The Option Investor Newsletter Monday 03-05-2001 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/030501_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 03-05-2001 High Low Volume Advance/Decline DJIA 10562.30 + 96.00 10571.60 10468.50 928 mln 1649/1406 NASDAQ 2142.92 + 25.29 2163.09 2127.96 1.50 bln 1810/1846 S&P 100 638.43 + 4.54 639.21 633.89 totals 3459/3252 S&P 500 1241.41 + 7.23 1242.55 1234.04 51.5%/48.5% RUS 2000 475.79 - 1.09 479.78 475.65 DJ TRANS 2939.40 + 24.21 2946.09 2908.70 VIX 29.22 - 1.64 31.30 29.15 Put/Call Ratio 0.68 ****************************************************************** The Market Shrugs Off Chip Warnings The major indices stayed within a somewhat tight trading range after rising in early action. Volume was unusually light at 926 million shares on the NYSE and 1.5 billion on the NASDAQ Stock Market. The threat of a 30-year snowstorm in the Northeast kept some traders off Wall Street. The worst of the storm is expected to hit tonight. The Dow Jones Industrial Average added 96 points or 0.9% to 10,562.30. Market breadth was marginally positive on the NYSE, with advancers outpacing decliners by 17 to 14. New 52-week price highs on the Exchange totaled 128 versus 17 new lows. The NASDAQ Composite moved up 25.3 points or 1.2% to 2,142.90. Certainly, it was nice to see the NASDQ Composite refrain from diving after chip companies issued warnings and many stocks were downgraded. Winners nearly matched losers on the NASDAQ, while 102 issues hit a new low and 58 logged a new high. Apparently, Prudential's downgrade of 15 stocks was done to highlight the stocks that still rightfully have Strong Buy ratings, including AXT Inc. (NASDAQ:AXTI +0.19), Emcore (NASDAQ:EMKR +0.44), Micron Technology (NYSE:MU +2.91), Texas Instruments (NYSE:TXN -0.36) and Xilinx (NASDAQ:XLNX +0.75). Among the stocks getting downgraded were Microchip (NASDAQ: MCHP), Atmel (NASDAQ:ATML +0.19), Pericom (NASDAQ:PSEM +0.06) and Safe (NASDAQ:SAGI +0.17). Prudential believes that semiconductor up cycles exhibit double peaks, which guides its thesis that the chip stocks should bottom some time in the next six months. The PHLX Semiconductor Index gained 5.2% to 612.3. Chipmakers warning today included Cypress Semiconductor Corporation (NYSE:CY +0.27), LSI Logic Corporation (NYSE:LSI +0.51) and Vitesse (NASDAQ:VTSS +1.25). Cypress said it will earn 30 to 34 cents per share in 1Q, versus the expected 56 cents, blaming poor demand and changes to its business model. The company has decided to let one of its key customers order and receive chips, but not take ownership until it actually uses them. LSI Logic said that its 1Q revenue and profit will miss previous expectations, falling 30% from the prior quarter's level of $751 million. A 12% decline was originally expected. Vitesse said it now expects to earn between 21 cents and 22 cents per share in its fiscal 2Q, having previously predicted earnings of 26 cents to 27 cents. Vitesse predicted revenue will be between $150 million and $160 million, well below its previous forecast of $180 million to $190 million. These warnings came as the Semiconductor Industry Association (SIA) said that global sales of semiconductors in January fell 5.7% from December, blaming excessive inventories and poor demand for goods using the chips. George Scalise, SIA president, said "Current forecasts suggest the inventory adjustment will be completed by the end of the third quarter and end-market product demand will improve later in the year." Compared to January 2000, the Japanese market grew 23.2% in January of 2001, the Asia/Pacific market grew 2.9%, the Americas market rose 15.4%, and the European market 14.6%. EMC Corporation (NYSE:EMC +0.20) has decided to focus on international business to help meet their 2001 revenue target of $12 billion. Speaking at a Morgan Stanley investment conference, CFO Bill Teuber said there is plenty of room for the data storage giant to expand its business in Asia and Europe. EMC's stock has been weak since late last month when the company said it might miss its revenue goal. Prudential also made bearish comments about e-commerce software firms, saying the current economic climate is beginning to impact "even the best-positioned software companies." The firm left its ratings intact but slashed 2001 and 2002 revenue and earnings estimates on Art Technology (NASDAQ:ARTG -1.00), BroadVision (NASDAQ:BVSN -0.41), E.phiphany (NASDAQ:EPNY -0.44), eGain Communications (NASDAQ:EGAN -0.03), and Interwoven (NASDAQ:IWOV -0.62). Prudential said it believes reduced visibility for these companies presents a risk as "deferrals of application software purchases are just beginning to be felt now." Also, current international strength may not last, according to Prudential. Art Technology was hardest hit, losing 4% to $23.12. Reports of secret talks between Wal-Mart (NYSE:WMT -0.55) and Amazon (NASDSAQ:AMZN +2.62) to form a strategic alliance appeared in the British Sunday Times. This could be a successful combination of on-line expertise with a great customer base. Wal Mart could use some help in gaining better Internet presence, and Amazon could use help in the cash department. Although these rumors have not been verified, industry watchers are questioning how the deal would affect Amazon's alliance with Toys R Us Inc. (NYSE:TOY -0.25), which currently operates a co-branded retail toy Web site, in competition with Wal-Mart, the top seller of toys in the United States. Finally, not a warning! Verizon Communications (NYSE:VZ -1.38) said it is on track to meet its operational and financial targets for 2001. Earnings for 2001 are expected to be between $3.13 and $3.17 a share, with revenue growth in between 8 and 10%. Shares still dropped 2.5% to $48.13. AT&T (NYSE:T +1.16) rose to $23.56 on a favorable court ruling last Friday by a U.S. appeals court that overturned federal rules limiting the number of cable customers one company can serve. Merrill Lynch analyst Jessica Reif Cohen said the court's decision "paves the way for more consolidation and is a huge win for cable companies." Other cable operators benefiting today included Comcast Corporation (NASDAQ:CMCSA +1.62) and Cablevision Systems (NYSE:CVC +1.44). The economy in the services sector improved in February according to the National Association of Purchasing Management (NAPM). Its non-manufacturing survey rose to 51.7% in February from 50.1% in January. Readings over 50 show expansion of activity. The index "indicated more life in the economy than it did in January," said Ralph Kauffman, the head of NAPM's survey. Although February's 101,731 layoff announcements were up 187% from last February's 34,415, total announcements are actually down 28% from January according to outplacement firm Challenger, Gray & Christmas. However, layoffs have been above 100,000 for three straight months for the first time in the survey's eight-year history. Automobile, telecom and retail sectors have been most heavily hit by announced layoffs so far. It looks like investors finally stopped pouring money into stock mutual funds. Trim Tabs reported Friday that investors pulled about $13.4 billion out of stock funds in February, the first month of redemptions since August of 1998. While both the Dow Jones Industrial Average, S&P 500 Index and NASDAQ Composite have shown similar percentage increases since 1998, the NASDAQ has climbed and descended by far the steepest peak during that time. Technical analysts are worried about the buying, which reflects complacency during the NASDAQ's decline of the last year. According to Investor's Business Daily, the remote possibility of mass redemptions worried the Federal Reserve enough to research the topic. If fund shareholders all decide to sell at once, managers may be forced to sell massive amounts of stock to pay off investors. Given that mutual funds own about 20% off all the stock outstanding, this would likely drive stock prices lower. The Fed study, published in December, says that scenario is unlikely because managers have enough cash to meet redemptions and often have bank credit as a backup. Outflow the past 13 years has been because investors aren't buying enough to offset normal redemptions. A quick perusal of top industry groups based on stock price action in the last six months (published by the Investor's Business Daily) reveals that many retail and medical sectors are holding their places high on the list. Those retail groups have actually improved their standings over the last three months. Regional banks also make a good showing on the list. The only tech sectors appearing in the top half include computer services, educational/enterprise computer software, and military electrical systems. As you already knew, most tech stocks have had dismal price action in the recent past, even though technology still has the greatest growth potential. The fact that those sectors have not started to recover yet tells us that other overriding economic factors are keeping investors out of technology for the time being. After the Bell Xilinx warned as scheduled after the close, saying that February was weaker than expected and sequential revenue will decline by as much as 15% in the March quarter. Currently, analysts expect earnings of 27 cents per share on revenue of $481 million. During the prior quarter, Xilinx had net income of 31 cents per share on revenue of $450.1 million. Based on Xilinx's new projections, revenue could be as low as $382.5 million. After rising 1.8% to $43.25 in the regular session, shares were down 31 cents in after hours trading at the time of writing. TriQuint Semiconductor (NASDAQ:TQNT +0.25) warned that earnings per share this quarter could fall to 14 cents, and revenue to $80 million, down from $90.3 million in the previous quarter. Shares are trading up 6 cents to $19.06 in after hours trading. Looking Ahead Tomorrow brings us the Factory Orders Report for January. Bear, Stearns and Company analysts believe that the large drop already reported for orders of durable goods, down 6% in January, virtually guarantees a large decline in total factory orders, forecasted to drop 2.2%. This report will also provide the first look at inventory investment in the first quarter of 2001 and the first readings from 2001 on orders and inventories for various high-tech goods. The Beige Book on Wednesday will not create much market reaction after last week's policy comments from Mr. Greenspan. The most important report this week ahead of the FOMC meeting on March 20 is the Non-farm Payrolls Report for February. Bear, Stearns and Company reports that a number of employment-related indicators have eroded since the last employment report. Also, February payrolls should fall due to January's large gain, which appeared to have been partially weather related. This is especially true in the construction sector, where payrolls surged 145,000 in January, versus an average monthly increase of 17,000 over the last 12 months. Analysts expect that payrolls posted a small gain of only 50,000 in February, with private payrolls rising only 40,000. Manufacturing payrolls are expected to fall sharply again as suggested by the fall in the NAPM employment index. While the weather in New York may keep the trading volume down tomorrow, expect some volatility this week into the payroll report. Trade safe and use stops, or drive safe and go skiing. PJ Mitchell Contributing Analyst www.OptionInvestor.com ************************************ 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 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." Harry Brown, Author of seven investment books. Jim Crimmins, President of TradersAccounting.com Austin Passamonte, Editor of IndexSkybox.com Jeff Bailey, Editor of PremierBriefing.com Jim Brown, President of the Premier Investor Network. 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. 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Order your today! click here: http://www.sungrp.com/tracking.asp?campaignid=1732 ************************************************************** ************* NEW CALL PLAY ************* UBS - UBS AG $157.95 +3.15 (+3.15 this week) UBS Warburg is a business group of UBS AG, one of the largest financial services firms in the world with 78,000 employees in more than 40 countries. In the United States, UBS Warburg's securities activities are conducted through UBS Warburg LLC and PaineWebber Incorporated, U.S.-registered broker-dealers. The firm is a leader in equities, corporate finance, M&A advisory and financing, financial structuring, fixed income issuance and trading, foreign exchange, derivatives and risk management. UBS Warburg also offers a full range of innovative wealth management servicesthrough PaineWebber, and provides private equity financing through UBS Capital. We are initiating an aggressive call play on shares of Swiss banking giant UBS for reasons both fundamental and technical. The company has been displaying its competitive prowess recently, with it's hiring of top guns away from its rivals. Dipping into the deep end of CS First Boston's talent pool to boost its American investment-banking department, UBS also grabbed a top banker from Morgan Stanley. What's more, the company recently announced that it would be buying back as many as 5 billion Swiss francs worth of its own shares starting today. This is a move that could greatly reduce UBS' float and traditionally, company buy-backs have been a bullish sign. Technically, the stock still needs to break out of a downward trending regression channel, but a recently successful test of its 100-dma, now at $152.95 could mean strong bounce ahead. We are placing our protective stop price just above this major moving average, at $153. Today's advance of just over 2 percent, putting the stock above both its 5 and 10-dma (at $157.51 and $157.74), is a step in the right direction. However, this is a bottom-fishing trade so proper risk management is key to reducing the overall risk profile of this play. Pullbacks to moving average support could provide targets of entry for higher risk players, but confirm with volume. For the more risk averse, wait for a strong break above resistance at $160 before jumping in. In both cases, confirm upward direction with movements in sector peers such as BSC, LEH, MWD. ***March contracts expire in less than two weeks*** BUY CALL MAR-155*UBS-CK OI=223 at $5.10 SL=3.00 BUY CALL MAR-160 UBS-CL OI= 33 at $2.20 SL=1.00 BUY CALL MAR-165 UBS-CM OI= 22 at $0.90 SL=0.00 BUY CALL APR-160 UBS-DL OI= 0 at $6.20 SL=4.25 Wait for OI!! BUY CALL APR-165 UBS-DM OI= 26 at $3.90 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=UBS **************************** NEW LOW VOLATILITY CALL PLAY **************************** LMT - Lockheed Martin Corp. $38.44 +0.14 (+0.14 this week) Lockheed Martin is a highly diversified global enterprise that researches, designs, develops, manufactures and integrates advanced technology systems, products and services. The company operates through four principal business segments: Systems Integration, Space Systems, Aeronautical Systems, and Technology Services. Accounting for over 40% of revenues, the Systems Integration division includes missiles and fire control, naval electronics and surveillance systems, aerospace electronics, controls systems, and command and control systems. Aeronautical Systems make up another 22% of revenues and consist of tactical aircraft, airlift, and aeronautical research programs. The antithesis of the Technology sector, Defense (not to be confused with defensive) stocks have been in a consistent uptrend. As one of the biggest and most diversified companies in the sector, LMT has been leading the charge higher. After bottoming near $16 a year ago, the stock has found favor among investors due to its defensive nature. By last fall, the stock had risen into the mid-$30s and consolidated while the country waited to find out if the incoming presidential administration would be Republican, knowing that this outcome would be more favorable to Defense stocks. After the election was resolved, shares of LMT resumed their uptrend, reasserting their attraction to investors as the broader markets have continued to weaken over the past 6 weeks. Although the Stochastics oscillator is in overbought territory on both the daily and weekly charts, the stock looks like it has more upside potential, so long as it obeys the long-term trendline, which is sitting just above $37. Combine that with the fact that the stock has established some decent support at this level, and $37 looks like a good location for our stop as well. With buyers pushing LMT up to kiss the upper Bollinger band almost on a daily basis, aggressive traders will likely get the best entries as the stock bounces from support near our stop. Just make sure that support is holding, before jumping into new positions. Conservative traders can consider new positions as the stock moves to new yearly highs (above $38.64), but need to be cautious with the upper Bollinger band sitting at $38.75, and long-term overhead resistance looming at $39. ***March contracts expire in two weeks*** BUY CALL MAR-35 LMT-CG OI=4716 at $3.80 SL=2.25 BUY CALL APR-35 LMT-DG OI= 26 at $4.89 SL=3.00 BUY CALL APR-40*LMT-DH OI= 195 at $1.89 SL=1.00 BUY CALL JUN-40 LMT-FH OI=3026 at $2.80 SL=1.50 BUY CALL JUN-45 LMT-FI OI= 88 at $1.30 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=LMT ************ NEW PUT PLAY ************ ISSX - Internet Security Systems $42.75 -7.44 (-7.44 this week) Internet Security Systems is the leading global provider of security management solutions for the Internet, protecting digital assets and ensuring safe and uninterrupted ebusiness. With its industry leading intrusion detection and vulnerability assessment, remote managed security services, and strategic consulting and educational offerings, ISS is a trusted security provider to more than 8,000 customers worldwide, including 21 of the 25 largest US commerical banks and the top 10 US telecommunications companies. Founded in 1994, ISS is headquartered in Atlanta Georgia with offices in North America, Aisa, Australia, Europe and the Middle East. The internet security software sector held up for weeks while many of the other technology sectors, such as telecommunications, semiconductor, and networking stocks collapsed. However, ISSX and its brethren in the networking security industry, such as CHKP and RSAS are now becoming victims of a new round of brutal selling. While these companies design and manufacture products which are essential for secure communications, it seems that investors are starting to question their high valuations. Robertson Stephens recently downgraded ISSX to a long term attractive, stating that company purchases for add on network vulnerability and intrusion detection could get delayed as companies delay purchasing additional networking equipment. ISSX demonstrated a consistent pattern over the last twelve months of poking through its closely aligned 200 and 50 dmas and then falling below them, to make a long term series of lower highs. The last failed attempt to clear its then 200 dma of $75.43 and 50 dma of $72.22 occurred on February 20 and, since that point, ISSX shares have lost nearly half their value. Today, the selling occurred on more than double the average daily volume, and took the stock to a new 52-week low. To compound the problem, the software index was among the weakest in the Nasdaq today, as GSO.X is at a 52-week low. ISSX has broken below the important support level of $50, which held since January of 2000. Support at $40 dates back to July of 1999, and if this level is violated, there is little support until the $30 level. An aggressive entry point could be a failed attempted rally from the $43 level. Conservative put players might want to wait for a drop below $40 with heavy volume. Monitor others in the sector such as CHKP for weakness, and preferably wait for weakness in GSO.X as well. Set stops at $47. ***March contracts expire in two weeks*** BUY PUT MAR-50*ISU-OJ OI=139 at $8.50 SL=6.00 BUY PUT APR-45 ISU-PI OI=106 at $7.38 SL=5.00 BUY PUT APR-40 ISU-PH OI= 38 at $4.50 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=ISSX ***************** STOP-LOSS UPDATES ***************** PPG - call play Adjust from $51.50 up to $52 IDTI - call play Adjust from $30 up to $32 BGEN - put play Adjust from $72 down to $70 NEWP - put play Adjust from $49 down to $46 MERQ - put play Adjust from $56 down to $49 ************* DROPPED CALLS ************* VRSN $46.94 -3.63 (-3.63) Unfortunately, the good news released by VRSN last week could not counter the prevailing weak trend in the software index. While the Nasdaq composite staged a small rally, the software index (GSO.X) opened lower and faded toward the end of the day. VRSN formed a rounded bottom pattern but closed down for the day, and below our stop level. As such, we are dropping it tonight and would use any strength early Tuesday to exit positions. VRTS $59.81 -3.81 (-3.81) We mentioned on Sunday that VRTS would be hosting a mid quarter conference call after Monday's closing bell, recommending that traders may want to wait until this event has passed before making a play. This turned out to be a good move as investor nervousness ahead of the company update caused the stock to drop almost 6 percent today on over 1.8 times the ADV, in spite of a generally good day for the Storage sector. As always, we maintain discipline when it comes to our stop loss rules and with the close below our protective price of $63, we are dropping coverage of this play. BOL $50.02 -2.25 (-2.25) The bout of profit taking that emerged Friday afternoon continued unabated through today's session, and BOL has now given up more than 8% in the past 2 sessions. Support at the ascending trendline ($52) gave way without a struggle, as the stock plunged through our stop, and even the 200-dma at $50.21 couldn't halt the bears' assault. The daily Stochastics oscillator has gone into free fall, and in combination with volume 70% above the ADV, BOL looks like it has more room to fall. With the technical violations along with our stop falling victim to the bears, it is clearly time to move it to the drop list. DJ $60.70 -3.20 (-3.20) Our low volatility call play took a walk on the wild side today, as news that the New York Times would be cutting its profit outlook going forward rocked the media and publishing group. Today's drop of over 5 percent on almost twice the average daily volume resulted in the stock closing not only below its 5 and 10-dma (at $62.19 and $61.47 respectively), but also our stop placed at $62. With $62.25 now broken, the next strong support lies just below at $60. Look for an oversold bounce off this level to exit on strength. ************ DROPPED PUTS ************ No dropped puts tonight ************** TRADERS CORNER ************** Buy If You Must But Set Your Stops By Molly Evans Anyone can pick a stock to buy and have reasonable success at profiting from the stock's performance in a broad-based bull market. The Wall Street Journal and CNBC regularly profile amateur investment clubs and even young students that have done well to convincingly argue this assertion. Look at all the titles on book shelves in a bookstore's investing section. There are all kinds of books telling you how to buy stocks. Buying is what gets people pumped up. They have all these hopes and dare I say, expectations for the stock they are taken with. Buying is fine as long as one will prudently manage the risk he assumes when acquiring shares or options of stock. It is obvious that the market is at a critical juncture here. The Dow and the S&P 500 are on the brink of joining the Nasdaq in a primary bear market. The Nasdaq has seen critical mass lost from its coffers. However, in the face of downward momentum, people keep asking if this or that is "a buy" yet. Investors who only peripherally watch the markets as they go off to their day jobs are getting ancy to "buy something." After all, if you're supposed to "buy low" and "sell high", current price tags on the hot names of yesterday seem like bargain basement prices to them. I won't argue the point. Actually, there are some encouraging signs for an interim rally. Selling pressure seems to be abating and novices are getting anxious to throw their hard earned money into the market so they can catch "the bottom" or they can at least make the mistake of doubling down on a loser they've held. If CSCO looked good at $80 last year when they bought it, it ought to look really good here at less than $25.00/share. Fine. Get it. However, it is imperative that we smaller investors not take the hits when the next big wave of distribution from bigger holders hits. Money management is the key to success for the small investor and trader. When friends and family ask me what to buy, I say I don't know. I don't really follow individual stocks anymore but they have what they like in mind anyway. They'll pick a technology name no doubt since they watched with wild-eyed wonderment as the sexies soared what seems like just yesterday to them. Fine. Whatever. Our job, as the more informed, is to advise them how to prudently manage the trade if it goes against them. They'll tell you they're in it for the long haul but nevertheless you'll sleep better yourself knowing you advised well. Once the purchase is made, objectivity goes out the window. The buyer thinks the stock should just take off now that he's in. But, as we know, the trade should be treated inanimately. If the stock doesn't do what is expected of it - whether it to go up or in the case of shorting/puts - go down, it should be sold (or bought to cover). Everyone should have his or her own reasonable stop loss point. We can argue "how much" ad nauseum but in terms of the price of a stock, a 15% loss is telling you something is wrong. In the case of some of the technology stocks, a 10 - 15%% swing is nothing. I'm looking at VRSN, AEOS, CHKP and PSFT right now. They're all off 10% or more for just this day. I would argue that these are trading stocks. They're not screaming buys and they're not something I would recommend to my grandma to invest in at this point. She'd look at it tomorrow and see that she's lost a quarter of her investment and have a heart attack. Sometimes you'll have to go back to the notion of why you bought the stock in the first place to evaluate how the stock has held up to your expectations. Did you buy in anticipation of good earnings? Did it fail to go up on those great earnings? Did it not go down as much as you thought it would with those dismal earnings (if you had shorted or putted the stock)? Market action will tell you much about your stock. If the rest of the market is rallying, is yours a laggard? Laggards are losers. A pro doesn't sit there and say, "Well, I'm going to watch it just one more day." Often, the delay in the asking and searching for "why?" is costing you money. There's no point in sitting there moping about a stock that fails to act according to your expectations. It's nothing personal. Really. So you're wrong. So what? Everyone in this business is most of the time. Get out of it and get to the next trade. As Justin Mamis, author of "When To Sell" wrote, "there's nothing like being distracted by being proven wrong to cause you to miss the next chance to be right." Say "your friend" has done the right thing by setting a stop loss, is taken out on a downdraft and then watches helplessly as the stock rallies and does what he thought it was going to do in the first place. It's totally maddening. The amateur is dejected and scowls at how "they" stole it from him and are getting rich while all he can do now is to watch helplessly. Does a pro do that you think? Not a chance! A pro sees the new tape action for what it is - a new opportunity. Tell your friend to buy it back even higher than what he originally bought it for and see if it doesn't have a happier conclusion this time. A reversal indicates that sellers have been cleaned up and is clear for takeoff to the next level. However, know that there are going to be sellers at every level for a long time to come now. There's a mountain of overhead. There are millions of people praying, "Please God. Just let CSCO get back to $70 and I'll never invest another dime again." Yes, it's going to take awhile to see new highs again. But there are opportunities, as always. Whether it be you, your family or friends "investing," stop loss orders should still be employed to protect against widening losses in this ever-volatile market. Maybe the bottom is in; I highly doubt that but a stop will serve to allow you to have an even better entry into your coveted stock when the market does get closer to it. If the stock moves up, great. Move your stop up. A stop loss order should be placed just below the lowest price of the stock's prior support. Generally, such a "lower low" can be considered THE price at which the market is telling something has gone wrong. As Mamis says, "The effective use of protective stop loss orders requires a sensible purchase in the first place." Don't chase these stocks. They're not going anywhere in a big hurry. They will come back to support levels. If you're a shorter or a putter, WAIT until they're overbought in the oscillators. Look at the volume. Rallies on no volume. Mmmmph! My favorite. Put those babies. Take your profits and move on. This is a trading market and people are going to have to learn that profits will be there one day and gone the next. Trends will likely be short and volatile. Well-placed stops are the only way to protect one's capital in this environment. A professional's foremost goal is to not be trapped in something with widening losses. You do the same. *************************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=1748 ************************************************************ ********************* PLAY OF THE DAY - PUT ********************* NEWP - Newport Corporation $44.00 +1.63 (+1.63 this week) The Newport Corporation is a global supplier of precision components and automated assembly, measurement, and test equipment for use in the fiber-optic communications, semiconductor equipment, computer peripherals, and scientific research markets. The Company's high precision products enhance productivity and capabilities of the Fortune 500 corporations, government agencies, and the other technology clients it serves. Optical components and devices for vibration and motion control account for about two-thirds of the company's sales. Most Recent Write-Up As a manufacturer of machines used to produce Semiconductors and Fiber Optic components, the fortunes of NEWP are intimately connected to the goings on in the Chip and Networking sectors. With book-to-bill ratios falling rapidly and news of plant closings from many Semiconductor companies, along with earnings warnings and lowered projected revenues by networking giants such as Cisco and Nortel, it's no wonder that shareholders are worried. What's more, analysts have picked up on the bearish sentiment. ABD AMRO downgraded the stock from an Add to a Hold rating. Wit SoundView followed suit, dropping NEWP from a Strong Buy to a Buy rating. The company attempted to do some damage control, by stating their intentions to grow sales 66 percent in 2001. This news was met by a skeptical market, as the stock has continued its downward path. High volume activity this week was not surprising, as on Thursday NEWP was added to the S&P MidCap 400 Index (MID). On Friday the stock experienced a bout of post index addition blues. This along with a weak NASDAQ resulted in a drop of over 16 percent on over 1.6 times the ADV. The break below support at $45 is ominous indeed. Look for this level to act as an obstacle, with additional resistance from the 5-dma at $48.64, providing aggressive entry points. We are moving down our stop from $55 to $49. A break below Friday's low of $41.38 may be a signal for conservative players to play, using AMEX's Networking Index (NWX) and Semiconductor Index (SOX) to gauge Sentiment before doing so. Comments NEWP was buoyed by a friendly Nasdaq Monday, which may have presented a favorable entry point into new put positions. The stock traded in an uncharacteristic tight range on extremely light volume. As such, if the sellers return Tuesday morning watch for weakness in the Nasdaq and look to enter new puts if NEWP breaks below current levels at $44. A more conservative trader might wait for downside momentum to increase and watch for NEWP to take out its intraday low from Monday at $42.69. Make sure to confirm weakness in the Nasdaq and optical sector before entering new put positions in NEWP! ***March contracts expire in two weeks*** BUY PUT MAR-45*NZZ-OI OI=148 at $5.88 SL=4.00 BUY PUT MAR-40 NZZ-OH OI=296 at $3.38 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=NEWP ************************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. 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