The Option Investor Newsletter Tuesday 01-16-2001 Copyright 2001, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011601_1.asp Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-16-2001 High Low Volume Advance/Decline DJIA 10625.70 +127.30 10664.00 10486.60 1.20 bln 1742/1198 NASDAQ 2618.55 - 7.95 2638.22 2576.95 2.07 bln 2418/1533 S&P 100 639.05 + 5.17 693.83 684.80 totals 4160/2731 S&P 500 1326.65 + 8.10 1327.81 1313.33 60.4%/39.6% RUS 2000 493.28 + 7.53 493.46 483.86 DJ TRANS 3064.74 + 62.76 3069.92 2988.14 VIX 28.18 + 0.56 29.32 28.18 Put/Call Ratio 0.56 ************************************************************* Surprise, surprise, surprise! Money rotated back into defensive stocks today as tech stocks took a breather in front of a massive number of expected tech earnings. Traders took off their bullish horns and moved to the sidelines until the true earnings picture is clearer. Drugs and food stocks and insurance stocks were up on the rotation while BRCM, JNPR, JDSU and other leading techs suffered in regular trading. Earnings, earnings, earnings. The wait is on. Announcements after the bell today were waited heavily in the semiconductor sector. AMCC posted earnings of +$.16 which beat estimates by two cents. Revenue was light with sales weaker than expected. AMCC dropped -$3 in after hours to a low of $67 right after the announcement but rallied back to gain +$3 in later trading. The 800lb. gorilla in the semiconductor space also announced and only met estimates of $.38. Revenue was flat at $8.7 billion and margins were stable at 63%. However they warned that earnings for the next quarter would be down -15% or more with gross margins dropping to only 58%. This is an earnings drop of almost $1.3 billion in just one quarter. Investment gains are expected to also drop to only $180 million, down from over $900 million just a couple quarters ago. Intel initially traded on both sides of positive after the announcement and ended up +1.00 after the conference call. Ashok Kumar predicted INTC would dip to as low as $26 before rebounding. He said INTC would be a strong buy at that number. That may be wishful thinking on his part. Juniper Communications also announced and beat estimates by a huge margin. Recently raised estimates of $.18 were not even close to the $.24 actual earnings. Revenue was up +47% and they more than doubled market share at the expense of CSCO. Estimates by the company for full 2001 are for sales of $1.5+ billion and more than double the current rate. JNPR gained +12 to $139 in after hours trading after a brief drop to less than $122. JNPR advised analysts to raise their estimates for next year and claimed a 12 month technology lead over its competitors. (CSCO) Ironically CSCO gained +1.50 in after hours trading as well. RFMD announced earnings of +$.05 that were less than last year but in line at $.05 and warned that the next quarter would drop -10% from here, citing costs associated with a new facility as the reason. NVLS beat estimates by +$.06 on a +122% increase in sales. NVLS was up almost +$6 to $43 in after hours trading. In other news GSTRF announced that it had suspended principal and interest payments on its debt in order to maintain enough cash for operations. Not a good sign for this troubled phone company. Of more concern than the stockholders of GSTRF is the debt or investment by other companies. QCOM, for instance, has over $600 million of investments in GSTRF which it will have to write off should GSTRF file bankruptcy. This is a huge chunk of change and only the tip of the iceberg. The Dow gained +127 points on the strength a couple positive earnings reports but it was really a quiet move. Citigroup rose +1.13 after reporting a +11% rise in income for the quarter inline with analysts expectations. BAC dropped -1.31 after posting a -27% decline in earnings but rallied to close up +.75. Dow components BA, GM, IBM and JPM announce earnings on Wednesday with IBM being the biggest worry. The Commerce Dept reported that business inventories grew +0.5% in November while sales fell for the second month in a row. The inventory data met expectations and continued to suggest weakness in the economy. This was market friendly and traders are still expecting another rate cut on Jan-31st from the Fed. The CPI report is due out on Wednesday as well as Industrial Production. OPEC is also expected to cut production by -1.5 million bbls which would put pressure on oil prices and indirectly inflation again. The state of California was hit by a stage 3 emergency alert and just narrowly avoided rolling blackouts to take strain off the energy grid. Credit ratings were cut to less than junk status on Southern California Edison and Edison International putting them into default on various bank loans and credit lines. The move came after SoCal Edison suspended $596 million in payments to creditors in order to keep the lights on. Bankruptcy appears to be the next option. BAC and JPM are the major lenders to both of these companies. SoCal Edison said it had $1.2 billion in cash on hand but would run out as of Feb-2nd assuming it makes all payments when due. In spite of the weak earnings by Intel and the bearish forecast, investors were relieved that the situation was not worse. The QQQ, which is a proxy for the Nasdaq rose +1.50 in after hours trading. Nasdaq futures at 6:45EST were up +65 and S&P futures were up +9.00. This is a marked difference from the day's trading on the Nasdaq. Over two billion shares traded again with no price movement. With only a 75 point trading range the Nasdaq was suffering from traders moving to the sidelines in front of the flood of tech earnings this week. With investors believing that all the bad news is already priced in, as evidenced by the Intel rally late in after hours, tomorrow may be a better day. The Nasdaq is still hovering exactly at the top of the down trend channel which has been in place since Sept-1st. 2650, which has been a challenge recently, could be broken decisively on Wednesday if the futures hold. The positive earnings surprises from NVLS, AMCC and JNPR have energized the after hour market with JNPR up +$12 as after hours trading came to a close. We need to remember that just as easily as three positive surprises provided a market bounce, negative surprises can take it back down again. While the futures are up strongly tonight there is a lot of darkness before morning and things can change in a heartbeat. Keep those stops tight and be prepared to exit if the euphoria diminishes. 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=1345 ************************************************************ **************** MARKET SENTIMENT **************** They Liked It! By Austin Passamonte All eyes were on Intel tonight (NASDAQ:INTC) and the tech bell- weather said some favorable things. Sure, there are earnings challenges ahead but traders knew that. Once the conference call ended, post-market NDZ and SPZ futures shot up. What was said is beyond us; we were busy dodging & weaving around 30+ vehicles piled up off the short stretch of highway between office and home. Two inches of snow on the ground and numerous Denver-ites are off the road? They'd never make it one day in western NY, but I digress. INTC coupled with multiple other earnings have futures climbing and expectations strong for the remainder of this week and beyond. There are some critical points of resistance overhead as listed below: SPX: 1350 NDX: 2690 QQQ: 66.75 Dow: 10,721 OEX: 708 SOX: 675 COMPX: 2782 These figures represent key moving average and/or descending trendlines overhead. A break and close above would be our first signal that hibernation season for the bears may be near. Charts for the SOX were looking pretty ragged until tonight. This could be attributed to trader's fear leading into the earning reports and may now breath a sigh of relief. We should see some bullish improvement tomorrow or that entire sector's in big, big trouble. The start of Q1 earnings is off with a bullish start and we head towards expiration with great promise for directional market movement once again. Won't that be nice? As always, choose your entries carefully and follow the daily trend. We could be on the verge of our next moment to bask in the market's glow of "easy" trading once again! ***** VIX Tuesday 01/16 close: 28.18 30-yr Bonds Tuesday 01/16 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. Tuesday (01/16/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 730 - 715 13,996 1,547 9.05 710 - 695 21,012 6,400 3.28 OEX close: 693.05 Support: 690 - 675 13,211 11,613 .88 670 - 655 2,807 9,855 3.51 Maximum calls: 685/6,831 Maximum puts : 640/4,815 Moving Averages 10 DMA 686 20 DMA 685 50 DMA 708 200 DMA 763 NASDAQ 100 Index (NDX/QQQ) Resistance: 71 - 69 68,803 16,294 4.22 68 - 66 90,725 11,685 7.76 65 - 63 64,284 34,154 1.88 QQQ(NDX)close: 61.98 Support: 60 - 58 77,028 56,322 .73 57 - 55 45,489 43,212 .95 54 - 52 9,353 23,054 2.46 Maximum calls: 60/59,091 Maximum puts : 60/38,046 Moving Averages 10 DMA 59 20 DMA 59 50 DMA 66 200 DMA 84 S&P 500 (SPX) Resistance: 1400 17,435 9,155 1.90 1375 10,828 10,228 1.06 1350 36,747 30,941 1.19 SPX close: 1326.65 Support: 1300 6,475 12,069 1.86 1275 443 14,052 31.72 1250 1,644 12,645 7.69 Maximum calls: 1350/36,747 Maximum puts : 1350/30,941 Moving Averages 10 DMA 1314 20 DMA 1311 50 DMA 1344 200 DMA 1424 ***** 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 reduction 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 01/09 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/011601_1.asp *********** OPTIONS 101 *********** Pick On Someone Your Own Size By David Popper In the movie, "Patriot," there is a scene where the hero's son joins the Colonial Army to fight the British. He hides in an abandoned house and witnesses the Colonial forces marching in European style formation to fight against the more experienced British forces. You see row after row of American soldiers being slaughtered at the hands of their enemies. As the boy watched this scene, he did not notice his father enter the room. After observing the scene, the hero remarked that this battle was over before it started. As the movie goes on, the colonists eventually win, primarily by employing guerrilla tactics. These tactics allowed an overmatched force to defeat the stronger enemy. As I watched this movie, I could not help but to analogize that scene to the market. Millions of traders stayed in the market "for the long haul" and had their accounts annihilated, when the damage could have been averted by limiting their risk in those uncertain times. Millions of traders lost while others stayed profitable entering short-term trades. Millions of traders lost while others greatly profited by shorting the market. Millions of traders lost because they refused to alter their style, while others did well because they adapted to the changing market conditions. Troubled times are not conducive to the strategy of "staying long and strong." Other strategies may be helpful to the part time trader if he/she wants to stay in the market. The very best solution may be to stay on the sidelines altogether, but some (like myself) will not take that approach. Below I will discuss one of these strategies. The key, however, with all of these strategies is to recognize that trades can turn south quickly and therefore you must trade with only a small portion of your funds. If you typically take 500 share positions, then trade 200 share positions. If you trade 200 share positions, then trade 100, etc. The idea is to achieve short-term gains and not be over exposed to the market. Like the guerrilla fighter above, you do not meet the market head on, but rather you hit quickly for small gains or establish safer but less profitable positions. The strategy that I would like discuss is selling covered calls. Sounds boring but it is not boring to be profitable in uncertain times. A dirty little secret to enhance your return is to consider writing calls on severely beaten down tech stocks that now sport a low PE, but still have inflated premiums. For example COMS has a PE under 10, a chart that is basing and a ATM premium of 12%. I bought COMS for $10 on January 10th and sold the February 10 call for $1.38. That is a healthy premium with not near the risk of a BRCM, SEBL or other stocks with three digit PEs. Other examples would include WCOM, T, and DELL. The bad news is priced into these market leaders, and yet the premium is rich. Another thing to consider when writing these covered calls is to try to accomplish the trade near support. Finally, make sure that the company is an industry leader. By trading a quality company which is temporarily beaten down and is technically at good support, you have greatly increased your odds of a successful play even in a volatile market. If by chance a rally erupts, you can always buy back the calls and participate in the ride. In fact, often the time premium will shrink rapidly during a rally. You will be able to buy the call back after having extracted all of this extrinsic premium and can write a new call at a higher premium. If on the other hand the stock continues to tank, you may be able to repurchase the call very cheaply and rewrite it on a rally. Again, by limiting your selections to the criteria listed above, you have significantly reduced your chances for a poor trade. As an aside, I recently met a former Nasdaq market maker on an airplane in New York who lost in excess of $4 million last year. He is limiting his trades this year to employing this very same strategy. His reasoning is that the professionals that he witnessed trading in this manner did not suffer severe losses last year. No it is not as exciting as owning BRCM call options, but a steady gain while many around you are losing eventually can become exciting. In my opinion, this strategy provides the part-time trader with the best percentage shot at making a profit on a monthly basis in a rough market. The premium will be somewhere between 5 and 10% and the fact that these good stocks have already suffered a valuation adjustment provides additional safety. You do not have to be fully invested and risk severe damage to make money. You do not have to assume the risk of high volatility and triple digit PEs to make money. These risks may be too big for your account. It is better to pick on someone your own size. ************** TRADERS CORNER ************** Do You Have A Trader's Mindset? By Scott Martindale What does today's action mean? This week's earnings reports will determine short-term action. Although today's reports weren't too bad, I admit to being cautious for the near term, so I've sold January covered calls on a number of my holdings. Nonetheless, I expect a trading range over the medium term and I'm still bullish longer term. Thus, I still see this as a great opportunity in the making. I continue to look for sell off days to move on naked puts and equity or call positions on big names like ORCL, SUNW, CSCO, JDSU, ABI, EMC, and QCOM, as well as AMCC, ADBE, CMVT, VRTS, JNPR, CHKP, ITWO, and BEAS. I also like speculative names like ITWO, CRA, SCON, PRSF, KANA, and TMWD, even though I've been burned by some of them. Many of these sold off at year-end for tax losses, but still have the long-term potential to attract new buyers. I sold shares of SCON and PRSF for tax losses myself, but bought medium- term calls to capture the expected rebound. I sold and profitably closed naked put positions in CPST (Jan 20), EXTR (Jan 40), and PRSF (Jan 7.5). I must admit, though, that big moves like I got in CPST make me wish I had also bought calls. However, I did have the foresight (or nerve) to buy shares of CPST in my long-term account, and on Friday I decided to lock in profits by selling Jan 35 calls near the high of the day. This brings me to my topic of today. Do you have a trader's mindset? No matter what anyone tries to tell you about avoiding risk, let's face it, you have to take risks to gain exposure to fast profits. Waiting for confirmation often means you miss out on the biggest chunk of gains and increase your downside. Embracing and managing risk is your best path to profits. To be successful, I believe traders should buy on weakness (before confirmation) and sell into strength (too soon). Let me expand by making the following points: 1. Buy on technical weakness or upon the early indications of a recovery. This positions you for the desirable "buy low" half of the old adage. It might go lower, but there is also increased upside. This is a form of contrarian behavior -- to buy when others are selling. If the technicals seem to be forming a bottom, and the fundamental outlook is still bright, then it might be a good time to get in on naked puts, bull put spreads, or long- term calls. However, it might not be ideal for short-term calls unless you see a high-volume bounce. If you had bought alternative energy stocks on weakness at year-end, you would be very happy today. 2. Don't always wait for confirmation. (What did I say?) Yes, that's the way I feel about it. Doing so will often make it too late to get in, unless the stock or overall market is about to enter a major run. In today's uncertain, trading-range environment, I wouldn't expect a heck of a lot of follow-through after breaking through resistance (i.e., confirmation). Waiting for confirmation might mean missing the trade altogether or paying too much -- all in an effort to be "safe." In my case with CPST, I sold Jan 20 naked puts for $2.50 and bought shares in my L-T account on Dec 26th when the stock was severely oversold under $23. Technically, it had bounced off of $20 and was starting to show signs of life, and fundamentally, it was well positioned to capitalize on the looming energy crisis in California. I'll also mention that I couldn't get myself to bite on Jan 8th when BEAS flirted with $40. I'm not happy with myself for missing out on that. However, I did pull the trigger and go naked Jan 35 puts on ARBA when it sold off on Friday after its earnings report. We'll see how that one turns out. 3. Thoughtful observation and educated intuition -- not to be confused with a mere "hunch" -- are important tools for a short- term trader. You might feel strongly that CPST will do well long term, but knowing when to buy for a short-term trade is more problematic. Simply playing a hunch is more likely to fail. But if technical weakness seems to be running contrary to logic due to overall market sentiment, the odds of success indeed may be higher. 4. Don't ride out a correction, especially when playing short-term options. As stocks run, they need to take an occasional breather. Often this involves a substantial retracement of the recent run up -- perhaps half or more. That is a lot of profit to give back on the hope or expectation that higher prices are coming, and it can quickly erode the value of your expiring option. You can always buy back in once the correction appears to have passed. 5. Sell into strength. For example, if the stock seems to be having a hard time breaking through a level of technical resistance, it may be due for a correction, and this might be a good time to lock in profits. Often, this means selling before the stock shows any appreciable weakness. You might miss out on further gains, but you also won't give back any of those precious profits. In my CPST example, I wrote calls last Friday when $35 looked like it might offer near-term resistance. My intention is to get back into CPST in the future (if and when it comes back down a bit) if I'm called out this Friday. Today the stock went up more, but I'll take a 60 percent gain. And I'll be looking for another opportunity to enter others like CPST on extreme weakness. 6. Adhere to a sound exit strategy. What happens if you never quite get to a point that you would consider "strength" to sell into? You need an exit strategy that allows you to get out of trades early and cut losses when they are not working, or to lock in a profit when early strength seems to be fizzling. I have written about exit strategies in this column before, as have many other writers. The stock market (and especially options) can be a cruel and humbling place to play. If you want certainty or high odds, you will have to pay for it. Instead, learn to embrace and manage risk with limited emotion. ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1359 ************************************************************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** KLAC $37.19 -2.75 (-2.75) Just when the semiconductor sector was starting to show the beginnings of a stealth rally after months of falling, news from Motorola as well as an analyst downgrade of the chip equipment sector destroyed our play on KLAC. Motorola announced that they are ceasing manufacturing at their Harvard Illinois plant, and laying off 2500 people. In addition, a Lehman Brothers analyst downgraded the entire chip equipment sector, which may have been the catalyst to push KLAC below its 50 period moving average of $39.71. KLAC failed to rally with the Nasdaq near the close, and as such, we are dropping it tonight. Use any bounce to exit open positions early in Wednesday's session. EXTR $43.19 -2.31 (-2.31) The networking sector sold off today in a bout of profit taking after a considerable rally since January 8th. The sector appears to be at a critical turning point, poised right at the 200 period moving average. EXTR sold off with the other networking stocks, although the highs and lows since January 8th still show an upward channel. Since EXTR reports earnings January 17th after the close, we will drop the play tonight. Day traders might take a trade with strength in the NWX.X, however, be sure to close positions by the close of trading on Wednesday, as the risk of holding over earnings is great. IDPH $172.00 +3.38 (+3.38) There was no shortage of catalysts for our play on IDPH, but unfortunately the stock didn't begin moving soon enough for an extended play. While earnings are not set for release until January 29th, we have to exit our new play prematurely due to a 3-for-1 split tomorrow. The small rally today all took place during amateur hour, making it difficult for us to play. While we may get another pop tomorrow, as the split approaches, we prefer to err on the side of caution and get out now. For those of you with open positions, use any strength tomorrow as an opportunity to exit at a more profitable level. PMTC $15.25 -0.88 (-0.88) After breaking out of its nine month base last week, PMTC pulled back in Tuesday's session, subsequently sliding through our recently raised stop at $15.50. However, the buyers stepped in near the $15 level, from which PMTC bounced later in the day. Unfortunately, that bounce did not carry PMTC back above our stop near the 10-dma. As such, we're dropping coverage on PMTC tonight and would use any bounce early tomorrow to exit open positions. PUTS: ***** No dropped puts today *************************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=1382 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. 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The Option Investor Newsletter Tuesday 01-16-2001 Copyright 2001, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/011601_2.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=1346 ************************************************************ ******************** PLAY UPDATES - CALLS ******************** EMC $69.88 +1.06 (+1.06) The computer storage sector bucked the sluggish trend in the Nasdaq today to post modest gains. EMC is now sandwiched between the 50 day moving average of $67.12, and the 200 day moving average of $71.35. Since EMC is scheduled to report earnings on January 23rd after the close, we may very well see the beginnings of a strong earnings run, as EMC's CEO stated that their earnings should be on target with analysts' expectations for the coming quarter and year. A breakout over $71.35 would be an excellent entry point as EMC moves through its new ascending trading channel. The next major resistance levels are $73, and the 50 day moving average of $75. Maintain stops at the $67 level. SFA $51.25 +0.31 (+0.31) Scientific Atlanta held above $50 on Monday, even when the Nasdaq dropped 40 points. Considering that SFA had rallied over 20% from $42 on January 9th to over $52 last week, some consolidation was to be expected. This stock is in a very strong technical pattern to make a final spurt into earnings, which are to be announced on Thursday after the close. For the last two days, SFA has made a strong rally in the morning, with foiled attempts to clear resistance levels at $54.44 on Friday, and $53.31 on Monday. With some help from the Nasdaq and the communications equipment sector, an earnings run might very well provide the momentum necessary to clear these levels, and possibly formidable resistance at the 200-dma of $55.59. Remember that this will be a short, two day play, as you want to be out before the market close on Thursday. Move stops up to $46. BEAS $63.13 +0.56 (+0.56) Like the Energizer Bunny, BEAS is continuing to march higher, managing to eke out a fractional gain today, despite a weak technology market. As the stock bounced near $60.50 this morning aggressive traders got an opportunity to start nibbling at new positions, as nervous investors hedged their bets ahead of the first major week of earnings season. As a late reporter, BEAS doesn't report its results until mid-February, but any high profile earnings miss in the Internet Software sector could have a pronounced negative effect on the stock in the meantime. The Sun Microsystems J2EE Press and Partner Briefing began today, and as one of the presenters, BEAS may take advantage of the opportunity to talk up their stock and the overall sector. The converged 30-dma ($65.38) and 50-dma ($65.88) are still thwarting the bulls' attempts to break through the $65 resistance level. Should they succeed in a breakout, this will be the trigger for more conservative players to enter new positions. Aggressive traders can continue to target shoot intraday dips to the $60-61 level, so long as BEAS doesn't violate our stop, which has now been moved up to $59. Regardless of your risk profile, verify positive movement on the NASDAQ and strong volume in BEAS before playing. MYGN $57.31 +1.31 (+1.31) It's been awhile since we had such a quiet day on the NASDAQ, and this behavior trickled down into industry-specific sectors like the Biotechs. Although closing positive, the Biotechnology Index (BTK.X) traded in its narrowest range since late December, and we saw this effect mirrored in the share price of MYGN. Although gaining a little over a dollar today, almost all of that was due to the gap up open, as our play posted a Doji candlestick pattern, reflecting investor indecision. While the bulls did manage to push MYGN through the $55-56 resistance level today, they did run into trouble near $60, and at the end of the day, the selling volume picked up, robbing the bulls of most of their intraday gains at the close. As we head into the heart of earnings season, we can look forward to MYGN's numbers which, according to Investor Relations, are set to be released on February 6th. On the news front today, the drug development deal between Bayer and Curagen demonstrated that genetic database companies are in a sweet spot, holding critical information that drug development companies need, and are willing to pay for. Just to be safe, we have moved our stop up slightly, and it now sits at $54. Any intraday dip near this level that is followed by a strong bounce (i.e. volume) will provide aggressive investors with an attractive entry point. More conservative players will want to wait for the bulls to crest the $63 resistance level before stepping into the play. Don't forget the issue of liquidity; MYGN options are thinly traded, so make sure the it fits your risk profile before playing. BRCM $117.88 -5.31 (-5.31) A flat to down day for the Chip sector translated to a day of consolidation for BRCM as the stock pulled back 4.31 percent on average volume, ending its 5-day winning streak. Traders were holding their breath in anticipation of INTC's earnings report tonight, so news from the company about a 2.4 gigabit per second IP security processor was largely ignored. Currently, the stock is caught between a narrow area between support from the 5 and 10-dma (currently at $112.76 and $102.75 respectively) and resistance overhead from the 50-dma, now sitting at $123. The 50-dma provided staunch resistance today, with sellers lining up at that level. If the bulls can outnumber the bears and carry the stock above this moving on volume, this would allow for a conservative entry. For those willing to take some risk, a pullback to support at $115, the 5-dma, and $110 could allow for an aggressive entry but make sure the stock closes above out stop price of $114, and confirm entries with the Philadelphia Semiconductor Index (SOX). LRCX $20.19 +0.50 (-0.50) A pullback on low volume for shares of LRCX today is not surprising, considering its recent run up and nervousness of traders surrounding INTC's earnings report. Giving back 2.42 percent for the day, volume was light, less than 85% of ADV. This is a good sign considering that yesterday, the stock was downgraded by WF Van Kasper from a Buy to a Hold rating. When a stock continues to not only hold its price but advance on volume in the face of downgrades, this suggests underlying strength and confidence on the part of investors in the company. Nevertheless, LRCX closed below its 5-dma for the first time in two weeks. On a further pullback, look for support at $20, $19.50, $19, the 10-dma at $18.90 and our stop price at $18.50. In buying a bounce, wait for volume to pick up before taking a position. For conservative traders, wait for LRCX to trade back above its 5-dma with conviction before jumping in, confirming sector strength with Merrill Lynch's Semiconductor HOLDR (SMH). MER $73.63 -0.63 (-0.63) Despite closing down fractionally for the day, shares of Merrill Lynch made a new all-time intra-day high. Trading volume was average and it appears that traders were willing to take some gains off the table as MER headed higher into blue-sky territory. However, the uptrend since late November is still firmly intact, with the 5 and 10-dma continuing to serve as support. Look for pullbacks to these two moving averages (currently at $72.83 and $71.95 respectively) as potential aggressive targets to shoot for, along with horizontal support at $73.50, $72 and our stop price of $70. As always, confirm bounces with buying volume before initiating a play. For an entry on strength, if the buyers return with conviction, taking MER definitively through the $75 mark, this could allow conservative traders to take a position, but in doing so, make sure that competitors GS and LEH are also moving in the same direction. MSFT $52.56 -0.94 (-0.94) We will be dropping our call play on MSFT tomorrow ahead of its earnings report on Thursday but until then, the gorilla of the software sector could give us one last profitable trade. Today the stock pulled back fractionally ahead of Intel's earnings report, with traders sitting on the sidelines awaiting the results. This uncertainty was reflected in today's light trading volume, less than 70 percent of ADV. MSFT did however find support from its 10-dma, now at $50.35. Look for another bounce off this level as a potential entry point, but only if sentiment in the NASDAQ is positive, with buying volume confirming the mood. As well, make sure MSFT moves back quickly above our stop price of $51. If renewed optimism brings back the buyers, taking the stock above its 5-dma at $53.15, this could allow for an entry on strength. We cannot stress enough the importance of exiting this play before the earnings report, as historically the number of stocks that rise substantially after an earnings report is less than one in ten. SLR $37.79 -0.83 (-0.83) Consolidation was the theme for today, as shares of Solectron traded in a narrow range between support from the 5-dma at $37.25 and resistance at $39. News that its subsidiary SMART Modular Technologies received approval for its 184-pin DIMMs to be used with First International Computer's new AMD-based motherboard did little to move the stock, as trading in many Tech issues was light in anticipation of bellwether Intel's earnings report. If the market likes what it hears tonight post-earnings, then a break through resistance at $39 on volume could allow conservative investors to enter this play, but resistance at $40 will be the key level to take out, with the 50 and 200-dma converged at that level. For higher risk players, look for a dip to the 5-dma, $36.50, the 10-dma at $35.63 and our stop price at $35 for possible entry points, but make sure that peers CLS, FLEX and JBL also bounce before jumping in. UBS $167.27 -2.55 (-2.55) It appears that our caution regarding the gap between $165 and $170 was well-justified, as trading in the stock allowed shares of UBS to fill that gap on a dull day for the Financial sector. Opening the day lower than Friday's close, the stock fell just below the $165 mark before buyers jumped in the bid the stock quickly higher. While the stock closed down 1.5 percent, trading volume continues to be anemic, only 30 percent of ADV. Aggressive traders may look for another test of $165 as a possible entry point as this is also our stop price, make sure UBS closes above this key support level. With today's close, UBS could find formidable overhead resistance at $169, where the 5 and 10-dma are currently converged. If buying volume picks up, lifting the stock above this level with conviction, this could allow conservative traders to initiate a play, but correlate entries with peers such as BSC, LEH, MWD. VRSN $78.38 -6.50 (-6.50) After last week's stellar run, a little pullback for shares of VeriSign before moving higher is probably good for the stock. Price/volume action has been in-line with normal profit taking, as the recent ease in share price has been on decreasing volume. The bounce off support from the 10-dma (now at $75.81) was also a good sign. For the day, VRSN closed down 7.66 percent on about 65% of ADV. At this point we would like to see the stock start to move higher, considering that our stop price of $78 lies just below today's close. A bounce off this level as well as $75 and the 10-dma could provide aggressive traders with higher risk entry points. In making such as play, make sure that volume is on your side as well as sector sympathy through competitors ENTU, CHKP, RSAS. If VRSN moves back above its 5-dma at $80.67 with conviction, this would allow for a less risky entry point. WCOM $21.31 -0.44 (-0.44) The 100-dma, currently sitting at $22.48, is proving to be formidable resistance. Ever since hitting that level in last Friday's trading, shares of WCOM have retreated, suggesting that the stock may need to gather up strength before challenging that level again. This could be a buying opportunity as the stock closed down about 2 percent today on 70% of ADV. Price/volume action would suggest that some profit taking is going on near current levels, with some traders happy to cash in some recent gains, allowing new hands to take over this play. Support can be found in increments of $0.50 from $21 down to our stop price of $18.50. The 5 and 10-dma, now at $21.21 and $19.80 may also provide support. In buying a bounce, wait for buying volume to confirm a renewed uptrend before jumping in. If WCOM manages to break through resistance at $22 on volume this could allow conservative traders a safer way to enter this play, but only if Merrill Lynch's Telecom HOLDR (TTH) is moving in the same direction. AEOS $49.75 +0.50 (+0.50) A nice pop to $51.13 on respectable volume rivaled the immediate resistance from January 4th. As we move forward with this sector play, look for a rally through $52 before taking additional positions. Our stop remains firmly set at $47. On the one hand, the developing support at $48.50 and $49 is bullish; however, the narrow trading leaves little room for error. If AEOS is to continue providing profitable trading opportunities, it needs to make a break into new territory soon. Today, JPM Morgan reiterated a Buy recommendation and upped its 12-month target price to $62 from $52. The company isn't expected to report earnings until mid-February. ARBA $36.31 +1.13 (+1.13) A 3.2% move to the upside and bullish close at just a fraction from the intraday high provides a satisfactory level confirmation to start off this week's trading. We're looking for ARBA to make a significant recovery off its recent lows and return to its higher trading levels above the $50 mark. Again today, there was a battle of upgrades versus downgrades when it came to ARBA. All in all, analysts have mixed views. But let's keep in mind that while these comments can cause fluctuations in trading, sector strength and market direction often has a much greater effect. We'll continue coverage on ARBA if it maintains a bullish disposition above the $32 level and can move through the overhead resistance at the 5 and 10 DMAs at $38.36 and $39.69, respectively. SNPS $50.25 -1.31 (-1.31) Mild profit taking and overall sector weakness took SNPS down a notch in today's trading. But the silver lining was two-fold. First there was the obvious - an entry point at a relatively firm level of support and second, the lower volume levels demonstrated a positive bias going forward. And in the news, this technology leader announced that its DFT Compiler product was selected by editors at Test & Measurement World Magazine to receive the publication's "Best in Test" Award for 2001. While the company's earnings aren't expected until the end of February, we have to depend on pure momentum to boost the price level over the short-term. Therefore, look for SNPS to rally through the $52 level before taking additional positions; unless you're more aggressive. We continue to keep a tight leash on SNPS and will exit on weakness below the $49 mark. ******************* PLAY UPDATES - PUTS ******************* AIG $84.81 +2.63 (+2.63) Could that be an entry point forming? Or is it the death knell for our play? Along with the rest of the Insurance sector (IUX.X), AIG has been falling like a stone since the first of the year. This isn't exactly a surprise, as it was high time that investors pocketed some profits from the gains they had amassed since last spring. After riding the lower Bollinger band lower for the last 7 days, AIG was due to bounce, and bounce it did, gaining $2.63 to end the day just fractionally below our $85 stop. The action tomorrow will be telling. A rollover from here will be the signal for aggressive traders to initiate new positions, while a continuation of the recovery will spell the end of our play. More conservative players will want to wait for AIG to fall through the $83 level before jumping aboard. In either case, watch the broader Insurance sector for confirmation of your trade. AIG will likely mirror the action of the IUX.X in the near term. Earnings are currently scheduled for February 8th, meaning we still have plenty of time to ride the stock lower, so long as it doesn't violate our stop first. PMI $52.25 +1.88 (+1.88) Finally getting a much-needed bounce, the Insurance Sector (IUX.X) recovered a tiny fraction of its losses over the past 2 weeks. PMI followed the broader index higher, managing to eke out an almost $2 gain, while detaching itself from the lower Bollinger band again. If traders follow their pattern from last week, this is simply a prelude to a renewed downward move. By bouncing today, some of the upward pressure has been relieved, making it possible for the bears to come back in force over the next few days. Support at $50 is still intact, meaning that conservative traders can use a violation of this level as their trigger point for entering new plays. Today's bounce took the stock within spitting distance of our $53 stop, and aggressive traders will want to keep a careful eye on the market action in the next day or two. A rollover near current levels will solidify the $53 support level, while a continued recovery will spell the end of our play. Don't jump the gun, trying to wish the stock in "your" direction. Wait for the confirmation of selling volume and weakness in the broader Insurance sector before playing. PMI reports earnings on January 24th, so we still have another week in which to play the stock, so long as the technicals cooperate. CB $71.75 +2.69 (+2.69) The 5-dma, now sitting at $72.58, continues to be the key moving average to watch in playing CB. A good day for many old economy stocks allowed shares of Chubb to bounce from oversold levels today but moving average resistance continues to be formidable. While the stock gained back 3.89 percent on almost twice the ADV, we will continue to watch for failed rallies above the 5-dma and also our stop price of $73, but only if the sellers return on volume to confirm the rollover. A close above our stop price could signal a halt to CB's downward momentum, so exercise patience and caution as the stock approaches resistance. A safer play would be for selling pressure to return, taking CB below $70 support before making a play. With the lack of company-specific news so far this New Year, sector sympathy will most likely be a key factor in the stock's movements. So keep an eye on peers such as CI and ALL before making a play. MMC $102.56 +2.31 (+2.31) A superb day of trading for the more aggressive types! The buyers were lined up at the opening bell to take MMC off the century mark. A mad dash to $105.38 almost killed our put play, but the share price rolled over before it could penetrate the 10-dma ($107.19). The high-volume selling promptly returned MMC to bearish levels and provided profitable returns to day traders. Subsequent moves below the 5-dma ($103.11) and $104 stop may entice put players to take additional positions, but remember to watch for the $100 level to offer support on the decline. A breakdown under this level would, of course, provide better downside confirmation; although MMC's divergence from the rising S&P's Insurance Index (IUX.X) today was a convincing touch. MRK $83.31 +1.88 (+1.88) Uncertainty over some key Tech earnings reports tonight put traders in the defensive mode today and with that, they went back to the good old reliable drug stocks. This helped shares of Merck to end the day with a gain of 2.3 percent. However, the rally was with little conviction, as volume was just over 80 percent of ADV. And despite closing above its 5-dma (currently at $82.71) for the first time this year, resistance from the 10-dma (at $84.75) continued to hold. Look for another failed rally above this moving average as well as our stop price of $70 as an aggressive signal to enter this play, but wait for selling volume to confirm the rollover. If good earnings reports or renewed optimism for Tech stocks take the NASDAQ higher, money could again leave the Drug sector. A plunge back below the 5-dma, with traders leaving MRK on mass, could allow for a more conservative entry. In both cases, keep an eye on Merrill Lynch's Pharmaceutical HOLDR (PPH) as a gauge of MRK's sector. ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1360 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: NETE - NeteGrity Inc $46.25 +2.25 (+2.25 this week) Netegrity is a provider of software and services that manage and control user access to Web-based e-commerce applications. The company's SiteMinder product is a directory-enabled secure user management system, which is used to build and manage what is commonly known as a portal. Netegrity also offers professional services that support its software product offerings. A run into earnings is always an enticing play for trend traders; especially when there's relative strength in the sector and analysts are tooting positive comments. There is a relatively tight frame with NETE's earnings' release being just around the corner on Thursday, January 25th (after the market); however, with the stock recovering at a rapid pace and bullish technical developments to boot, the profit opportunities should be abundant. Consistent buying recently took NETE off its lows of $30 and drove it through the near-term 5 & 10 DMAs, now converged at the $40 level. The steadfast advances have also raised the near-term support upwards to $43 and $45. And recently, Gerard Klauer Mattison started new Buy coverage on the stock and issued a $60 price target. While it's possible NETE could tack on another 30 to 35% over the short-term, let's focus on the present. The ascending support at $40 and $43 currently offers a selection of entry points on dips; although the more fainthearted may want to buy into a higher-volume rally as NETE makes headway in an advancing market. The next line of strong opposition is at the 200-dma ($50.44), so it may be wise to lock in profits as NETE approaches that anticipated resistance. In regard to protective stops, ours is firmly set at $40 - we'll exit the play on a bearish close below that level. It's also a good idea to watch other software stocks that are moving in the market such as BEA Systems (BEAS), Microsoft (MSFT), Micromuse (MUSE) and Nuance Communications (NUAN) to help define the general sentiment across the sector - you want to put as many chips in your corner as possible! BUY CALL FEB-40 UPN-BH OI= 22 at $ 9.25 SL=6.25 BUY CALL FEB-45 UPN-BI OI=3000 at $ 6.25 SL=4.25 BUY CALL FEB-50*UPN-BJ OI= 48 at $ 3.75 SL=2.00 BUY CALL MAR-40 UPN-CH OI= 470 at $12.38 SL=9.25 BUY CALL MAR-45 UPN-CI OI= 513 at $ 9.50 SL=6.50 BUY CALL MAR-50 UPN-CJ OI= 3 at $ 7.50 SL=5.25 http://www.premierinvestor.com/oi/profile.asp?ticker=NETE BVSN - BroadVision $16.81 +1.00 (+1.00 this week) BroadVision is the leader in personalized e-business applications. The company's comprehensive suite of integrated applications is built for delivery via the Web and wireless devices. BVSN's software solutions enable businesses to use the Internet as a platform to conduct electronic commerce, provide online customer self-service, deliver targeted information to constituents, and provide online financial services. Each of these capabilities can be made available to customers, suppliers, partners, distributors and employees across an extended enterprise. Apparently finding a bottom in early January, shares of BVSN have been under pressure along with the rest of the Software sector, falling by more than 80% in the past 6 months. The end of tax-loss selling seemed to lift some of the bearish pressure on the stock and since the first of the year, it has managed to nearly double in price. Responding to the dramatic recovery, SG Cowen downgraded a basket of Software stocks including BVSN last Thursday. Dropping their rating from Strong Buy to Buy seemed to have no effect as both the sector and BVSN continued to track higher. We are now in the heart of earnings season and BVSN is set to release its quarterly results on January 25th. This date is unconfirmed at this point, but we will endeavor to get a confirmed date from the company before the Thursday update. While the rally over the past week has been encouraging, BVSN has a long ways to go before it will have successfully broken out of the long-term downtrend that began back in March of last year. The descending trendline (currently at $22.50) is likely to present formidable resistance to the stock, but in the meantime, we can profit from the near-term uptrend. Given the sharp rise in the stock over the past week, some consolidation may be necessary before the stock is ready to challenge this level. Daily stochastics have entered the oversold zone, and the upper Bollinger band is looming at $18.88. In addition, daily volume has been declining for the past week, indicating that the buying pressure is weakening. Now that we have the negative factors out of the way, let's look at motivations for buying calls. Last week's recovery took out the $14-15 resistance level, and this looks like a good level for aggressive players to step into new positions. We have placed a nice tight stop at $14, as we expect this level to contain any bouts of profit taking in the near-term. While the daily stochastics have reached the overbought zone, they are not yet weakening, and the weekly stochastics have just emerged from the oversold zone, indicating plenty of upside opportunities in the weeks ahead. More conservative players will want to enter new positions as the stock moves through the $17 intraday resistance level. Regardless of your entry strategy, wait for a resurgence of buying volume, accompanied by a positive NASDAQ before playing. BUY CALL FEB-15 QVB-BC OI=1091 at $4.00 SL=7.50 BUY CALL FEB-17.5*QVB-BW OI= 906 at $2.88 SL=5.75 BUY CALL FEB-20 QVB-BD OI=1025 at $1.88 SL=3.75 BUY CALL MAR-15 QVB-CC OI= 903 at $4.88 SL=8.50 BUY CALL MAR-17.5 QVB-CW OI= 435 at $3.63 SL=6.75 BUY CALL MAR-20 QVB-CD OI=1964 at $3.00 SL=5.25 http://www.premierinvestor.com/oi/profile.asp?ticker=BVSN CMCSK - Comcast Corporation $44.88 +1.19 (+1.19 this week) Founded in 1963, Comcast has grown from a single system cable operation into one of the world's leading communication companies, focused on broadband cable, commerce and content. Comcast Cable is the country's third largest provider of cable services, and is expanding its cable operations to deliver digital services, provide faster Internet service with Comcast @ Home, and develop and deliver innovative programming. QVC is the premier electronic retailer, providing TV and web-based shopping in the US, the UK, and Germany. Having spent most of last year building a base, it appears now that shares of Comcast Corporation may be ready to break out and move higher. A number of fundamental factors are helping the stock to rally on accelerating volume. Recent investor interest in Telecom service provider stocks such as AT&T and WCOM have spilled over to the Cable sector, as traders go bargain-hunting for low-PE high-growth potential stocks. An environment of easing interest rates should also help the bottom line going forward. What's more, fierce competition between infrastructure manufacturing companies could greatly reduce the cost of capital expenditures in the near future, giving capital-intensive build out projects a faster payback period as well as increasing the company's internal rate of return. Recently CMCSK was able to raise $1.5 billion, giving the company not only a vote of confidence, but also a significant deposit into its war chest. Today, despite a tentative day for most Tech issues, CMCSK closed definitively up 2.72 percent on over 135% of ADV. A bounce off moving average support from the 5 and 10-dma (at $43.20 and $42.16) could allow for ideal entry points for aggressive traders, but note that there is also horizontal support in increments of $0.50 from $44.50 to our protective stop price of $42. If CMCSK can break through $45 with conviction, this would allow more conservative traders to take a position, but make sure sector sympathy is on your side by keeping a watch on the movements of competitors COX and CHTR. BUY CALL FEB-40 CQK-BH OI= 260 at $6.00 SL=4.00 BUY CALL FEB-45*CQK-BI OI=1638 at $2.63 SL=1.25 BUY CALL APR-45 CQK-DI OI=1645 at $5.13 SL=3.00 BUY CALL APR-50 CQK-DJ OI= 192 at $3.13 SL=1.50 http://www.premierinvestor.com/oi/profile.asp?ticker=CMCSK ************* NEW PUT PLAYS ************* No new puts today ********************** PLAY OF THE DAY - CALL ********************** EMC - Emc Corp $69.88 +1.06 (+1.06 this 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. Most Recent Write-Up The computer storage sector bucked the sluggish trend in the Nasdaq today to post modest gains. EMC is now sandwiched between the 50 day moving average of $67.12, and the 200 day moving average of $71.35. Since EMC is scheduled to report earnings on January 23rd after the close, we may very well see the beginnings of a strong earnings run, as EMC's CEO stated that their earnings should be on target with analysts' expectations for the coming quarter and year. A breakout over $71.35 would be an excellent entry point as EMC moves through its new ascending trading channel. The next major resistance levels are $73, and the 50 day moving average of $75. Maintain stops at the $67 level. Comments We were encouraged by EMC's relative strength in Tuesday's session while the broader tech sector wavered. EMC could lead the charge in the tech sector Wednesday in the wake of this evening's positive earnings reports. New positions can be added on a strong advance past the $72 level after confirming direction in the Nasdaq. Light volume pullbacks to support near $70 would offer traders additional entries. BUY CALL FEB-70*EMB-BN OI=27089 at $ 6.63 SL=4.50 BUY CALL FEB-75 EMB-BO OI= 4917 at $ 4.50 SL=2.75 BUY CALL APR-70 EMB-DN OI= 1899 at $11.00 SL=8.25 BUY CALL APR-75 EMB-DO OI= 2447 at $ 8.75 SL=6.25 BUY CALL APR-80 EMB-DP OI= 6746 at $ 6.88 SL=5.00 http://www.premierinvestor.com/oi/profile.asp?symbol=EMC ************************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=1387 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Old Economy Issues Lead The Way! A rotation into blue-chip companies helped the Dow advance today as investors awaited earnings reports from a number of technology bellwethers. Tuesday, January 16 A rotation into blue-chip companies helped the Dow advance today as investors awaited earnings reports from a number of technology bellwethers. The rotation drove the industrial average to a 127 point gain, with the close at 10,652. The NASDAQ Composite fell slightly, ending 7 points lower at 2,618. The S&P 500 index was up 8 points at 1,326. Trading volume on the NYSE was average at 1.19 billion shares, with winners beating losers 1,746 to 1,207. Activity on the NASDAQ reached 2 billion shares exchanged, with advances beating declines 2,420 to 1,534. In the bond market, the 30-year Treasury rose 15/32, pushing its yield down to 5.59%. Portfolio plays: Industrial stocks rallied today with old-economy issues leading the market ahead of a slew of fourth quarter revenue reports. The bullish activity in blue-chip issues pulled the NASDAQ to within a few points of a positive close, but earnings-related selling pressure weighed heavily on a number of sectors in the index. Among the technology companies reporting this week are Intel (INTC), International Business Machines (IBM), Microsoft (MSFT), Nortel Networks (NT), Advanced Micro Devices (AMD), and Sun Microsystems (SUNW). Investors remained cautious ahead of the results of bellwethers in the semiconductor group and many of the chip equipment makers took a beating after analysts at Lehman Brothers issued a note to clients that suggested they avoid all but the most favorable companies in the sector. In other technology segments, networking and software shares fell and telecom issues retreated from recent gains. On the Dow, a long list of companies are set to unleash quarterly results this week including Caterpillar (CAT), United Technologies (UTX), J.P. Morgan Chase (JPM), and Eastman Kodak (EK). General Motors (GM) is also among the earnings players and today the Dow leader was among a group of bullish issues such as Alcoa (AA), Honeywell (HON), General Electric (GE), Merck (MRK), Procter & Gamble (PG), Wal-Mart (WMT), and Walt Disney (DIS). Within broader market sectors, retail, drug, financial, paper, transport, chemical and consumer products issues edged rallied while gold, biotechnology and oil stocks generally consolidated. Utility shares were also among the losers as the California energy crisis continued. The state's two leading utilities saw their credit ratings cut to low junk status by leading rating agencies, putting them in default of bank loans and credit lines and moving them closer to bankruptcy. Our portfolio enjoyed a number of positive surprises but most of them involved issues in older positions. Stocks in the food group were among the day's winners after Ralston Purina (RAL) accepted a buyout offer from Switzerland's Nestle for $10 billion. Nestle said its $33.50 per share offer represented a premium of 36% to Ralston's recent value and shares of RAL closed at $31.50. Our calendar spread section has enjoyed favorable gains with Ralston in the past and traders who were still in the (MAR-30C/JAN-30C) neutral position found themselves with a small closing credit to end the play. Among other stocks in the food group, Kellogg (K) added $0.56 to end near $26 and a similar spread in that issue is also offering a small profit. In the pharmaceuticals segment, shares of CuraGen (CGRN) jumped over $9 after the genomics firm said it had signed two drug-development agreements with German chemicals and pharmaceuticals giant Bayer AG. The company said it has formed an alliance to develop treatments for obesity and adult onset diabetes, and also to allow Bayer to draw on the company's expertise in genetics to evaluate experimental medications. Our current position was a downward adjustment from a bullish credit spread and now the play should end with a positive outcome. Issues in the delta-neutral category were also active today and one of our speculative earnings straddles reached a new maximum profit. The position in Mips Technologies (MIPS) traded as high as $7, a 100% profit in just over one week. Our new position in Cytec (CYT) is also performing well and the overall credit is up to $7.88. Conservative traders should begin to look for early exit opportunities as the monthly ROI for the straddle increases. All of our current Credit Strangles are profitable but traders who didn't take the easy money on Orthodontic Care Centers (OCA) last week were probably regretting it after today's $3.31 slump in the issue. The play yielded a $0.88 profit Friday but now it is trading near break-even and the bearish move on heavy volume suggests there may be additional downside activity in the coming sessions. Don't let this one turn into a loser! Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - One of our readers asked for some new synthetic positions. Based on the current price or trading range of the underlying issue and its recent technical history or trend, these bullish plays offer favorable profit potential and relatively low downside risk. ****************************************************************** AVNT - Avant! Corporation $23.81 *** New Products! *** Avant! develops, markets and supports software products that assist engineers in the physical layout, design, verification, simulation, timing and analysis of advanced integrated circuits. The company's products are primarily software tools that allow users to create, simulate and verify IC design and manufacturing processes on a computer. Avant!'s products are compatible with most commonly used ICDA tools and are easily integrated into the customer's existing design environments and methodologies through industry standard interfaces. Avant!'s products primarily are written in C programming language, run on UNIX workstations such as those from Sun Microsystems and Hewlett-Packard, and support industry standards such as GDSII Stream format, EDIF, VHDL, Verilog, SDF, SPEF, SPF, DSPF and PDEF. Avant began to rally early in the month after an extended stay in a trading range near $15. Then the company announced a slew of new product designs and investors pushed Avant's shares to a two-year high. With quarterly earnings due in a few weeks, there is excellent potential for continued upside movement and the key will be to enter the position at a favorable cost basis. After today's retreat, there will likely be another few sessions of downward movement and we will try to achieve a higher premium as the issue approaches a short-term support area near its 10 DMA. Traders should "target shoot" a credit in the position initially, to allow for a brief consolidation in AVNT's share value. PLAY (conservative- bullish/synthetic position): BUY CALL FEB-25.00 NVQ-BE OI=13 A=$1.38 SELL PUT FEB-22.50 NVQ-NX OI=108 B=$1.00 INITIAL NET CREDIT TARGET=$0.00-$0.12 TARGET ROI=20% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $921 per contract. /charts/jan01/charts.asp?symbol=AVNT ****************************************************************** HI - Household International $55.19 *** Earnings Due! *** Household International provides middle-market consumers with several types of loan products in the United States, the United Kingdom and Canada. The company offers home equity loans, auto finance loans, MasterCard and Visa credit cards, private label credit cards, tax refund anticipation loans and other types of unsecured loans. It also offers credit and specialty insurance. The company's operations are divided into three primary segments: Consumer, which includes the branch-based and correspondent consumer finance, private label credit card and auto finance businesses in the United States; Credit Card, which includes the MasterCard and Visa business in the U.S.; and International, which comprises the company's foreign operations which include the United Kingdom and Canada. Over the past few weeks, we have identified a number of favorable issues in the Credit Services group and with the potential for lower interest rates in the near future, these companies are expected to perform well in the coming months. The growth and stability of Household International is superior to almost every competitor in its industry and a favorable environment of interest rates will directly benefit the company's revenue growth. With earnings due out tomorrow, we may be able to catch the issue in a brief sell-off, and enter the position at a better-than-expected cost basis. PLAY (conservative- bullish/synthetic position): BUY CALL FEB-60 HI-BL OI=1113 A=$1.12 SELL PUT FEB-50 HI-NJ OI=207 B=$1.12 INITIAL NET CREDIT TARGET=$0.38-$0.50 TARGET ROI=25% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $1,785 per contract. /charts/jan01/charts.asp?symbol=HI ****************************************************************** SHOO - Steven Madden $10.06 *** Hot Sector! *** Steven Madden designs, sources and sells fashion footwear under the Steve Madden and David Aaron brands for women and girls of ages six to 45 years. The company's products are designed to appeal to style-conscious consumers in the girls', juniors' and women's market segments. The company distributes its products through Steve Madden retail stores, one David Aaron store, six outlet stores, its e-commerce Website (www.stevemadden.com) and more than 3,000 department and specialty store locations in the United States and Canada. The company's product line includes core products, which are sold year-round, complemented by a wide range of updated styles designed to establish or capitalize on market trends. Their business is comprised of a wholesale division, a retail subsidiary and a private label subsidiary. The company also has entered into licensing agreements for other on-footwear accessory products. Stocks in the Retail Apparel-Footwear group are "hot" and since our last play in this issue didn't go as expected, we decided to offer a "revenge" position. Based on the recent technical break-out in SHOO and the bullish activity in the sector, this position offers excellent speculation for traders who favor the outlook for the issue. Once again, investors should target a credit in the position initially, to allow for a consolidation in SHOO's share value. PLAY (speculative-bullish/synthetic position): BUY CALL MAR-12.50 SEU-CV OI=40 A=$0.56 SELL PUT MAR-7.50 SEU-OU OI=109 B=$0.25 INITIAL NET CREDIT TARGET=$0.00-$0.12 TARGET ROI=50% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $230 per contract. /charts/jan01/charts.asp?symbol=SHOO *************************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. 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