The Option Investor Newsletter Thursday 01-18-2001 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/011801_1.asp Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-18-2001 High Low Volume Advance/Decline DJIA 10678.30 + 94.00 10737.20 10567.50 1.37 bln 1626/1283 NASDAQ 2768.49 + 85.71 2769.98 2661.26 2.55 bln 2185/1747 S&P 100 704.00 + 12.02 707.19 691.58 totals 3811/3030 S&P 500 1347.97 + 18.50 1352.71 1327.41 55.7%/44.3% RUS 2000 494.63 + 1.17 494.75 490.02 DJ TRANS 3046.00 - 16.49 3068.11 3031.96 VIX 27.09 - 1.42 28.77 26.61 Put/Call Ratio 0.59 ************************************************************* Positive earnings surprises power Nasdaq +373 points in seven days! By Jim Brown Please don't anybody jinx this rally! All we need now is for Ralph Acompora to come out and predict Nasdaq 5000 by March and you can kiss your gains goodbye! After only a brief dip at the open the Nasdaq and the Dow powered forward in tandem to post strong gains as earnings continue to please investors. The fact that the Dow and Nasdaq were both positive on the same day is a minor miracle. Still, with no negative earnings surprises in the tech world, the Nasdaq finally broke several resistance levels to close at 2769. This close over 2700 and a close over yesterday's intraday high confirms for most traders that the rally has legs. About the only negative news item today was a warning from CAT that all of 2001 would be down as much as -10% from 2000 levels. Analysts had been expecting a gain from last year but the catch all excuse of slowing global economy was blamed for the shortfall. UK also warned that it would have a loss of -$.70 for last quarter which would be reported on Jan-29th. Earnings after the bell cemented the positive sentiment beginning with MSFT. Microsoft posted earnings inline with reduced estimates of $.47 and traders bid the stock up +$3 to $58.88 in after hours action. The conference call was very positive and they left the guidance for the full year at present levels which means they expect a bounce in next quarter to make up for the current dip. SUNW also announced earnings inline with estimates of $.16 even though the revenue was slightly less than expected at $5.12 bil. SUNW does not have long term maintenance and support contracts like IBM so the recurring income is not as strong. SUNW has to sell from scratch to meet its targets each quarter. The SUNW CEO said current market conditions would separate the leaders from the followers. They grew sales by +32% and forecast the next quarter to be flat to slightly up but the next quarter would see a return to +30% to +35% growth. SUNW traded on both sides of positive in after hours on strong volume. The CEO said sales were strong across the board and they were gaining market share. EBAY also announced earnings and beat the street by two cents with $.09. EBAY also raised analyst guidance going forward and posted much stronger revenue numbers as well. EBAY was up another +$4 in after hours. EBAY also just raised rates for some items sold on their site which will favorably impact the next quarter. Revenue was up +390% over last year. Nortel announced inline at $.26 and revenue of $8.82 billion which was stronger than expected. The forecast was positive and the CEO John Roth said full year growth rates were expected to be in the +30% range. He said that if the Fed continued cutting rates, capital markets would open back up for the telecom sector and results would increase. He said optical networking (Internet) sales more than doubled last years numbers. EMLX also rocked the street with $.25 earnings compared to the $.18 cents analysts expected. They also raised their guidance for the next quarter to $.23 from $.19. EMLX gained +11 in after hours trading. AOL/TWX announced a $5 billion stock buyback over the next two years. Are we cash flush as a result of the merger? Sure looks like it and you can bet investors will like that outlook compared to other net companies burning cash at record rates. The semiconductor index shook off the bad mouthing by Dan Niles and soared another +48 to close at 726, a three month high. The SOX has now gained +36% since the low on December-21st. Investors appear to be looking two to three quarters out and buying chip stocks with abandon. MU soared +13% or +5.19 on short covering and heavy institutional buying. IBM gained a whopping +11.63 for the day after their earnings surprise. This provided a strong foundation for the DOW even after the warning from CAT. Other leaders were HWP +3 and INTC +1.69. A surprise gainer was AMD, which missed estimates by two cents yesterday, but gained +4.19 or almost +23%. Shares of VIGN took a tumble on a profit warning. Shares dropped from Thursday's close of $12.63 to less than $7.00 but rallied back slightly by the after hours close to $8.25. The Philadelphia Fed Index for January fell to a -36.8 from the previous month's -4.2. This is the lowest level since 1990 and the biggest drop since 1968. The severity of the drop has analysts expecting a 36.9 reading for the next NAPM report. Anything below 42.4 is considered a recession. Volume was good on both the major indexes. With 1.4 billion on the NYSE and 2.5 billion on the Nasdaq the gains took on more significance. The last several days of heavy volume and no major movement on the Nasdaq was starting to worry those with a cautious bias. The strong volume and strong gains today have confirmed the advance. With the Nasdaq up five of the last seven sessions for over +373 points there is serious momentum building. Shorts are probably hoping for one last dip to cover but with each day stronger than the last their outlook must be grim. Remember that historically there is a dip that begins over the next two trading days and add the possibility of profit taking from the +373 points and you have bears pinning their hopes on Friday. The problem is who wants to sell? With investors worried the train is going to leave without them there may not be much of a dip on profit taking. Each day of positive earnings underscores the future outlook. The Reg-FD impact is now clear. As we speculated several times in the last month companies over warned to avoid stockholder suits and we are now seeing many upside surprises. The chicken littles had their day over the last month and now they have to pay as each earnings report proves the sky is not falling. Trim Tabs reported that margin debt at all NYSE member firms dropped $20.4 billion to $198.7 billion at the end of December. Margin debt is down -31.8% from its peak at the end of March 2000. Historically, Trim Tabs said margin debt drops faster than the market at market bottoms. In fact, margin debt is down -13.1% since the end of 1999 and more than the -8.2% drop in overall market capitalization. Friday has no significant economic reports with only the International Trade numbers and the Michigan Sentiment. It is option expiration Friday and we are likely to see a bounce at the open from the flood of positive earnings reports tonight. Remember, there may be profit taking as traders clear the books before the weekend to avoid any unpleasant weekend surprises. I am holding Jan calls and plan on selling into any morning spike and then opening new Feb positions if the opportunity presents itself later in the day. With the big gains from the last week I would like to see a strong dip on profit taking in the afternoon to take that problem off our radar for Monday. I would much rather go into Monday on a dip recovery than suffering from lingering overhead profit resistance. We should still be watching for the possibility of the mid-January dip. It may be a no show but we are better looking for something that does not happen than being blindsided by something we don't expect. We have set the date for the spring Expo Seminar, April 5th-9th in Denver. Spring skiing will be at its best! Details will be in the Sunday Newsletter. Enter passively, Exit aggressively! Jim Brown Editor ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1434 ************************************************************** **************** MARKET SENTIMENT **************** Skeptically Hopeful, Hopefully Skeptical By Austin Passamonte It's official: There is nothing left in our way for the next powerful rally to ensue. Earnings are beating the street, guidance is good and the future looks very bright in tech-land. Fed Fund futures are pricing a .50-basis cut as a lead-pipe lock next week. Who can ask for anything more than falling rates and rising earnings? Of course, we felt twice as bullish on January 3rd when all the pieces were in place to go much higher from there. Then we traded through the next two days and got the bullish kicked right out of us. This time feels different... but don't they all? QQQ: 66.50 NDX: 2700.00 CMP: 2800.00 SOX 720.00 OEX 708.00 SPX 1351.00 DJX 10,775 The above figures represent final vestiges of solid overhead resistance. They include long-term descending trend lines from last fall, major moving averages and Fibanocci figures alone or in various combinations. A market close above would negate the downtrend and convert stubborn resistance to valued support. This could easily push market bears deep within the confines of their dank, musty caves. Failure to penetrate and hold this time could push bulls out of the pasture and off a high cliff. By now you know tech bell-weather earnings from Microsoft (Nasdaq: MSFT) Sun Micro (Nasdaq: SUNW) and Yahoo (Nasdaq: YHOO) have pleased investors and sent the index soaring in post-market mayhem. Friday's open should be one considerable pop, indeed. Market Sentiment feels no reason to be anything but bullish in the near-term. Cautious would be the only caveat since we've recently been down this road several times to Disappointed Ave. Eventually the rally must be real and now is good a time as any, wouldn't you agree? ***** VIX Thursday 01/18 close; 27.09 30-yr Bonds Thursday 01/18 close; 5.51% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. Thursday (01/18/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 740 - 725 15,853 920 17.23 720 - 705 16,282 2,969 5.48 OEX close: 704.00 Support: 700 - 685 21,594 12,231 .57 680 - 665 4,559 11,867 2.60 Maximum calls: 685/7,554 Maximum puts : 640/5,495 Moving Averages 10 DMA 689 20 DMA 686 50 DMA 705 200 DMA 762 === NASDAQ 100 Index (NDX/QQQ) Resistance: 76 - 74 59,414 4,244 14.00 73 - 71 49,157 7,984 6.16 70 - 68 73,623 16,432 4.48 QQQ(NDX)close: 66.56 Support: 65 - 63 68,422 54,508 .80 62 - 60 95,700 74,304 .78 59 - 57 28,261 30,494 1.08 Maximum calls: 60/56,065 Maximum puts : 60/35,472 + Moving Averages 10 DMA 60 20 DMA 59 50 DMA 66 200 DMA 84 === S&P 500 (SPX) Resistance: 1425 9,056 6,047 1.50 1400 16,562 9,114 1.82 1375 10,531 10,220 1.03 SPX close: 1347.97 Support: 1325 29,227 30,674 1.05 1300 6,451 11,182 1.73 1275 565 7,372 13.05 Maximum calls: 1350/34,660 Maximum puts : 1325/30,674 Moving Averages 10 DMA 1319 20 DMA 1313 50 DMA 1340 200 DMA 1422 ***** 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 (Current) (Previous) (Current) (Previous) 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 (Current) (Previous) (Current) (Previous) 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. www.OptionInvestor.com ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/011801_1.asp ************** BROKERS CORNER ************** STRANGLES By Robert L. Norman As the NASDAQ flirts with the psychological 2700, we've been looking for ways to take advantage of it. Once again, we've come up with a two-fold play on JDSU. We are going into a strangle on this one. Now, keep in mind that JDSU reports earnings after the market on January 21st. First Call has them coming in at 20 cents per share vs. 9 cents a year ago. There is always more risk going into a play that involves holding over earnings, so you may not want to enter this one, or you may want to close it out before they actually report. Specifically, we are looking at selling naked puts and selling naked calls. JDSU is currently around $60 per share. Taking a look at the Daily chart of JDSU and you should see support at the $38-41 price level, established from just before Christmas up until around the 10th of January. You should also see resistance from around $60-76 per share established in about the first week of December or so. We use this support and resistance as a guide as to what strike prices we want to use. Also keep in mind the action of the NASDAQ itself. When entering any trade. What we plan to do is sell the JDSU February 40 PUT. We will wait to do this if JDSU and the NASDAQ start to fail and head down. We'll wait because we want to try and capture more premium than what is currently there. If no downward movement occurs, we'll go ahead and sell that PUT. We also want to sell the February 70 call. Conversely, if the NASDAQ and the stock start to move up, we'll wait to sell the CALL until it looks like it is beginning to stall. Now, keep in mind that selling naked options is a risky strategy. You could expose yourself to large losses if you aren't careful, so use stops or be prepared to cover if the stock hits either one of your strike prices. For example, I may choose to cover my naked CALL if the stock does hit the $70 price level. If I originally decided to sell 10 contracts, I would then cover by buying 1000 shares of JDSU at about $70. On the other side of the play, if the stock failed miserably and went all the way down to my strike of $40 per share, I would then go short the stock 1000 shares at about $40 per share, in effect, covering my naked PUT. Lately I personally have chosen not to cover my naked options because of the extreme volatility in the market. I have just let my options ride and I have either closed them out early for profits or simply rolled them out to the next month (if I were at a loss). This is always a decision that you have to make on your own or with your broker, but make sure you have a plan in place BEFORE you get to that stage of the game. Good luck, Robert L. Norman J. Matthew Ford J. Michael-Patrick, LLC RNorman@JMPinvest.com *************************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=1410 ************************************************************ 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: ***** PSUN $28.75 -0.88 (+0.38) The broader retail sector took a back seat to the sexier names in the Nasdaq during Thursday's session. The sideways action in the retail sector has been displayed over the past week and is clearly evident in shares of PSUN. In light of its lack of progress, we're dropping PSUN this evening in search of more movement. Use any lift or bounce early Friday morning to exit any open positions. BVSN $15.19 -2.06 (-0.63) After moving up to kiss the upper Bollinger band yesterday morning, shares of BVSN followed the NASDAQ lower, ending at the low of the day. Today was a different story though, as the stock refused to follow the technology market higher. Gapping down this morning, BVSN just couldn't get moving higher and actually traded as low as $13.50 before a late-day buying surge helped the stock to claw its way back over the $15 level. Blame VIGN for the decline, as their earnings warning cast a pall over many of the Internet stocks. Sealing BVSN's fate was DB Alex Brown, lowering their rating from Buy to Market Perform. So although our play managed to recover above our stop, the sector sentiment has deteriorated significantly, and we'll make our exit now, before things get worse. MYGN $52.06 -2.00 (-3.94) After dipping below our $54 stop yesterday, MYGN was saved from the drop list by a late day rally that helped our Biotech play to close fractionally above this critical level. There was no such luck in today's session, as the stock continued fell again at the open and never recovered. Even a slight upward move in the Biotechnology sector didn't help, as MYGN gave up $2, closing right on the $52 support level. While the selling abated and the price firmed as the day continued, the stock's inability to recover today leaves us no choice but to put the stock on injured reserve until it gets healthy again. PUTS: ***** No dropped puts today ***********************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=1421 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. 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The Option Investor Newsletter Thursday 01-18-2001 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/011801_2.asp ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1396 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** EMC $76.00 +3.69 (+3.00) A flurry of excellent news releases and a bullish market environment served as catalysts to drive EMC above the 50 dma of $74.71, and briefly above the 200 dma of $76.23 today before profit taking ensued. EMC is now well positioned to make a strong run into earnings scheduled to be released January 23rd. Excellent earnings from IBM helped the hardware and storage sectors to regain momentum on Thursday. Previous resistance of $75 is now support, and can be used as an entry point for new positions. EMC is likely to clear the next resistance level at the 200 dma of $76.23, which could easily lead it above $80 before earnings. The next major support levels are $73, and the 5 dma of $71.98, and a pullback could be an entry point for aggressive traders. Set stops at $67, and watch others in the storage sector for strength. RATL $47.81 -2.25 (-2.25) Rational fell on profit taking today, after having rallied nearly 40% in the last couple of weeks. The stock is still in its ascending channel, and above the 200 dma of $43.74, and the 50 dma of $42.38. Rational is resting right at its key support level of $47.81, which could be an entry level for new positions. After clearing $50, Rational's next resistance level to clear is $52.44, before beginning its ascent to $60. We might see a pullback to $46.50 or $45.50, which aggressive traders could use as entry points. Pay close attention to the software index sector, particularly the market's reaction to Microsoft's earnings, which were released after the close today. Keep stops at $44. BEAS $63.38 -2.19 (+0.81) Well, you knew it was too good to last, and unfortunately, BEAS succumbed to the bears today. The selling actually began yesterday, and looks to be partially due to the VIGN earnings warning. Apparently the converged 30-dma ($65.63) and 50-dma ($65.25), combined with bearish sector news, was too much for the bulls. Several Internet stocks sold off sharply on the news, and it is encouraging that our play managed to hold above our $61 stop today, actually consolidating near $63. Possibly helping our play to stay afloat were Bear Stearns and Morgan Stanley, initiating coverage at Attractive and Outperform, respectively. While not exactly screaming Buy recommendations, it was a bright spot when compared to the downgrades on other stocks in the sector. Our strategy for new entries is still for aggressive players to target shoot new positions on intraday dips near the $61 level. Due to the rollover yesterday above $65, more conservative players will want to wait for a strong move through $67 before jumping into new plays. BRCM $127.81 -0.88 (+4.63) An up day for the NASDAQ and positive sentiment after Intel and Applied Micro's earnings reports helped shares of BRCM to rally on Wednesday. Gapping up at the open, the stock moved strongly higher on volume early in the day, but as buying volume eased back, the stock traded lower. Nonetheless, BRCM ended the day up $10.81 or over 9 percent on over 160% of ADV, closing above its 50-dma for the first time since last October. After such a big run up, the stock took a break today, trading between support at $120 and resistance at $130 to close pretty much unchanged on 135% of ADV. At this point support can be found at $125, the 5-dma at $122.67, and the 50-dma near our stop price of $120. Bounces off these levels could offer aggressive entries but confirm with volume. A break through $130 with conviction, confirmed with a rising Philadelphia Semiconductor Index (SOX) could allow for a more conservative play. CMCSK $44.06 +0.13 (+0.38) Like many Tech stocks, shares of Comcast gapped up on Wednesday at the open on strong volume, so much so that it began trading well above our planned entry point. From there, the stock retreated on low volume as sellers were eager to take profits, with CMCSK closing down just under a dollar, or a little over 2 percent on over 150% of ADV. After yesterday's struggle between the buyers and sellers, both parties were tired out and took a rest, allowing CMCSK to close flat to up on 67% of ADV. The doji candlestick formation today on volume is a sign of indecision, which suggests that whichever direction CMCSK chooses next could be a large move. Support can be found at the 5 and 10-dma at $43.90 and $42.73 respectively as well as at $44 and our stop price of $42. These levels could serve as targets to shoot for aggressive traders but we recommend a safer play, waiting for CMCSK to take out today's high of $45 on volume, confirming positive direction with peers COX and CHTR, before taking a position. LRCX $23.06 +0.50 (+2.38) While Intel did not benefit directly from its earnings report on Wednesday, shares of Lam Research rose strongly on news from the Chip giant that it would increase capital spending by over 12 percent, aiding our call play, as LRCX is a key supplier to INTC. Traders wasted no time bidding the stock up $2.38 or almost 12 percent on over four times the ADV. Today with an advancing NASDAQ and Chip sector, LRCX added to its gains, moving up another 2.22 percent on 125% of ADV. Traders looking to enter on a dip will note support at $23, $22.50, $22, the 5-dma at $21.68, the 10-dma at $20.30 and our stop price of $20. A close below our stop price could mean a halt in positive momentum so make sure LRCX continues to close above this level. More risk averse traders may want to wait until LRCX breaks through resistance at $24 before initiating a play, correlating entries with rallying in Merrill Lynch's Semiconductor HOLDR (SMH). MER $73.56 -1.00 (-0.69) Resistance and the $75-76 area continued to be formidable for MER on Wednesday, as the stock made a new all-time closing high, ending the day up almost a dollar or 1.26 percent on 130% of ADV. Despite this, the stock was unable to close above the $75 level, and encountered selling as it neared $76. Today, shares of MER pulled back in sympathy after JP Morgan Chase missed estimates on their earnings report, closing down 1.34 percent on average volume, trading between support from the 10-dma and resistance at the 5-dma. At this point, a bounce off our stop price at $70, horizontal support at $72, and the 10-dma at $72.84 could allow higher risk players to enter this play. For a more conservative strategy, wait for MER to move strongly back above its 5-dma near $74 before initiating a play, but only if competitors GS and LEH are also trending higher. SLR $40.89 +1.70 (+2.27) Positive sentiment in the Tech sector allowed shares of Solectron to rally yesterday, gaining $1.50 or 3.7 percent on 125% of ADV. In doing so, resistance at $39 was broken only to find sellers at the $40 level. With continued bullishness in Tech stocks, SLR added nicely to yesterday's gains, advancing another 4.34 percent on over 160% of ADV to close at the high for the day. Price/volume action lately has been healthy, with up moves on increasing volume and profit taking on light trading. Traders looking to enter on a dip may find support at $40, the 5-dma at $38.87 and the 10-dma near our stop price of $37. Make sure buying volume supports a bounce off these levels before making a play. If the Tech sector continues to find strong buying, carrying SLR past $41 with conviction, this could be the signal for conservative traders to jump in, but keep an eye on peers CLS, FLEX and JBL to make sure sector sentiment is confirming positive direction. UBS $174.40 +3.90 (+4.58) With the gap at $165 now filled, UBS wasted little time moving higher. Gapping up at yesterday's open, the stock found support at the 5-dma and from there, close up $3.24 or almost 2 percent. Volume continues to be light, only 30 percent of ADV. For the day, UBS closed back above its 10-dma and the $170 level. The strong performance despite the low volume set the stage for today's liftoff, with UBS adding another 2.29 percent to its gains. Volume appears to be increasing, with today's rally on 88% of ADV. If the buyers are indeed back, the look for a break above resistance at $176 with conviction for an entry on strength, if peers BCS, LEH and MWD also moving higher. For higher risk players waiting for a pullback, look for support from the 5 and 10-dma at $170.41 and $171.15 respectively. There is also horizontal support at $170 and our stop price of $165 but as always, confirm bounces with buying volume. VRSN $91.94 +3.44 (+7.06) A strong day for the NASDAQ translated into a strong day for shares of Verisign in Wednesday trading. Excitement over the Tech index as well as news that the company would make a foray into wireless security helped the stock to gain over $10 or 13 percent on 123% of ADV. With another good day for the Tech index today, VRSN moved higher once again, gaining $3.44 or 3.88 percent on average volume. Rival RSAS released earnings tonight, topping Street estimates. This could bode well for our call play tomorrow. If positive sentiment lifts carries the stock higher, allowing VRSN to break through its 50-dma at $93.73 with conviction, this would allow conservative traders to initiate a play. For more aggressive traders, support can be found at $90, the 5-dma at $86.22, $95, the 10-dma at $93.73, $90, $95 and our protective stop price of $82, entering only if buying volume returns and rivals CHKP and RSAS are also bouncing. WCOM $23.25 +0.75 (+1.50) As one of the Four Horsemen of the NASDAQ, WCOM certainly pulled its weight in Wednesday's trading. Opening right on its 5-dma, the stock used the moving average as it's launching point as WCOM spent the rest of the day advancing to close near the day's high, up $1.19 or 5.57 percent on average volume. Today, with a rallying NASDAQ, WCOM was once again leading the charge, tacking on another 3.33 percent to its gains. Though volume was light, clocking in at less than 80% of ADV, the price was going in the right direction, closing above resistance at $23. At this point, aggressive traders looking for potential entry points could target support in increments of $0.50 from $23 all the way down to our stop price of $20. The 5 and 10-dma provide additional cushion, now sitting at $22.15 and $20.78 respectively. If positive sentiment in the NASDAQ and the Telecom sector, using Merrill Lynch's Telecom HOLDR (TTH) as a gauge, continues to lead the stock higher, then a break above today's high of $23.38 on volume could allow for an entry on strength. AEOS $49.25 +0.25 (+0.00) Strong development at the $49 price level provides concrete evidence of the stock's relative strength; but again, a break out of the tight consolidation would be more convincing. We're looking for a burst of momentum to take AEOS higher in the short-term. The formidable resistance continues to stand at $51.25, so look for high-volume moves through that mark if your strategy is to buy into a rally. Technicals remain good with AEOS tracking above the advancing 5 & 10 DMAs as well as holding firm above our $47 stop. Therefore, taking entries on intraday dips could provide a more enterprising approach for those willing to take on the risk. It's essential at this point in the play to make sure there's continuing strength across the retail sector and an advancing marketplace before jumping into additional positions. ARBA $37.13 +1.13 (+1.94) If trend traders always listened to the analysts' scuttlebutt, then some might never pull the trigger. More upgrades and downgrades continued to cross the wire this week; and depending on your bias, you could make a reasonable case either way. We however, continue to be bullish on ARBA. Take a look at a daily chart and it's evident that ARBA is pressuring the topside resistance at $38 and $39. It's also a good sign that the share price is establishing a higher intraday support at the intersected 5 & 10 DMA lines; and thereby, keeping the $32 protective stop at a far distance. A tightening coil usually precedes a big breakout, and of course, our play is for a move to the upside. A convincing rally through $40 signals the momentum players to take entry and ride the wave. In this scenario, consider locking in gains as ARBA approaches the next line of opposition around $45. SNPS $49.94 -0.88 (-1.63) Mark your trading calendars. Synopsis is confirmed to report earnings on February 21st, after the market close. However, if SNPS doesn't get a boost of adrenaline very soon and provide traders with some upside action, then it could be curtains long before then. Going forward, it's true that the respectable volume and the stock's strength near $50 bodes well for subsequent advances. But please keep in mind that if you choose to take positions prior to a significant breakout, you're at serious risk for losses. Time is literally money. Keep stops tight. We'll exit on a close below $49. NETE $45.00 -1.38 (+2.00) Time is of the essence. Netegrity is reporting earnings next week on Thursday, January 25th (after the market), so be prepared to get in and out of your positions. You may even want to lock in gains as NETE approaches the $50 resistance, at the 200-dma ($50.49) line. In other words, play the current range for safety. Intraday support is firm at $44, which is in-line with the 5-dma ($44.10) technical. On strong bounces, this level offers an excellent point of entry into the earnings run; especially if you're the more conservative type who only likes to buy into a high-volume rally. Taking a position on a pullback to the 10-dma ($40.33) is however, not recommended because of the limited time frame. Hence, we've raised our stop to $42 for added protection. ******************* PLAY UPDATES - PUTS ******************* DGX $96.75 -0.13 (-0.13) Quest opened with a wide gap down from yesterday's closing price of almost 8 points. DGX proceeded to roll over from $92 to $90, and $93 to $92, before regaining most of what it lost in the morning. However, today's end of the day rally may very well have been a bull trap, as DGX closed just under the 200 dma of $96.88. In addition, the stock was unable to close higher on a very strong day in the market. The medical products and services sectors, along with the specialized medical services, and health maintenance organizations sectors rallied strongly last year as investors fled from technology stocks. Now, with technology earnings coming in very well for the most part, the sector rotation out of the medical stocks is likely to continue. DGX has a long way to go, as it rallied from $60 to $140 last year. Traders could take positions on a rollover from $97.38, or $96.25. A close below $90 would be a very bearish indicator, and could lead DGX down to the $85 level. More aggressive traders could take positions on a roll over from the 5 dma of $102.50 after checking for weakness in the medical products sector. Keep stops at $104. LH $126.50 -3.44 (-8.44) Giving us a nice entry right out of the gates this morning. After gapping solidly below the $130 support level, our play consolidated a little during amateur hour and then rolled over from the $127 level, heading as low as $120 before a burst of buying in the afternoon helped the stock to recover and near where it started the day. Competitor DGX (another Put Play), gapped down at the open this morning on a Piper Jaffray downgrade, but managed to recover throughout the day and this positive sentiment seems to have leaked into traders' attitude towards LH. Volume was heavy today at nearly double the ADV, so we could be looking at a possible short-term reversal. We are keeping our stop in place at $138, and are still looking for the $135 level to provide solid resistance and a possible entry point for aggressive traders. Keep an eye on DGX, as a continued recovery in LH's competition could have a buoyant effect on shares of LH as we head into the weekend. A lack of follow through to the recovery this afternoon could provide entries on a rollover from the $130 resistance level as well. PMI $48.88 -2.63 (-1.50) Confirming that the short rally on Tuesday was a weak bounce, PMI has continued to decline over the past two days. After rolling over yesterday morning near $52.50, our play fell back through the 5-dma ($51.06), and finally violated the $50 support level today. This was a major support level, and its penetration is a good sign for the bears, opening the door for further declines as the company's earnings date (January 24th) approaches. Daily stochastics are still deeply oversold, so a bit of short covering is not out of the question. In case of a near-term bounce, we are keeping our stop at the $53 level. The short recovery earlier this week has given the lower Bollinger band a chance to drop further, creating the possibility of a drop to the next level of support, near $45-46. Adding emphasis to the stock's weakness today was volume that tripled the ADV while the Insurance index (IUX.X) managed a slight gain. If you're going to pick a fight, make sure you do so with the weakest kid on the playground, and it looks like we have. Aggressive players can continue to add new positions on an intraday bounce to $50 or even $52, as soon as the bears reassert control. At this point, conservative players may get their entry point first, and falling below today's $48.38 low will be their signal to step into the play. CB $70.31 +0.50 (+1.25) On Tuesday we mentioned that the 5-dma was a key moving average to watch when playing this stock. This continued to be the case on Wednesday as a failed rally above this line of resistance allowed traders to enter this play in early morning trading. From there the stock headed lower with a declining DOW to close down $1.94 or 2.7 percent on 110% of ADV. Today shares of CB edged back up half a dollar, with a tug of war between the bulls and bears on 165 percent of ADV. Aggressive traders will keep watching the 5-dma, now sitting at $70.93 as a potential entry point, with additional overhead resistance at $72 and the 10-dma at $73, which also happens to be our stop price. Make sure CB continues to close below this level to confirm continued downward momentum. For an entry on weakness, wait for CB to take out today's low of $67.75 before taking a position, using competitors CI and ALL to gauge sector sentiment. MRK $82.88 +1.63 (+1.44) With Tech stocks rallying yesterday, money rotated out of defensive issues into the NASDAQ and with that, shares of MRK fell $2.06 or 2.48 percent. Volume was average and it appears that after the large drop earlier in the year, the stock has been moving sideways, biding its time while its moving averages catched up with the current price. Today, a rising tide in all markets lifted MRK up 2 percent. However, volume was light, only 77 percent on ADV and the stock was unable to close above resistance from the 10-dma. Another failed test of this moving average, now near our stop price of $83, could allow aggressive players to enter this play but make sure the sellers return before jumping in. If the continued rallying in Tech stocks brings back the sellers, driving MRK back below its 5-dma near $82, this could allow conservative traders to make a play, but make sure sector sympathy is on your side by monitoring Merrill Lynch's Pharmaceutical HOLDR (PPH). MMC $100.75 -1.19 (+0.50) You've got to love playing MMC puts. The consistent rollovers as the share price approaches overhead resistance at the 10-dma line continues to provide profitable opportunities for aggressive traders. However as time passes, this trading range between $104 and $100 does add upside risk. Think of it as an elastic band. The longer it's stretched out, the bigger the snap back. Keep protective stops in place. A breakout above $104 followed by a bullish close and we'll quickly exit the play. The more conservative traders likely want to stay on the sidelines unless sellers move MMC under the century mark and the Insurance Index (IUX.X) returns to the underside of 720. ************************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=1435 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: NUFO - New Focus $49.00 +4.50 (+14.56 this week) Taking advantage of Telecom providers' new focus on fiber optic networks, NUFO makes fiber amplifiers, wavelength management equipment, and optoelectornics that boost the capacity and speed of networks over extended distance. Additionally, the company makes laser modules and photonics tools used in the manufacture and testing of fiber optic equipment. With over 50 end customers, NUFO sells its equipment to the likes of Agilent, Alcatel, Corning, Corvis, JDS Uniphase, Lucent and Nortel. It appears that the worst is over for Optical stocks, as they are beginning to recover from the painful selloff that engulfed the sector in recent months. The Networking index (NWX.X) has been moving into rally mode since the beginning of the year, and NUFO has used the improving sentiment to jump start its own recovery. In the past week, the afterburners have kicked in, driven first by positive comments from Thomas Weisel Partners last Friday. Then on Tuesday, the company completed its acquisition of JCA Technology. Due to potential synergies, the merger is expected to be accretive to earnings in the first quarter of combined operations. This evening, NT announced solid earnings, adding to the positive sentiment for Optical stocks, which should continue to drive our new play higher as earnings on January 30th draw closer. After completion of the above-mentioned merger, shares of NUFO moved up sharply yesterday, and if anything the rate of ascent increased today, with volume coming in 75% above the ADV. The stock has now cleared the $42 resistance level, and is riding the ascending upper Bollinger band higher. Since it appears that this rocket has plenty of fuel left in its tank, we are setting our stop right at the $42 level now that it has changed to support. Due to the sharp decline that occurred last November, the next serious level of resistance sits at $58, with milder resistance looming at $52. A continuation of the rally will open the door for new entries as the stock clears $50, but make sure that it is continuing higher on strong volume. With NUFO closing above the upper Bollinger band and daily stochastics now in the overbought zone, keep your eyes peeled for profit taking. This would likely produce a drop to intraday support between $45-46, or even $42, providing aggressive traders with an attractive entry on the bounce. Don't forget to watch the Networking sector (NWX.X) for confirmation that positive sentiment is helping to buoy the stock. BUY CALL FEB-45 DBE-BI OI=171 at $ 9.25 SL=6.50 BUY CALL FEB-50*DBE-BJ OI=478 at $ 6.88 SL=5.00 BUY CALL FEB-55 DUO-BK OI= 94 at $ 5.00 SL=3.00 BUY CALL APR-50 DBE-DJ OI= 65 at $12.25 SL=9.25 BUY CALL APR-55 DUO-DK OI= 30 at $10.25 SL=7.25 BUY CALL APR-60 DUO-DL OI= 37 at $ 8.88 SL=6.25 SELL PUT FEB-40 DBE-NH OI= 41 at $ 2.75 SL=4.50 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=NUFO PLAB - Photronics Inc $33.75 +1.19 (-0.25 this week) Photronics manufactures photomasks, which are high precision quartz plates that contain microscopic images of electronic circuits. Photomasks are a key element in the construction of semiconductors. The Company's products are used to transfer circuit patterns onto semiconductor wafers during the fabrication of integrated circuits. US chip makers account for nearly 85% of sales; although Photronics operates manufacturing facilities in Asia, Europe, and North America. They recently acquired rival Align-Rite in a move to become the world's largest independent maker of photomasks. Deja Vu?! Well, not exactly. We just want to take advantage of PLAB's continuing run up. If you had followed the play earlier in the month, you know that PLAB made explosive moves out of its trading ranges as the semiconductor index (SOX.X) broke to the upside. A clean break through the 200-dma (24.89) followed by exceptional gains, upwards of 36%, provided a most bullish environment. Many traders profited handsomely. However, last week we erred on the side of caution and exited the momentum. Our concern was, of course, the potential of heavy profit taking going into this week coupled with the declining SOX.X and its inability to break through the strong resistance at 700. If foresight was always 20/20, as is the case with hindsight, then our strategy would have been more aggressive. Moving forward, the trailing 5-dma, now at $32.36, continues to be a good gauge for planning entries on the dips. A signal of undue weakness would be if PLAB saw the underside of the 10-dma ($30.05). Our protective stop is currently sandwiched between these two technical lines, at $31. The adventurous momentum traders might consider taking entries on pullbacks; although it may be just as profitable to buy into strength as PLAB rallies through the $35 resistance. Look for the SOX.X and the NASDAQ to maintain its bullish disposition as you plan your strategy. BUY CALL FEB-25 PQF-BE OI=457 at $9.63 SL=6.50 BUY CALL FEB-30*PQF-BF OI=877 at $5.50 SL=3.50 BUY CALL FEB-35 PQF-BG OI=631 at $2.50 SL=1.25 BUY CALL MAR-30 PQF-CF OI=325 at $6.38 SL=4.25 BUY CALL MAR-35 PQF-CG OI=202 at $3.88 SL=2.25 http://www.premierinvestor.com/oi/profile.asp?ticker=PLAB LOW VOLATILITY: OPTV - OpenTV Corp. $18.63 +1.38 (+5.56 last week) OpenTV is the world's leading interactive television and media solutions company. They enable digital TV providers to seamlessly integrate technology, interactive applications and professional services into a superior two-way viewing experience for their viewers. Pioneers of both web browsing and MPEG technology, OpenTV engineers were the first to bring the world a reliable ITV solution. Today, more than 11 million homes in 50 countries use their technology to make their lives easier, their entertainment richer and their communication better. Since encountering local double-top resistance at the $73 level last July, shares of OPTV had been caught in a pronounced retreat. Connecting the highs since that time reveals the downtrend line, which was finally broken this week. Helped by a recent Strong Buy rating from Prudential Securities, who anticipates a strong earnings report, the stock has been advancing on accelerating volume. After piercing the 50-dma (now at $17.13) yesterday, OPTV closed above this moving average today for the first time since last September, with a gain of almost 8 percent on over twice the ADV. At this point the stock appears poised to make a run for its 100-dma, now sitting at $26.42. Horizontal support can be found in increments of $0.50 from $18.50 down to our stop price of $16. A pullback to the $16.25 level would fill a gap that was made yesterday, allowing aggressive players an ideal entry. However, positive momentum may allow OPTV to find support on higher ground at the 50-dma. If the bulls continue to assert themselves, taking OPTV above today's high of $19.21, this would give traders an entry on strength, provided that competitors LBRT, TIVO and WINK are also moving higher. BUY CALL FEB-15 OUZ-BC OI= 68 at $6.13 SL=4.00 BUY CALL FEB-17.5*OUZ-BW OI= 25 at $4.38 SL=2.75 BUY CALL FEB-20 OUZ-BD OI=109 at $3.38 SL=1.75 BUY CALL MAR-17.5 OUZ-CW OI= 13 at $6.13 SL=4.00 BUY CALL MAR-20 OUZ-CD OI=132 at $4.88 SL=3.00 http://www.premierinvestor.com/oi/profile.asp?ticker=OPTV ************* NEW PUT PLAYS ************* AGGRESSIVE: WLP - Wellpoint Health Networks Inc $92.06 -3.44 (-6.81 this week) Wellpoint Health Networks Inc serves the health care needs of more than 7.7 million medical and more than 38 million specialty members nationally through Blue Cross of California and UNICARE. Wellpoint offers a broad spectrum of quality network-based health products including open access PPOs , HMOs and specialty products. Specialty products include pharmacy benefit management, dental, utilization management, long term care insurance, and Medicare supplements. Wellpoint doubled from $60 to $120 during 2000, with most of the gains occurring during the rotation out of technology into defensive stocks last fall. Now that the tide has turned, and money is flowing back into technology stocks again, Wellpoint looks as if it has further to fall. WLP formed a head and shoulders formation during December, with the left shoulder at $106.44, the head at $117.75, and the right shoulder at $107.13. since falling below the 50 dma of $104 last week, WLP has been in a very clear down trending channel. This week, WLP tried to rally above $98.50, but fell sharply as the S & P Managed Care index plummeted. The majority of the health care analysts now expect the managed care stocks to grow much more slowly this year, as premiums are expected to rise in the range of 10 to 12%, according to analysts at UBS Warburg. Today's loss of more than three points in a very strong market is a sign of technical weakness, and Wellpoint could very easily drop to the $85 level if the trend of this week continues. WLP is right in the middle of a downward trading channel which started January 11. A failed attempt to rally from $95 could be a good put entry point. An important support level for WLP is the 200 dma of $91.96, and a drop below this level could be a good put entry point for more conservative put traders. Before buying puts, check the movement of other stocks in the managed care index, like UNH, AET, and OXHP for weakness. Set stops at $97. BUY PUT FEB-100*WLP-NTE OI= 6 at $10.88 SL=8.00 BUY PUT FEB- 95 WLP-NSE OI= 0 at $ 7.50 SL=5.25 Wait for OI! http://www.premierinvestor.com/oi/profile.asp?ticker=WLP ********************** PLAY OF THE DAY - CALL ********************** RATL - Rational Software $47.81 -2.25 (+0.56 this week) Rational Software Corporation, the e-development software company, helps organizations develop and deploy software for e-business, e-infrastructure, and e-devices through a combination of tools, services, and software engineering best practices. Rational's e-development solution helps helps organizations overcome the e-software paradox by enhancing time to market while improving quality. Most Recent Write-Up Rational fell on profit taking today, after having rallied nearly 40% in the last couple of weeks. The stock is still in its ascending channel, and above the 200 dma of $43.74, and the 50 dma of $42.38. Rational is resting right at its key support level of $47.81, which could be an entry level for new positions. After clearing $50, Rational's next resistance level to clear is $52.44, before beginning its ascent to $60. We might see a pullback to $46.50 or $45.50, which aggressive traders could use as entry points. Pay close attention to the software index sector, particularly the market's reaction to Microsoft's earnings, which were released after the close today. Keep stops at $44. Comments Although RATL suffered from a round of profit taking Thursday, the stock found a big buyer near the $46.50 support level. With a bullish earnings report from software giant Microsoft this evening, RATL could be set for a big rebound early Friday morning. New entries can be taken on a move above the $48 level. The more obvious entry would be a strong advance past the key $50 resistance level on strong volume. BUY CALL FEB-45*RAQ-BI OI=881 at $7.13 SL=5.00 BUY CALL FEB-50 RAQ-BJ OI=268 at $4.63 SL=2.75 BUY CALL FEB-55 RAQ-BK OI=202 at $3.00 SL=1.50 BUY CALL APR-50 RAQ-DJ OI=204 at $8.88 SL=6.25 BUY CALL APR-55 RAQ-DK OI=230 at $7.25 SL=5.00 www.premierinvestor.com/oi/profile.asp?ticker=RATL *************************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=1411 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Hope Springs Eternal! The stock market rallied today amid a belief that the worst is over for the technology group and optimism that the FOMC will cut interest rates at its next meeting. Wednesday, January 17 Technology stocks rallied today as investors reacted favorably to to the latest round of earnings announcements. The NASDAQ closed up 64 points at 2,682. Some disappointing reports from blue-chip industrial companies drug the Dow 68 points lower to 10,584. The S&P 500 index was relatively unchanged at 1,329. Activity on the NYSE was moderate at 1.32 billion shares exchanged, with winners beating losers 1,601 to 1,339. Trading volume on the NASDAQ was a heavy 2.8 billion shares, with advances beating declines 2,377 to 1,598. In the bond market, the 30-year Treasury rose 1 4/32, pushing its yield down to 5.52%. Tuesday's new plays (positions/opening prices/strategy): Avant! AVNT FEB25C/FEB22P $1.12 debit synthetic Household Intl. HI FEB60C/FEB50P $0.38 debit synthetic Steven Madden SHOO MAR12C/MAR7P $0.31 debit synthetic All of our new issues rallied early in the session, however the bullish activity prevented any favorable entries in the synthetic positions. The prices listed were the best observed debits but because none of the plays were offered near the suggested targets, we did not initiate any new positions. We will monitor the plays for future entry opportunities. Portfolio Plays: Investors flocked to technology shares Wednesday amid optimism that most of the bad news surrounding quarterly earnings and the slowing economy have already been priced into stocks. Analysts were impressed by early gains on the NASDAQ, which came in the wake of a revenue warning from Intel (NASDAQ: INTC). The computer chip maker said first quarter revenue would decline 15% from the fourth quarter due to seasonal factors and a slowdown in demand for semiconductors. Strangely enough, traders shrugged off the news and moved quickly into chip equipment and networking issues, driving the NADSAQ to a positive close. On the Dow, a number of companies reported mediocre revenues, prompting a broad exodus from the industrial group. Shares of Minnesota Mining (NYSE: MMM), Boeing (NYSE: BA), The Home Depot (NYSE: HD), General Electric (NYSE: GE), General Motors (NYSE: GM), and J.P. Morgan Chase (NYSE: JPM) moved lower after posting quarterly earnings reports. International Business Machines (NYSE: IBM), American Express (NYSE: AXP), and Hewlett-Packard (NYSE: HWP), were among the few blue-chip winners. In the broader market groups, brokerage shares edged higher but oil service, major drug, paper and biotechnology issues generally retreated. Our portfolio enjoyed a number of favorable moves as technology issues continued to recover from the recent selling pressure. Broadcom (NASDAQ: BRCM) and Emulex (NASDAQ: EMLX) were the top performers in the big-cap category, both with $10 rallies. We may have to close the Emulex credit strangle if the bullish activity continues. Among lower priced stocks, Advanced Energy (NASDAQ: AEIS) was a big winner, up $3 to a recent high near $32. Motorola (NYSE: MOT) and Worldcom (NASDAQ: WCOM) were popular stocks in the telecom group and Williams Sonoma (NYSE: WSM) led the retail segment. Adelphia Business Solutions (NASDAQ: ABIZ), SpeedFam Ipec (NASDAQ: SFAM) and Boston Scientific (NYSE: BSX) dominated the small-cap category. The Straddles portfolio continued to enjoy big gains as Mips Technologies (NASDAQ: MIPS), Federated Investors (NYSE: FII) and Southwest Securities (NYSE: SWS) moved further from our initial basis. We were also blessed with a new winner as Alliance Capital (NYSE: AC) jumped to $54, providing a $3.88 credit on $2.88 invested. That position will likely offer greater returns as the stock has broken to a recent high on heavy volume. The only disappointing activity in the "delta-neutral" section is Orthodontic Centers (NYSE: OCA). If you didn't take the favorable early-exit profit last week, or close the position today (as we suggested), you may become a new owner of the stock. Thursday, January 18 The stock market rallied today amid a belief that the worst is over for the technology group and optimism that the FOMC will cut interest rates at its next meeting. The NASDAQ closed up 85 points at 2,768 and the Dow rose 93 points to end at 10,678. The S&P 500 index was up 18 points to 1,347. Trading volume on the NYSE reached 1.36 billion shares, with winners edging losers 1,636 to 1,291. Activity on the Nasdaq was moderate with 2.53 billion shares exchanged. Technology advances outpaced declines 2,190 to 1,748. In the bond market, the 30-year Treasury rose 28/32, pushing its yield down to 5.46%. Portfolio Plays: Technology stocks led the rally today as investors moved back into blue-chip computer companies in the wake of a positive report from International Business Machines (NYSE: IBM). IBM posted quarterly earnings of $1.48 a share, slightly ahead of consensus estimates. IBM also achieved its sales goals, registering a 6% increase in revenue, year over year, and analysts said the impressive results reinforce its long-held optimism regarding prospects for IBM in the coming year. A number of other technology bellwethers rallied after the bullish news including Hewlett-Packard (NYSE: HWP), Intel (NASDAQ: INTC), and Microsoft (NASDAQ: MSFT). The majority of tech sectors enjoyed upside activity but many industrial groups suffered. Caterpillar (NYSE: CAT) led the Dow on the downside after reporting that 2001 will be another challenging year for the industry as many markets continue to be cyclically depressed due to excess capacity and ongoing price pressures. Among broader market groups that fell during the session were; oil and natural gas service, financial, paper and chemical issues. Stocks in the drug, utility, airline, biotech, gold and transportation groups generally moved higher. Today's rally was a great way to end all the speculation over the quality of the recent technology recovery and with the renewed optimism among investors, the market should be able to establish a solid bottom for future upside movement. The leaders in our portfolio were spread across a number of groups but most of the big winners were blue-chip technology issues. We also enjoyed some outstanding bullish performances in industrial issues even as investors continued to rotate into the technology stocks. One of the best performing strategies this month has been the Debit Straddle and today we closed another play for favorable returns. Alliance Capital (NYSE: AC) ended at a recent high near $56, and our neutral position offered a credit of $5.75, a $1.62 profit on $4.12 invested in just over one month. A recent addition to that section, the US Bancorp (NYSE: USB) straddle is now profitable and we will monitor the play for favorable early-exit opportunities. Finally, our new synthetic positions (from Tuesday) consolidated after Wednesday's gains and the Household International (NYSE: HI) play offered a small opening credit. Our target of $0.38-$0.50 may be available during tomorrow's volatile session. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** ERICY - LM Ericsson Telephone $12.63 *** Reader's Request! *** Ericsson Telephone is engaged in international telecommunications, providing systems and products for fixed and mobile communications in public and private networks. The company's broad range of data communications and telecommunication products includes systems and services for handling voice, data, images and text in public and private fixed-line and mobile networks, microelectronic components, defense electronics and telecommunications and power cables. The company adopted a new organization with three customer-oriented business segments replacing the previous business areas: Network Operations and Service Providers, Consumer Products and Enterprise Solutions. In addition to these segments, the other operations include Components, Cables, and Defense Systems. The organization is grouped in four market areas: Europe, Middle East and Africa; Latin America; North America, and Asia Pacific. One of our readers asked for some suggestions on how to speculate conservatively on a recovery in Ericsson's (NASDAQ: ERICY) shares. With the recent bullish activity in telecom issues and quarterly earnings due later in the month, we decided to offer two different approaches. Our preferred strategy is generally a "time-selling" technique but with favorable technical support near $10, a basis at that price (in the synthetic position) also offers relatively low risk. PLAY (conservative - bullish/calendar spread): BUY CALL APR-15 RQC-DC OI=23966 A=$1.12 SELL CALL FEB-15 RQC-BC OI=941 B=$0.31 INITIAL NET DEBIT TARGET=$0.62-$0.69 TARGET ROI=50% - or - PLAY (speculative - bullish/synthetic position): BUY CALL APR-15 RQC-DC OI=23966 A=$1.12 SELL PUT APR-10 RQC-PB OI=5458 B=$0.56 INITIAL NET DEBIT TARGET=$0.12-$0.25 TARGET ROI=100% Note: We are going to be slightly more lenient in this position, as many of our synthetic plays have been difficult to enter at the suggested target. Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $300 per contract. /charts/jan01/charts.asp?symbol=ERICY ****************************************************************** LEN - Lennar Corporation $40.56 *** Interest Rate Play! *** Lennar Corporation is a homebuilder and a provider of residential financial services. The company's homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and marketing of residential land. The development of residential land is mainly conducted through its own efforts and its partnership interests. The financial services operations provide mortgage financing, title insurance and closing services for Lennar homebuyers and others, package and resell residential mortgage loans and other mortgage-backed securities, perform mortgage loan servicing activities, and provide cable television and alarm monitoring services to residents of Lennar communities. Analysts say that a decline in interest rates will keep homebuyers lining up in record numbers and that bodes well for homebuilders. The Fed's recent interest rate cut drove mortgages prices to their lowest level in almost two years and Fannie Mae, the leading U.S. mortgage finance company, estimates that 2001 could produce the highest numbers of new mortgages in the nation's history. Besides interest rates, homebuilders have a backlog of orders in the first quarter that will help their results, and even if lower rates fail to offset an economic slowdown, larger homebuilders will achieve additional orders as they gain market share. Lennar (NYSE: LEN) is one of the leading companies in the industry, having reported record fourth-quarter earnings and the homebuilder said it expects another outstanding year in 2001. Traders who want to speculate on the interest rate outlook can do so in a conservative manner with this bullish (OTM) credit spread. PLAY (conservative - bullish/credit spread): BUY PUT FEB-30 LEN-NF OI=200 A=$0.12 SELL PUT FEB-35 LEN-NG OI=75 B=$0.69 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14% B/E=$34.38 /charts/jan01/charts.asp?symbol=LEN ****************************************************************** MOLX - Molex $47.00 *** On The Rebound! *** Molex is a manufacturer of electronic, electrical and fiber optic interconnection products and systems; switches; assemblies, and application tooling. Molex serves a range of original equipment manufacturers in industries that include automotive, computer, computer peripheral, business equipment, industrial equipment, telecommunications, consumer products and premise wiring. The company offers more than 100,000 products. These electrical and electronic devices include terminals, connectors, planer cables, cable assemblies, interconnection systems, fiber optic connection systems, back-planes and mechanical and electronic switches. An array of crimping machines and terminal inserting equipment (also known as application tooling) are offered on a lease or purchase basis to the company's customers for the purpose of applying the company's components to the customers' products. Molex (NASDAQ: MOLX) rallied into an earnings report today, and although the company missed its target by a penny, the CEO issued upbeat comments about the future. Molex reported it earned $67 million, or $0.34 a share, compared with $54 million, or $0.27 a share in the same period a year ago. Revenues rose 15% to $629 million, up from $543 million last year, and the company expects full-year 2001 earnings at the upper end of its previous forecast of $1.34 to $1.40 a share. Molex also has a lengthy backlog of orders and in several important segments, such as fiber optics, micro miniature and high-speed products, demand remains strong. The technical indications suggest that the recent recovery can be easily sustained and if we can get a brief sell-off to enter the position, a favorable risk/reward outlook may be established. Monitor the stock for post-earnings selling pressure and after the issue trades in a reasonably stable range, target a higher premium, to allow for any consolidation from Thursday's rally. PLAY (conservative - bullish/credit spread): BUY PUT FEB-35 OXQ-NG OI=103 A=$0.31 SELL PUT FEB-40 OXQ-NH OI=40 B=$0.81 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)= B/E=$ /charts/jan01/charts.asp?symbol=MOLX ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. 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