent pullback, the price/volume action so far in UBS has been healthy. Trading has been downright anemic this past week, but a good sign considering that moving average support levels are holding. Connecting the lows since late-November reveals an upward trending channel which is continuing to support the stock. The primary concern we have in shares of UBS is the gap that was recently made at the $165 to $170 area. While the stock successfully tested the $170 level this week, we are keeping our stop price at the key level of $165. With light volume accompanying the recent consolidation and support at the 10-dma (currently sitting at $168.77) holding firmly, look for a bounce off this moving average as a potential aggressive entry point. For an entry on strength, wait for UBS to break back above its 5-dma at $170.91, with buying volume picking up, before making a play. Despite sporting a high stock price, UBS' options are relatively inexpensive, providing an attractive opportunity to play the Financial sector with a high degree of leverage. Nevertheless, proper entry points and risk management are still part of a successful trading plan. So make sure that bounces and breakouts are accompanied by increased buying volume and confirm direction with movement in rivals such as BSC, LEH, MWD before jumping in. BUY CALL FEB-165 UBS-BM OI=42 at $9.50 SL=6.50 BUY CALL FEB-170*UBS-BN OI= 6 at $6.80 SL=5.00 BUY CALL FEB-175 UBS-BO OI=62 at $4.50 SL=2.75 BUY CALL MAR-170 UBS-CN OI= 0 at $9.10 SL=6.25 Wait for OI!! BUY CALL MAR-175 UBS-CO OI= 3 at $6.90 SL=5.00 http://www.premierinvestor.net/oi/profile.asp?ticker=UBS WCOM - WorldCom, Inc. $21.75 (+3.31 last week) WorldCom is a new kind of communications company. WorldCom combines financial strength and a depth of resources to pursue the industry's best growth opportunities with an advanced global network built for the data-intensive era of communications. WorldCom's strategy is to capitalize on the industry's fastest growing segments. It has a unique set of attributes to pursue this strategy, including approximately 77,000 employees based in more than 65 countries, comprising an expert workforce of Information Age architects and sales and service specialists. Shares of phone stocks have been ringing off the hook so far this New Year, as upgrades to rival AT&T, renewed investor interest and an easing Fed are just some of the reasons that traders have been reaching out and touching the Telecom sector. Breaking a long-term downtrend line that had been in place since mid-July was a good omen on the first day of trading in the year 2001 for WCOM. Since then, the stock has moved ever higher, taking out its 50-dma (now all the way back at $16.61) for the first time since last summer. The shift in sentiment can in part be attributed to value investors moving out of overvalued defensive sectors such as Drugs and Healthcare into low-PE high-potential growing Tech stocks. As well, it appears that fears over credit quality in the Telecom sector were not as bad as once thought, resulting in a market re-adjustment to the upside, helped in part by a healthy round of short covering. As mentioned on Thursday, the stock looks poised to move as high as $23 in the near term, closing a gap that was made late last year. But first it must take out resistance from the 100-dma, currently at $22.61. If WCOM rallies back above $22 on volume, this would allow conservative traders to enter, confirming with volume. For buyers looking for a pullback, support can be found in increments of 50 cents at $21.50, $21, the 5-dma near $20.50, $20, $19.50, the 10-dma at $19 and our stop price of $18.50. In both cases, make sure that sector sentiment is on your side before playing, looking to Merrill Lynch's Telecom HOLDR (TTH) for guidance. BUY CALL FEB-17.5 JQD-BW OI= 5370 at $5.13 SL=3.00 BUY CALL FEB-20 LDQ-BD OI= 9457 at $3.25 SL=1.75 BUY CALL FEB-22.5*LDQ-BX OI=12756 at $1.94 SL=1.00 BUY CALL MAR-20 LDQ-CD OI=49951 at $3.88 SL=2.50 BUY CALL MAR-22.5 LDQ-CX OI=24983 at $2.50 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=WCOM EXTR - Extreme Networks $45.50 (+9.60 last week) Extreme Networks Inc. delivers a simplified approach for building network infrastructure that facilitates today's digital communication. Based on Ethernet and IP technologies, the company's family of Black Diamond, Alpine and Summit switching solutions incorporate a unique combination of Extreme Ware (TM) management software and an ASIC-based common architecture. Headquartered in Santa Clara, California, Extreme Networks was listed as the "fastest growing company in Silicon Valley" based on three year revenue growth by the San Jose and Silicon Valley business journal. The networking index has successfully broken the downward trending channel established in September, and Extreme Networks is one of the best positioned stocks in the sector. In the last few days, the small to mid cap networking stocks have outperformed the slower moving behemoths like Cisco, and, with a market cap of just under $5 billion, Extreme has room for a lot of growth. A presentation given by the company's CEO at the Morgan Stanley networking conference this week, as well as excellent news released by the company, acted as a catalyst to push the stock over previous resistance at $45, which is now serving as support. Extreme unveiled a plan which would expand its metro networking strategy by offering first mile access over Ethernet and IP, which could reduce costs significantly, and expand the number of customers they reach. Extreme reports earnings on January 17 after the close, so this will be a fast play based on the last two days of a strong earnings run, and momentum in the networking sector. EXTR closed above a gap dating back to December 19, which is a bullish signal, and traders can take positions on a possible pullback to $45. With help from the networking sector, NWX.X, EXTR could very likely cross $50 in the next two days. Watch other small and mid cap networking stocks like SCMR and CIEN for strength, and set stops at $41. BUY CALL FEB-45 EUT-BI OI=531 at $ 9.75 SL=6.75 BUY CALL FEB-50*EUT-BJ OI=312 at $ 7.88 SL=5.50 BUY CALL MAR-45 EUT-CI OI= 95 at $11.88 SL=9.00 BUY CALL MAR-50 EUQ-CJ OI=115 at $ 9.88 SL=7.00 http://www.premierinvestor.net/oi/profile.asp?ticker=EXTR AEOS - American Eagle Outfitters Inc $49.25 (+2.81 last week) American Eagle Outfitters is a specialty retailer of collegiate- style casual apparel, accessories and footwear aimed at men and women ages 16 to 34. The company's fashion line of relaxed clothing bears the American Eagle Outfitters and AE brand name and are sold exclusively in their mall-based stores. They currently operate over 550 stores in 47 states and Washington, DC. The specialty retailers such as AEOS, GPS, TLB and ANN are holding onto their recent gains while general merchandisers like WMT and S inched to the downside this week. Specifically, AEOS's robust volume and unrelenting spunk amid the gyrations of the marketplace continued to provide bullish confirmation. Friday's breakthrough the first line of opposition at the $50 level and challenge of the recent 52-week ($51.25) coupled with the ascending support line should entice the technical traders to take a look at AEOS, too. Aggressive entries might be taken on deep pullbacks to the 5 & 10 DMAs ($47.74 & $46.69); although this requires a much higher tolerance for risk. The ascending support, now at $49 and $50, is another entry option if you're looking to take positions on strong rallies through the upper resistance. As we approach the next Fed Meeting, the positive sentiment of the interest rate easing should result in further appreciation for AEOS over the short-term and thus; provide the opportunity to lock in gains at these higher trading levels. But let's remember to keep an eye on the overall sector and market direction, too! While we have an upside bias on shares of AEOS, we nevertheless must trade smart. With that in mind, we've raised our stop to $47 to protect profits going forward. On the analyst front, USB Piper Jaffray upped its 12-month price target to $59 and reiterated a Strong Buy recommendation for AEOS. BUY CALL FEB-45 AQU-BI OI=221 at $7.38 SL=5.25 BUY CALL FEB-50*AQU-BJ OI=652 at $4.75 SL=2.75 BUY CALL FEB-55 AQU-BK OI= 90 at $2.94 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=AEOS SNPS - Synopsys Inc $51.56 (+3.56 last week) Synopsys supplies electronic design automation solutions to the global electronics market. The Company provides design technologies to manufactures of advanced integrated circuits, electronic systems, and systems on a chip. Synopsys also provides consulting services and support to its customers to streamline the overall design process and accelerate time to market. We initiated coverage on SNPS as a result of its recent technical developments. In early December, SNPS began building a strong wedge formation and is now on the brink of a major move to the upside. The growing momentum already pushed SNPS through the $50 and $52 resistance levels; however, the critical challenge lies at $56.94, the stock's 52-week high. The return to selective technology stocks and a bullish sentiment within the semiconductor sector provides a prime environment for SNPS to make its big breakout next week. Buying into high-volume rallies as SNPS moves through $52 and rivals $57 offer a more conservative approach; although it may be wise to take profits as SNPS nears the 52-week high ($56.94). You can always jump back in later. For those who prefer taking a lower entry point amid a pullback, the supportive 5 & 10 DMAs at $50.01 and $48.75, respectively, offer reasonable opportunities. But let's remember to set stops for protection. For instance, we'll exit the play on a close below the $49 level. BUY CALL FEB-45 YPQ-BI OI= 75 at $7.88 SL=5.75 BUY CALL FEB-50*YPQ-BJ OI= 138 at $4.88 SL=3.00 BUY CALL FEB-55 YPQ-BK OI= 566 at $2.75 SL=1.50 BUY CALL MAR-45 YPQ-CI OI=1032 at $9.13 SL=6.25 BUY CALL MAR-50 YPQ-CJ OI= 324 at $6.25 SL=4.25 BUY CALL MAR-55 YPQ-CK OI= 146 at $4.13 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=SNPS BEAS - BEA Systems $62.56 (+8.94 last week) As a provider of e-commerce infrastructure software, BEAS helps companies of all sizes extend investments in existing computer systems and provide the foundation for running a successful integrated e-business. The company's products have been adopted in a wide variety of industries, including commercial and investment banking, securities trading, telecommunications, airlines, retail, manufacturing and government. BEAS' products serve as a platform or integration tool for applications such as billing, customer service, electronic funds transfers, ATM networks, Internet sales, supply chain management, and hotel, airline and rental car reservations. Shrugging off the continuous stream of bad news and poor earnings, shares of BEAS spent most of last week in rally mode. After an early drop on Monday, the bulls decided that $42 was a good level to step in and buy the stock. Disappointing earnings from YHOO, concerns about ARBA's post-earnings conference call, warnings from the likes of GTW and HWP. All of these had the effect of sending shares of BEAS higher, and even an SG Cowen downgrade on Thursday couldn't dampen enthusiasm for shares of the e-business software company. Perhaps investors expect to hear good things from management at the Sun Microsystems J2EE Press and Partner Briefing beginning on January 16th. It's too early for the stock to be rising in anticipation of earnings, as they won't be out until February 13th. The most likely explanation is that investors are starting to feel better about select technology stocks that are not feeding them bad news. Of course the technicals can't be ignored either. At its low last week, BEAS had dropped well below its lower Bollinger band, and needed to bounce. Since this occurred as the stock was testing solid support near $42, and stochastics had just entered oversold territory (although just barely), the confluence of factors gave us a nice 50% bounce from Monday's low to Friday's close. Now that the pressure has been relieved, it remains to be seen whether the bulls have enough conviction to continue the rally. The 200-dma ($56.94) is now in the rear-view mirror again, and the stock should find support near here in the event of a pullback. Our stop is just below there at $53, and this will be the last line of defense for our play; if it fails to contain any profit taking, we'll know the bears are back in control and the party's over. BEAS has some formidable obstacles to overcome to the upside as well. The rally ran into profit taking near $65, right at the 30-dma ($65.25) and just below the 50-dma ($66.19). Significant historical resistance rests near $70, and then there is the string of lower highs posted since late October. If the stock obeys this long-term downtrend, it will run out of steam near $74. But we're getting ahead of ourselves, because we have plenty of room to run before reaching that point. Look for the stock to bounce at $60 or the 200-dma before continuing their upward move. As long as the bounce is accompanied by solid volume, this will make for an attractive aggressive entry point. More conservative players will wait for the next resistance level to fall before playing - rallying through $66 is just what we will be looking for. Market and sector strength will play a dominant role, so make sure both the NASDAQ and the B2B sector (NYSE:BHH) are continuing to move into positive territory before stepping aboard. BUY CALL FEB-60 BUC-BL OI= 512 at $10.50 SL=7.50 BUY CALL FEB-65*BUC-BM OI= 833 at $ 8.00 SL=5.75 BUY CALL FEB-70 BUC-BN OI=1466 at $ 5.75 SL=3.75 BUY CALL MAR-65 BUC-CM OI=3960 at $11.38 SL=8.50 BUY CALL MAR-70 BUC-CN OI=1959 at $ 9.63 SL=6.75 BUY CALL MAR-75 BUC-CO OI=1426 at $ 7.63 SL=5.25 SELL PUT FEB-50 BUC-NJ OI=6677 at $ 3.75 SL=5.75 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=BEAS ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. 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The Option Investor Newsletter Sunday 01-14-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011401_4.asp ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=1351 ************************************************************ ************* NEW PUT PLAYS ************* No new puts this weekend ***************** CURRENT PUT PLAYS ***************** AIG - American International Grp. $82.19 (-5.69 last week) Engaged in a broad range of insurance and insurance-related activities through its subsidiaries, AIG's primary focus is on its general and life insurance businesses. Additionally, the company is growing its presence in financial services and asset management. Other operations include auto insurance, mortgage guaranty, annuities, and aircraft leasing. With operations in 130 countries, AIG generates more than half of its revenues outside the United States. Proving that what goes up, must come down, Insurance stocks have been mauled by the bears in the past 2 weeks, and AIG is no exception. After completing the head-and-shoulders formation that began to form in early November, the stock fell off a cliff a little over a week ago. Rather than bounce after the 7% decline on January 4th, the price has continued south, stretching the lower Bollinger band a little further every day. Even the 200-dma (then at $86.44) didn't slow the decline as AIG plunged through this level on Thursday. The selloff was due to occur eventually as the stock had been enjoying a sustained rally since hitting a low of $55 in March of last year. Sector rotation is alive and well, and the money that has been going into technology stocks recently had to come from somewhere. Regardless of the underlying cause, the long uptrend has been shattered, to be replaced by the beginnings of what could be a sustained downtrend. The technicals are in control now, and with that being said, AIG is due for a technical bounce. The price has been riding the lower Bollinger band for 7 days now, and the daily stochastics are deep in oversold territory. Aggressive players will watch for a bounce to give them a better entry for new positions for the next leg down. We have ratcheted our stop down to $85 (just above Friday's high), and any attempted rally that fails to take out this level will provide an attractive entry. Given the degree to which AIG is pressuring the lower Bollinger band, we would be cautious about entering new positions on further weakness before some of the pressure has been released through a relief rally. With that being said, the minor recovery Friday afternoon may be about all we will get, as it seemed to top out just below the $83 intraday resistance level. Watch the broader Insurance sector (IUX.X) and make sure it is continuing south before jumping into new positions. BUY PUT FEB-85 AIG-NQ OI=2769 at $5.63 SL=3.50 BUY PUT FEB-80*AIG-NP OI=1146 at $3.13 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=AIG PMI - PMI Group $50.38 (-7.63 last week) PMI Group is a holding company that conducts its residential mortgage insurance business through its subsidiaries. PMI provides primary insurance coverage, insuring mortgage lenders and mortgage loan investors against borrower default on individual first mortgage loans. At the end of 1997, PMI began offering a pool insurance product, primarily to Fannie Mae and Freddie Mac, as a part of the company's value-added strategy. This product is also sold to state housing finance authorities, and is generally used as an additional credit enhancement for certain secondary market mortgage transactions to protect against loss on a defaulted mortgage loan which exceed the claim payment under the primary coverage. Given the 28% decline in shares of PMI over the past 2 weeks, one would think that half the company's customer base had defaulted on their mortgage. While there are concerns of an increase in mortgage defaults due to the economic downturn, that isn't enough to account for the recent selloff. A more likely theory may be that investors felt the share price had gotten ahead of itself, and in their rush for the exits, they have driven the price down faster than one might expect. With Friday's red candle, PMI may have found at least temporary support. With earnings just around the corner on January 24th, the bulls may step in to attempt to defend prices near the $50 support level. Due to declining sentiment in the broader Insurance sector, such a move is likely to be little more than an aberration, providing aggressive traders with an attractive entry point, so long as the bounce is capped below our stop at $53. Intraday resistance has formed both at $51.50 and $53, and a rollover at either level looks attractive for new positions. Even though the $50 level stopped the decline Friday afternoon, there wasn't enough buying pressure to move shares up by a significant amount. This could indicate more weakness ahead, and more conservative players may want to consider new positions as PMI falls below $50, continuing to ride the lower Bollinger band into the basement. Use the broader Insurance index (IUX.X) as a gauge of investor sentiment, and only consider new positions if it is still headed south. BUY PUT FEB-55 PMI-NK OI=22 at $6.13 SL=4.00 BUY PUT FEB-50*PMI-NJ OI= 5 at $2.94 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=PMI CB - Chubb Corporation $69.06 (-6.07 last week) Chubb Corporation, incorporated in June 1967, is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The Company presently underwrites most forms of property and casualty insurance. The Company's Property and Casualty Insurance Group writes non-participating policies. Several members of the Property and Casualty Insurance Group also write participating policies, particularly in the workers' compensation class of business, under which dividends are paid to the policyholders. The rotation from defensive stocks to more aggressive issues continued this week, as money steadily trickled away from CB into brighter and flashier four-letter names. After the massive run-up shares of CB enjoyed last year at the expense of Tech stocks, investors are taking the fat out of Chubb, finding its valuation steep considering the single-digit revenue growth rate. With little news from the company recently, technical analysis and sector sentiment played a key role on the movements of CB. After the massive slide of two weeks ago, the stock needed some consolidation. It was the lack of sellers that really helped CB stay afloat this past week, that is until Friday when they returned in force. On Thursday night, we commented, "Technically at this point, CB looks to be at a major crossroad. The proverbial coiling of the spring in shares of CB suggests a large move in one direction or the other forthcoming. A break below its 200-dma at $73.50 on volume would allow for an ideal entry on weakness." This is exactly what happened on Friday, as the stock fell $4.69 or 6.36 percent on almost twice the ADV. Now a nicely profitable play, we are moving our stop down from $77 to $73. A failed rally above this level, where the 5-dma current resides, as well as the 200-dma, still near $73.50, $71.50 and $70 could provide for aggressive targets of entry. Continued selling pressure, taking CB below its Friday low of $68.81 could allow for an entry on weakness. As mentioned, sector sympathy is likely to be a major factor in the movements of CB so keep an eye on rivals CI and ALL. BUY PUT FEB-75 CB-NO OI=0 at $7.50 SL=5.25 Wait for OI!! BUY PUT FEB-70*CB-NN OI=5 at $4.13 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=CB MRK - Merck & Co., Inc. $81.44 (-1.88 last week) Merck is a global pharmaceutical company, which specializes in the development of human and animal health products. They are the #1 industry leader in the US and #2 worldwide. Some of its more prominent drugs include Zocor and Meycaor (cholesterol drugs), Pepcid (an anti-ulcerant), top-selling hypertension drugs, Vasotec and Prinivil, and more recently the AIDS medication, Crixivan. The drug maker also provides pharmaceutical benefit services through Merck-Medco Managed Care which it sells to corporations, labor unions, and insurance companies. When it comes to e-commerce Merck won't be left behind either. The company has formed an alliance with CVS to market drugs online. The environment last year that allowed drug stocks to make new all-time highs has now appeared to have reversed itself, landing MRK on our put play list. Unable to make it past the psychological century mark in the later part of the year 2000, traders and shareholders alike appear to be moving out of the Drug sector. With last year's inflation fighting Fed replaced by a recession averting friend, investors are feeling a lot less defensive. As well, the once deemed to be undervalued Pharmaceutical sector is now trading at historically high levels, with the now deemed undervalued Tech stocks offering attractive opportunities to buy into high-potential growth at value prices. This has resulted in a rallying NASDAQ, and the sentiment surrounding the sleeker and sexier New Economy suggests that the Techs may be ready to take back the spotlight. The technical picture for MRK looks weak as well. The stock has been unable to close above its 5-dma so far this year. A recent plunge below the 50-dma (currently sitting at $89.89) led to increased selling with the stock breaking below its 100-dma (now at $82.13) this past Thursday. Further failed tests of these two moving averages could allow aggressive traders to take a position, but make sure to confirm any rollovers with selling volume. We are tightening our protective stop, nudging it from $85 down to $84, with what appears to be formidable resistance at that level. Continued selling leading to a definitive retreat below the $81 level could allow conservative traders to enter this play, but to ensure downward momentum, confirm direction with Merrill Lynch's Pharmaceutical HOLDR (PPH). BUY PUT FEB-85 MRK-NQ OI=1967 at $6.00 SL=4.50 BUY PUT FEB-80*MRK-NP OI= 972 at $3.38 SL=1.75 BUY PUT FEB-75 MRK-NO OI=2603 at $1.75 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=MRK MMC - Marsh & McLennan Co $100.25 (-6.75 last 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. Two significant factors have parlayed grand profits for put players taking positions in MMC. The most obvious is the general rotation out of defensive stocks and back into technology stocks. The second, and more specific element, is the accelerating downtrend of the insurance sector. Take a look at a chart of the S&P's Insurance Index (IUX.X) for visual confirmation. At the beginning of January, the IUX.X tumbled under the 800 support only to find that 750 couldn't hold either. Major insurance stocks like Cigna (CI) and Allstate (ALL) are also quickly losing ground amid the sector-wide sell- off. Since last Friday's pivotal move to the underside of $110, the downward momentum has taken MMC steadily and systematically to the psychological $100 level. The triple test of this level, which occurred during Thursday and Friday's session, may portend a bottom is forming. Plus, the attractive price level likely prompted Prudential Securities to reiterate a Strong Buy rating and issue a $130 price target. However at present, the IUX.X is precariously teetering on the 200-dma (704) line and a further breakdown could push MMC under its historical support at the century mark. If sellers can move MMC under $100 and rival the $90 and $95 support levels of last March and April, you might consider taking additional positions. Another alternative is to enter on convincing rollovers at the trailing 5-dma ($103.91), near our $104 protective stop. If you use the rollover strategy, please consider locking in gains as MMC approaches $100 to avoid getting snared in a bullish reversal. BUY PUT FEB-110 MMC-NB OI= 10 at $12.13 SL=9.00 BUY PUT FEB-105 MMC-NA OI= 30 at $ 8.63 SL=6.00 BUY PUT FEB-100*MMC-NT OI=150 at $ 5.75 SL=3.75 http://www.premierinvestor.net/oi/profile.asp?ticker=MMC ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1365 ************************************************************** ***** LEAPS ***** Is The Rally Upon Us? Well, Sort Of...Maybe... By Mark Phillips Contact Support What a relief it was to see a decent rally on the NASDAQ this week. Regardless of whether you call it "January effect", optimism over declining interest rates or an end to tax selling, the technology index posted its best week since Labor Day. After launching off of the 2300 support level early in the week, the NASDAQ rallied as high as 2700 before traders noticed the looming three day weekend and decided to cash in some of their gains. Given the recent action in the markets and the sharp gains this past week, it was rather encouraging to see such mild selling into the close on Friday. It gives one the impression that the worst may be behind us. But lets look at the dominant factors in our market before we run out to load up on new LEAPS. The Commercials are still sitting on near-record short positions in the S&P 500, the economy is definitely slowing as we can see by the rash of earnings warnings and a weak start to the actual earnings season. The Fed has begun acting to reduce interest rates, but keep in mind that rate decreases, just like rate increases, take 6-9 months to filter through the economy and actually show up in corporate earnings. With that being said, earnings are likely to be weak for at least the next 1-2 quarters, with the first signs of true economic recovery starting to show up during the October earnings season. Now before you panic and sell all your open positions, remember that the markets tend to factor in economic developments before they actually occur. So the stock market recovery will lead the actual upturn in corporate earnings. The big question is WHEN. We could be seeing the beginning of the recovery in current market action, but only an extreme optimist (indistinguishable from the fool who is soon parted from his money), would expect a rally straight from current levels back to NASDAQ 5000. There has been a lot of collateral damage in the markets and it will take time to repair. Our job is to find those stocks that appear to already be on the mend and CAUTIOUSLY step into new plays. Last year, you could initiate new LEAPS positions on either a bounce from support or a breakout through resistance. The gradual nature of the recovery that is ahead of us, makes dip buying the more prudent approach, but careful attention to technical indicators and chart patterns is critical. The VIX has dropped out of the zone above 30 over the past week, closing the week at 28.66, and removing a fair amount of upward pressure from stock prices. At the same time, the NASDAQ has rallied right to the top of its downwardly trending channel, and is showing mild signs of weakness. It isn't much further to the top of the Bollinger band, now at 2750, but still heading lower. Daily stochastics have just entered the overbought zone and we have plenty of historical resistance between 2650-2850, that will have to be worked through. Between the technicals and the string of what are expected to be weak earnings, odds favor a retracement in the week ahead. What we really need to see to give the bulls hope is a series of higher lows form on the daily chart. Just keep in mind that nothing fundamental has changed in the market, and the downtrend that began on Labor Day has not been broken. Sure, new entries can be considered on select plays, but make sure to look at the whole picture before jumping blindly. Even in a declining interest rate environment, Financial stocks have been weak lately and our AXP play is on the cusp of being ejected from the play list. It was particularly disconcerting to see the $50 support level give way over the past week, and unless buyers step in to support the stock above $45, it could find its way to the drop list in the near future. It is virtually impossible for the markets to sustain an extended rally if the Financials refuse to participate. Personally, I think the worst may be behind us, but my opinion and $2.50 will get you a cup of coffee at Starbuck's. The wild card is the current earnings cycle. The actual numbers are secondary in this analysis, as the comments in the conference calls are likely to have a much more pronounced effect. If companies are guiding estimates further downwards (like GTW and HWP did last week with their dramatic warnings), we could see our precious NASDAQ trace new lows before testing the 3000 level again. The moral of the story is eternal vigilance. Don't take anything for granted, and keep in mind that taking profits, no matter how small, is preferable to ignoring the bear tracks in the snow. Ignoring the warning signs while focusing only on the positive factors, like expectations for another interest rate cut, is a sure recipe for a mauling of your trading account. Regardless of the action of the Fed, the markets are not going to strap on a set of solid rocket boosters and shoot right to 5000 before school lets out for the summer. Once the recovery gets underway, it will do so in a much more gradual manner, giving prudent investors plenty of opportunities to step aboard during profit taking dips. And remember that just because you are buying lots of time with your LEAPS, that doesn't mean you have to use it. If profits are on the table and it looks like the bears are coming back to town, take your profits and wait for another opportunity to play the long side. Trade smart and prosper! Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $32.25 239.47% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $16.63 -49.24% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $ 7.75 -29.55% 11/26/00 JAN-2003 $ 60 VYC-AL $16.63 $ 7.50 -54.89% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $ 8.38 -44.65% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 4.38 -84.09% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 4.80 -74.24% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $12.00 -31.43% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $10.13 8.52% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $16.63 209.01% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $10.13 28.57% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 7.75 -55.07% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $11.63 -34.51% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $12.00 16.39% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $10.63 -13.27% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $31.25 82.43% JAN-2003 $ 70 OZG-AN $23.13 $38.88 68.07% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $24.00 6.67% JAN-2003 $ 70 VLM-AN $29.63 $32.13 8.42% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $12.63 - 8.18% JAN-2003 $ 50 VXT-AJ $18.38 $17.25 - 6.12% BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $ 9.88 -42.75% JAN-2003 $ 70 VNG-AN $25.00 $16.75 -33.00% MU 11/26/00 JAN-2002 $ 45 WGY-AI $13.13 $12.63 - 3.81% JAN-2003 $ 45 VGY-AI $17.25 $17.50 - 1.45% A 12/03/00 JAN-2002 $ 55 YA -AK $16.88 $17.88 5.93% JAN-2003 $ 60 OAE-AL $19.88 $21.00 5.66% ORCL 12/10/00 JAN-2002 $ 35 WOK-AG $ 7.75 $ 8.50 9.68% JAN-2003 $ 35 VOR-AG $11.13 $12.13 8.94% QQQ 12/10/00 JAN-2002 $ 70 WNQ-AR $15.13 $11.38 -24.82% JAN-2003 $ 75 VZQ-AW $19.25 $14.88 -22.73% WMT 12/24/00 JAN-2002 $ 55 WWT-AK $ 9.63 $ 9.38 - 2.60% JAN-2003 $ 55 VWT-AK $14.00 $14.00 0.00% DELL 01/07/01 JAN-2002 $ 20 WDQ-AD $ 5.25 $ 7.25 38.10% JAN-2003 $ 25 VDL-AE $5.63 $ 7.38 30.99% Spotlight Play ORCL - Oracle Corp. $32.31 Fans of technical analysis got a belated Christmas present on January 3rd as ORCL bounced solidly from the $25 level before resuming its recent gradual uptrend. Market pressures had dragged the stock down the day before, and once the Fed reduced interest rates, the rally was fast and furious with the stock gaining nearly $7 or more than 25% in one day. That is quite a move for ORCL, and the fact that it really hasn't sold off since then is a good indication that the move likely still has some legs. Earnings a month ago were solid, and there was no hint of a negative effect to the company's growth due to a slowing economy, which is likely adding to the positive outlook. The company's position in the marketplace is being strengthened by its move from traditional database products into both the systems software and business applications software markets. Support at $28 is strengthening and the $30 level is looking more likely as the price where bargain hunters will step in to pick up the stock on profit taking dips. Over the past couple weeks, buyers have probed and prodded, managing a tenuous breakout over $32, and the next upside target will be the $35-36 resistance level, right on the 200-dma, which is flattening out at $36. The market environment is still uncertain (but improving), and this makes buying the dips the most prudent entry strategy. Profit taking dips should stop at the support levels listed above, and as long as buying volume remains strong, we would advocate new positions near these levels. BUY LEAP JAN-2002 $50.00 WOK-AG at $ 8.50 BUY LEAP JAN-2003 $50.00 VOR-AG at $12.13 New Plays WCOM - WorldCom $21.75 Long-time readers will remember that it wasn't too long ago that we jumped into WCOM thinking the stock had found a bottom near $25. Alas, we were too early to the party and it quickly became clear that the bears had not finished having their way with Telecom stocks. The selling in WCOM continued all the way down to the $13-14 level before solid buying emerged. The price action over the past 2 weeks has been very encouraging, as the stock has cleared the $18 resistance level, turning it into support as the rally continued this week. Then the bulls managed to clear the $20 level, and even closed the late October gap between $20-23. The Fed's move to reduce interest rates (along with expectations that they will do so again by the end of the month) has changed the outlook for the Telecom industry in the long term, and investors, large and small are voting with their wallets that the worst is behind us. With that being said, it is unlikely that WCOM will continue its recovery without suffering bouts of profit taking. The long decline and subsequent consolidation caused the Bollinger bands to contract, and the bulls will have to take several runs at the upper band before it will expand sufficiently to allow the stock to return to its former glories. This expansion has begun, but a quick look at the daily chart shows that WCOM has been riding the upper band for the past few days, and Friday's profit taking was necessary in order to give the bulls room to take another run at higher prices. The technology markets are still on shaky ground and the bears are unlikely to relax their grip after one short rally. The encouraging thing about the current move is that the weekly stochastics have actually emerged from the oversold zone for the first time since early August, confirming the move on the daily charts. It looks like the long awaited recovery has begun, but the more prudent approach will be to buy retracements rather than breakouts. Along those lines, look for WCOM to pull back to the $20 or even $18 support level and bounce before initiating new positions. The time it takes for this to occur will allow for a further expansion of the Bollinger bands, providing the bulls with an opportunity to drive prices through the current $23 resistance level. BUY LEAP JAN-2002 $25.00 WQM-AE at $5.00 BUY LEAP JAN-2003 $25.00 VQM-AE at $7.38 Drops None *************************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=1385 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 01-14-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011401_5.asp ************* COVERED CALLS ************* The Tale of the Tape: Errors in Data Reporting By Mark Wnetrzak Those of you who read this column regularly know that one of the most important criteria used in identifying a favorable stock is its technical character. In fact, most analysts say that charts reflect all of the known information and sentiment surrounding a specific stock or security. Since charting is based primarily on price, time and volume inputs, the accuracy and completeness of each day's trading records are paramount. What most investors don't know, is that the charts they see on their computer, using both intraday and end-of-day data, do not always tell an accurate story. Tape reading is one of the oldest methods of interpreting market movement. Although ticker tape is no longer used (it has been replaced by scrolling Times Of Sales data), the basic principles are still widely recognized by institutional money managers and professional traders. Tape reading is a tried and tested method of determining directional trends by observing price and volume action. When this type of data is converted to a visual format, patterns and formations emerge that can be used to forecast the future price of an issue. Since the basis for technical analysis is price and volume information, its success is dependent on the accuracy of the statistics reported by the exchanges and their data vendors. Unfortunately, errors occur on a regular basis due to a number of factors, and its important to understand how they might affect what you see when you look at a common candlestick or bar chart. One of the most common complaints heard among Level II traders is the disparity in volume reporting on the NASDAQ exchange. When a specialist executes an order on the NYSE (or the AMEX), most traders assume that 100 shares of stock were sold and 100 shares were bought, even if the specialist bought the shares for his own account. Insiders suggest that NASDAQ reported volume may be far higher than the actual public trading that occurs, and given that most of the market-makers actively trade in personal accounts, it is easy to see how this might happen. In fact, there are numerous occasions where you will see paired trades cross minutes apart and its hard to determine whether they represent real trading or some other form of market-maker transactions. In addition to erroneous volume data, after-hours trading also presents a unique dilemma to the chartist. Transactions after hours are generally not included in the price and volume information published in daily reports and on the NASDAQ, post-session volume is integrated into the detailed record for the next day (with a 24 hour cut-off). Trades reported after 24 hours, along with the associated price data, are recorded for reference purposes only. Simple errors in data reporting are also a problem and they occur frequently, even in this age of advanced technology. Human errors are common with keystroke typos being one of the primary culprits. A quick study of intraday reports will often uncover a transaction far beyond the range of the day's activity; a clear signal that an error has been made in data entry. Those mistakes are regularly seen on end-of-day records and that can affect the presentation of a specific chart. Another prevalent anomaly occurs when a trade is reported out of order. On the NYSE and AMEX, there is only one specialist to report orders, making it difficult to keep track of all the data when activity is brisk. Trades on the NASDAQ take place electronically across the globe and time stamped execution reports don't necessarily flow into the reporting systems in order. Of course, there are also occasions when participants will delay a trade report beyond the maximum time allowed, such as a broker who is subtly trying to unload a big block of shares. If it is a sizable trade, the effects on chart data can be significant. At other times, price or volume inconsistencies are submitted later, as a correction, and the original data is not amended. There are also many misreported trades including cancellations, rejections, double-fills and other nullified transactions that show up on the ticker and can not be removed from end-of-day data. Pandemonium in the pits often causes floor traders to execute the same trade with multiple specialists and only after the chaos has subsided do the mistakes get corrected. Many of these irregularities are not discovered until after the session has ended and by then the tape is already being analyzed for tomorrow's trading. Next week, we'll talk more about "tape reading" and the methods that professional traders use to analyze market-moving forces on a daily basis. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return FIBR 16.06 17.81 JAN 12.50 4.75 *$ 1.19 15.2% ADIC 23.94 24.38 JAN 20.00 4.88 *$ 0.94 10.7% SMTC 23.44 27.75 JAN 20.00 4.38 *$ 0.94 10.7% MCOM 10.75 13.56 JAN 7.50 3.88 *$ 0.63 10.0% APWR 38.88 43.00 JAN 35.00 5.25 *$ 1.37 8.9% NRGN 35.13 32.69 JAN 30.00 6.75 *$ 1.62 8.3% MCLD 14.69 19.75 JAN 12.50 3.00 *$ 0.81 7.5% SUNW 28.00 30.44 JAN 22.50 6.25 *$ 0.75 7.5% CRK 11.44 13.31 JAN 10.00 2.19 *$ 0.75 7.0% GLGC 21.25 22.19 JAN 17.50 5.25 *$ 1.50 6.8% FNSR 27.00 33.19 JAN 22.50 5.75 *$ 1.25 6.4% XOXO 22.00 25.69 JAN 17.50 5.00 *$ 0.50 6.4% EXFO 32.00 27.75 JAN 22.50 11.25 *$ 1.75 6.1% KLAC 31.81 39.94 JAN 25.00 8.13 *$ 1.32 6.1% EDGW 5.63 6.59 JAN 5.00 1.00 *$ 0.37 5.8% MATX 17.13 15.56 JAN 15.00 2.69 *$ 0.56 5.6% CHMD 12.13 10.44 JAN 10.00 2.50 *$ 0.37 5.6% PHSY 15.00 16.00 JAN 12.50 2.94 *$ 0.44 5.3% CPRT 18.69 17.88 JAN 17.50 2.19 *$ 1.00 5.3% PHI 17.56 17.69 JAN 15.00 3.25 *$ 0.69 5.2% QTRN 18.38 20.03 JAN 17.50 2.06 *$ 1.18 5.2% HSIC 30.63 30.25 JAN 30.00 2.31 *$ 1.68 5.2% PRIA 23.56 26.00 JAN 20.00 4.00 *$ 0.44 4.9% AVID 18.63 19.13 JAN 17.50 2.06 *$ 0.93 4.9% WMS 19.00 19.06 JAN 17.50 2.25 *$ 0.75 4.9% MLHR 26.81 26.81 JAN 25.00 2.88 *$ 1.07 4.9% CVD 11.38 13.38 JAN 10.00 2.00 *$ 0.62 4.8% GETY 32.00 26.94 JAN 25.00 7.75 *$ 0.75 4.5% BBY 39.94 42.25 JAN 35.00 5.63 *$ 0.69 4.4% WMS 19.69 19.06 JAN 17.50 3.00 *$ 0.81 4.2% ARQL 33.75 28.88 JAN 25.00 10.00 *$ 1.25 3.8% BCGI 28.38 16.25 JAN 22.50 7.25 $ -4.88 0.0% *$ = Stock price is above the sold striking price. Comments: Apparently investors weren't thrilled with Thursday's news on Boston Communications (BCGI). Although the company announced it expects revenues to be in line with previous estimates, the issue dropped over 30% in active trading. Investors suggested that information was available to insiders prior to the actual announcement and there are likely to be lawsuits in the coming weeks. There was little opportunity to avoid a loss, but we will show the position closed. Keep a close watch on Neurogen (NRGN) as it flirts with support near the sold strike. Matrix Pharma (MATX) is also testing buying pressure near our strike price - monitor the position in the coming week. Chronimed (CHMD) is beginning to consolidate after a recent rally, so be sure to evaluate your long-term outlook. It's time to decide if it is better to risk owning Copart (CPRT) for another month or simply exit the position. We don't mind Quintiles (QTRN) being so volatile as long as it manages to stay above the sold strike! Henry Schein (HSIC) is nearing a key moment at its 50 dma. Ok, Getty Images (GETY) has us worried; a break-even exit seems like a prudent move at this point. Arqule (ARQL) did not violate the December low and appears to be out of danger. Positions Closed: Miravant (MRVT), Rf Micro Devices (RFMD), Lexicon (LEXG), Genzyme Molecular Oncology (GZMO). NEW PICKS ********* Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return PPRO 17.00 JAN 12.50 PXZ AV 5.00 203 12.00 6 21.1% ATHM 8.72 FEB 7.50 AHQ BU 2.00 1408 6.72 34 10.4% ANTC 11.25 FEB 10.00 AQC BB 2.25 186 9.00 34 9.9% XLA 8.38 FEB 5.00 XLZ BA 3.88 372 4.50 34 9.9% HOTT 22.13 FEB 17.50 UHO BW 5.88 79 16.25 34 6.9% SCON 7.13 FEB 5.00 OUP BA 2.44 127 4.69 34 5.9% CPST 34.19 FEB 25.00 CZU BE 10.50 625 23.69 34 4.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ANTC - ANTEC Corporation $11.25 *** Showing Strength *** ANTEC Corporation is an international communications technology company serving the broadband information transport industries. The company specializes in the manufacturing and distribution of products for hybrid fiber-coax broadband networks, as well as the design and engineering of these networks. No recent news since ANTEC warned about their fourth-quarter in December. The largest customer, AT&T Broadband, discontinued shipments until early this year. The business is expected to rebound in the first quarter and apparently investors are moving to establish their positions. The stock has rallied on improving technicals and has now moved above the December high. A reasonable cost basis on a stock that is refusing to move lower. FEB 10.00 AQC BB LB=2.25 OI=186 CB=9.00 DE=34 MR=9.9% /charts/jan01/charts.asp?symbol=ANTC ***** ATHM - Excite@Home $8.72 *** Bottom Fishing! *** Excite@Home is the leader in broadband, offering residential and commercial broadband services, with a global footprint of 88 million homes under long-term cable and DSL contract. Excite@Home offers consumers broadband services over cable-modem and DSL and businesses high-speed commercial services. Excite@Home reported this week that its worldwide broadband subscriber base rose 27.5% in the 4th-quarter to about 2.95 million, which met its quarterly goal. Shares of Excite@Home have rallied strongly this week on heavy volume and Friday's news that AT&T would increase its stake in the company added fuel to the fire. The stock has now moved above its 50 dma, which suggests further upside potential. FEB 7.50 AHQ BU LB=2.00 OI=1408 CB=6.72 DE=34 MR=10.4% /charts/jan01/charts.asp?symbol=ATHM ***** CPST - Capstone Turbine $34.19 *** A Possible Solution! *** Capstone Turbine, a winner of Financial Times Energy's 2000 Global Energy Award for Most Innovative Commercial Technology, is a leading producer of low-emission microturbine systems. Capstone Turbine has begun to draw investor interest as it could benefit from the escalating power crisis in California. The company's clean-burning, refrigerator-sized power plants can help utilities reduce dependence on skyrocketing spot-market electricity while helping businesses "keep the lights on" during brownouts or rolling blackouts. The stock has moved up sharply on heavy volume, and has now completed a short-term "triple bottom" formation. A favorable entry point for those investors who have a bullish outlook on the issue. FEB 25.00 CZU BE LB=10.50 OI=625 CB=23.69 DE=34 MR=4.9% /charts/jan01/charts.asp?symbol=CPST ***** HOTT - Hot Topic $22.13 *** Blue Sky Above! *** Hot Topic is a mall-based specialty retailer of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. The company recently announced that its net sales for December increased 37% to $48.8 million from net sales of $35.6 million from last December. The teen specialty retailers have been one of the few areas that has not suffered from weak holiday sales. The stock has recently split and has already moved up to a new all-time high. We simply favor a conservative entry point with a cost basis near recent technical support. FEB 17.50 UHO BW LB=5.88 OI=79 CB=16.25 DE=34 MR=6.9% /charts/jan01/charts.asp?symbol=HOTT ***** PPRO - PurchasePro $17.00 *** Short-term Speculation *** PurchasePro, a leader in business-to-business e-commerce, operates the PurchasePro global marketplace, encompassing more than 30,000 businesses and powering approximately 240 private-label marketplaces with its highly scalable, browser-based e-commerce engine. The company recently announced that two Honeywell organizations have jointly selected PurchasePro to create e-marketplaces to help their respective users save time, streamline their procurement processes, and cut overall procurement costs. The recent "buy" recommendation by ABN AMRO has also provided some upside momentum. The stock has been forging a Stage I base with support above our cost basis. A short-term play to take advantage of over-priced option premiums. Earnings are not due until February. JAN 12.50 PXZ AV LB=5.00 OI=203 CB=12.00 DE=6 MR=21.1% /charts/jan01/charts.asp?symbol=PPRO ***** SCON - Superconductor Tech $7.13 *** What's Up? SCON! *** Superconductor Tech is a leading developer and manufacturer of superconducting products for wireless communications and wireless Internet access. The company's SuperFilter. System utilizes high- temperature superconducting technology, along with proprietary cryogenic cooling, to create a front-end filter and amplifier system utilized in wireless base stations to enhance their performance. Why is SCON forming a ski-jump pattern near the bottom of a year-old downtrend? There has been no news since November yet SCON has rallied strongly on heavy volume over the last three days! Lots of speculation on the message boards but it all comes down to a clichi: "The tape doesn't lie." A reasonable cost basis; at least until the news for the move is made known to public. FEB 5.00 OUP BA LB=2.44 OI=127 CB=4.69 DE=34 MR=5.9% /charts/jan01/charts.asp?symbol=SCON ***** XLA - Xcelera $8.38 *** European Internet Incubator *** Xcelera is a European Internet technology company focusing on operating, developing and financing Internet technology companies whose technologies, products or services can be enhanced by or complement Xcelera's core competencies in content management, content distribution, caching, storage and streaming. Xcelera has fallen on hard times on concerns about insider sales, share- holder litigation and the tax consequences of transactions. On Wednesday, Mirror Image Internet, principally owned by Xcelera, and R3Media announced a strategic sales and marketing partnership for next-generation media services. Xcelera reacted favorably to this news and rallied strongly on heavy volume. For investors who believe the Internet sector has finally found a floor, this play offers a favorable cost basis with upside momentum already in place. FEB 5.00 XLZ BA LB=3.88 OI=372 CB=4.50 DE=34 MR=9.9% /charts/jan01/charts.asp?symbol=XLA ***** ***************** SUPPLEMENTAL COVERED CALLS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return MPWR 8.34 FEB 7.50 MGU BU 1.94 697 6.40 34 15.4% LYNX 12.00 FEB 10.00 ULX BB 3.25 40 8.75 34 12.8% PLUG 19.94 FEB 17.50 PQL BW 4.38 34 15.56 34 11.2% MFNX 18.69 FEB 15.00 QFN BC 4.75 1256 13.94 34 6.8% PRXL 13.13 FEB 12.50 VBQ BV 1.44 75 11.69 34 6.2% AVCI 37.13 FEB 25.00 QYV BE 13.63 78 23.50 34 5.7% ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=1352 ************************************************************ *********************** CONSERVATIVE NAKED PUTS *********************** Market Terms: Interpreting pre-market data in S&P 500 futures. By Ray Cummins One of our reader's asked about "Fair Value" and the way it affects the opening prices of indexes on the broader market. A futures contract is the obligation to take delivery (long) or make delivery (short) of an underlying commodity. The contract sets the price of a commodity (corn, wheat, oil, etc) at a point in time in the future. As an example, a farmer grows wheat and wants to sell it to a cereal company. The cereal company wants to buy the wheat, but not until next September so they decide to buy a futures contract from the farmer to deliver the wheat at a fixed (strike) price. Since market conditions are influenced by how much wheat is planted, weather conditions, and other outside factors, the price of wheat will vary, as will the value of the futures contract. If the price of wheat is rising in the market, the futures contract becomes more valuable and can be sold at a profit. The exchanges know that trading futures contracts can be profitable so they have devised instruments not only for tangible commodities but for stock indexes as well. With stock index futures, a trader has a choice between buying a basket of stocks equivalent to the S&P 500, or another index in the cash market and buying a futures contract. You can buy an S&P 500 futures contract which points to a particular value at a specific point in time and you can also sell this contract as its value changes. In the case of an S&P 500 index future, the owner is contracting to receive a predetermined amount ($250 x Index) on the third Friday of the expiration month. This contract is settled in cash, not by delivering a basket of all 500 stocks in the index and each point on the index is worth $250. If a trader buys the cash stocks, he will incur an opportunity cost, as he could have simply invested in Treasury bills at no risk. Because futures contracts do not require an up-front payment (other than their margin requirement), they do not incur an opportunity cost, and therefore one should be willing to pay more for futures than for the stocks themselves. However, the owner of the stock will receive the stock's dividend (and the interest on that dividend) whereas the owner of futures contract receives nothing. This is a holding cost of the future and the difference between the index futures price and the price of the cash stock index is called the "basis." When this basis rises to a level where a trader can buy the cash stocks at the "ask" and sell the futures at the "bid," and cover all of the holding costs, computer programs will try to take advantage of the situation. In contrast, when the futures decline too far (relative to the cash price), arbitrageurs will try to sell the stocks and buy the undervalued futures contracts. Futures also have what is called "fair value" and that number is determined by adding the interest cost of holding the stocks and subtracting the expected dividends. Higher interest rates will expand the basis, as will lower dividend rates. If the March 2001 contract has a fair value of 5 points, the average price of the instrument should be 5 points above SPX (cash S&P). When the price moves above or below fair value, a change in the presumed direction of the market is implied. This is called the "market indicator" of the futures and it reflects public sentiment that provides both offensive and defensive trading opportunities, and allows institutional investors to gauge their portfolio's return relative to a benchmark. For instance, when S&P 500 futures are trading 5 points above fair value, the actual market open should be 40-50 points higher on the Dow. The underlying reason for pre-market futures trading is simple: fund managers and institutional investors use futures to increase or reduce exposure to the equities markets as their cash holdings dictate. In addition, many professional traders maintain large positions that can be significantly affected by market direction. Since the most popular index options (OEX, SPX, NDX) on the CBOE do not trade until a large majority of the underlying issues are active, futures are often the only way to manage losses and lock- in gains when unexpected news or company announcements threatens one's portfolio value. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return CLPA 6.25 6.72 JAN 5.00 0.25 *$ 0.25 36.2% PHI 17.81 17.69 JAN 15.00 0.50 *$ 0.50 15.1% KLAC 33.69 39.94 JAN 25.00 0.75 *$ 0.75 14.5% PLNR 28.88 23.38 JAN 22.50 0.63 *$ 0.63 10.7% CNF 33.81 32.00 JAN 30.00 0.69 *$ 0.69 9.6% CHTR 22.00 23.00 JAN 20.00 0.81 *$ 0.81 9.3% BSTE 37.50 28.50 JAN 25.00 0.69 *$ 0.69 9.2% STAT 26.44 23.50 JAN 22.50 0.44 *$ 0.44 9.0% NEM 16.25 16.88 JAN 15.00 0.88 *$ 0.88 8.9% ALSI 33.63 34.50 JAN 25.00 0.44 *$ 0.44 8.9% PHCC 40.81 36.38 JAN 32.50 0.50 *$ 0.50 8.4% AEIS 24.38 29.31 JAN 20.00 0.69 *$ 0.69 8.2% CAL 56.50 52.00 JAN 50.00 0.63 *$ 0.63 8.2% ADVP 39.50 39.69 JAN 30.00 0.81 *$ 0.81 8.1% HCR 19.69 20.06 JAN 17.50 0.44 *$ 0.44 7.8% HD 49.75 49.13 JAN 45.00 0.56 *$ 0.56 7.7% MU 35.88 41.44 JAN 25.00 0.69 *$ 0.69 7.6% ADLAC 48.56 46.44 JAN 35.00 0.69 *$ 0.69 7.2% CPRT 20.25 17.88 JAN 17.50 0.38 *$ 0.38 7.2% LFG 38.38 38.44 JAN 35.00 1.00 *$ 1.00 6.7% C 53.69 53.13 JAN 50.00 0.56 *$ 0.56 6.6% PPDI 48.19 48.06 JAN 40.00 0.69 *$ 0.69 6.4% COST 41.31 43.06 JAN 37.50 0.38 *$ 0.38 6.3% SPF 25.44 24.56 JAN 22.50 0.69 *$ 0.69 6.3% TXN 47.63 47.88 JAN 32.50 0.56 *$ 0.56 6.0% GM 54.00 52.88 JAN 50.00 0.50 *$ 0.50 6.0% INSUA 39.88 35.81 JAN 35.00 0.44 *$ 0.44 5.5% BSTE 36.94 28.50 JAN 22.50 0.50 *$ 0.50 5.5% NKE 51.19 56.44 JAN 45.00 0.75 *$ 0.75 5.4% TXCC 47.88 40.31 JAN 25.00 0.75 *$ 0.75 5.3% KLAC 35.94 39.94 JAN 22.50 0.56 *$ 0.56 5.2% SNPS 42.13 51.56 JAN 35.00 0.88 *$ 0.88 5.2% BCHE 28.38 33.13 JAN 25.00 0.50 *$ 0.50 5.1% CCR 41.69 47.06 JAN 35.00 0.75 *$ 0.75 5.1% FNSR 37.50 33.19 JAN 22.50 0.56 *$ 0.56 5.0% ADLAC 40.81 46.44 JAN 30.00 0.50 *$ 0.50 5.0% OXY 22.56 23.06 JAN 20.00 0.56 *$ 0.56 4.9% *$ = Stock price is above the sold striking price. Comments: The big news of the week came Monday before the open as American Airlines Holdings (AMR) became the savior of beleaguered Trans World Airlines (TWA). The proposed buyout of TWA left little room for (near-term) upside potential and we will not record a position in the issue. Insituform (INSUA) continues to trade near its 150 dma; a key moment. A break-even exit prior to next Friday's expiration seems very prudent. Planar Systems' (PLNR) recovery to its 50 dma appears to offer a second chance to avoid owning the issue. Biosite Diagnostics (BSTE) is testing its December lows; also a key moment. Priority Healthcare (PHCC) appears to be struggling as the technicals continue to weaken. Continental Airlines (CAL) should have offered a much better cost basis (or even a lower strike) for those who entered the position. It's time to decide whether to risk owning Copart (CPRT) or simply exit the position. Pharma Products (PPDI) did manage to test its 30 dma near $40; keep a close watch on the position. Positions Closed: Cor Therapeutics (CORR) - The recent news-driven rally marks this candidate for the monthly "Murphy's Law" award. NEW PICKS ********* Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return RATL 47.88 FEB 35.00 RAQ NG 1.25 198 33.75 34 10.3% GMST 52.69 FEB 35.00 QLF NG 1.19 178 33.81 34 9.1% SMTC 27.75 FEB 17.50 QTU NZ 0.63 0 16.87 34 9.1% PLUG 19.94 FEB 12.50 PQL NV 0.44 14 12.06 34 8.9% ISSI 17.75 FEB 12.50 XUS NV 0.38 110 12.12 34 8.7% MFNX 18.69 FEB 12.50 QFN NN 0.38 268 12.12 34 8.3% AVCI 37.13 FEB 20.00 QYV ND 0.69 321 19.31 34 7.6% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AVCI - Avici Systems $37.13 *** Bottom Fishing! *** Avici Systems develops and sells high-speed data networking equipment that enables communications service providers to transmit high volumes of information across their fiber optic networks. The company's high-performance solution is being marketed to telecommunications companies and Internet service providers that are creating next-generation optical networks to address the increasing data traffic across the Internet. The company's shares have been on the move after analysts reported that Avici could handily meet and even beat consensus revenue estimates for the quarter. The earnings announcement is due next week and this position offers favorable speculation on the outcome of the report. FEB 20.00 QYV ND LB=0.69 OI=321 CB=19.31 DE=34 MR=7.6% /charts/jan01/charts.asp?symbol=AVCI ***** GMST - Gemstar $52.69 *** An Old Favorite! *** Gemstar-TV Guide International Group develops, markets and licenses proprietary technologies and systems that simplify and enhance consumers' interaction with electronics products and other platforms that deliver video, programming information and other data. Their first proprietary system, VCR Plus+, is currently incorporated into virtually every major brand of VCR sold worldwide. The company has also developed and acquired a large portfolio of technologies and intellectual property to implement interactive program guides (Gemstar Guide Technology), which enable consumers to navigate through, sort, select and record television programming. Gemstar is an OIN favorite as the options premiums are generally robust and the issue has a unique niche in the consumer electronics market. The recent bullish activity indicates that investors are betting the stock will return to higher valuations in the coming months. FEB 35.00 QLF NG LB=1.19 OI=178 CB=33.81 DE=34 MR=9.1% /charts/jan01/charts.asp?symbol=GMST ***** ISSI - Integrated Silicon Solution $17.75 *** On The Move! *** Integrated Silicon Solution designs, develops and markets high performance memory semiconductors used in Internet access devices, networking equipment, telecom and mobile communications equipment, and computer peripherals. Its high speed and low power SRAMs and its low/medium density DRAMs enable customers to design products that meet the demanding connectivity and portability requirements of the data communications and wireless communications markets. Its objective is to capitalize on trends such as the expansion of the communications and Internet infrastructure, the proliferation of wireless devices, and other trends in electronics technologies. Banc of America Securities recently issued some favorable comments on the company and the stock responded with a rally to a 3-month high. The company's earnings are due on January 24. FEB 12.50 XUS NV LB=0.38 OI=110 CB=12.12 DE=34 MR=8.7% /charts/jan01/charts.asp?symbol=ISSI ***** MFNX - Metromedia Fiber Network $18.69 *** Rally Mode! *** Metromedia Fiber Network provides fiber optic infrastructure and high-bandwidth Internet connectivity for its communications intensive customers. The company also provides connectivity that enables mission critical Internet applications to thrive, as well as high-bandwidth infrastructure, including managed co-location services. Metromedia recently reaffirmed its quarterly revenue outlook and said it expects strong growth in 2001. The company also said it sees 2001 revenue of about $475 million, as a result of long-term customer contracts, new business and "accelerating strong demand" for fiber-optic infrastructure among communication carriers, businesses and government organizations. The projection would top analysts' expectations of $390.7 million for 2001. In addition, Robertson Stephens offered some bullish comments on the company last week and the share value has responded appropriately. FEB 12.50 QFN NN LB=0.38 OI=268 CB=12.12 DE=34 MR=8.3% /charts/jan01/charts.asp?symbol=MFNX ***** PLUG - Plug Power $19.94 *** Utility Alternative! *** Plug Power designs and develops on-site electricity generation systems utilizing advanced proton exchange membrane fuel cells for residential applications. The company's residential fuel cell system will be an appliance that will produce electricity through a clean, efficient process without combustion. The system will receive fuel from a home's existing natural gas line or propane tank, convert the fuel into a hydrogen-rich stream, and then combine it with oxygen from the air in a chemical reaction that produces electric power. The company plans to bring its first residential fuel cell systems to market in 2001, and, by 2003 expects to offer different model sizes designed to meet the specific power needs of various market segments. The recent problems with California utility companies have generated new interest in this issue and further upside activity is likely. FEB 12.50 PQL NV LB=0.44 OI=14 CB=12.06 DE=34 MR=8.9% /charts/jan01/charts.asp?symbol=PLUG ***** RATL - Rational Software $47.88 *** Solid Earnings! *** Rational Software is a provider of integrated solutions that automate the software development process. The company's integrated solutions include tools, software engineering best practices, and services that allow customers to successfully and efficiently develop and deploy software. The company's solutions help customers organize, automate, and simplify the software development process and enable them to achieve a competitive advantage by being able to more quickly develop and deploy high-quality, mission-critical software. Rational rallied last week after analysts praised its quarterly reports and revised guidance. The company topped consensus estimates and raised its targets despite a slowdown in IT-spending, and now the issue is bracing for a move to its old trading range near $60. FEB 35.00 RAQ NG LB=1.25 OI=198 CB=33.75 DE=34 MR=10.3% /charts/jan01/charts.asp?symbol=RATL ***** SMTC - Semtech $27.75 *** Own This One! *** Semtech is a supplier of analog and mixed-signal semiconductors. Semtech designs, manufactures, and markets a range of products for commercial applications, the majority of which are sold to the communications, industrial and computer markets. Semtech's semiconductors enable power management, test, protection and a wide range of other functions in products that require signal processing. Semtech reported earlier in the month it will meet consensus fourth-quarter earnings expectations, but indicated that revenue for the period would be flat on a sequential basis. The company blamed the revenue shortcoming on a reduction in orders by customers and a temporary slowdown in demand for certain communications equipment. Semtech also said revenue for the first quarter should be sequentially flat, but resume growth in the second quarter. For 2001, the company expects revenue to grow by 47% and income to more than double. Investors appear to favor the outlook as the issue has rallied significantly since the announcement and the potential for future gains is excellent. FEB 17.50 QTU NZ LB=0.63 OI=0 CB=16.87 DE=34 MR=9.1% /charts/jan01/charts.asp?symbol=SMTC ***** ***************** SUPPLEMENTAL NAKED PUTS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return SNPS 51.56 FEB 45.00 YPQ NI 1.56 103 43.44 34 8.9% BRW 27.56 FEB 22.50 BRW NX 0.63 15 21.87 34 8.5% BMCS 26.44 FEB 20.00 BCQ ND 0.50 249 19.50 34 7.7% AXTI 42.13 FEB 30.00 AQX NF 0.63 10 29.37 34 6.2% PCAR 51.13 FEB 45.00 PAQ NI 0.94 325 44.06 34 5.5% SKM 28.94 FEB 22.50 SKM NX 0.38 1 22.12 34 5.5% ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1366 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Time for a holiday! Stocks consolidated Friday in the wake of new earnings warnings and indications that the Fed will forego a rate cut at its next meeting. Friday, January 12 Stocks consolidated today in the wake of new earnings warnings and indications that the Fed will forego a rate cut at its next meeting. The NASDAQ closed 14 points on weakness in computer hardware stocks and the Dow industrials ended 84 points lower at 10,525 as economically-sensitive issues weighed heavily on the blue-chip average. The S&P 500 index was down 8 points at 1,318. Volume on the NYSE hit 1.26 billion shares, with winners beating losers 1,466 to 1,404. Activity on the NASDAQ was moderate at 2.5 billion shares traded, with advances beating declines 2,373 to 1,462. The 30-year Treasury fell 1 13/32, pushing its yield up to 5.63%. Thursday's new plays (positions/opening prices/strategy): Motorola MOT JAN25C/FEB25C $3.62 debit calendar Advanced Energy AEIS FEB20P/FEB22P $0.50 credit bull-put U.S. Bancorp USB FEB30C/FEB30P $3.31 debit straddle All of our new positions offered reasonable entry points during the session. Advanced Energy is the only issue that could have provided a better premium, but after falling slightly during the morning, it closed almost where it opened at $29.31. There will almost certainly be an opportunity to improve the price next week. Portfolio Plays: The market took a breather today, after several major technology companies issued disappointing profit forecasts. Negative news from Gateway (GTW) and Hewlett-Packard (HWP) added to the recent pessimism from Yahoo (YHOO) and Nokia (NOK) to put an end to the Nasdaq rally. Salomon Smith Barney also put new pressure on the group with a downgrade of Sun Microsystems (SUNW). On the Dow, United Technologies (UTX), Minnesota Mining (MMM), and Procter & Gamble (PG) led on the downside, while Johnson & Johnson (JNJ), Disney (DIS) and Boeing (BA) edged higher. Among broader market issues, utility, biotechnology, retail, drug, and gold companies advanced while bank and cyclical shares declined. Our portfolio was dominated by technology issues but once again, many of the best performances were seen in the small-cap category. Portal Software (PRSF) jumped $1.12 to $9 and Conseco (CNC) continued to rally, closing near a nine-month high at $14.69. Among the mid-cap positions, AT&T (T) rose $1.19 to $24.44 and our bullish calendar spread at $25 is approaching the maximum profit range. Costco (COST) was the leader in the retail group, up $1.75 to $43 and our (adjusted) Covered-call at $40 should expire with a favorable return. Bearish positions in Pfizer (PFE), Bowater (BOW), CVT Therapeutics (CVTX), and Allergan (AGN) are expected to finish profitably. The Straddles section enjoyed some big winners this week and today's activity provided great returns in two recent plays. Federated Investors (FII) traded as high as $27.81, providing a closing credit of $2.62 on $1.50 initial debit. Mips Technologies (MIPS) closed above $30, pushing our speculation play to a $5.25 overall credit. That's $1.75 on $3.50 invested in less than one week. Our aggressive straddle on Three-Five Systems (TFS) also began to achieve profits. The issue traded as high as $23.56 during the session, providing a $0.75 return on $2.50 invested, and there is still a week to go. Southwest Securities (SWS) also achieved profitability, with a total credit of $6.38 on $5.31 invested, and the options expire in March. Questions & comments on spreads/combos to Contact Support ****************************************************************** - STRADDLES & STRANGLES - With the increasing number of requests for debit straddles and a slew of quarterly earnings announcements occurring over the next few weeks, we decided to offer some additional positions in this category. As we noted last Sunday, there has recently been a lot of option activity in stocks that are about to report earnings and one strategy that can work well in this scenario is to buy a straddle or strangle on the issue. This conservative technique can take advantage of a surprise move in either direction, and can profit when the stock moves ahead of the company's earnings, in expectation of a particular outcome. The basic requirements for success are inexpensive options on an issue that has (proven) historical volatility. These positions meet the basic criteria for a favorable debit straddle (or strangle); inexpensive option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. Since your market outlook or analysis methods may be different than ours, each of these recommendations should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. Due to the expanded number of positions this week, these plays will not be tracked as part of the regular section. Also, the market is closed for the Martin Luther King, Jr. Holiday so the option premiums may have changed substantially when the positions reopen on Tuesday. As always, due diligence is a must! ****************************************************************** AFC - Allmerica Financial $59.06 *** Another Try! *** Allmerica Financial is a non-insurance holding company operating in three major segments. The company's Risk Management segment consists primarily of its property and casualty operations, which are generated through The Hanover Insurance Company and Citizens Insurance Company of America. Through its Allmerica Financial Services segment, the company provides investment-oriented life insurance and annuities to individuals and businesses throughout the United States. With the Allmerica Asset Management segment, the company offers Stable Value Products, including as Guaranteed Investment Contracts, to ERISA qualified retirement plans as well as other institutional buyers, such as money funds, and corporate cash management programs and securities collateral reinvestment programs. In addition to the three operating segments, Allmerica also has a corporate segment, which consists primarily of cash, investments, Corporate debt and Capital Securities. The company is scheduled to report earnings in early February. This issue has provided profitable straddles on many occasions, even with the low Open Interest in the Put options. However, the current bid/ask spreads are acceptable and the trading volume in both series will certainly increase as we move into February. PLAY (conservative - neutral/debit straddle): BUY CALL FEB-60.00 AFC-BL OI=55 A=$2.25 BUY PUT FEB-60.00 AFC-NL OI=1 A=$3.00 INITIAL NET DEBIT TARGET=5.00 TARGET ROI=25% /charts/jan01/charts.asp?symbol=AFC ****************************************************************** CI - Cigna Corporation $115.20 *** Big Mover! *** CIGNA Corporation and its subsidiaries constitute one of the largest investor-owned employee benefits organizations in the United States. The company's subsidiaries are major providers of health care products and services, group life, accident and disability insurance, retirement products and services and investment management. CIGNA offers a range of managed care and indemnity products and services to meet the needs of employers of all sizes. The customers of these operations range in size from some of the largest United States corporations to small enterprises, and include employers, multiple employer groups, unions, professional associations, government-sponsored programs, and other groups. CI's products are marketed in all 50 states, the District of Columbia and Puerto Rico. Cigna's quarterly report is due February 8, 2001. PLAY (conservative - neutral/debit straddle): BUY CALL FEB-115.00 CI-BC OI=3 A=$6.30 BUY PUT FEB-115.00 CI-NC OI=0 A=$5.80 INITIAL NET DEBIT TARGET=$11.70-$11.80 TARGET ROI=25% /charts/jan01/charts.asp?symbol=CI ****************************************************************** IPG - Interpublic Group $45.40 *** Cheap Speculation! *** The Interpublic Group is one of the largest organizations of advertising agencies and marketing service companies, with global operations in the sectors of advertising, independent media buying, direct marketing, healthcare communications, interactive consulting and communications services, marketing research, promotions, experiential marketing, public relations and sports marketing. Its companies include McCann-Erickson WorldGroup, The Lowe Group, Draft WorldWide, Initiative Media Worldwide, Octagon, Zentropy Partners, NFO Worldwide, The Allied Communications Group and other related companies. IPG's earnings are due February 21. PLAY (speculative - neutral/debit strangle): BUY CALL FEB-50.00 IPG-BJ OI=50 A=$0.75 BUY PUT FEB-40.00 IPG-NH OI=350 A=$0.50 INITIAL NET DEBIT TARGET=$1.00-$1.12 TARGET ROI=20% /charts/jan01/charts.asp?symbol=IPG ****************************************************************** ORBK - Orbotech $42.00 *** Probability Play! *** Orbotech develops and produces advanced hi-tech equipment for inspecting and imaging circuit boards and display panels. The company is engaged in providing advanced technology solutions used by electronics manufacturers to facilitate the highest quality production of printed circuit boards, unique flat-panel displays, integrated circuit packaging and others electronics assemblies. Orbotech's automated optical inspection, imaging and computer-aided manufacturing technologies enable customers to achieve the increased yields and throughput essential to remaining at the forefront of electronics production. Orbotech is scheduled to announce earnings in early February. PLAY (speculative - neutral/debit strangle): BUY CALL FEB-45.00 OKQ-BI OI=567 A=$2.68 BUY PUT FEB-40.00 OKQ-NH OI=40 A=$2.75 INITIAL NET DEBIT TARGET=$5.25-$5.31 TARGET ROI=25% /charts/jan01/charts.asp?symbol=ORBK ****************************************************************** SKYW - SkyWest $24.00 *** Range Roller! *** SkyWest, through its wholly owned subsidiary, SkyWest Airlines, operates regional airlines in the United States. SkyWest offers scheduled passenger and air freight service with approximately 1,000 daily departures to 63 cities in 13 western states and Canada. Pursuant to a joint marketing and code sharing agreement with Delta Airlines, SkyWest operates as a Delta Connection in certain SkyWest markets. They also operate as United Express in certain California locations. Many of the major airlines report next week but SKYW's earnings are not due until 1/26/01. Note: There is also a short-term position available with January options at the $25 strike. PLAY (conservative - neutral/debit straddle): BUY CALL FEB-25.00 UWQ-BE OI=15 A=$1.68 BUY PUT FEB-25.00 UWQ-NE OI=0 A=$1.93 INITIAL NET DEBIT TARGET=$3.38-$3.50 TARGET ROI=25% /charts/jan01/charts.asp?symbol=SKYW ****************************************************************** TYC - TYCO International $59.25 *** Key Moment! *** Tyco International is a diversified manufacturing and service company. Through its subsidiaries, the company manufactures and distributes electrical and electronic components and unique multi-layer printed circuit boards. They also design, engineer, manufacture, install, operate and maintain undersea telecom systems and manufacture and distribute a range of disposable medical supplies and other specialty products. In addition, Tyco designs, manufactures, installs and services fire detection and suppression systems and installs, monitors and maintains a wide range of electronic security systems; and designs, manufactures and distributes flow control products and provides environmental consulting services. Tyco recently acquired Lucent Technologies' Power Systems (LPS) business unit. LPS provides a full line of energy solutions and power products for telecom service providers and for the computer industry. Tyco reports earnings next week! PLAY (conservative - neutral/debit straddle): BUY CALL FEB-60.00 TYC-BL OI=12664 A=$2.88 BUY PUT FEB-60.00 TYC-NL OI=118 A=$3.25 INITIAL NET DEBIT TARGET=$5.88 TARGET ROI=25% /charts/jan01/charts.asp?symbol=TYC ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. 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