The Option Investor Newsletter Thursday 03-01-2001 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/030101_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 03-01-2001 High Low Volume Advance/Decline DJIA 10450.10 - 45.20 10493.30 10302.90 1.28 bln 1474/1559 NASDAQ 2183.37 + 31.54 2184.41 2071.03 2.25 bln 1607/2175 S&P 100 641.38 + 0.67 641.48 625.64 totals 3081/3734 S&P 500 1241.23 + 1.29 1241.36 1214.50 45.2%/54.8% RUS 2000 473.30 - 1.07 474.38 465.19 DJ TRANS 2868.36 - 56.68 2925.04 2841.77 VIX 31.03 + 0.03 34.22 31.03 Put/Call Ratio 0.69 ****************************************************************** International Rumor Machine International Business Machines (NYSE:IBM) sparked a sharp late session rally on swirling rumors that an analyst was reiterating his positive 2001 outlook for the computer giant and that the company had supposedly given optimistic comments at an investor meeting. At precisely 2:30 p.m. EST, IBM started to "boot-up" and within an hour and a half, had rocketed over 7.5%, closing up $6.15 to $106.05. Before the gunpowder smell from the rumor gun had settled out of the air, the rest of tech land was off and running. And run they did. Sun Microsystems (NASDAQ:SUNW) popped from $29.50 at 2:30 p.m. to close at $32.25, EMC Corp. (NYSE:EMC) went from $37.50 at 2:30 p.m. to close at $42.90 and Applied Micro Circuits (NASDAQ:AMCC) bounced from $23 to close at $29.63. AMCC actually was halted midday on what turned out to be an on-air, live profit warning on CNBC earlier in the day. The company's CEO, Dave Rickey, read a prepared statement in an interview with Maria Bartiromo, which indicated that the company was lowering fourth-quarter revenue estimates to $125- $135 million from previous estimates of $175 million due to warnings from its largest customers. The fact that investors were able to brush this off and take the stock higher as soon as it was reopened for trading is suspect, but I'll have to admit, slightly encouraging. The fact that the market is still reacting to rumors like a giddy schoolgirl, however, is not good news. But being rational traders, we can look at this in two ways. I will let you be the judge as to what scenario is closer to the truth. Number one, we are in a market that is thirsty to believe any good news that comes along, whether it's true or not. This probably means that once the Fed cuts, earnings improve and the market stabilizes, the optimistic investors will come out of the woodwork in droves, tipping their money market accounts (which are bursting at the seems) into tech and the rest of the market and we will be off and running again. Number two, we are in a schizoid market that doesn't know which way is up and that is hanging on any piece of news that may give it direction to the upside. In this scenario, the market swings violently and emotionally; in part because there are so many people on the short side that cover-buy with a vengeance anytime a hint of positive news hits the market. Suffice it to say that I believe number one and a half. I believe that yes, we are in a market that is acting irrational and desperate but that behind the scenes, there is a pile of money that belongs to folks that are willing to forgive and forget, given more clarity in profit outlooks. In addition, I believe that number one is driving number two. By this I mean that investors (in general) are still too optimistic. The banner year of 1999-2000 is still in the back of investors' minds causing most to hold on to high hopes. We therefore have still not seen the now clichi, "capitulation bottom" that marks the beginning of a new bull market. One indicator that tracks investor sentiment is the CBOE Volatility Index (VIX.X). When we bottomed in October 1998, during the "Asian Crisis" the VIX.X was hovering around 50, signifying high levels of fear and put/call buying. But throughout this whole NASDAQ drubbing, the VIX has not closed above 40. Today’s Markets Up until the IBM induced rally, the markets acted as if they were content to do a slow burn lower for the whole session. There was no real sector rotation, but rather general weakness across all areas of the market. The NASDAQ (COMPX) gained 31.54 today, closing at 2183.37 after briefly venturing below the 2100 level. Volume was impressive, with 2.25 billion shares crossing the tape, a large portion of that occurring in the volatile afternoon session. The DOW (INDU) closed off 45.14 to 10450.14 after having been down almost 200 points earlier in the day. NYSE volume was 1.2 billion and market breadth continued lower with decliners beating advancers 1562 to 1469. Treasuries continued higher today despite the late day flow of capital back into stocks. The 10-year note finished up 6/32 to yield 4.88% and the 30-year bond closed higher by 9/32 to yield 5.30%. Turning to economic news, the National Association of Purchasing Management Index (NAPM) came out at 41.9%, just slightly above January's figure of 41.2% but lower than economists' expectations of 42.4%. But lest you think this is actually good news, any reading below 50 still indicates a contracting manufacturing sector. Stocks and Sectors on the Move While quite a few tech stocks rebounded in the afternoon, 3Com (NASDAQ:COMS) had dug too large a hole in the morning to benefit by the exuberance. COMS came out late Wednesday and said that it would miss its current third quarter revenue bogey. It now expects to lose $135-$145 million on revenues of $625-$640 million. COMS closed down $1.63, or 17.81%, to $7.50. Other losers on the day included the brokerage sector, as measured by the AMEX Broker/Dealer Index (XBX.X). It fell 1.64 on the day, after being down close to 30 points in the early going. The sector came under continued pressure after J.P. Morgan (NYSE:JPM) downgraded two of its own, Goldman Sach's (NYSE:GS) and Morgan Stanley Dean Witter (NYSE:MWD) to "market perform" from "long-term buy". The stocks finished down $0.14 and $1.53 respectively. Airline stocks were also grounded today, as US Airways (NYSE:U) indicated that its first-quarter loss would be wider than expected. Goldman Sach's also go in on the action and proceeded to downgrade a slew of the winged wonders. These included Northwest (NASDAQ:NWAC), which finished down $0.69 to $21.31, Southwest (NYSE:LUV) down $0.60 to $18.00, Delta (NYSE:DAL) down $1.77 to $40.35 and AMR Corp. (NYSE:AMR) down $1.93 to $31.32. Accomplishing a complete 180-degree turnaround and avoiding a new 52-week low in the process was the PHLX Semiconductor Index (SOX.X). On the heels of the aforementioned IBM and AMCC about face, the SOX.X added 29.53 to close at 570.76. Earlier in the day, the SOX.X had taken out previous intraday lows at 516.64. Winners included Texas Instruments (NYSE:TXN) up $2.85 to $32.40, Xilinx (NASDAQ:XLNX) up $2.63 to $41.5 and Linear Technology (NASDAQ:LLTC) up $3.50 to $43.13. Looking Forward, Always Forward Tomorrow might prove to be more rough sailing for techs, especially software stocks. After the bell, Oracle (NASDAQ:ORCL) issued a downward revision in its third-quarter earnings per share figure. They now expect to come in with an EPS of $0.10, down from previous estimates of $0.12. They also announced that sales are flat to slightly lower. Also, expect the folks who bought tech today on the IBM rumor to unload in the early going. We'll see if we get an afternoon oversold bounce, but I wouldn't hold my breath. Friday afternoons have been a tough time for the longs, as the pros have not been willing to hold stock over the weekends lately. On the bright side, compared to the Nikkei, we are rocking and rolling. The Nikkei has just hit a 15-year low and interest rates are at .25%. In addition, the 50-basis point cut in interest rates that the Fed enacted in January should just be starting to work its magic upon the economy as we fire up the barbeque and take to the beach in July. Hold onto your flip- flops, I smell a summer rally. Trade Smart and Have a Good Weekend Craig Seidler Contributing Editor ************************************ Spring Options Workshop and Bootcamp April 5th-9th, Denver Colorado ************************************ OptionInvestor is proud to announce our third annual Spring option workshop in Denver Colorado. This power packed five-day event is structured to fully educate you on advanced option strategies and will make you a better and more profitable trader. If you attended the March Denver Expo last year and thought it was the best function you had ever attended.. You haven't seen anything yet! Great food, entertainment, education and just plain fun in sunny Denver. The biggest complaint in March was the massive weight gain experienced by the attendees from the gourmet menu. We know how to put on a function. Ask anyone who came last March! Current speakers include: Tom DeMark, author of "Day Trading Options", "Science of Technical Analysis" and "New Market Timing Techniques" and manager of a $4 billion hedge fund. John Najarian, "Doctor J" as he is known on the CBOE Mark Leibovit, Chief Market Strategist of VRTrader.com Richard Arms, inventor of the TRIN, or Arms Index, Equivolume charting and author of "Trading Without Fear." Mark Skousen, Editor of Forecasts and Strategies for over 20 years. Steve Nison, the worlds foremost expert on Candlestick charting. Author of "Japanese Candlestick Charting Techniques" and "Beyond Candlesticks." Jim Crimmins, President of TradersAccounting.com The detailed schedule will be posted in about two weeks. There will not be individual breakout sessions during the day. Each topic will be covered in 1-2 hr general sessions taught by one or more OptionInvestor staff and presented on three giant screens. In the evening we will offer five of our popular chalk talk sessions for that personal question and answer interaction. Unlike other seminars with only two or three instructors, you will get in-depth knowledge from many different instructors who are experts in their field. The cost for the four-day workshop, April 6th to 9th is only $2995 (spouse only $1495). This includes breakfast, lunch and supper each day. All course materials, a CD of all the presentations and a professional video package of the entire seminar so you can review the material at home in the comfort of your living room. There is also a $500 discount if you have attended a prior OIN seminar. This is not a prepackaged presentation that gets repeated over and over with stale information. This is a one-time production and everything is fresh, live and as current as we can make it. The videos will have your real time questions and answers and not some from a prior class. Where else can you get intensive yet personalized options education like this? Do not delay as seating is very limited. We guarantee you will not be disappointed! You can pay for your education one bad trade at a time or you can invest less money one time to learn how to do it right. Click here for more info: https://secure.sungrp.com/workshop/april01/index.asp ************************Advertisement************************* What will your strategy be for 2001? The VRTrader.com Annual Forecast Model Your road map to the 2001 market! Forecast is prepared by Mark Leibovit, the #1 market timer in the nation. Mark is Chief Market Strategist for VRTrader.com, a Premier Investor Network website, a technical consultant and former 'Elf' on Louis Rukeyser's Wall Street Week for 7 years. His Annual Forecast Model has been subscribed to by Wall Street's most elite. Mark is presently ranked #1 timer in the nation by TIMER DIGEST and #2 on AmericasBestTimers.com. Order your today! click here: http://www.sungrp.com/tracking.asp?campaignid=1731 ************************************************************** **************** MARKET SENTIMENT **************** Was That A Rally? By Austin Passamonte We'll find out by tomorrow's close. Reminds me of the bullish hammer day last Thursday and subsequent slide next session on Friday, only to repeat the process. Buying the bottom of each session as the VIX spiked above 34.00 was lucrative then if we sold hours or even minutes later. What will this week bring? A rocky start could begin the end. Companies continue to jockey for position to pre-warn in staccato fashion. Lining up in batches these days and we haven't even begun to approach confession period. Why not simply cancel this earnings season due to lack of interest? No one made money anyway, so they can just get back to us later this year if/when things finally improve. Thursday's final hour sure triggered a round of buying action the likes of which we haven't seen in exactly four session. Blocks and blocks of QQQ, OEX and SPX calls cleared for six and seven- figure plays. Up-volume was brisk from the bottom to close as well. Short covering rally? They all are at first; now let's see what happens from here. Just when sentiment couldn't get more bearish, IBM is rumored to say boo and money pours into the market. Short-squeeze tinderbox? We think so. It all boils down to how traders digest tonight's news. Price action between now and 11:00am EST on Friday mean little or nothing overall. Will we retest these double-bottom bullish hammers in the Dow, OEX and SPX from last Friday and today? Will the VIX once again spike beyond 34.00 and give us another excellent call-play entry at that moment in time? All these questions and no answers yet. Less than 20 hours to go until we find out. It remains Market Sentiment opinion that we will trade higher at some point during Friday's session and spark a relief rally soon if not now. VIX/VXN readings are bullish reversals and put/call ratios are once again highly skewed. This also reflects short interest over in the equity markets as well. Equity shorts are always a nervous bunch and the first hint of market strength will force them to cover solid profits and run. Pent-up buying anxiety will fuel the flames. Not a matter of if, only when. We have time on our side to wait for better confirmation of bullish bias to return, but aggressive traders will view every VIX spike above the last high to be our next cue to buy. As always, trade with caution and the daily trend. It promises to be up real soon. ***** VIX Thursday 03/01 close; 31.03 VXN Thursday 03/01 close; 74.81 30-yr Bonds Thursday 03/01 close; 5.30% 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 (03/01/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 680 - 665 12,379 6,592 1.88 660 - 645 7,250 6,637 1.09 OEX close: 641.38 Support: 635 - 620 1,001 10,222 10.21 615 - 600 224 9,147 40.83 Maximum calls: 700/6,223 Maximum puts : 600/6,862 Moving Averages 10 DMA 655 20 DMA 676 50 DMA 687 200 DMA 748 NASDAQ 100 Index (NDX/QQQ) Resistance: 58 - 56 81,383 24,964 3.26 55 - 53 86,487 29,738 3.01 52 - 50 97,858 58,296 1.68 QQQ(NDX)close: 48.80 Support: 47 - 45 29,318 22,520 .77 44 - 42 1,153 7,273 6.31 41 - 39 1,285 9,670 7.53 Maximum calls: 60/68,079 Maximum puts : 50/39,866 Moving Averages 10 DMA 51 20 DMA 55 50 DMA 59 200 DMA 79 S&P 500 (SPX) Resistance: 1300 13,009 17,195 .76 1275 14,768 18,764 .79 1250 8,716 15,906 .55 SPX close: 1241.14 Support: 1225 2,675 14,559 5.44 1200 1,692 17,616 10.41 1175 218 7,431 34.09 Maximum calls: 1325/48,502 Maximum puts : 1325/42,680 Moving Averages 10 DMA 1266 20 DMA 1302 50 DMA 1317 200 DMA 1404 ***** CBOT Commitment Of Traders Report: Friday 02/23 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 -2538 -2625 -4571 -4782 Total Open interest % (-26.63%) (-24.98%) (-18.48%) (-18.90%) net-short net-short net-short net-short NASDAQ 100 Open Interest Net Value +2988 +4104 -8493 -8143 Total Open Interest % (+15.44%) (+18.73%) (-13.44%) (-12.85%) net-long net-long net-short net-short S&P 500 Open Interest Net Value +77015 +73789 -96492 -92910 Total Open Interest % (+40.10%) (+40.21%) (-12.70%) (-12.12%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices: Once again we have the Small specs and Commercials holding their respective positions with little change. The Commercialc continue to indicate that we could be in for further downside activity. 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 02/20 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/030101_1.asp ************** TRADERS CORNER ************** Day Trading The SPX By Austin Passamonte We usually slant our conversations toward entry-level option traders and that may include many fellow readers, but let's share some ideas for the intermediate to advanced crowd over the next few sessions instead. First of all, let me state that my preferred method of option trading was, is and always will be to buy calls or puts late Monday morning, forget about them until Thursday afternoon when I sell for 400% more than I paid and enjoy the long weekend that follows. The past few weeks (and months) of volatility make this plan dubious at best and impossible in reality. Therefore, we must improvise or perish. Credit spreads come close to this approach but recent wild swings in the market make monitoring them on a daily basis mandatory as well. Seems like anything we try other than sitting in cash requires constant attention right now. Sitting on cash is fine for part-time traders with jobs or careers but for full-time grunts like me, idle is not an option (pun intended). Numerous fellow type-A's have asked about day trading methods and similar high-risk/high-reward methods. Much like sky diving, it can be thrilling to enjoy continuous strings of safe jumps for an entire career if strict attention to safety and defensive details in the process. Also, no sane person ever leaped out of a perfectly good airplane without adequate study, practice and preparation. We cannot comment on the insane, but the same principals apply to option day traders. There is no single trading method that looks easier but in reality (and my opinion) it is the hardest of all to do. There is a ton of money to be made during times like these for skilled, experienced traders using great discipline to day trade. If you're bored, looking for high-odds success with some interesting profit potential and/or a valuable education in the process, let me share some details about what we can accomplish. Since its inception, the S&P 500 index has been choice of big money professionals in the commodity futures and more recently the SPX cash index market. It is the benchmark index to compare all others and has great movement most every session. This means there is opportunity to profit each day, a fact we cannot say about any individual stock or equity option that exists. The SPX also boasts high volume and open interest across several common strikes. This liquidity is very important to us for reasons we'll cover in a bit. High liquidity is key for day traders anxious to move in and out of the action with profits or capital intact. Wendy and I were given a tour of the CBOE option pits on the floor this past Monday, courtesy of Alan Knuckman and Andrew Aronson of Preferred Trade Live brokerage. You can easily guess I spent most of my time asking Nick (local floor trader & designated tour guide) all manner of questions about the index option markets. I learned enough in one hour to cover several articles and help us all make a bunch of money, but first things first. Nick told us that the SPX pit was mostly professionals backed by big money clearing them. It was not a place for public traders to play and I agree. Unless we are trading in harmony with the pros, that is. The SPX is a popular vehicle for institutions and pros to hedge and speculate as circumstance dictates. They are European settled, which means they cannot be exercised against the writer selling short until the day of expiration. Price action is very volatile and big/ask spreads can narrow or flare at a moment's notice. Perfect conditions for the patient and astute day trader. I day trade the SPX but not every session. Some are good for two, three or more trips while I just can't seem to get in synch during others. No matter; money flows every day and we must be focused on not losing much than making some. The first is more vital than the second. (10/5 minute charts: SPX) A 10-minute and 5-minute chart setup just like you see above is exactly what I use. The absolute key is to sit on our hands and not make a move until several signals line up at one extreme or the other, preferably in harmony with the day's prevailing trend. Not always but preferably. We impatiently wait for signals across both charts to line up in our favor and outside influences from longer-term charts, VIX readings, etc are useful as well. This is highly subjective with very few hard and fast rules. It takes a period of time and effort following the action to develop a "feel" for the nuances involved. No substitute exists for time spent watching and paper trading in the trenches for months and years. A frequent check of SPX option tables tells me exactly which contracts to play but the choice is simple. Each "25X" strike price, i.e. 1300, 1275, 1250 and 1200 have most of the action. I prefer to target contracts currently selling for $8 - $12 points unless we are in expiration week itself, when I play cheaper premiums yet. The idea is to wait for ideal entry points, buy our targeted contracts and wait for execution. Is that all there is too it? Not even close. Before we buy anything at all, the exit plan must be set in stone. If I'm playing a $10 SPX contract, my exit will be $12 or $12.50 tops. Remember, this is day trading with no major directional bias in mind. We began with small but high-odds profit in mind and that's exactly what we'll do. Greed will absolutely gut this approach like a fish and our accounts in the process if we let it creep insidiously into the equation. Only when markets catch fire in our direction should we ever consider holding beyond our pre-chosen targets and they are few and far between. Missed money is far more common by asking for too much than not enough profit in this manner. How do I arrive at the exit? Again this is a matter of feel, but our entry makes all the difference in the successful exit as I'll explain. Let's walk through some actual trades taken this session to illustrate each step. (10/5 min: SPX puts) In the above example, we had a clear put-play entry late Wednesday session but I didn't have the nerve to hold over that close or any others these days. I passed on that but kept it in mind for Thursday morning. When the early slide began and prices subsequently bounced, I bought a modest block of SPX March 1200 puts (SPT-OT) on a buy-limit order for 17.00 right when the 10- minute stochastic lines made a bearish cross. I set a stop-loss at 14.00 and a sell-limit at 19.00 to protect both sides of this play. At the time this contract's bid/ask spread was 16.5 - 17.8 and I wasn't about to buy at "ask." As a matter of fact I NEVER buy at ask, especially in the SPX. Entering a buy-limit order 50%-60% above the "bid" price will fill nine times out of ten. I don't care about the tenth that doesn't fill, either. I can always chase the play a smidge or let that one pass and wait for the next, but my fills are 75% of the approach. Buying in blocks of ten near-month contracts assures us an exit on the first trades that execute at our sell-limit price when our "ask" was the first one in line. Market makers cannot fill themselves ahead of our staged orders of this size but that's conversation for another time. If we post the first sell-limit "ask" at 19.00 in this example, our order gets taken out first. And that's what happened today. Price action quickly tanked and my order was filled within minutes. Seemed like hours but it was merely minutes on the clock. Now I'm out and price action seems to be hitting a near-term bottom on the tick charts. (10/5 minute charts: SPX) I take an adjusted amount of risk capital and buy modest blocks of SPX March 1275 calls (SPT-CO) at 8.00 when the bid/ask was 7.5 - 8.5 and filled within minutes. Again, stops were set at 6.00 to protect and 9.50 on a sell-limit to exit. The VIX had just opened and spiked above 34.00 so it seemed like the early action was excessive. Once an order is staged at the broker, I like to get up and move about. Helps break the tension and clears the mind. By the time I moved from my office setup to the kitchen for breakfast, the Dow had slid considerably and my SPX call-play was trading near the sell-limit. I no sooner got back down the stairs to check on it's progress with cereal & egg whites in hand (no yolks...we're in training) only to see that I'm out and modest profits booked. Quite an active session before the first whole hour of action had ensued and we weren't done yet. Later in the session the indexes valiantly attempted to rally once more. We figured that wouldn't last. Bought two small blocks of SPX March 1225 puts at 11.50 and the second for 11.00 on buy-limits. You know the drill: set stops at 9.00 and sell-limit at 13.50 to exit. The bid/ask was already moving around 10.5 - 12.00 and quickly advanced to 11.5 bid/12.9 ask whereupon the "ask" price froze for quite some time. Market makers danced the "bid" up and down as price action oscillated for the next hour-plus but refused to advance that ask. All chart signals still looked bearish so I edged up the stop-loss to 10.00 and sat tight to see what would happen next. While writing the above paragraphs for the second time around, I heard CNBC breaking news that some tech company came on the air and guided down for near-future earnings. Instantly the charts began bleeding red and it wasn't long before my order was filled in two parts on the downdraft. (10/5 min: SPX 1275 calls) That should have done it for the day except later in the session all of our chart signals & other indicators flashed rally, so I'm almost ashamed to report we entered the action again. Bought a block SPX 1275 calls (STP-CO) at 7.00 and placed a sell-limit at 9.00 with all signs looking favorable for a quick pop. Well, we got one alright. Prices struggled there for awhile before the markets took off and my sell-limit was hit as prices roared off to 11.50 and higher. Ouch! If this sounds like easy money to you, well it is. At this stage in my career I almost feel like moving markets are a license to print money. However, I paid a considerable tuition of time, effort, and lost capital. Perhaps better traders might be able to waltz right into a new market and start smacking out the profits left and right, but I for one couldn't do it before or now. That's just enough information to make you dangerous. Promise me you won't go day trading the SPX until we cover specific, CRITICAL details next week and beyond. Jumping out of airplanes without packing your chute? I can't help you with that one! See you next Thursday & best trading wishes, Austin P *************************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=1746 ************************************************************ 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: ***** LH $153.94 -6.55 (+6.94) After another strong day yesterday, driven by positive analyst comments, investors took profits on our play this morning, allowing LH to fall from an early high of $161.75 to a low of $151.45 before buyers came back into the stock. Although volume was a bit on the light side, the magnitude of the drop was too much for us. Even with the late-day rebound, our play couldn't reclaim the level of our stop at $155, leaving us no choice but to take our accumulated profits and move on. PUTS: ***** NOK $23.54 +1.54 (+1.04) QCOM led a rebound in the wireless communications sector today, when QCOM's CEO Irwin Jacobs announced that future enhanced cell phones should incorporate both WCDMA and cdma-2000 technologies. This announcement seemed to contradict investor's previous dismay with QCOM's announced delay in the rollout of their third generation products, and served to buoy a sinking cellular equipment sector. While NOK has a long way to go before re establishing a true upward trend, the stock closed above our stop level in the afternoon market rebound. At this point, we feel it is wise to take our profits and move on, so we are dropping the play tonight. ADI $41.20 +3.90 (-3.30) ADI offered the opportunity for put players to profit on Wednesday, with a drop to $37.35. However, a number of factors lead us to believe it is not wise to continue this play. AMCC announced today that the management had lowered their guidance for the coming quarter. Despite this news, AMCC actually closed up $2.81 for the day. In addition the rebound in the semiconductor sector toward the close was impressive, as SOX.X gained 5%. While ADI is below our stop level of $43, caution dictates that we end this play tonight. ************************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=1760 ************************************************************** 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. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Thursday 03-01-2001 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/030101_2.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=1754 ************************************************************ ******************** PLAY UPDATES - CALLS ******************** BOL $54.47 +0.75 (+3.67) Continuing to charge the upper Bollinger band, BOL bulls have now driven the stock within spitting distance of the $56 resistance level. Profit taking dropped the stock to $53 in the morning before the stock recovered, and once again, it posted a gain on strong volume. Nestled up against the upper Bollinger band at $54.63, BOL is still solidly in overbought territory, and is ripe for some serious profit taking. So we are shifting our stop level up to $52, the location of the ascending trendline, to protect our profits while we look for the bulls to challenge resistance at $56 in the days ahead. Any dip that produces a bounce above $52 looks good for an aggressive entry point. Keep an eye on the Stochastics oscillator, because if it weakens, it will be an early sign that the bulls are losing traction. As long as buyers continue to propel the stock higher, conservative traders can consider new entries as BOL pushes through $55. VRTS $70.69 +5.75 (+8.31) It appears that the hammer candlestick formations last Thursday and Friday may have signaled a bottoming for shares of Storage software maker VRTS, as the stock as since bounced strongly off support at $55. Having spent the past couple of days in consolidation mode, as bulls and bears battled it out, the stock has held up better than sector peers such as BRCD and EMC. Yesterday, despite a down Tech market, VRTS managed to gain $2.63 or 4.21 percent on over 1.57 times the ADV. This relative strength was rewarded today, as a turnaround in the NASDAQ found VRTS as one of the leaders, with the stock rallying 8.85 percent on 140% of ADV. Now above both its 5 and 10-dma (at $65.85 and $69.81), look for these two levels to provide support going forward, reinforced by $65 and $70. We are moving our stop up from $60 to the support level of $63. Make sure VRTS continues to close above this level. An entry on strength could be had if the stock can make it above $73 resistance with conviction. MSFT $59.34 +0.34 (+2.59) A nice comeback on the NASDAQ coupled with the DOW finishing off its lows, incited MSFT traders to return the share price above its $58 support level. The impressive upward bounce drove MSFT through the 5-dma ($58.73) and 10-dma ($57.70) and offered aggressive entries into this pure momentum play. However, the conservatives should be more inclined to wait for another rally through the $60 level and the correlating 30-dma before jumping in headfirst; albeit, consider locking in gains as MSFT approaches the governing resistance at the $64 level. Overall, shares of MSFT have been faring quite well despite the declining consumer confidence that is creating havoc across the markets. It's also notable that whilst many blue chips continue to blunder and hit fresh 52-week lows, MSFT is maintaining an impressive disposition. However, let's keep a tight lease on our current plays going into tomorrow's session. In after-hours news, the world's second-largest software maker, Oracle (ORCL), announced an expected 3Q shortfall, shocking investors and analysts alike. FPL $65.35 +0.30 (+1.22) Two days of steadfast trading found FPL firming up at $65 and $65.50, which is currently bolstered by the 5 & 10 DMAs. These technical lines can provide a practical measurement device to gauge conservative entries in an advancing market climate. With that in mind, look for FPL to rally through the $66 resistance; and hence, either target shoot the intraday dips or buy into the momentum on the climb. Across the sector, other energy stocks like DYN and CPM also managed to hold recent gains in the midst of a turbulent marketplace. On the newswire, Florida Power & Light Company now ranks among the top 20% of US utilities. More positive coverage like that combined with some upside action on the DOW and FPL could see $73 before long! Keep stops in place at $64 to safeguard capital. ******************* PLAY UPDATES - PUTS ******************* PWAV $15.88 +0.23 (+1.87) While the cellular communications equipment sector stocks rallied toward the close today, PWAV only managed to eke out a weak gain of .23. A convincing rally in PWAV might have taken the stock above our stop level at $18, but at this point further downside appears likely. The downward stair step pattern remains intact, and if market conditions begin to deteriorate, PWAV is poised to drop from current levels to its 52-week low at $14.06. Conservative traders might want to wait for weakness in the cellular communications equipment sector before initiating positions. A break below $15.50 on heavy volume would be a possible entry point. Alternatively, aggressive traders could take positions on a roll over from $16 level with sector weakness. We are changing stops to $17 to preserve profits. ADBE $28.06 -1.00 (-4.56) ADBE just can't get any respect as it continues to languish just above the $27 support level. After bouncing from here twice in the past 2 days, our play managed a mild recovery in the afternoon on the back of the broad market recovery. The NASDAQ actually managed to eke out a gain for the day, but ADBE was still underwater at the closing bell, losing $1 on the day. Resistance is solidifying at the $30 level, so we are adjusting our stop downwards to that level in order to protect our profits. Aggressive traders can still consider new positions if the rally fails to break through resistance, but watch out for the broader Technology market. An extension on today's afternoon rally could drag ADBE along for the ride, bringing our play to an end. Conservative traders are still waiting for the stock to fall through the $27 support level before opening new positions. When it does, feel free to jump aboard for the next leg down. AMCC $29.56 +2.81 (-7.50) What's this, a rally on bad news? Believe it or not that is what we got today as our AMCC play moved strongly upwards (+10% on nearly triple the ADV) today. Trading was halted at 1:30pm ET in advance of words from AMCC's CEO. Apparently what he had to say was better than what investors expected. Even though he reduced revenue forecasts for the fourth quarter, as soon as trading resumed, the stock started moving strongly into positive territory, briefly cresting our $31 stop level before settling slightly lower at the close. Aggressive traders took the opportunity to enter the play as AMCC rolled over in the final 30 minutes of trading, but need to keep this one on a short leash. The Semiconductor index (SOX.X) led the NASDAQ rally this afternoon, recovering from 52-week low territory, and if it continues tomorrow, could help to push AMCC higher. Aggressive traders can still step onboard on a rollover near our stop, but only if the SOX shows weakness as well. More conservative entry points will materialize as AMCC falls through either the $28 or $26 intraday support levels. EBAY $37.69 -0.63 (-6.75) When we started our put play on EBAY yesterday, the stock had fallen below all its major moving averages on strong selling volume. What's more, the Internet sector has been weak. So with sector sympathy on our side, shares of the online auction giant fell $3.81 or over 9 percent yesterday on 1.25 times the ADV. Today, despite a rebounding NASDAQ, the stock was unable to make it back into the green, closing down fractionally or 1.63 percent on over 170% of ADV, showing less relative strength than its sector, as tracked by Merrill Lynch's Internet HOLDR (HHH). Moving average resistance is heavy overhead, with the 5, 10, 50 and 100-dma at $41.58, $44.20, $42.60 and $44.64 all likely to exert downward pressure on EBAY, allowing higher risk players to make a play on failed rallies. Horizontal resistance can also be found in increments of $1 from $38 to $42. Sellers returning to take the stock back below $36 on volume could be the signal for conservative traders to take a position. Already a profitable play, we are moving our stop down, from $42 to $40. NEWP $50.47 +1.59 (-6.78) As mentioned on Tuesday, sentiment in NEWP can be tracked using AMEX's Networking Index (NWX) and Semiconductor Index (SOX). With both indices at or near their 52-week lows, it's no wonder that the Chip and Fiber Optic machine manufacturer has also followed suit. Yesterday NEWP was able to buck the trend of a falling NASDAQ to close up fractionally on 3.1 times the ADV. The reason for the high volume activity was most likely because the company's stock was added today to the S&P MidCap 400 Index. Along with a bouncing NADSAQ, this helped NEWP to close up 3.26 percent on over 150% of ADV. Despite the apparent strength in the past couple of days, the 5 and 10-dma (at $51.61 and $55.39 respectively) continue to act as formidable resistance. Failed rallies above those levels, as well as our stop price of $55, may provide targets of entry for aggressive players. Selling volume that takes NEWP below today's low of $44.75 may allow the more risk averse to jump in. *************************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=1747 ************************************************************ ************** NEW CALL PLAYS ************** AGGRESSIVE: VRSN - VeriSign Inc. $54.00 +5.31 (+3.50 this week) VeriSign Inc. is the leading provider of trusted infrastructure services to web sites, enterprises, electronic commerce service providers and individuals. The company's domain name, digital certificate and payment services provide the critical web identity, authentication and transaction infrastructure that online businesses require to conduct secure e-commerce and communications. VeriSign's services are available through its web sites or through its direct sales force and reseller partners throughout the world. There were a handful of elite technology stocks which beat analysts expectations and revised forward guidance upward last quarter, and VRSN was among this group. On January 24, VRSN reported earnings of .13 cents per share on a fully taxed basis, vs. expectations of .11 per share. In addition, VRSN's CEO revised the company's expectations for the full year 2001 upward, to .60 cents per share from the.56 previously stated. This news was unfortunately not enough to overcome severe weakness in the Nasdaq, and last Friday, VRSN hit a new 52-week low of $45.88. However, VRSN promptly rebounded from this level, and formed a higher low yesterday of $46.75 during the severe selloff on the Nasdaq. Today, news was released which may just be the catalyst necessary to propel VRSN to stronger levels, market conditions permitting. VRSN reached a deal with the Internet Corporation for Assigned Names and Numbers, a non profit corporation, which controls many of the internet's core functions regarding registration of domain web names. According to the terms of the new deal, VRSN is no longer required to spin off the part of its business which sells web addresses to customers. VRSN is permitted to retain control of the sites which end in ".com", while forsaking control over "org" and "net" suffixes. Since ".com" names comprise nearly 80% of the web this is perceived as an excellent deal for VRSN, and the deal is expected to be approved by the Commerce Dept around April 1. The issue of potential loss of control of an integral part of VRSN's business was a weight on the stock, and now that it is removed, we may see VRSN soar. The stock held strong at $50 today, even when the Nasdaq was down over $70, and when the rebound came, VRSN's shackles were removed and it popped up $54. A true market recovery may be months away, so trader should continue to be cautious when playing tech stocks. A break over resistance at $55 with strong volume could be a possible entry point. Aggressive traders could take positions on a pullback to $52 with market and sector strength. Monitor the software index as well as security stocks like CHKP, and set stops at $50. BUY CALL MAR-55*QVR-CK OI=1375 at $5.00 SL=3.00 BUY CALL MAR-60 QVR-CL OI= 985 at $3.00 SL=1.50 BUY CALL APR-55 QVR-DK OI= 163 at $8.88 SL=6.25 BUY CALL APR-60 QVR-DL OI= 73 at $6.75 SL=5.00 http://www.premierinvestor.com/oi/profile.asp?ticker=VRSN SEBL - Siebel Systems $44.63 +6.38 (-3.44 this week) Providing sales automation and customer service software through its main product, Siebel Sales Enterprise, SEBL offers its customers the ability to access client information and decision- making support across a corporation's global computer network. The company's e-commerce applications deliver the first entirely Web-based, enterprise class family of sales, marketing and customer service applications. Among the company's heavyweight clientele are Lucent Technologies, Glaxo Wellcome, and Prudential Insurance. Anybody interested in an aggressive bottom fishing play on a Technology stock? If so, we've got just the play for you. Catching the NASDAQ flu, shares of SEBL have been under pressure since late January, as the company has felt the effects of valuation compression. Down 65% from its highs near $120, the stock still boasts a PE ratio of 240. Even bullish comments from the company's CEO two weeks ago only managed to stop the decline for a couple days before the bears returned. This morning, SEBL fell early, bouncing at the $36 support level before rallying strongly for the rest of the session. Volume nearly doubled the ADV, and we saw buying volume increase sharply in the final 90 minutes of trading. Over the past 2 days, intraday resistance has been forming near $40, and the stock's rally through this level today, allows us to use it to define support for the days ahead. Accordingly, our stop will be placed at $40, and aggressive traders will want to step into the play should we get another dip and bounce above this level. More conservative investors will want to wait for the stock to crest the $47 resistance level before initiating new positions. With the stock, the broader Software sector (GSO.X), and the NASDAQ still sporting Stochastics oscillators in oversold territory, there is plenty of damage to repair if the stock is going to break out of its recent bearish trend. The first major obstacle for SEBL to overcome will be the 4-week descending trendline, which is also sitting at the $52 resistance level. If buyers continue to queue up in large numbers, then this could be the beginning of the long recovery for SEBL bulls. Look for confirmation of the stock's strength in a bullish move on the GSO.X, as the sector movement will likely have a pronounced effect on our play. BUY CALL MAR-40 SGW-CH OI=1886 at $7.00 SL=5.00 BUY CALL MAR-45*SGW-CI OI=2438 at $4.25 SL=2.75 BUY CALL MAR-50 SGW-CJ OI=3344 at $2.50 SL=1.25 BUY CALL APR-40 SGW-DH OI= 571 at $9.75 SL=6.75 BUY CALL APR-45 SGW-DI OI= 559 at $7.25 SL=5.25 BUY CALL APR-50 SGW-DJ OI=1220 at $5.25 SL=3.25 http://www.premierinvestor.com/oi/profile.asp?ticker=SEBL LOW VOLATILITY: DJ - Dow Jones & Company Inc $62.86 +1.26 (+3.36 this week) Dow Jones & Company is a global provider of business news and information with operations in print and electronic publishing and general-interest community newspapers. The company's renown publications include "The Wall Street Journal" and "Barron's" periodicals as well as "Dow Jones Newswires" and "Dow Jones Indexes" electronic news wires. In a move that many analysts believe will protect the global publisher from a slowdown in the advertising market, Dow Jones & Co will raise the price of its flagship newspaper, the Wall Street Journal. As of April 2nd, the cover price will increase to $1.00 from $0.75 a copy; although, the Journal's subscription price will remain unchanged at $175.00 per year. Dow Jones & Co hasn't raised the Journal's cover price in more than a decade, but it January their advertising lineage (volume) fell 24.2%, raising the red flags. According to UBS Warburg, "in a soft advertising environment, the time is right to reap the value of the Wall Street Journal through a cover price increase" and thus, protect revenues for the long-term. On the news, shares shot up $1.80, or 2.9% on respectable volume. The clean break through the $62 resistance prompted our immediate coverage. Prudential Securities also took notice of the stock's relative strength. The firm reiterated a Strong Buy recommendation and issued a lofty 12-month price target of $79 per share. Near- term support should develop at $62 and $62.50, going forward. If there's a return to sub-$62 trading accompanied by a weak close below $61.50, we'll exit the play. If you're adventurous and quick to the keyboard, an aggressive strategy might be found during a lively day of trading. Traders might consider lower entries on convincing bounces off the intersecting 5 & 10 DMAs at $61.33 and $61.23, respectively. A more conservative approach is to buy into an explosive rally and quickly lock in gains to safeguard existing profits. Notwithstanding the typically low volatility of DJ and its current strength, keep stops tight while the broad markets continue to quiver with economic uncertainty. BUY CALL MAR-55 DJ-CK OI= 87 at $7.90 SL=5.75 BUY CALL MAR-60*DJ-CL OI=445 at $3.50 SL=1.75 BUY CALL MAR-65 DJ-CM OI=500 at $0.65 SL=0.00 High Risk! BUY CALL APR-60 DJ-DL OI= 0 at $4.80 SL=3.00 Wait for OI! BUY CALL APR-65 DJ-DM OI= 3 at $2.05 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=DJ ************* NEW PUT PLAYS ************* AGGRESSIVE: MERQ - Mercury Interactive Corp $59.00 -3.94 (-11.06 this week) Mercury Interactive is the exterminator of the software industry. The company offers a comprehensive line of automated testing tools that address the full range of quality needs for testing complex applications throughout the business enterprise. Essentially the tools help companies build better applications, from Internet/e-business transaction systems to informational Web sites. All of its research and development is conducted in Israel, however the company is based in California. With a lack of material news from the company recently, shares of MERQ have been moving lower in sympathy with the NASDAQ, despite analyst coverage, which has been largely positive. Pacific Crest initiated coverage with a Buy rating, as did WR Hambrecht, along with a price target of $80. This was based on the expectation of continued growth in the top and bottom line, the signing of new customers and anticipated announcements of key strategic partnerships with other hardware and software vendors. These were high expectations for MERQ indeed, and so far, these positive developments have not been forthcoming. With Tech companies lowering estimates across the board in a slowing economy, it appears that those expectations are in danger of not being met. This has led to an extended earnings multiple compression event in MERQ for the month of February. Now below all its major moving averages, the possibility for further downside is likely. Today, the stock dropped 6.26 percent on over three times the average daily volume in the face of a rebounding NASDSAQ. If MERQ attempts to rally, look for resistance at $60, our stop price of $63 and $65 as possible targets for aggressive entries, making sure to confirm the rollover with volume before making a play. A break below $58 on further selling may allow the more risk averse to take a position, but make sure that industry peers CPWR and RATL confirm downward momentum. BUY PUT MAR-60*RQB-OL OI=252 at $7.88 SL=5.75 BUY PUT MAR-55 RQB-OK OI=156 at $5.25 SL=3.00 http://www.premierinvestor.com/oi/profile.asp?ticker=MERQ ********************* PLAY OF THE DAY - PUT ********************* AMCC - Applied Micro Circuits $29.56 +2.81 (-7.50 this week) Fulfilling the need for speed, AMCC is a global provider of high-performance, high-bandwidth integrated circuits used to control the high-speed flow of transmissions through fiber-optic telephone networks. Communications products, used in LANs and WANs, account for 55% of the company’s sales. The company's chips are also used in automated test equipment, high-speed computing, HDTV, and military applications. The company which is growing through acquisitions, has a top-flite client list, including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent. Most Recent Write-Up What's this, a rally on bad news? Believe it or not that is what we got today as our AMCC play moved strongly upwards (+10% on nearly triple the ADV) today. Trading was halted at 1:30pm ET in advance of words from AMCC's CEO. Apparently what he had to say was better than what investors expected. Even though he reduced revenue forecasts for the fourth quarter, as soon as trading resumed, the stock started moving strongly into positive territory, briefly cresting our $31 stop level before settling slightly lower at the close. Aggressive traders took the opportunity to enter the play as AMCC rolled over in the final 30 minutes of trading, but need to keep this one on a short leash. The Semiconductor index (SOX.X) led the NASDAQ rally this afternoon, recovering from 52-week low territory, and if it continues tomorrow, could help to push AMCC higher. Aggressive traders can still step onboard on a rollover near our stop, but only if the SOX shows weakness as well. More conservative entry points will materialize as AMCC falls through either the $28 or $26 intraday support levels. Comments After a warning and a halt today, AMCC had a short covering rally that attracted huge volume. It was further fueled by rumors of positive reports out of IBM. That rally ran into trouble right near our stop in the $31 level, where AMCC rolled over. In light of ORCL's warning after the bell today, we would look to gain entry into this put play on a break below $28, or a rollover from our stop level at $31. BUY PUT MAR-30*AEX-OF OI=1216 at $3.75 SL=2.25 BUY PUT MAR-25 AEX-OE OI= 484 at $1.63 SL=0.75 http://www.premierinvestor.com/oi/profile.asp?ticker=AMCC ************************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=1761 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Signs of a bottom? Technology stocks rebounded today as bargain-hunting investors decided it was time to shop for discounted issues. Wednesday, February 28 Technology stocks fell to lows not seen since 1998 after Federal Reserve Chairman Alan Greenspan ended hopes for interim interest rate cut. The NASDAQ closed 55 points lower at 2,151. The Dow industrials posted triple-digit losses ending at 10,495. The S&P 500 index finished down 18 points at 1,239. Trading volume on the NYSE reached 1.18 billion shares, with losers beating winners 1,656 to 1,403. Activity on the NASDAQ was moderate with over 2 billion shares exchanged. Technology declines outpaced advances 2,312 to 1,402. In the U.S. bond market, the 30-year Treasury rose 15/32, pushing its yield down to 5.32%. Tuesday's new plays (positions/opening prices/strategy): Advanta (NASDAQ:ADVNB) APR12C/MAR12C $0.38 debit calendar Insignia (NYSE:IFS) JUN12C/MAR12C $1.20 debit calendar TW Telecom (NASDAQ:TWTC) MAR80C/MAR40P $1.88 credit strangle All of our new positions were active in today's session. Opening prices in Time Warner Telecom and Insignia Financial were based on actual trades while the Advanta spread debit was observed in the first few minutes of trading. Portfolio Activity: The stock market moved lower today after Fed Chief Alan Greenspan said the economy appears to be slowing sharply, but said nothing about lowering interest rates in the near-term. Greenspan also noted that the economic slowdown was less evident in January and February and that the decline in consumer confidence has yet to limit sales of big-ticket items. The Fed Chairman's optimistic comments frustrated investors who had been expecting an interim reduction in interest rates and they showed their disappointment by dumping stocks in a variety of sectors. Among NASDAQ shares, chip stocks led the sell-off after a new batch of profit warnings and Internet and computer hardware issues also retreated. On the Dow, shares of International Business Machines (NYSE:IBM), Home Depot (NYSE:HD) and SBC Communications (NYSE:SBC) led the losers. Safety issues were among the few bullish shares on the blue-chip average and Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO) and Merck (NYSE:MRK) topped that category. In the broader market, investors rotated into companies viewed as providing more stable earnings growth in a slowing economic environment. At the same time, interest-rate-sensitive issues were hammered by the chief's comments and financial shares suffered most from the sell-off. Looking forward, analysts say the short-term outlook for the U.S. economy is very downbeat and that certainly is discouraging for the future performance of equities. The Spreads Portfolio experienced little bullish activity during the session, however there were a few favorable moves by stocks in defensive groups. Cardinal Health (NYSE:CAH) was among the stronger issues, rising over $3 after some optimistic analysts' comments on the industry. Experts at Lehman Brothers said they are convinced that the group is in the early stages of multi-year growth cycle that may potentially benefit from a slowing economy. Stryker (NYSE:SYK) was another popular company in the health services sector, climbing $1 to $56. Our bullish position at $50 appears to be safe for now. Issues in the pharmaceutical segment also moved higher and Polymedica (NASDAQ:PLMD) was among the best performers in the group. Drug giant Johnson & Johnson (NYSE:JNJ) enjoyed the bullish momentum in the sector, rallying over a $1 to $97.33. Since our current spread in the issue is bearish with a sold (short) call at $100, any move through the recent resistance area near $98 (on heavy volume) should be considered a signal to exit or adjust the position. Chiron (NASDAQ:CHIR), one of our premium-selling candidates, has moved higher over the past few days but for now it continues to remain in a comfortable trading channel near $42-$48. Some of our other credit strangles have not performed as expected and due to the broad market selling pressure, a number of the previously range-bound stocks have fallen through technical support areas. Plays in Alexander & Baldwin (NYSE:ALEX), Aphton (NASDAQ:APHT) and Continental Airlines (NYSE:CAL) are good examples. On the bright side, all of the bearish positions are profitable and only a few stocks appear to have upside potential in the current market. Issues we are monitoring for technical reversals include Investment Technology (NYSE:ITG) and also Avery Dennison (NYSE:AVY). Thursday, March 1 Technology stocks rebounded today as bargain-hunting investors decided it was time to shop for discounted issues. The NASDAQ closed up 31 points at 2,183. Industrial stocks continued to slump, with the Dow falling 45 points to 10,450. The broader market trimmed early losses to finish almost unchanged at 1,241. Trading volume on the NYSE hit 1.28 billion shares, with losers beating winners 1,556 to 1,483. Activity on the NASDAQ was heavy at 2.24 billion shares exchanged. Despite the late recovery, technology declines outpaced advances 2,178 to 1,611. In the bond market, the 30-year Treasury rose 9/32, pushing its yield down to 5.23%. Portfolio Activity: Stocks staged an incredible comeback today with the Dow rebounding from triple-digit losses and the NASDAQ climbing over 100 points from the lows of the session. The recovery came as sellers faded and buying volume accelerated in a classic "short-covering" rally. The move was broad-based with a number of sectors participating in the bullish activity. Technology buying emerged in semiconductors, networking, software, and telecom shares while industrial groups saw interest in natural gas, utility, oil and oil service issues. Our portfolio continued to suffer from the recent selling pressure but a number of positions benefited from the rebound in technology stocks. Surprisingly, Qualcomm (NASDAQ:QCOM) was one of the day's big movers, up almost $7 after an upbeat analysts' meeting produced some new brokerage upgrades. Qualcomm used its 2001 analyst day and mobile data briefing to present a favorable business case for deploying CDMA 1X and CDMA 1X-EV. The company is banking on its primary CDMA carriers to deliver additional revenues and analysts see the recent slump in the issue as a buying opportunity. Chip giants Hewlett-Packard (NYSE:HWP) and Intel (NASDAQ:INTC) also participated in the bullish activity and even Motorola (NYSE:MOT) saw new buying interest. On the downside, biotechnology stocks slumped and airline issues retreated in the wake of a US Airways (NYSE:U) profit warning. Financial stocks also experienced new selling pressure following pessimistic comments from analysts in the brokerage group. Fortunately, the bullish activity did little to help some of the more unfavorable issues and bearish positions in American Home Products (NYSE:AHP), Shire Pharmaceuticals (NASDAQ:SHPGY), Pfizer (NYSE:PFE) and PerkinElmer (NYSE:PKE) continued to perform well. One of our older straddle positions in British Telecom (NYSE:BTY) enjoyed some surprising volatility as the issue plummeted to $78 near midday. The overall straddle credit approached $22 and the position may reach the downside breakeven point for the second time since the position was offered. Those who traded the cycle have certainly seen some excellent profit opportunities. At the same time, today's technical rebound had a negative affect on two of our bearish positions and they are candidates for adjustments during the coming sessions. Investment Technology (NYSE:ITG) rallied to a new 52-week high and the heavy volume suggests it will move higher in the coming weeks. Traders who are short in the MAR-$55 call might consider buying the underlying issue to cover any future upside movement. Johnson & Johnson (NYSE:JNJ) also moved higher today as traders continued to rotate into more defensive issues and the technical indications suggest that the momentum will continue. However, the popular safety issue has additional supply above $100 and another difficult obstacle at its all-time high near $105. With that fact in mind, we decided to roll out and up to the APR-$105 call in our bearish position, and the new play will profit as long as the issue remains below that price. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** OCLR - Ocular Sciences $17.38 *** Reader's Request! *** Ocular Sciences (NASDAQ), manufactures a line of soft contact lenses marketed for annual and disposable replacement regimens. The company sells its lenses marketed for weekly disposal to independent practitioners under the Hydron Biomedics and certain other private label brands and to retailers under the UltraFlex brand and private label brands. The company's lenses marketed for monthly replacement are sold under the Hydron ProActive 55, Edge III ProActive, UltraFlex, SmartChoice and other brands and labels. The company markets its lenses for annual replacement regimens primarily under three brand names, Edge III, UltraFlex and Hydron. Ocular offers daily-wear bifocal lenses under the Echelon brand that are cast-molded by the company. In addition, the company produces its Versa-Scribe tinted lenses, sold in blue, aqua and green, to enhance the color of the eye. OCLR shares have rallied in recent sessions on momentum from the company's earnings report earlier this month. The outlook was acceptable and investors have demonstrated their optimism for the issue, driving the stock to a test of its 52-week high on increasing volume. However, the issue will likely endure some consolidation in the near-term, before a continuation rally can occur. In addition, the premiums for the front-month options are slightly inflated and the potential for upside movement is significantly affected by the resistance near the sold strike price; a perfect condition for a time-selling play. PLAY (very aggressive - neutral/calendar spread): BUY CALL JUL-17.50 QLO-GW OI=173 A=$2.00 SELL CALL MAR-17.50 QLO-CW OI=67 B=$0.56 INITIAL NET DEBIT TARGET=$1.31-$1.38 TARGET ROI=50% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=OCLR ****************************************************************** SCRI - Sicor $12.63 *** Technicals Only! *** Sicor (NASDAQ:SCRI) is a vertically integrated pharmaceutical company with expertise in the development, manufacture and marketing of injectable pharmaceuticals and the production of specialty drug substances utilizing synthesis or fermentation. The company's subsidiary, Gensia Sicor Pharmaceuticals, is also engaged in the development, manufacture and marketing of unique oncology, anesthesiology and other key multi-source injectable pharmaceuticals for the North American market. The company's subsidiaries Sicor S.p.A. and Sicor de Mexico offer specialty bulk drug substances are the United States, Canada, the European Union and Japan. The finished multi-source drugs manufactured by Lemery, another subsidiary, are sold mostly to the national health program in Mexico and to certain countries in Central and South America, North Africa, the Middle East and Eastern Europe. One of our technical scans for potentially "recovering" issues identified this unique candidate. An upbeat earnings report appears to be the catalyst for the recent rally and since the option prices are favorable, we are going to initiate a bullish position in the issue. We will target a higher premium to open the play, in the event of any near-term consolidation. PLAY (conservative - bullish/synthetic position): BUY CALL MAY-15 UEC-EC OI=492 A=$1.00 SELL PUT MAY-10 UEC-QB OI=205 B=$0.50 INITIAL NET DEBIT TARGET=$0.25 TARGET PROFIT=$1.00 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $335 per contract. http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=SCRI ****************************************************************** - STRADDLES & STRANGLES - ****************************************************************** AC - Alliance Capital $46.78 *** An Old Favorite! *** Alliance Capital (NYSE:AC) is a global investment management firm best known for its growth style of equity investing. Assets under management total approximately $400 billion. Alliance Capital manages retirement assets for many of the largest public and private employee benefit plans (including 28 of the U.S. Fortune 100 companies), for public employee retirement funds in 31 out of the 50 U.S. states, and for foundations, endowments, banks, an insurance companies worldwide. Alliance Capital is also one of America's largest mutual fund sponsors, with approximately 5.8 million shareholder accounts and a family of diversified fund portfolios that are distributed globally. Alliance Holding owns 42% of Alliance Capital, the operating private partnership. AXA Financial owns interests in both Alliance Holding and Alliance Capital, amounting to an approximate 57% economic interest in Alliance Capital. Here is another excellent candidate for speculative traders who like to participate in low cost delta-neutral option strategies. Based on analysis of the historical option pricing and technical indicators, this issue meets the fundamental criteria for a favorable debit strangle. The probability of profit in this position is higher than other plays in the same strategy due to favorable option pricing. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. In addition, current news and market sentiment will have an effect on the issue, so review the play thoroughly and make your own decision about the future outcome of the position. PLAY (speculative - neutral/debit strangle): BUY CALL APR-50 AC-DJ OI=237 A=$1.35 BUY PUT APR-45 AC-PI OI=148 A=$1.65 INITIAL NET DEBIT TARGET=$2.80-$2.90 TARGET ROI=20% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=AC ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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