The Option Investor Newsletter Monday 02-26-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/022601_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 02-26-2001 High Low Volume Advance/Decline DJIA 10642.50 +200.60 10642.50 10421.90 1.12 bln 2201/ 853 NASDAQ 2308.50 + 45.99 2309.73 2238.64 1.74 bln 2427/1338 S&P 100 655.80 + 13.16 655.83 639.83 totals 4628/2191 S&P 500 1267.65 + 21.79 1267.69 1241.71 67.9%/32.1% RUS 2000 488.31 + 10.86 488.31 477.45 DJ TRANS 2978.24 + 48.17 2981.05 2925.05 VIX 27.34 - 3.00 30.11 27.15 Put/Call Ratio 0.52 ****************************************************************** Waiting For Alan Greenspan To Speak In a volatile but positive day for the markets, the NASDAQ Composite rose for a second day in a row, adding 45.7 points, or 2%, to finish the session at 2,308.2. Perhaps investors feel that the downside risk here is minimal. Wayne Angell of Bear, Stearns and Company stressed the need for another inter-meeting cut and set an 80% chance for a move before March 20. With renewed optimism that the Federal Reserve may cut interest rates very soon, the Dow Jones Industrial Average gained 200.2 points, or 1.9%, to close at 10,642.1. Almost 1.1 billion shares traded hands on the New York Stock Exchange, while 1.8 billion traded on the NASDAQ Stock Market. Breadth was decidedly positive, with advancers outpacing decliners by 21 to 9 on the NYSE and by 24 to 13 on the NASDAQ. Respectable gains took place in mid and small cap stocks, as reflected by the Russell 2000 Small Cap Index (RUT), up 2.3%, and the Midcap Index (MID), up 2.5%. Holding the dubious honor of being the only tech sector to drop today, semiconductors were led downward by Texas Instruments (NYSE:TXN -1.00) when they said that lower demand for technology products due to the economic slowdown will result in lower-than-anticipated revenue for 1Q which is 20% less than that of the sequential 4Q. Customers continue to cancel or reschedule backlog orders. Their cost-reduction plan includes the temporary idling of manufacturing facilities, shortened workweeks in certain areas, a hiring freeze, cuts in discretionary spending, and a voluntary retirement program. The PHLX Semiconductor Index (SOXX) dropped 1.4% to 599.85. Microsoft (NASDAQ:MSFT +2.81) held on to most of its gains upon news of the beginning of antirust arguments in the new administration, despite the surfacing of a Wall Street Journal report that the company is negotiating with the Federal Trade Commission to settle charges that advertisements targeting Palm's hand-held devices were false and misleading. Citing lawyers close to the case, the WSJ article said the FTC found that Microsoft's "Can Your Palm Do That?" campaign deceptively highlighted features that weren't available unless buyers spent more to upgrade to wireless capability. Apparently, the wireless requirements were contained in nearly unreadable print at the bottom of the ads. Shares of Cisco Systems (NASDAQ:CSCO -0.94) suffered from Credit Suisse First Boston's note that they have lowered their earnings estimates for the second half and for fiscal 2002, as well as their price target due to the slowing U.S. economy. The firm said Cisco's results should be "somewhat buffered" from the slowdown by large deals in the service provider market, allowing it to avoid weaker dot.com and CLEC customers. "CLEC" stands for competitive local exchange carriers, such as AT&T (NYSE:T +0.89) and Sprint (NYSE:FON +0.02). Also, Cisco's diverse product line helps it to compensate for areas where growth is slowing. Heard about any more job cuts lately? Citing the U.S. economic downturn and turmoil in the telecommunications industry, 3Com is (NASDAQ:COMS +0.47) is cutting 1,200 jobs to boost profitability. Shares gained 5.2% to $9.50. The Dow felt the affects of Procter & Gamble’s (NYSE:PG -3.92) warning this morning that it may miss estimates for the second half of its fiscal year due to the impact of the devaluation of the Turkish lira. P&G is Turkey's twelfth largest business with over $400 million in annual sales. P&G shares lost 5.2% to $71.11. The most active stock on the New York Stock Exchange was Nokia (NYSE:NOK +1.41), which climbed 6.6% to $22.75 despite downgrades from Goldman Sachs and Merrill Lynch. The mobile phone giant secured a contract worth about $230 million to supply GSM 900 and GSM 1800 network expansion to Chinese operator Fujian Mobile Communications Company. Goldman lowered its rating to Market Performer from the Recommended while Merrill lowered its assessment to intermediate-term Accumulate from Buy. Merrill said it remains a long-term believer in growth opportunities in the communications equipment sector but it expressed concern that Nokia will not be able to meet its internal revenue growth objectives of 30 to 35% in the first half of 2001 due to a soft handset market. The firm also thinks it will be difficult for Nokia to reach 20% margins in its mobile phone business due to intense price pressure. While I would not exactly call it Merger Monday, interesting partnerships are appearing out of the woodwork. EMC Corporation (NYSE:EMC +0.00) and Toyota Motor Corporation (NYSE:TM +0.81) announced a three-year sponsorship agreement for Toyota's Formula 1 racing team. EMC's logo will appear on Toyota's Formula 1 racecar. EMC's stock has been down with last week's announcement that they may miss their $12 billion revenue target for 2001. In another alliance, i2 Technologies (NASDAQ:ITWO +5.94) joined with Intel (NASDAQ:INTC -0.44) to speed up deployment of i2's e-marketplace and supply chain management applications powered by Intel-based servers. The agreement covers joint sales and marketing programs, i2 product roadmap alignment, on-site Intel engineering technical services and support and "how-to" guides. Although financial terms were not disclosed, i2 rallied 5.9% to $35.50, still 68% off of its 52-week high. The Federal Reserve approved a request by Charles Schwab Corporation (NYSE:SCH +0.43) and its wholly owned subsidiary U.S. Trust Corporation to acquire Minneapolis-based Resource Companies, Inc., along with its subsidiary bank, Resource Trust Company. Resource Companies, Inc. operates only in Minnesota and represents less than 1% of total deposits in banks and other financial institutions in the state, the Fed detailed. After the acquisition, Schwab would remain the 43rd largest commercial bank in the United States, with total consolidated assets of $35.6 billion. A division of Enron Corp. (NYSE:ENE -0.44) called Enron Energy Services has signed a $1.3 billion energy management agreement with drug manufacturer Eli Lilly and Company (NYSE:LLY +1.44). Enron will manage Lilly's supply of electricity and natural gas for facilities in Indiana and operate and maintain energy assets and upgrade the infrastructure. Enron's services are expected to increase efficiency at Lilly facilities. The CBOE Gold Index (GOX) rallied 6.8%, and has added 16.3% in the past three trading sessions, reaching the highest level since September of 2000. Stocks in the sector include Newmont Mining (NYSE:NEM +1.11), Barrick Gold (NYSE:ABX +0.82), and Coeur D'Alene Mines (NYSE:CDE +0.07). April gold futures gained $4.70 to $266.80, helped by news out late Friday that Comex gold inventories fell 22,135 ounces to approximately 1.67 million ounces. On the economic report front, sales of existing homes fell in January to their lowest level in a year. The National Association of Realtors reported that sales declined by 6.6% to a seasonally adjusted annual rate of 4.65 million. Economists expected the annual rate to increase to 5 million. Americans are obviously less confident about our economy, even while the Federal Reserve is lowering interest rates. We can all relate to the other current factors in home buying decisions, such as stock market volatility, higher energy prices and slower job growth. Looking Ahead The fun begins tomorrow. The U.S. Consumer Confidence Report for February has the potential to move the markets because everyone knows that Mr. Greenspan will pay a great deal of attention to it. Bear, Stearns and Company expects confidence to fall to 106.0 from 114.4 in January because a similar decline has already been reported in the University of Michigan's consumer sentiment report. They also note that a very close relationship exists between consumer confidence and the NASDAQ. Our first look at capital spending in 1Q appears in Tuesday's Durable Goods Orders Report for January. Orders are expected to have fallen 4.5% in the month. Bear, Stearns and Company expects that the 150% surge in aircraft orders in December and November partially reversed in January. Both orders and shipments of non-defense capital goods are expected to have declined, suggesting another decline in business equipment spending in Q1 after the 4.7% drop in Q4. Wednesday brings us Mr. Greenspan's testimony on Monetary Policy before the House Financial Services Committee at 9:30 am ET. Join the market in attempting to determine what each of his comments really mean. I know I will understand him if he happens to say something about lowering interest rates now instead of waiting until March 20. On Friday, Mr. Greenspan testifies on Current Fiscal Issues before the House Budget Committee. Bear, Stearns and Company looks for the NAPM survey of business conditions in February to fall for the 12th consecutive month, from 41.2 to 40.5. (For comparison, the NAPM index bottomed out at 39.2 during the last recession.) Many feel that such a decrease will result in an interest rate cut very soon after this Thursday report. Has the NASDAQ reached a bottom? I am not convinced because we really have not yet seen the capitulation selling that shakes out the final round of sellers allowing the market to turn around. Now that investors are paying attention to real earnings, and rightfully so, the market should reflect anticipated improvements about six months ahead. Watch your favorites, and be ready for the change in sentiment. PJ Mitchell Contributing Analyst ************************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=1713 ************************************************************** ************* NEW CALL PLAY ************* CIEN - CIENA Corporation $77.25 +2.75 (+2.75 this week) Helping to satisfy our insatiable demand for bandwidth, CIEN makes dense-wavelength division multiplexing (DWDM) systems for use with long-distance fiber-optic communications networks. CIEN offers optical transport, intelligent switching and multi- service delivery systems that enable service providers to deliver and manage high-bandwidth services to their customers. The company’s MultiWave DWDM systems allow optical fiber to carry up to 40 times more data and voice information without requiring more lines. CIEN's customers include long-distance carrier, competitive local exchange carriers (CLECs), Internet service providers and wholesale carriers. The NASDAQ rally that began on Friday afternoon following Wayne Angell's prediction of an early interest rate reduction early this week struggled for much of today before gaining traction. The bulls finally got the upper hand towards the end of the day driving the Technology index to close at the high of the day. Leading the charge both Friday and today was our new play CIEN. One of the few remaining high-flyers with a triple-digit PE ratio, CIEN has outperformed the broader NASDAQ, largely due to its stellar earnings report just over a week ago. Not only did the company beat analyst estimates by 4 cents (29%), but it also increased its revenue growth rate to a beefy 131%. Not only that, but management failed to commit the cardinal sin of cautioning of slowing growth. Quite the opposite, all was sweetness and light at the Optical hero's conference call as President and COO Gary Smith claimed that the shift in Telecom spending is actually benefiting the company due to its optimal product portfolio. Although the stock rallied immediately after the report bearish sentiment in the broader Technology market dragged the stock down for a retest of its lows near $68-70 late last week. Once the interest rate speculation hit the newswires on Friday, buyers showed up in bulk, driving the stock nearly 6% higher by the close. Tenuous action on the NASDAQ gave buyers a couple of dips today to buy the stock at a discount, but as the intraday lows kept getting higher, it became clear that CIEN wants to run. Throw in a Stochastics oscillator that is just coming out of oversold, and showing signs of bullish divergence, and CIEN looks like a strong play. Of course we do have the problem that the stock has been locked in a downtrend with the rest of the NASDAQ and the Networking sector (NWX.X) since late October. The descending trendline is sitting at $80, also a recent area of resistance. Conservative traders will want to wait for strong buying to propel our play through this level before taking a position. CIEN will likely find more resistance at $85, with the $90 level being very difficult to penetrate, as there is lots of historical resistance and this is also the site of the 200-dma, currently at $89.72. With the tenuous nature of the recovery in Technology stocks, we want to give CIEN room to move, so we are placing our stop down at $69. Aggressive traders can target shoot intraday dips near $75, $72, or $70, so long as the bears are unable to violate our stop. Trade in the direction of the broader index, as it will be hard for CIEN to buck a bearish trend in the NWX.X. BUY CALL MAR-75 UEE-CO OI=2152 at $8.50 SL=6.00 BUY CALL MAR-80*UEE-CP OI=5132 at $6.38 SL=4.25 BUY CALL MAR-85 UEE-CQ OI=5077 at $4.50 SL=2.75 BUY CALL APR-85 UEE-DQ OI= 917 at $9.00 SL=6.25 BUY CALL APR-90 UEE-DR OI=2045 at $7.25 SL=5.00 SELL PUT MAR-70 UEE-ON OI=2392 at $ 3.75 SL=5.75 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN MER - Merrill Lynch $63.50 +2.27 (+2.27 this week) Merrill Lynch is one of the world's leading financial management and advisory companies with offices in 44 countries and total client assets of about $1.7 trillion. As an investment bank, it is the top global underwriter and market maker of debt and equity securities and a leading strategic advisor to corporations, governments, institutions and individuals worldwide. Through Merrill Lynch Investment Managers, the company is one of the world's largest managers of financial assets. The brokerage index rebounded with gusto today, gaining over 3.5%. As one of the premier brokerage firms, Merrill Lynch is well positioned to benefit from further strength in this index. On a daily chart, MER's pattern is very similar to that of XBD.X. The stock responded dramatically to the first interest rate cut by the Federal Reserve by hitting a high of $80 by the third week in January. Subsequently, MER sold off with the overall market, and reached strong support at $56.70 last week, when the VIX spiked up to over 35. For the last five days, MER has made a pattern of higher lows at $56.70, $58, and $61, and is now poised to break out above its nearly converged 200 dma of $64.56 and 10 dma of $64.98. MER may have moved up today on an article in the Wall Street Journal which stated that Bank of America was planning to expand its asset management business and hire additional stockbrokers, and mutual fund salespeople. This contradicts previous beliefs that the brokerage stocks were suffering from decreased revenue which showed few signs of recovering. In addition, the prospect of an intra meeting rate cut is helping the financial sector. The market may exhibit wild moves over the next few days, as investors wait to see if the rumor becomes reality, so traders must be very careful. If MER can clear the $65 level on heavy volume, it should be able to move to $68, and the 50 dma of $69.45. Conservative traders may want to wait for such a move. Alternatively, traders could take positions at current levels, if accompanied by strength in XBD. Set stops at $60. BUY CALL MAR-60*MER-CL OI=2153 at $5.40 SL=3.50 BUY CALL MAR-65 MER-CM OI=3350 at $2.55 SL=1.25 BUY CALL APR-60 MER-DL OI=1747 at $7.50 SL=5.25 BUY CALL APR-65 MER-DM OI=4660 at $4.80 SL=3.00 http://www.premierinvestor.net/oi/profile.asp?ticker=MER BRCD - Brocade Communications $48.63 +2.94 (+2.94 this week) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. It's been a rough month for Storage Area Networking leader Brocade, as the stock has so far spent most of February below all its major moving averages. Recently joining the ranks of the NASDAQ 100 (QQQ), shares of BRCD have fallen in sympathy with the Tech-heavy index, as fears of a slowing economy finally hit the once thought to be immune Storage sector. Despite beating Street estimates by a penny in their recent record earnings report, shareholders exited on mass on the comments made by the CEO that they would guide lower going forward. On a technical note, overhead resistance from the 5-dma had been a glass ceiling that has weighed heavily on BRCD's share price. The stock had been falling on heavy volume the past couple of weeks but late last week, it appeared that BRCD may have turned the proverbial corner. Despite EMC cutting revenue growth forecasts, BRCD moved higher and it appears that at current levels, there may be willing buyers to support the stock. But make no mistake, this is an aggressive call play so risk management will be key. Today's gain of 6.43 percent on over 1.35 times the ADV put BRCD back above its 5-dma line, now at $45.16. The 10-dma looms just overhead, at $50.58. A break above this moving average on volume could be the signal for conservative traders to take a position. Aggressive traders looking for entries on intra-day dips may find support at the 5-dma, $45, $43 and $40. Just make sure BRCD continues to close above our stop price of $42. In both cases, correlate entries with strength in competitors QLGC and MCDT. BUY CALL MAR-45 UBF-CI OI=5743 at $6.50 SL=4.50 BUY CALL MAR-50*UBF-CJ OI=2448 at $3.75 SL=2.00 BUY CALL MAR-55 UBZ-CK OI=6314 at $2.13 SL=1.00 BUY CALL APR-50 UBF-DJ OI= 645 at $7.63 SL=5.25 BUY CALL APR-55 UBZ-DK OI= 532 at $4.50 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=BRCD VRTS - Veritas Software $68.94 +6.56 (+6.56 this week) Veritas Software is the industry's leading enterprise-class application storage management software provider. They furnish storage management software for protection against data loss and file corruption, efficient file processing and networks back-up. Veritas (Latin for "truth") has made its name by partnering with such technological heavyweights as Hewlett-Packard, Microsoft, and Sun Microsystems, all of which have licensed and embedded Veritas products in their operating systems. Its purchase of the network and storage management software group of disk drives maker, Seagate Technology, doubled Veritas' size and gave Seagate approximately a 33% stake in the company. It's been said that the last ones to fall are usually also the first to bounce back. With Tech stocks out of favor for quite some time now, the Storage sector was able to hold up where the Biotechs, Networkers and Semiconductors were unable to. Companies in the space were thought to be immune because their fantastic growth rates could more than compensate for any economic slowdown. However, with industry peers BRCD and EMC both guiding lower going forward, as well as VRTS itself, the sector recently took a stumble. Spending the entire month of February in a downtrend, shares of VRTS have been declining steadily, but the price/volume action of late last week suggests that the worst may have now been priced into the stock. The high volume hammer candlestick formations last Thursday and Friday hints that weak holders of the stock may have capitulated. With selling pressure abating, buyers could find themselves with less overhead resistance. Positive comments from Dain Rauscher Wessels analyst Sarah Mattson, along with a 12-month price target of $150 on Friday may also bring back the bulls and bargain hunters. Bounces off support at $68, $65, $62 and our stop price of $60 could allow aggressive traders to make a play, but confirm with volume. A break above $70 on volume could be a much safer entry point, provided that rival LGTO and Gorilla of the Storage sector EMC are also moving higher. BUY CALL MAR-65 VIV-CM OI=1187 at $ 9.75 SL=7.00 BUY CALL MAR-70*VIV-CN OI=1974 at $ 7.00 SL=5.00 BUY CALL MAR-75 VUQ-CY OI=1168 at $ 5.00 SL=3.00 BUY CALL APR-70 VIV-DN OI= 42 at $12.38 SL=9.25 BUY CALL APR-75 VUQ-DY OI= 190 at $10.00 SL=7.00 SELL PUT MAR-60 VIV-OL OI= 719 at $ 3.13 SL=5.00 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS **************************** NEW LOW VOLATILITY CALL PLAY **************************** MCLD - McLeodUSA $15.69 +2.13 (+2.13 this week) McLeodUSA provides selected telecommunications services to customers nationwide. Integrated communications services including local services are currently available in many Midwest, Southwest, Northwest and Rocky Mountain states. Long distance, advanced data and internet services are available in all 50 states. McLeodUSA is a facilities-based telecommunications provider with 396 ATM switches, 50 voice switches, approximately 1.1 million local lines, and more than 10,700 employees. In a market plagued by grim earnings outlooks, MCLD exceeded expectations in its last earnings report, and reiterated its upbeat forecast for the coming year. On January 30, MCLD reported revenues of $1.4 billion, up 54% from last year, and an increase in the number of employees by 32%. After falling from a high of $20.75 on January 30, MCLD hit strong support last week at $11.50, and has since rebounded strongly. On a conference call last week, MCLD's management stated that they expect year end revenue to be $2.1 billion, an increase of 50% from last year, with an expectation for EBITA to increase in the range of 270%. Upgrades from CSFB and Goldman Sachs helped the positive trend in MCLD. CSFB gave MCLD a strong buy rating with a 12 month price target of $39, stating that the stock's current risk/reward valuations are among the most attractive in the telecommunications sector. In a surge of momentum at the close, MCLD cleared its 10 dma of $14.13, and is now poised to make a shot at the 50 dma of $16.69. Traders can take positions at current levels, or at a break above $16.69 if it is accompanied by strength in the CLEC sector. Watch others like XOXO and GX for an indication of sector strength. Set stops at $14. BUY CALL MAR-12.5 QMD-CQ OI=583 at $3.63 SL=1.75 BUY CALL MAR-15 *QMD-CC OI=624 at $1.63 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=MCLD ************ NEW PUT PLAY ************ No new puts today ***************** STOP-LOSS UPDATES ***************** EMC - call play Adjust from $39 up to $42 MSFT - call play Adjust from $55 up to $57 LH - call play Adjust from $144 up to $150 WAG - call play Adjust from $42.50 up to $43 ADBE - put play Adjust from $34 down to $33 ************* DROPPED CALLS ************* MO $46.50 -0.52 (-0.52) As we cautioned over the weekend, MO was in danger of violating our $47 stop. With a revival of all the major indices today, money came out of defensive stocks, and the stock couldn't hold it's ground. The morning recovery gave way to selling pressure in the afternoon, and MO fell to close very near the low of the day, and more importantly, below our stop. With bearish divergence now appearing on the daily Stochastics oscillator, and a violated stop, we have no choice but to boot MO from our playlist. ************ DROPPED PUTS ************ NETE $50.09 +1.84 (+1.84) The bears took one last shot at pushing NETE underwater this morning, but the persistent strength of the broader markets helped the stock to recover after hitting a low near $43. Today's low was above Friday's low, and we are now seeing bullish divergence in the Stochastics oscillator. Given the strength of the NASDAQ today, and the steady recovery in shares of NETE, we are content to take our accumulated profits off the table and move on to the next high-odds play. ARBA $19.69 +2.00 (+2.00) Our play in ARBA has been a particularly good one for intra-day traders last week, as it had traded in a fairly predictable range during that time. This sideways action has also suggested that the stock may have found a bottom. Today, ARBA was helped by an advancing NASDAQ, gaining over 11 percent on 1.45 times the ADV. This surge put ARBA not only above its 5-dma at $18.47, but also ahead of our stop price at $19. While resistance overhead from the $20 level and the 10-dma at $20.63 continue to hold, we are sticking to our sell rules an closing out this play. BBOX $51.63 +2.88 (+2.88) The 5-dma (now at $50.12) has acted as an almost impenetrable barrier for BBOX in the month of February, as shares of the retail network provider have been unable to close above that point all month long. That is, until today, in sympathy with a rising NASDAQ, the stock managed to close up 5.9 percent. While volume was only half the ADV and the 10-dma (at $52.02) held firmly, the close above our stop price of $49 puts BBOX on the drop list. ITWO $35.50 +5.94 (+5.94) Part of making a successful play is in waiting for the right entry point to appear. Friday's negative price/volume action in shares of ITWO did little to suggest what was to come on Monday's trading. The stock gapped up today on news of an alliance with leading Chipmaker Intel. This was enough to ignite a buying frenzy, as the stock opened above $30 resistance and spent the rest of the day moving higher on volume to close up over 20 percent on 1.5 times the ADV. Today's rally suggests that the downtrend may soon be broken, as suggested by the close well above our stop price of $32. With requirements for entries not met and no plays made, we are dropping coverage. QLGC $44.25 +2.38 (+2.38) QLGC released news today stating that Sun Microsystems is shipping products which use the QLGC Fibre Channel switches. The market liked the news, and the stock responded well. While the semiconductor sector is still lagging the other indexes, QLGC demonstrated a high level of strength toward the market close. At this point, we think it is prudent to drop the play as it closed above our stop level. WEBM $52.38 +3.63 (+3.63) WEBM released news today that Cisco had selected WEBM's technology as the business integration platform for enabling the real time exchange of inventory and product request information. That news, in combination with overall market strength, as well as strength in the software index spurred by Microsoft, closed the door for our WEBM put play. While the stock remains in a long term downward trend, it closed above our stop price, and we are thus dropping it tonight. ************** TRADERS CORNER ************** Ultimately, Success Depends Upon Your Own Discipline By Molly Evans It was time well spent with over one hundred other traders at a Larry Williams seminar in Chicago this past weekend. Williams entered the ranks of legendary traders upon his amazing feat of winning the Robbins World Cup Championship for Futures Trading, turning $10,000 into $1,147,000. He confessed that he was up to $2.4M at the high but "there was a bit of a retracement in the market called the crash of October '87." While the setback took his little pile of dough down to a mere $750,000, amazingly Williams was able to claw his way back 53% in the last two months of the year after that unfortuitous market swoon. While I had obviously heard of Larry Williams, I had never had exposure to any of his writings or theory. It was Austin who insisted my husband, Dan, and I come to meet Wendy and him so that Dan and Wendy could do the fun things while Austin and I got "higher learned." Quite admittedly, I am loathe to ever turn down a getaway trip to the Windy City even if it does entail sitting in a conference room most of the weekend. Suffice it to say, it was good to see my friends and while I've been to too many seminars lately, this one well exceeded any expectations I had going into it. So let's talk about seminars for a moment. A good one makes you feel so confidant and assured that you've come away knowing "how to do it now." You're impressed by the speaker's presence and skills. You vow to incorporate all that you've learned into your own trading and to never again make those mistakes that have wounded you in the past. Yet, somehow when you get back to your own environment, you find it's not that easy to apply what you've learned. How does it work for the expert and not work for you? I think that one element of this problem is that it's difficult to change your way of thinking or to rearrange your own programmed mind to interpreting data and acting in the same manner as the expert. Skills can be taught. Richard Dennis and William Eckhardt proved it could be done. They were the two legendary traders that taught a group of interviewed, rigorously tested and handpicked candidates their system of trading. This group, known as the Turtles, belongs to an exclusive class and many of the individuals have gone on to become top money managers in the field. In fact, when Jack Schwager sought mega successful traders to be interviewed for the second of his three Market Wizards books, he found that 44% of the top traders as reported by the Managed Accounts Reports were in fact, former Turtles. So if trading can be a taught talent, then why aren't there more successful traders? What are the hindrances to success in modeling an expert? It shouldn't surprise you to learn that it is psychology. Psychology is the wiring that invokes us to act upon fear and greed, the two most prevalent liabilities in the undoing many a trader. Because traders are human, the performance of any behavior requires process of information in the brain. Behavior is then required to design and execute a system of trading. To duplicate the behavior of an expert, one must be schooled in the ingredients of that behavior. It is great to go to a well-organized and informative seminar. This is where successful traders discuss their methodologies and approach or should I say "the ingredients" of their behaviors within the market. You learn the non-psychological aspects of a trading system. As Austin and I discussed this weekend, that in itself is invaluable. How can you know it if you don't know it? These are things we go to seminars and read books to learn. Jack Schwager and Dr. Van Tharp have worked with a number of great traders and investors to determine what they have in common. We learn through their studies that attempting to duplicate the methods of one great trader is not enough for most people. Yet if one will study the commonalities of a number of good traders, then you learn what's really important to the success of all of them. None of our legends have the exact same method. Larry Williams had some totally different approaches to trading to which I have ever been exposed. Having been to a number of seminars and reading a huge assortment of books over the past couple of years, I've found a few common elements. Do you know what they are? Sure you do. Desire, persistence, confidence and most of all, money management. This is a tricky topic. Most books and speakers pay just lip service to the topic as money management is such a subjective matter. What is important to individual traders however, is to pin this down precisely for themselves. How much is enough of a position and how much is too much? The gurus all have their formulas and recommendations but only the individual trader can make the ultimate determination for himself. I can tell you, the answer doesn't come easily. It's something that is learned through trial and error. Position sizing is one of the first rules that a trader should incorporate into their business trading plan. Whether you elect to jump in all at once or to scale into the position, you then must stay true to it. Next, the stop loss, another highly subjective determination comes into play. What's your uncle point? The keys to success are all about limiting and downsizing risk. Traders, professional and novice, blow up every single day in failing to address these very sensitive issues. As I realized this weekend, seminars are great for exposure to new ideas and methodologies but in the end it won't matter how many seminars one has attended or books that have been read if he or she doesn't practice disciplined money management. We're living in tumultuous times in the market. Whether you're coming to the Denver conference or going to go check out Larry Williams yourself, at least keep yourself in the game by playing by the rules. The other pearls in the chest are but moot points if you're without capital. Austin and I have switched our evenings for responsibility of the Trader's Corner articles. I'll now be penning the Monday night columns and he's moving to Thursday nights. Be careful out there and I'll see you next week. MKE *************************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=1693 ************************************************************ ********************** PLAY OF THE DAY - CALL ********************** EMC - EMC Corporation $45.00 +0.00 (+0.00 this week) EMC wants to be your storage solution. The company designs, manufactures and markets a wide range of enterprise storage systems, software, networks, and services. The company’s products store, retrieve, manage, protect and share information from all major computing environments including mainframe, UNIX, and Windows NT. With offices around the world and a 35% growth rate for the first 9 months of the year, EMC is effectively filling its role as the worldwide storage leader. Most Recent Write-Up In the wake of negative news and earnings warnings from the Storage sector, EMC fell through the $50 support level last week. Compounding the stock's problems, the company joined the crowd and issued its own warning, cautioning investors of slowing growth. Still expecting to meet its $12 billion revenue target for the year, EMC revised sales growth estimates downward to the 25-35% range. Following this admission, the stock traced a new 52-week low of $34 on Thursday before the buyers returned. After helping the stock to recover to the $39-40 level by Thursday's close, we saw buyers increase their enthusiasm late on Friday. Major support between $32-34 got the bulls started on Thursday, and then former Fed governor, Wayne Angell got the party going again Friday afternoon with his prediction of a Fed rate cut early next week. Speculation aside, the bottom line is that buying was strong going into the close on Friday, and this could be the beginning of a significant recovery. After declining more than 50% in the past 3 weeks, EMC seems to be significantly oversold, and with daily Stochastics turning up out of the oversold region, we are more than happy to step up and take a piece of the developing recovery. Conservative entries can be considered on a continuation of the Technology rally that pushes EMC through the $46 level. Aggressive traders that are looking for a better entry point can consider new positions on a bounce from either the $42 or $40 level. Keep a short leash on the play, as a drop through our $39 stop will be a clear sign that the bears are back in charge. Comments EMC is attempting to rebound from its recent sell-off. The stock finished Monday's trading strongly, which may portend higher prices for the data storage giant in the near-term. Traders might look for entries on light volume pullbacks to support at the $43.50 level. Those looking to play momentum might wait for EMC to clear the $46 level on heavy volume in conjunction with strength in the Nasdaq Composite (COMPX). After $46, EMC will face minor resistance at $47 before attempting to retest the $50 level. BUY CALL MAR-40 EMC-CH OI=10026 at $7.00 SL=5.00 BUY CALL MAR-45*EMC-CI OI= 4632 at $4.00 SL=2.50 BUY CALL MAR-50 EMC-CJ OI= 7974 at $2.13 SL=1.00 BUY CALL APR-45 EMC-DI OI= 1380 at $6.50 SL=4.50 BUY CALL APR-50 EMC-DJ OI= 2953 at $4.13 SL=2.50 BUY CALL APR-55 EMC-DK OI= 1699 at $2.69 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=EMC ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. 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