The Option Investor Newsletter Sunday 04-01-2001 Copyright 2001, All rights reserved. 1 of 5 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/040101_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 3-30 WE 3-23 WE 3-16 WE 3-9 DOW 9878.78 +374.00 9504.78 -318.63 9823.41 -207.87 -213.63 Nasdaq 1840.26 - 88.42 1928.68 + 37.77 1890.91 - 49.80 -115.95 S&P-100 605.58 + 24.87 580.71 - 7.28 587.99 - 12.72 - 18.06 S&P-500 1182.17 + 42.34 1139.83 - 10.70 1150.53 - 23.03 - 31.32 W5000 10645.85 +170.55 10475.30 - 84.07 10559.37 -223.31 -282.18 RUT 450.53 + 7.26 443.27 + 1.47 441.80 - 10.36 - 7.84 TRAN 2771.36 +126.02 2645.34 + 13.97 2631.37 - 71.64 - 75.12 VIX 33.82 - 1.09 34.91 - .38 35.29 + 2.66 + 2.89 Put/Call .76 .52 1.08 .83 ****************************************************************** Window Dressing Ends With a Whimper! By Jim Brown The close on Friday was anticlimactic with the Nasdaq closing only slightly positive for the day but posting the worst quarter on record. The Dow attracted some end of quarter money as we expected and eased closer to 9900 again with a +79 point gain. The main catalyst for the market on Friday was the Chicago PMI and the University of Michigan Consumer Sentiment reports. The Chicago PMI surprised investors with a reading of 35 and a drop of -8 points. It is the lowest level since 1982. This signals that the significant weakness in manufacturing in the Chicago region is intensifying. There is no recovery underway in Chicago! This report is a leading indicator for the NAPM report which will be released on Monday and is strongly valued by Greenspan and the Fed. A drop of this magnitude in the National Purchasing Managers report (NAPM) report on Monday would be met with a call for more aggressive rate cuts before the next Fed meeting. The Consumer Sentiment report actually rose slightly for the first time in three months to 91.5 but only slightly over the February 90.6. The other major report Friday was the ECRI which lost -4.9% and puts it at levels near the end of 2000. The ECRI continued its weekly decline falling to 120.7. The six month rate is falling to a level not seen since the end of 1990. It means that there is a continued worsening of economic conditions. The Personal Income and Spending reports showed that consumers were experiencing income growth and they were spending this extra income at a rate which would be consistent with the Fed's claims that the economy is not as bad off as feared. If you weight these reports the PMI carries more weight with the Fed while the increased income and spending encouraged retail investors that there was light at the end of the tunnel. The week of April 2nd will be pivotal in market direction. The economic calendar has several major releases which could drive the market. Monday has Construction Spending and the important NAPM Index. The next most important report for the week is the Nonfarm Payrolls on Friday. A strong employment report would mean a recovery is underway and a weak report would provide another stimulant for the Fed to cut rates. Either of these major reports could trigger an inter-meeting rate cut but the Fed is more likely to wait until the employment report as confirmation of any NAPM weakness. Earnings warnings on Friday included PRI Automation, Nasdaq:PRIA, Semtech, Nasdaq: SMTC, Cirrus Logic, Nasdaq:CRUS, C-Cor.net, Nasdaq CCBL, Dendrite, Nasdaq:DRTE and several other companies announced slowing sales and layoffs. Ameritrade, Nasdaq:AMTD, cut 170 jobs due to lower trading volume. Gillette, Nyse:G, said they saw zero growth going forward. This is just a sample of the hundreds of warnings in our future over the next three weeks. The market will have a significant wall of worry to climb but that also builds strong bases. Dell Computer, Nasdaq:Dell, has an analyst conference this week and many analysts expect a positive report. Dell is reinventing itself and I even heard one analyst say he expected Dell to beat estimates. Now that would be a trick! Dell stock has been slowly gaining ground since hitting a low of 16.25 in December. It is not burning up the charts but showing positive momentum. The buy the rumor, sell the news syndrome may be showing since Dell faded the last couple days of the week. Remember, they can also guide analysts lower as well. The challenge for Dell as well as the rest of the PC and Chip sectors will be the continuing decrease in demand. The most telling indicator is the semi book to bill ratio which was 77 in February. It is still falling and analysts say that component inventory in all the channels was still very high with as much as three quarters of excess. MU finally announced a narrow than expected loss but inventory levels were much higher than expected. The claim of decreasing inventory and building for new orders was hard for analysts to believe. These same analysts point to the pricing levels as still in the second down phase of correction and until manufacturers cut prices substantially to convert inventory back to cash, the correction is not over. There is still too much bullish sentiment for a quick rebound and until that sentiment is gone and inventory flushed, semi stocks have farther to fall. The SOX.X, which is viewed as the leading indicator of an economic recovery, has fallen back to its last level of support at 540. After a hopeful rally two weeks ago the index is poised only 30 points above a new low. The semi- conductor holders, AMEX:SMH, came within .06 of setting a new intraday low on Friday. While checking for possible plays on Friday there were more semi stocks heading for new lows than holding their ground. For the first time in 16 years, many analysts are predicting that the number of semiconductors sold worldwide in 2001 will drop. Bill McClean, of IC Insights, said last week the industry is caught in a perfect storm, too much inventory, too many factories and a severe economic slowdown. He is predicting a -7% drop in unit sales worldwide and he is an optimist. David Wu, analyst for ABN Ambro, is looking for chip sales to fall -20% this year from over $200 billion to $160 billion. Wu said in late 2000 makers of networking, telecommunications equipment and cell phones were ordering as much as four times the number of chips that they needed in order to prevent shortages in the supply line for 2001. When the economy screeched to a halt in December these companies had millions of chips on hand and nobody buying their finished products. This excess chip inventory could last 18 months according to some analysts because there is simply no product movement in these sectors. The airwaves were awash in negative sentiment about the worst quarter ever for the Nasdaq. The Nasdaq lost over -630 points or -25.5% in the first quarter and finished only +45 points from its 52-week low set last week. The low point for Friday was only +.06 above that low of 1974.21 set on March-22nd. The Dow managed to continue its rebound from last weeks lows and posted a +363 point gain for the week. With tech stocks still under pressure fund managers parked money in blue chips like JPM, XOM, MRK, PG, SBC and IBM. The other tech components of the Dow did not fare as well. MSFT -.69, INTC -.25, UTX -1.25 and HWP +.63. The Dow also got a boost from speculation that Citigroup wants to buy American Express. This rumor has been around for years because the CEO used to work for AXP and would like to structure a huge merger before he retires. At least that is the rumor. AXP gained +2.34 on the news. We need some rumors to build a fire under this market. The possibility that we will see literally hundreds of warnings over the next three weeks was boosted by GE CEO Jack Welch on CNBC. When asked if we were in a recession he responded that his business "was ugly and getting worse." If the CEO of the largest diversified company in America says his business is ugly and getting worse, we should probably believe him. When asked if we could expect a second half recovery as many analysts are predicting, he said "he would not count on it." He does not see the recovery that everyone wishes was happening. He said he had called Greenspan for the first time in two years last quarter and told him things were looking grim. Before you start looking for a window to jump out of we need to remember that Jack Welch may be past his prime. His appearances have been less than inspiring and he may be playing for dramatic impact. He could also be doing his John Chambers imitation and using his public appearances to talk down analyst expectations for GE. Of course that would mean that he needed to reduce estimates due to weak earnings. There were some improvements in money flow this week. After seven consecutive weeks of outflows, tech funds managed to post a positive week. Before you get too excited they were only positive by $37 million. Considering the trillions of dollars lost in the last year, $37 million is pocket change. Equity funds in general posted a +$850 million gain compared to over -$6 billion outflows from last week. Not much to write home about. After seven weeks of cash outflows it is no wonder Ameritrade is cutting jobs and heading to penny stock status. Order flow and commissions have got to be shrinking daily. Besides the NAPM and Non-farm payroll reports next week we have seven Fed officials making public speeches. Talk about a mine field! Two years ago there was a flurry of value funds that closed up because investors had abandoned that approach to investing. We have now come full circle and value is now a very much appreciated commodity. Unfortunately it is the previous growth stocks like CSCO and LU that are being singled out as value plays. There are compelling values in the market and this is going to be the driving force in powering the market this spring. Several asset allocation analysts have gone on record as saying the risk/reward ratio for equities is at a 20 year high. Repeat, A 20-YR HIGH. To qualify that they are comparing the possible return from equities with the return from bonds in the same period. They are not saying that equities cannot go lower. These are the same people who were saying the ratios were at a 10 year extreme just a few weeks ago. Hopefully they will not be claiming 30 year extremes anytime soon. The coming quarter is historically a tough one. The first two weeks in April are historically up. Don't take that as a buy recommendation. They are up historically because earnings are expected to flow in quantity by mid month and these two weeks are the end of the pre-earnings run, historically! Reality may be different. Historically earnings are expected to be up. This year earnings are falling through the basement and expectations of profits have given way to fear of increased losses. Instead of holding over earnings and hoping for an upside surprise there is a good chance that investors will be heading for the sidelines instead. They will sit in cash and look for survivors after the smoke clears. I have said this before but over the last three years, good earnings years, the last two weeks of April have produced a market sell off. Once a historical trend is established the timing of that trend accelerates as more investors try to beat the rush in and out of the trend. Another challenge for next week will be the window undressing period. This is when funds who were forced to invest cash to show pretty statements now move back to cash to wait for better targets. This really does happen and stocks that attracted money this week can suffer next week. Some of this is related to traders who anticipated the fund movement and took positions ahead of them. Next week they will take profits. What does all this mean to us? It means volatility is still with us and we may see some huge swings as warnings and actual earnings duel for press coverage. Many tech companies have earnings cycles that are back end loaded. That means they try to cram as many sales into the last two weeks as possible and we will be hearing over the next two weeks if those companies hit their targets. With all economic indicators still pointing down it is doubtful that many were successful. This warnings period has already gone down as the worst in history since First Call started keeping records. That does not bode well for the next three weeks. Those readers who are following my benchmark trading plan should still be flat. Currently I am only recommending that buy and hold option investors ONLY open new positions with a Nasdaq close over 2000. Last Sunday the Nasdaq was sitting at 1928 and most retail investors were looking for a strong rebound to 2500 over the next couple weeks. Don't look now but after struggling to close the gap between 1928 and 2000 for two days, the Nasdaq came within .06 of making another new low on Friday. If you had tried to enter the market (as a buy and holder) on Monday or Tuesday before waiting for that close over 2000 then you lost money last week. Traders who can jump in and out quickly can trade these huge swings but longer term investors should wait patiently for confirmation of a rally before going long. If you don't like this benchmark strategy then trade whatever plan you like. It may be boring but it beats broke. It is your money! If you have not yet reserved a seat at the April Trading Expo in Denver this week then you are missing out on the opportunity of a lifetime. This group of speakers will never be offered again. Over a million investors have read their books and newsletters and heard them speak individually. Next weekend you can hear them all in one place with over 50 hours of in-depth options and stock trading education. Take a couple days off from the markets and learn how to win more and lose less. Trade smart, enter passively, exit aggressively! Jim Brown Editor ************************************ TOPICS and SPEAKERS 3rd Annual Trading Expo April 5th-9th, Denver Colorado ************************************ If you have not reserved your seat at the Spring Trading Expo here in Denver on April 5th-9th then you are missing the best seminar we have ever held. This power packed four-day event is structured to fully educate you not only on advanced option strategies but stock analysis as well. This will make you a better and more profitable trader. --------------------------------------------------- Jeff Bailey, Editor, PremierBriefing.com Learn the basics of Point and Figure Charting while analyzing how supply and demand on an institutional level affects the markets and the stocks you want to trade. Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES The Global Economy and its Impact on Us. Learn from a professional economist who turns his understanding of economics into highly valuable investing advice. Harry Browne, Author of Fail-Safe Investing Sixteen Golden Rules of Failsafe Investing. A powerful session that translates the essence of the book into guiding principles. Jim Brown, Founder, OptionInvestor.com Austin Passamonte, Editor, IndexSkybox.com Jeff Bailey, Editor, PremierBriefing.com Preparing for Battle. This is a very popular session where multiple speakers team together offering insights on: planning your trades and the combination of research, market factors, and choosing your hot list. Tom DeMark, Author of three books on DayTrading Options Day Trading Options. An extremely popular subject taught by one of the world's foremost authorities on chart analysis. Tom wrote the book on day trading options, literally. Steve Nison, Author, Japanese Candlestick Charting Techniques Candlestick Charting. Is that a doji or an evening star formation? How can this benefit your trading success? Candlestick chart analysis is another hot topic that traders are always eager to learn. Nison is internationally recognized as the "Father of Candlesticks" and has written two books on the subject. Austin Passamonte, Editor, IndexSkybox.com Buzz Lynn, Contributing Editor, IndexSkybox.com Beating the Market with Indexes. This is another tag team event where you'll hear from two of our staff from IndexSkybox.com as they discuss topics like: Don't Pick Stocks, Pick Markets; and Market Timing Equals Sector Profits. Rance Masheck, President, SpreadTrader.com Calendar Spreads & Bull Call Spreads. Some of the first strategies a beginner will encounter in spread trading are these two spreads. Both simple and effective they continue to draw experienced traders over and over again. Mark Skousen, Ph.D., Editor, FORECASTS & STRATEGIES Scrooge Investing - The Best Bargains in Beaten Down Stocks for 2001. This is a great topic and Mark's background as an economist really offers some new insight into the challenge of choosing your investments. Jeff Bailey, Editor, PremierBriefing.com Calculating the Bullish Percent. Applying your new knowledge in Point and Figure charting to decipher how many stocks in a sector are showing buy signals. Jim Brown, Founder, OptionInvestor.com Austin Passamonte, Editor, IndexSkybox.com Pre-Market Analysis. A very popular session where multiple speakers team together offering insights on: Pulling the Trigger, Amateur Hour, and Market Hype. Dick Arms, Inventor of the Arms Index, Founder, ArmsInsider.com Increase your profit potential with Equivolume Charting, volume adjusted moving averages and the TRIN Derek Baltimore, Co-Editor, IntradayTrader.com Risk Management in a declining Market Buzz Lynn, Contributing Editor, IndexSkybox.com Sector Trading with IShares. You may know of DIAMONDS for the Dow Jones, SPDRs for the S&P 500, and the QQQs for the NASDAQ but there is a growing list of IShares and HOLDRS that offer great trading potential. Jon Najarian, Founder, Mercury Trading, Floor-Trader CBOE Successful Option Trading. "Doctor J" is the name and options is the game. Jon has twenty years of experience as a professional option trader. His firm makes markets in over 90 high-tech and biotech stocks and trades up to 40,000 options per day. Matt Russ, Editor, OptionInvestor.com How to Profit from Option Pricing, Market Making and Volatility Rance Masheck, President, SpreadTrader.com Straddles. An excellent strategy for today's markets. Traders should be very familiar with the proper execution of a straddle to benefit from expected volatility. Jeff Wright, Preferred Trade Understanding Option Basics and the roll of an options floor trader. Buzz Lynn, Contributing Editor, IndexSkybox.com Slump Busting. Are you on a losing streak? Learn what you need to do to BUST out and break the pattern. Jim Brown, Founder, OptionInvestor.com Big Cap Strategies, Naked Puts, Zero Risk Trading, Making Dollars not Dimes. Jim Crimmins, President, TraderAccounting.com Tax Strategies for the Active Trader. It's that time of year again and Uncle Sam wants a cut of your trading profits. Let Jim offer some advice on how traders should handle such taxing issues. Molly Evans, Writer/Trader, IndexSkybox & OptionInvestor.com The Organized Trader. Rance Masheck, President, SpreadTrader.com Five Point Star Trader System. Learn what you need to know about a stock before making a decision to trade. Austin Passamonte, Editor, IndexSkybox.com Swing Trading & Day Trading Index Options. Many consider Index option trading to be the pinnacle of equity options. Learn more about the do's and don'ts for Index Option trading. Eric Utley, OptionInvestor.com & IntradayTrader.com Psychology of trading and the Importance of the top down approach to trading. Buzz Lynn, Contributing Editor, IndexSkybox.com Trading with Qcharts. Learn how to properly set up, use, and deploy the best features and techniques. Derek Baltimore, Co-Editor, IntradayTrader.com Exit Strategies, knowing when to quit Tim Taylor - Preferred Trade Using Direct Access Trading Platforms 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=1940 ************************************************************** ************** EDITOR'S PLAYS ************** Trading the Trend Would you buy this stock today? As traders we tend to trade stocks based on what we know about them instead of trading their charts. We trade based on emotion and not on fact. If you were forced to pick your stocks based on a nameless chart most of us would do much better. This bias we have for various stocks is based on past performance and news hype from the media. Many analysts and reporters tell us that XYZ stock has pulled back from being overvalued to over sold or a bargain based on its price RELATIVE to its past performance. Remember all the analysts on TV and in the investing magazines that said CSCO was the Microsoft of the Internet. With the Internet doubling every 90 days CSCO would be immune to any problems impacting other overpriced tech stocks. This was when CSCO was trading between $60 and $80 and the "other" stocks were starting to fall. I can distinctly remember analysts on CNBC that said repeatedly that $60 was the bottom for CSCO. I can still remember the expert analysts saying CSCO would be a bargain at $50. A direct quote repeated many times, "I will take all the CSCO at $50 that anyone wants to sell me." Any takers today? That same quote was made by different people at $40 and $30. With CSCO closing under $16 on Friday there are millions of traders who would take any of these offers today. The number of analysts in the CSCO corner today is very slim. Targets are now in the $6-$12 range based on current market multiples. The point I am trying to make here is that everyone for the last six months was valuing CSCO based on past performance not based chart technicals. Chart technicals tell you where real investors who are buy/selling the stock think the value really is. We may buy stocks based on news, sentiment and technicals but we ALWAYS hold stocks based on sentiment not technicals. Technicals tell us direction and our bias tells us to ignore it. Internet Analyst Mary Meeker was asked on Friday about her strong buy recommendations from last March on YHOO, AMZN and EBAY. Each have dropped more than -75% in value and she recommended them all the way down. Billions were lost because she was married to the stories behind those stocks. YHOO fell from $210 to $15. It was the biggest story on the Internet but the Internet bubble was bursting. Retail investors, that is you and me, tend to do exactly the same thing. We can look at a chart and recite all the reasons why the company is going to rebound any day. Their reasoning is based on bias not fact. Remember the QCOM spike from 1999? $1000 price targets, cell phone royalty payments more than the GDP of many countries. The point I am trying to make here is that people have expectations of stock and market performance based on prior performance not reality. Many people who became investors over the last four years do not even know why earnings are important to stock price. My wife keeps trying to get me to buy Krispy Kreme because the store that opened here in Denver last week still has a line of over 150 cars waiting to get into the parking lot at any time of the day or night. I tried to explain to her that the PE was over 80 and higher than most tech stocks. My PE discussion fell on deaf ears since she has been influenced by the hype. If you want to remain an investor for years to come then you need to learn to read charts and not hype. I have an exercise we do at the office sometimes. I ask people what they think of a specific chart, one without a symbol. Almost every time I get the opposite reaction once I tell them the symbol. We are human and we are a product of the old "garbage in, garbage out" syndrome. As investors we constantly process information on the market and stocks. When the time comes to make a decision we are influenced by that information, good and bad. Successful investors will actually read the chart, not just look at it. Try this at home. Usually in every family there is one spouse who is an "investor" and one spouse who is not. If you are the investor print off about ten charts of the stocks you like. (Daily charts please, no cheating with 5 or 10 minute snapshots) Cut off any reference to the name of the company. Now ask your spouse if they think each company is going up or down without telling them who it is. Now compare that with your expectations for those companies. You may be very surprised. Save those charts for 90 days and see who was right. (you don't have to disclose this information to your spouse at the end of the 90 days. It could be dangerous to your relationship.) Would you buy those charts I showed you at the beginning of this article? They have no symbols. Take another look before I tell you the names. What is your opinion of the direction of the Nasdaq for the next three months? Is it based on fact of hope? Can you trade the trend based on hope or fact? As option traders we can easily trade in either direction. We only need to know the direction and not let our play picking be influenced by our market sentiment. There is one sector that leads the Nasdaq more than any other. It is the Semiconductor sector. Jeff Bailey called it the head of the snake last week. Where ever that head goes the snakes body must follow. Movements in this index are magnified in the Nasdaq. That is because every tech stock is in some way related to chips. Even software sales are dependent on how many chips are sold for computers to run that software. The very first ingredient for almost every tech product today is a chip. By watching the sales of chips you can forecast the direction of the Nasdaq. If you read my market wrap today you know that many analysts think chip sales will have their worst year in a decade due to the economic slowdown. Personally, I think it is immaterial what they think. I only need to watch the chip sector to decide real Nasdaq market direction. There will of course be dozens of bumps and dips that are related to oversold and over bought conditions and current news events but the charts over time do not lie. In order here are the names to go with those charts. SMH, JDSU, CIEN, COMPX (Nasdaq). The SMH is the semiconductor holders. They function like the QQQ for the semiconductor sector. My play for the week is the SMH. The low on Friday was 40.51, only +.06 above the 52-week low. If that low is broken next week I would buy puts on the SMH. I would buy the April-45 puts SMH-PI if the 40.50 level is broken. They closed Friday at $5.20 but should be about $6.00 at 40.50. Good Luck Jim Brown *************************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=1954 ************************************************************ **************** MARKET SENTIMENT **************** One Down, Three To Go In 2001 By Austin Passamonte The first quarter of year 2001 has ended and no market bulls are sad to see it pass. Hope leans heavily on better times ahead for those who favor the upside. Market Sentiment would sure love to see a sustained, extended rally last far into the future from here for most as well, but unbiased outlook is our frequently gloomy task. So let's delve right in. For any market bottom formed and strength to emerge we must have a positive catalyst that pushes action forward. Several gazillion dollars growing mold on the "sidelines" will continue to sit right there until given cause to move. Interest-rate cuts will reverse economic conditions over time, just like they caused part of this circumstance in the first place. An interim cut or at least the rumor of one could cause shorts to watch over their shoulder and bulls to hang on the possibility of such salvation. Will another .50-basis change things right now? Does the market actually look six - nine months ahead like we so often hear? If that were indeed the case, why did every big cap & blue chip leader hold up until the very moment they warned before getting crushed? Where was all that forward vision to the downside when investors needed it most? Do markets only look forward with blinders on for good news while overlooking bad? Food for thought. Market action is nothing more than human emotion at work. We try to believe that "logic" is based upon unbiased reason when in fact the reverse is actually true. Humans arrive at all conclusions based on feelings and some semblance of this is labeled logic and reason. Nice try. Right now investors and traders are tired & weary of relentless selling. Tired of watching their retirements evaporate painfully deep and relentlessly slow day after agonizing day. Tired of seeing those sexy little tech darlings battered and shredded to mere shells of their former selves. The bottom must be near. It has to be! Such has been the mantra for the past twelve months and counting. Ahead of us lay the rest of pre-warn season, "non" earnings reports, muddy outlook vision going forward, eleventh hour tax- loss sales, massive overhead supply weighing markets down and the traditional summer lull dead ahead. Is that really a bottom from which we can spring forth? Market Sentiment is skeptical at best. Here's one litmus test we objectively use to form our market outlook. Right now the Dow rests near 9,900 level. Based upon all we know via technical & fundamental info, does the old index stand a better chance of reaching 10,900 or 8,900 first? That is 1,000 index points in equal direction: where does the path of least resistance lie? What bullish or bearish fundamental catalysts exist to move markets forward from here? That is how professional investors and traders weigh their odds. Retail traders, retail analysts and clueless media celebrities have been calling bottoms and stating we can't possibly go lower for the past twelve months and counting. Astute traders must remain open & objective to what possibly lies ahead, regardless how hard to believe it is. Speaking of professional investors, S&P 500 commercial traders remain constant in their level of shorts from last week until now. We expect they will cover shorts on further declines and add more during subsequent rallies going forward from here. The very period they switch from net-short to flat or preferably net-long is a solid signal the bottom is in place. And not until then. Based on seasonal, historical patterns, April is a challenging month for the markets. We might expect this to follow suit going forward from here. A valid, lasting reason to push market action upward must arise from yet to be seen direction before we can safely play the upside for any length of time from here. Trade the daily trend with caution! ******** VIX Friday 03/30 close: 33.82 VXN Friday 03/30 close: 72.13 30-yr Bonds Friday 03/30 close: 5.44% 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. A reading above 10.00 is considered viable resistance or support respectively within that general strike price range. Friday (03/30/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 630 - 615 9,608 2,793 3.44 610 - 595 9,540 5,216 1.83 OEX close: 591.63 Support: 590 - 575 6,748 10,428 1.55 570 - 555 1,977 9,850 4.98 Maximum calls: 600/ 5,388 Maximum puts : 520/ 9,018 Moving Averages 10 DMA 585 20 DMA 603 50 DMA 652 200 DMA 731 NASDAQ 100 Index (NDX/QQQ) Resistance: 48 - 46 189,351 46,164 4.10 45 - 43 221,744 136,998 1.62 42 - 40 162,607 104,818 1.55 QQQ(NDX)close: 39.15 Support: 38 - 36 8,718 69,612 7.98 35 - 33 7,078 63,879 9.03 32 - 30 969 17,340 17.89 Maximum calls: 45/131,520 Maximum puts : 43/74,624 Moving Averages 10 DMA 41 20 DMA 43 50 DMA 52 200 DMA 75 S&P 500 (SPX) Resistance: 1225 6,135 6,916 .89 1200 12,197 14,555 .84 1175 8,248 6,862 1.20 SPX close: 1160.33 Support: 1150 14,073 17,982 1.28 1125 1,662 8,597 5.17 1100 1,364 18,034 13.22 Maximum calls: 1275/24,725 Maximum puts : 1100/18,034 Moving Averages 10 DMA 1148 20 DMA 1180 50 DMA 1262 200 DMA 1377 ***** CBOT Commitment Of Traders Report: Friday 03/30 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 S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +64946 +70479 -65571 -69490 Total Open Interest % (+30.79%) (+38.13%) (-9.15%) (-9.63%) net-long net-long net-short net-short DJIA futures Open Interest Net Value -3269 -2516 +3299 -2696 Total Open Interest % (-24.49%) (-19.73%) (+14.22%) (-11.17%) net-short net-short net-long net-short NASDAQ 100 Open Interest Net Value +431 +3555 -4461 -8928 Total Open Interest % (+2.03%) (+21.46%) (-5.89%) (-12.57%) net-long net-long net-short net-short What COT Data Tells Us ********************** Indices: Commercials took a breath this week with net-short positions on the S&P 500 remaining virtually unchanged. Commercials did reverse their positions on the DJIA as they are now net-long. Currencies: Commercial traders continue to build net-long positions in the Japanese Yen Metals: Commercials in the silver and copper markets are near a five-year net long extreme. 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 03/27 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/040101_1.asp ************************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=1963 ************************************************************** *************** ASK THE ANALYST *************** Underwater By Eric Utley The end of the first quarter is welcome, from where I sit. It not only marks the end of the worst ever quarter for the Nasdaq, but it also marks the beginning of a pleasant distraction of mine. As I've written in the past, my passions in life are narrow in scope, but deep in involvement and they include fly fishing. I've drawn upon parallels between fly fishing and trading stocks in the past, and will probably do so again in the near future as I embark upon the trout filled streams here in Colorado in search of enlightenment and inspiration. So, instead of reviewing a trade from last week, I thought I'd deliver a thought from a man whom I hold in high esteem, Norman Maclean, author of A River Runs Through It - a fabulous account of life and fly fishing. As you read over the following thought, consider the parallels between fishing and trading: "Something within fishermen tries to make fishing into a world perfect and apart - I don't know what it is or where, because sometimes it is in my arms and sometimes in my throat and sometimes nowhere in particular except somewhere deep. Many of us probably would be better fishermen if we did not spend so much time watching and waiting for the world to become perfect." On a quick ancillary note, I very much anticipate conversing with the readers of this column who are attending the seminar in Denver next weekend. Please make sure to speak with me, as I'm anxious to gain insight and ideas on ways to improve my column. One last note. This weekend's column is rather lengthy, but I feel I've touched upon several good trading and investing ideas generated by my readers. I apologize for the length, but I attempted to put out some quality work! Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- CIENA - CIEN Please give us your views on CIENA and what are the support and resistance levels? What are your views about any further downside? - Thanks, Sunil It's good to hear from you again, Sunil! I like CIENA (NASDAQ:CIEN) very much, as a company. The firm sells a suite of high-end, leading edge products in the optical networking space. CIENA is a pioneer in dense wavelength division multiplexing (DWDM) technology, which is a cost effective technology used by carriers to increase bandwidth across networks. The nature of CIENA's cost saving DWDM technology has enabled the company to buck the macro weakness in the telecom equipment space. Telecom carriers are less likely to cut CIENA's products from their budgets because they save money and are at the leading edge of optical networking technology. Because of the aforementioned attributes, CIENA has been able to exceed earnings estimates in recent quarters, and actually raise expectations. However, CIENA's bullish guidance has not been well received by the market, which is a perfect segue into why I don't like the stock right now. Remember, there is a HUGE difference between a company and its stock! By now, it's blatantly obvious that the telecom equipment sector is facing a macro slowdown as measured by the myriad warnings and blowups within the sector (read: Nortel). Because of that risk, there is an extreme tendency to avoid risk in the market right now, which is lending to the multiple compression in technology shares. And, shares of CIENA trade with a trailing price-to-earnings (PE) multiple of 98 and a forward looking multiple of 56 times earnings - both multiples are rich in the current market environment. Of course, CIENA's forward looking multiple is predicated upon the company meeting its expectations; the market doesn't think CIENA will hit its targets as measured by recent price action in its shares, hence the long liquidation last week. Furthermore, because CIENA's shares still trade with a relatively high multiple and because the actual price of the stock is relatively high compared to the teen handles in shares of Cisco Systems (NASDAQ:CSCO), Nortel (NYSE:NT) and Lucent (NYSE:LU), I think the stock could be a target of the shorts. In fact, short interest has been on a steady rise in shares of CIENA for the last three months. Having said all of that, Sunil, I do think there is more downside in shares of CIENA. In fact, I have traded puts on the stock over the past few weeks and I'll think there will be additional opportunities to profit from the short side in the coming weeks. However, when the glut of inventory in telecom equipment is cleared out and carriers start spending more aggressively, I think shares of CIENA will lead the rebound within the networking sector. But, that could take several more months, if not years. Now let us turn to the chart and find some support and resistance levels in shares of CIENA, as you requested, Sunil. ---------------------------- Conseco - CNC Eric, keep up the good work. I was looking at CNC and was wondering if that is a cup with a hand forming on the weekly chart? - David It's nice to hear from you again, David, and, as always, thank you for the kind words of encouragement. In addition, I'm happy to receive a request outside of the technology arena. For its part, Conseco (NYSE:CNC) operates in two principal segments: insurance and finance operations. Conseco's insurance operations include the provision of supplemental health insurance, life insurance and group medical insurance. The finance portion of Conseco's operations consist of originating, purchasing, selling and servicing consumer and business loans. Conseco's most recent earnings report in late February brought about concerns over bad loans in its finance division. The company reported an increase in loan write-offs and a jump in late payments from its mobile home loan portfolio. Because of the loan problems, earnings from Conseco's finance division only accounted for roughly 19 percent of its net earnings from operations. Furthermore, Conseco and several of its former officials are being sued by a couple of pension funds. The funds allege that the company and its directors in the finance segment doctored bad loans. Now, for a long time, Conseco was viewed by Wall Street as a poorly managed company - the firm has had its share of problems in the past. That much can be viewed on the long-term chart of the stock. However, a new management team was ushered in to revive the company and reestablish its credibility. While concerns over Conseco's loan portfolio and the lawsuits may continue to surface over the next three to six months, I would argue the fact that the Federal Reserve has slashed interest rates by 150 basis points thus far in 2001 and is injecting liquidity into the system. Furthermore, I expect the Fed to continue cutting rates, which is why I'm bullish on shares of Conseco at current levels. But, if my readers like the idea of Conseco and the general premise of investing with the Fed, and would rather circumvent the individual issues with the company itself, I can offer several alternative investment ideas that are similar to Conseco. Just a reminder, the following list is NOT an end, and my readers should take into account time horizons, risk tolerances and should perform due diligence before pursuing any of the following for investment purposes. Here's a list of some of Conseco's direct and indirect competitors: AXA (NYSE:AXA), AmerUs Group (NYSE:AMH), American General (NYSE:AGC), American National Insurance (NASDAQ:ANAT), Lincoln National (NYSE:LNC), Nationwide Financial Services (NYSE:NFS), Stancorp Financial Group (NYSE:SFG) Finally, let us address your question, David, concerning the cup-with-handle formation on Conseco's weekly chart. I apologize for taking so long to get to the simple request concerning Conseco's chart, but I feel that without providing some background on the company, I would be doing a great disservice to my readers. Shares of Conseco traced a double-bottom over the course of 2000 around the $5 level. Shares have since rallied has high as $18.60, but have pulled back into a consolidation around the $15 level. Like you suggested, David, the stock is setting up to form a picturesque cup-with-handle. Shares of Conseco have been in its consolidation phase (the handle) for about nine weeks. As such, a breakout above relative highs could take place any time now and would mark a solid entry point into, provided it comes on higher-than-average volume. ---------------------------- Amgen - AMGN The stock was like a falling knife last week until recovering somewhat on Friday. Is this a signal to sell or should one hold on? - Alex Alex, I greatly appreciate the request, but I must remind you that I cannot give specific investment adivce. Having said that, OptionInvestor added Amgen (NASDAQ:AMGN) to its put play list over the weekend and I'll tell you why. The risk-to-reward in shorting shares of Amgen at current levels far outweighs the risk-to-reward in owning the stock at current levels. In short, the path of least resistance for shares of Amgen appears skewed to the downside. The stock slid precipitously lower throughout the month of March. Earlier in the month, shares of Amgen were holding steady between the $70 and $75 levels, but fell as low as $45 before rebounding in the last seven trading sessions. Amgen did stage a massive rebound from its low at $45 on March 22nd, but has since run into resistance around the $60 - $62 range and looks poised to rollover. I'll elaborate on my rollover thesis more on the charts below. The underlying fundamental reasons for the weakness in the biotech sector and, indeed, shares of Amgen are bit more clouded. I know that there has been some bearish news concerning select companies in the biotech sector. In addition, I know that there were rumors circulating about two weeks ago that a large biotech hedge fund was near the brink of collapse. Those rumors have not yet been substantiated, but I think they did induce some fear within the sector and may continue to do so if the group weakens early next week. Finally, I think that the majority of the selling in the biotech sector stems from the weakness in the broader tech sector. The ramifications of the weakness in the tech sector are far reaching and have been dragging down other sectors such as biotech. Now, let me elaborate on why the risk-to-reward in shorting Amgen at current levels is favorable. But, let me make it clear that the following concerns the SHORT-TERM and is pertinent to only a TRADE. As you can see on the daily chart below, shares of Amgen rebounded from their relative lows up to the 68.6% retracement level, which sits at roughly $61. The stock attempted to settle above the $61 level on four separate occasions last week but failed each time. That tells me that there is a BIG seller of Amgen at the $61 level - either a fund liquidating long positions or a short defending positions. As such, if Amgen is shorted at current levels, a trader can set a relatively tight stop just above the $61 level to manage risk. If the stock does settle above $61 or $62, any short position can be quickly covered for a small loss. However, if we're correct in our bearish stance, shares of Amgen could trade down to the $56.50 level (50% retracement) or lower to the $54 level (38.2% retracement) - either way, the risk in shorting the stock is mitigated while the potential reward is greater. The presence of a big seller at the $61 level is even more evident on a shorter time frame chart, such as the one below. You can see that each time shares of Amgen attempt to settle above the $61 level, they are almost immediately pressured back down. However, the selling appears to be subsiding as the stock approaches the $58 level. As such, $58 is the key support level and if it fails, I would expect the stock to trade $55 or $56. ---------------------------- ViaSat - VSAT Please review VSAT. - Thanks, Vishal Thanks for the request, Vishal, I think you may have discovered something special. Prior to Vishal's request, I had not heard of ViaSat (NASDAQ:VSAT). After doing a little homework on ViaSat, I have to admit that I'm VERY impressed with the company's fundamentals. Let me provide a quick snapshot of ViaSat's financials. The company, according to the most recent filings, has a debt-free balance sheet with about $24 million in cash. ViaSat is expected to grow its earnings by more than 30 percent annually over the next several years, bolstered by 30 percent sales growth expectations next year. Moreover, its shares trade at a deep discount relative to future, expected earnings. Assuming ViaSat does, in fact, grow earnings by more than 30 percent next year, its shares currently trade with a price-to-earnings growth (PEG) ratio of roughly 0.50 - that's cheap. In short, ViaSat's fundamentals are exceptional! The company develops wireless communications products and, judging by my limited reading, does the majority of its business with the United States military. The broader defense sector has done relatively well this year as measured by price in shares of Lockheed Martin (NYSE:LMT) and Alliant Tech (NYSE:ATK). So, I don't quite understand why shares of ViaSat have performed poorly year-to-date as its sector has done quite well. Perhaps the underperformance stems from the fact that ViaSat does market its wireless networking and communications products to commercial customers in addition to its military customers. But, the question remains: Why have shares of ViaSat performed so poorly? I don't have the answer to that question. After all, its sector has done well and the company has superior fundamentals. The only negative I can think of concerning ViaSat is that the company is somewhat tied to the commercial market in communications related products. So, the stock market may be discounting future shortfalls in terms of earnings. But, if the market is unjustly punishing shares of ViaSat and the company does, in fact, continue to deliver superior earnings performance, I think shares of the stock are greatly undervalued at current levels. ViaSat could represent a compelling opportunity for a long-term investment once the market stabilizes and a new bull emerges. Having said that, we (OI readers and I) may consider exploring this company a bit more. If there's any interest among my readers in pursuing this investment idea further, let me know via the e-mail address above. Furthermore, if any of my readers have any special insight into this company, please let me know. Based upon my preliminary work, I think Visahl may have discovered a small cap gem in ViaSat. ---------------------------- Foster Wheeler - FWC Could you please give your opinion on FWC. It has steadily increased in value this year while the broader markets have decline. Do you anticipate this continuing or does it look a little over extended here? - Many thanks, Tony Many thanks for the request, Tony! Foster Wheeler (NYSE:FWC) is another great request this weekend outside of the technology sector. The company is an energy infrastructure play that, in my opinion, will continue to work (read: trade higher). Foster Wheeler is divided into two segments: engineering and construction and energy equipment design. The former group designs and constructs energy facilities, such as power production plants, water treatment facilities and refineries. The energy equipment group designs products for power stations and other industrial applications; examples include heaters, steam condensers and boilers. Those who live in the United States, particularly California, are well aware of the increasing demand for energy. As such, I think the energy infrastructure companies such as Foster Wheeler represent excellent long-term investments. For its part, Foster Wheeler is expected to grow its earnings by a modest 12 percent next year. While that type of earnings growth isn't exactly sexy, I would expect it to accelerate judging by the strong performance in shares of Foster Wheeler recently. In conclusion, I think the long-term fundamentals are in place for Foster Wheeler and its chart lends to that idea. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of April 2, 2001 Monday ====== Auto Sales Mar Forecast: 6.6M Previous: 7.0M Truck Sales Mar Forecast: 7.2M Previous: 7.5M Construction Spending Feb Forecast: 0.40% Previous: 1.50% NAPM Index Mar Forecast: 42.50% Previous: 41.90% Tuesday ======= Factory Orders Feb Forecast: 0.20% Previous: -3.80% Chicago Fed Activity Idx Mar Forecast: NA Previous: -0.71% Wednesday ========= NAPM Services Mar Forecast: 51.50% Previous: 51.70% Oil and Gas Invtenty 20-Mar Forecast: NA Previous: 301.5MB Semiconductor Billings Feb Forecast: NA Previous: -5.7% Vehicle Sales Mar Forecast: 14.0 Previous: 17.5M Idx of Online Shopping Mar Forecast: NA Previous: 154.4 Thursday ======== Initial Claims 31-Mar Forecast: NA Previous: 362K Friday ====== ECRI Wkly Leading Idx 30-Mar Forecast: NA Previous: -4.9% Nonfarm Payrolls Mar Forecast: 70K Previous: 135K Unemployment Rate Mar Forecast: 4.30% Previous: 4.20% Hourly Earnings Mar Forecast: 0.30% Previous: 0.50% Average Workweek Mar Forecast: 34.1 Previous: 34.2 Wholesale Inventories Feb Forecast: 0.10% Previous: -0.30% Consumer Credit Feb Forecast: $9.5B Previous: $16.1B ECRI Future Inflation Mar Forecast: NA Previous: 111.3 Week of April 9th ================= Apr 11 Export Prices ex-ag. Apr 11 Import Prices ex-oil Apr 12 Initial Claims Apr 12 PPI Apr 12 Core PPI Apr 12 Retail Sales Apr 12 Retail Sales ex-auto Apr 13 Business Inventories ************************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=1972 ************************************************************** 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. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-01-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040101_2.asp ************** TRADERS CORNER ************** NASDAQ Stuck In Reverse? By Renee White What a disappointing week and horrible quarter! If market pundits have it correct, the sharp 25% Nasdaq drop this quarter should set us up for a nice spring-back rally within 6 months. Supposedly history is on our side for a reactionary rally within two quarters, but six months seems like a long way out of this pain. In preparation, let's review the Relative Strength Index, an analytical tool I use to confirm my chart interpretations. It's a well-known oscillator using a formula which includes averages of upward and downward price changes. One can use it in short time frames such as 5 minute charts, or longer time periods such as daily or weekly charts. I really needed the rally to hold last week and when it failed, my stomach lining went into auto digest mode again. This mighty bear market is beginning to be one heck of a weight loss system. As seasoned traders know, markets move in anticipation of the economy. Once we start hearing hints that CEOs can see beyond the fog, our markets will move towards the clearing. Business cycles are normal and they follow the course of: expansion, peak, contraction, trough. While some economic indicators are considered "leading," others are considered "lagging" and they may peak while the leading indicators are just starting to turn back up off the bottom of the trough. The stock market is a leading indicator. When it cycles into the trough phase, it is literally in the gutter. The muddy, murky, bottom. In my opinion, we are in the trough phase of the cycle, crawling in the mud. We will crawl for a while, before slowly recovering. I say slowly because the unfocused small trader may not even notice the slow movement forward because rallies will be sold as quickly as they are bought. It will feel like a seesaw until time passes and one can look back on the Composite and realize that we're sloping up, along with the moving averages. I believe we have been in this phase for a while now, and along with that comes cloudy, inconsistent, economic reports. This muddy bottom is the riskiest area for short-term option traders. It is impossible to know if you're going to be whipped around intraday, or if the play can hold over night. With progressive lower lows, and rallies lasting only a few hours before they stall, option premiums have no room to inflate regardless which side of the trade you are on. Like Jim Brown mentioned in Thursday's Wrap, call premiums are dirt cheap. I too think that 2003 Leaps are low risk here. I'm personally struggling with the decision to buy now, or wait for my planned entry after April when the market usually sells off. If I wait too long, those cheap premiums will get re-priced and I will have missed a golden opportunity if the market starts to improve. If I buy too early and Nasdaq falls to 1500 as some predict, then I'll be mad at myself. For short-term equity trading, I use several analytical tools to assist me in decision making when interpreting my main equity chart. The Relative Strength Index, commonly referred to RSI, was developed by Welles Wilder and is discussed more thoroughly in his book, "New Concepts in Technical Trading Systems." The RSI can be found packaged in many charting programs and quote feeds that have standard analytical tools for your use. The name is a bit misleading. As Steven Achelis points out in "Technical Analysis from A to Z," it measures the "internal strength" of an equity, not comparative strength between two market indices. For those who follow the ratings in William Oneil's Investors Business Daily, it is important to note that their relative strength readings measure strength relative to other equities, again, not the internal strength of one particular equity. Using IBD's relative strength along with the RSI is fine, but don't confuse one for the other. Most programs come with RSI preset to 14-day, but many change to 9-day or 25-day. With choppy whippy markets that have no conviction, I prefer using 9-day. The shorter the interval, the more volatile the reading. Unfortunately, I don't think I would know how to act if the markets weren't volatile anymore. I'd probably think I had stale data. There are several ways to use the RSI that can confirm or cause you to question your initial equity chart interpretation. I use several analytics this way. Some give earlier readings than others. Basically, if all don't point in the same direction, then my main chart pattern is highly suspect. That suspicion can lead to good early profit taking decisions, before the chart reverses. At a minimum, it puts me on alert for a potentially unstable chart pattern. The RSI is to be used with your equity chart, and similar patterns you watch for in the equity, should be confirmed in the pattern of RSI also. In other words, support and resistance levels should hold, trend lines should hold, and tops, bottoms, lower lows or lower highs are significant. The RSI tops above 70 and bottoms below 30, usually before the underlying price chart. Also, breakouts and flag formations can be followed for early notice of the break. One of the best ways to use RSI is with divergence readings. Divergence occurs when the equity price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Again, prices usually correct and move in the direction of RSI. If your underlying equity chart is showing higher highs with strength, yet your RSI is showing lower highs, you might want to realize this is a divergence reading and consider taking profits. Rolling cycles that follow a trend line opposite from your equity's trend line and cycle is a divergent pattern. If you become sensitive to reading these patterns, you will salvage many more previously lost profits due to holding on too long. Also, learning this can help you make those critical decisions when we fight with ourselves, not wanting to exit the trade when our gut tells us to. It is one more piece of data, moving at a little different speed than the main chart, that can be used to hit us upside the head like a brick, when we fight with our own (lack of) discipline. Another thing I use is support & resistance levels with RSI. If my position is moving as planned on my main chart but the RSI rolled over before taking out its previous high/low, then a trader should consider an exit and take profits, or limit losses. Usually the equity pattern will follow in the direction of RSI, not vice versa. Next time I'll discuss another favorite indicator that I will be using to help me judge buying interest based on volume momentum. This will be important to monitor when picking which securities to buy. I want those that will be early leaders. An indicator that shows buying interest and momentum should help me choose stocks that may move up in price sooner. The last thing I want to do is buy a previously good company, whose stock price just sits in the mud for months to come, while other things are moving ahead and recovering. *************************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=1955 ************************************************************ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* BAC - CALL INSP - InfoSpace.com $186.13 (+19.44) See details in sector list Put Play of the Day: ******************** XLNX - PUT INSP - InfoSpace.com $186.13 (+19.44) See details in sector list ************************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=1964 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No dropped calls this weekend PUTS ENE $58.10 (-1.30) Short-lived, but profitable, ENE gave us a quick $7 dip before bouncing at the $54 support level late on Thursday. The weak, late-day bounce wasn't quite convincing though and we had to wait for the follow through on Friday to convince us the bottom had been reached. The bulls wasted no time, propelling ENE through our $57 stop in the first hour, and this level survived every bearish challenge all the way to the closing bell. Our stop took us out well below our entry price, and it is now time to jettison the stock from our playlist, pocketing tidy gains in the process. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** BAC - Bank of America Corp. $54.75 (+1.97 last week) Providing a diversified range of banking and certain non-banking financial products and services, BAC's operations consist of Consumer Banking, Commercial Banking, Global Corporate and Investment Banking, and Principal Investing and Asset Management. Consumer Banking targets individuals and small businesses, while Commercial Banking targets businesses with annual revenues up to $500 million. Global Corporate and Investment Banking provides investment banking, trade finance, treasury management, leasing and financial advisory services. Principal Investing includes direct equity investments in businesses and general partnership funds, while the Asset Management businesses are split into three branches; Private Bank, Banc of America Capital Management and Banc of America Investment Services. Have you noticed the sharp recovery in Banking stocks in the past week? We have, and BAC is leading the charge, up 14% since the lows on March 22nd. Investors have taken notice of the comparatively healthy economic reports recently and are clearly expecting that the economic slowdown will be severe enough to keep the Fed on its rate-cutting program, but not severe enough to cause an appreciable increase in the number of defaulted loans and accounts for major banks. As the most heavily weighted stock in the S&P Banks index (BIX.X), BAC has a strong influence on the index, meaning that the index will provide a good indication of the likely direction of BAC. So what do we see on the chart? The stock is approaching the $55 resistance level, after which the bulls will take aim on the $57.50 level. After the strong recovery in the past 6 sessions, BAC is looking a bit top heavy and may need to undergo some profit taking before it is able to scale either of these resistance levels. First the daily stochastics is flattening out in the overbought region, and the upper Bollinger band is looming near $55.50. Aggressive investors will want to target a bounce above our $53 stop for new positions, while more conservative traders will wait for further strength to push the stock above $55 on solid volume. BUY CALL APR-50 BAC-DJ OI= 5778 at $5.80 SL=3.75 BUY CALL APR-55*BAC-DK OI=13748 at $2.30 SL=1.25 BUY CALL MAY-55 BAC-EK OI=13024 at $3.80 SL=2.25 BUY CALL MAY-60 BAC-EL OI=18542 at $1.50 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=FDC COF - Capital One Financial $55.50 (+4.46 last week) As one of the top 10 credit card issuers in the U.S., Capital One's secret weapon is its vast databases. The company uses this data to match a potential Visa or MasterCard customer to any one of its thousands of cards, varying in annual percentage rates, credit limits, finance charges and fees. Ranging from platinum and gold cards for preferred customers to secured and unsecured cards for customers with poor credit histories, the company has a credit card for just about anyone. The company also sells wireless phone services, mortgage services, and consumer lending products. After recently successfully testing $46 support, shares of consumer credit firm Capital One have bounced sharply, helped by a stronger than expected consumer confidence number this week. With consumer spending remaining firm, this bodes well for the earnings outlook of credit card issuers. Analysts have also been positive on the stock, as Prudential Securities recently initiated coverage on COF with a Strong Buy rating and a $62 price target, with Analyst Brad Ball citing strong growth and praising the company's information-centric business model. On Thursday, COF was upgraded by AG Edwards, from an Accumulate to a Buy rating. While credit quality continues to be a concern in the Financial sector, COF's business has been seen as being less risky compared to credit lenders who deal with corporations. Because COF is making many small loans as opposed to fewer but much larger ones, there is a sense of risk diversification. At this point, a break above $56 on volume would allow conservative traders to make a play. Just make sure that rivals AXP and C confirm upward movement. While there is strong support for the stock at $52, we would like to see COF continue to close above $53, which is why we are placing a protective stop at this level. Pullbacks to support from the 5 and 10-dma at $53.82 and $52.28, as well as horizontal support at $53 and $52 may allow aggressive traders to jump in. BUY CALL APR-50 COF-DJ OI= 216 at $6.90 SL=5.00 BUY CALL APR-55*COF-DK OI= 419 at $3.50 SL=1.75 BUY CALL MAY-55 COF-EK OI= 576 at $4.90 SL=3.00 BUY CALL MAY-60 COF-EL OI= 196 at $2.85 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=COF ************************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=1973 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-01-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040101_3.asp ************************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=1965 ************************************************************** ****************** CURRENT CALL PLAYS ****************** PMI - PMI Mortgage Insurance Company $64.98 (+5.8l last week) PMI Mortgage Insurance company, with headquarter in San Francisco, is one of the largest private mortgage insurers in the United States. In addition, PMI Mortgage Insurance Company and its subsidiaries, provides private mortgage insurance in Australia, New Zealand, and the European Union as well as mortgage guarantee reinsurance in Hong Kong. PMI, along with its parent company, The PMI Group Inc, and its corporate affiliates, is a leader in risk management technology and provides various products and services for the home mortgage finance industry, as well as title insurance. The insurance sector blew through resistance at 710 to 720 on Friday morning, and PMI caught the upward momentum to sail past resistance at $65 all the way up to a high of $66.50. IUX.X is now on the verge of clearing its 50 dma of 729.59 and possibly its 200 dma of 736.58. If this occurs, PMI has light resistance between $65 and $70, and could possibly make a run towards this level next week. Several recent mergers and acquisitions in the financial services and insurance sector have helped to stimulate this sector over the last several days. On Thursday, the Wall Street Journal ran an article regarding the previously announced bid for American General Insurance Company by Prudential of the U.K., which will be the largest acquisition of an American company announced this year. In addition, on Friday, GE Capital announced their plans to buy Franchise Financial, and an unconfirmed rumor circulated on Friday regarding a possible merger between Citigroup and American Express. At this point, PMI's moving averages are vertically aligned, with the 5 dma of $62.96 strongly above the 10 dma of $60.75. Traders might want to wait for IUX.X to move above 730 before taking positions. A possible entry point would be at the current level, or possibly at a pullback to $64. A conservative entry point could be taken on a strong move past $65.50 with heavy volume. We are setting stops at $63 to protect gains, so exit the position if PMI closes below this point. BUY CALL APR-60 PMI-DL OI=130 at $6.00 SL=1.30 BUY CALL APR-65*PMI-DM OI= 2 at $2.55 SL=1.50 BUY CALL MAY-60 PMI-EL OI= 4 at $7.00 SL=5.00 BUY CALL MAY-65 PMI-EM OI= 0 at $3.90 SL=2.50 Wait for OI!! http://premierinvestor.net/oi/profile.asp?ticker=PMI FDC - First Data Corporation $59.71 (+1.16 last week) Atlanta-based First Data Corp. helps move the world's money. As the leader in electronic commerce and payment services, First Data serves more than two million merchant locations, 1400 card issuers, and millions of customers, making it easier, faster, and more secure for people and businesses to buy goods and services using virtually any form of payment. With more than 27,000 employees worldwide, the company provides credit, debit, and stored value card issuing and merchant transaction processing services, internet commerce solutions, Western Union money transfers and money orders, and check processing and verification services throughout the United States, United Kingdom, Spain, Australia, Mexico and Germany. Its money agent transfer network includes approximately 101,000 locations in more than 185 countries and territories. A clean upward line can be drawn from FDC's low of $38 on October 9 to the support level of its current upward channel. Traders who bought at the support level of the 50 dma of $59.50 on Thursday were rewarded nicely with a move upward to $61 on Friday morning. FDC is currently reaping the rewards of investors who are attracted to stocks which offer safety and growth. FDC's subsidiary, Western Union, is one of the best known brand names both in the United States and internationally. Recent announcements regarding the expansion of Western Union into the Asian markets has stimulated new attention in FDC, and if the strong upward trend continues, we may make a run for the 52-week high at $64.10. At this point, FDC appears poised to roll over from the current level to support at $59.50, which could be a possible entry point. Conservative traders might want to wait for a break above $62 on heavy volume. We are keeping stops at $58.50, so exit positions if FDC closes below this level. Continue to monitor others in the sector like ADP and PAYX for an indication of sector strength. BUY CALL APR-55 FDC-DK OI= 10 at $5.60 SL=3.50 BUY CALL APR-60*FDC-DL OI= 599 at $2.20 SL=1.00 BUY CALL MAY-55 FDC-EK OI=2385 at $6.80 SL=5.00 BUY CALL MAY-60 FDC-EL OI=2907 at $3.70 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=FDC ERTS - Electronic Arts Inc. $54.25 (+2.25 last week) Electronic Arts is the leading independent interactive entertainment software company that develops, publishes and distributes products for personal computers and advanced entertainment systems such as the PlayStation and Nintendo 64. Since its inception, EA has garnered more than 700 awards for outstanding software in the U.S. and Europe. Combining such diverse media as video, photographic images, computer graphics, and stereo sound with the work of professional story writers and Hollywood film directors, EA is breaking traditional boundaries and evolving into a 21st century high-technology entertainment company. The video game industry this year has attracted much interest from analysts and traders alike. While still considered a backwater of the Software sector, with the upcoming introduction of new and exciting products (such as Microsoft's X-box game console) as well as the advent of online games, shares of ERTS have been trending steadily upward. Already the undisputed champion of sports-related video games through its EA Sports division, the company hopes to expand on its success by taking it online. For a fee between $4.99 to $10 a month, ERTS is also aiming to build a subscription model to augment their revenues from software sales, as in the case of its Ultima Online product/service. As well, the company has been broadening the demographics of its customer base by creating games that appeal to a larger audience. It's most recent home run, titled The Sims, has become a bestseller and in the process, attracting people who are not as receptive to the standard shoot-the-bad-guy theme. US Bancorp Piper Jaffray recently re-iterated their Buy rating and $60 price target, citing visibility and predictable growth. Aggressive traders may look for pullbacks to support at $54, $53, the 10-dma at $52.46 and our closing stop price of $51 as potential entries. In doing so, wait for buying volume to return before jumping in. The more risk averse may want to wait until ERTS trades back above its 5-dma (now at $54.55) before taking a position, but only if sector peers ATVI and THQI are also showing strength. BUY CALL APR-50 EZQ-DJ OI=2808 at $6.75 SL=5.00 BUY CALL APR-55*EZQ-DK OI=2539 at $3.88 SL=2.50 BUY CALL APR-60 EZQ-DL OI=1173 at $2.06 SL=1.00 BUY CALL MAY-55 EZQ-EK OI= 71 at $6.25 SL=4.00 BUY CALL MAY-60 EZQ-EL OI= 168 at $4.13 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=ERTS UVN - Univision Communications $38.16 (+2.04 last week) Based in Los Angeles, California, Univision Communications Inc. is a Spanish-language television broadcaster in the United States. The company's network provides the Univision affiliates with 24 hours per day of Spanish-language programming with substantially all new programs. Univision's Network, which is the most watched television network (English- or Spanish-language) among Hispanic households, provides the Company's broadcast and cable affiliates with 24 hours per day of Spanish-language programming with a prime time schedule of substantially all first run programming (I.E., no reruns) throughout the year. It appears that the Street is still rewarding firms with strong and steady earnings growth, which has helped the Cable sector to rise in the month of March in the face of strongly declining markets. While drug stocks have been the traditional safe haven in uncertain times, traders have now also taken an interest in the broadcasting space. One of the reasons for this is the affordable luxury theory. While conventional wisdom would suggest that in tough economic times, people are likely to tighten their spending, few would start by canceling their cable television. In fact, home entertainment would most likely replace other activities such as going to the movie theatre. Not only does UVN have this in its favor, but the most recent census data has given the company a unique strategic advantage. According to the reports, the Latin population has become the largest minority group in the United States. This is to UVN's advantage, since the company has a commanding share of this lucrative market. In short, it's like owning "Park Place" in the board game Monopoly. With that, the stock has been moving steadily higher in an upward trending regression channel. A bullish spike through $39, which is just above where its 5 and 50-dma are converged, would allow conservative traders to make a play, provided that sector peers COX and CVC are also moving up. Aggressive players may target pullbacks to support at $38 and our closing stop price of $37 for potential entry points. BUY CALL APR-35*UVN-DG OI= 31 at $4.50 SL=2.75 BUY CALL APR-40 UVN-DH OI=172 at $1.70 SL=1.00 BUY CALL MAY-40 UVN-EH OI= 0 at $2.95 SL=1.50 Wait for OI!! BUY CALL MAY-45 UVN-EI OI= 39 at $1.40 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=UVN M0 - Philip Morris Cos $47.45 (+4.05 last week) Philip Morris Companies is the world's largest tobacco firm, controlling about half of the US tobacco market. The Marlboro name is their most valuable brand; although Benson & Hedges, Parliament, and Virginia Slims brands have made their mark across the globe, too. The company also derives a large proportion of its profits from its Kraft food and Miller beer subsidiaries. Its Kraft Foods unit is the #1 food company in the US and #2 throughout the world. Some household brands that you're likely familiar with include Jell-O, Oreo, Ritz, Kool- Aid, Maxwell House, and Post cereal. You can always count on the old economy types, particularly tobacco stocks, to fare well in a fear-based economic environment. You've got to figure that their products will always be a mainstay in despite of how worried consumers might be about finances. A bullish climb from its recent lows of $41.47 recently took MO through key resistance levels, including the elusive 30-dma. Other publicly traded tobacco companies like Universal Corp (UVV) and RJ Reynolds (RJR) are also running strong alongside Phillip Morris. If the DOW can break 10,000 and MO maintains its current upward trend, then the share price could easily penetrate the strong opposition at $52.04, the 52- week high. High-volume bounces off the current level offer viable entries into the momentum, but be prepared to exit aggressively as MO approaches the upper resistance levels. In light of its lower volatility, we're not taking any chances on pullbacks. We'll exit the play if MO closes under the $45 mark. This isn't to say that aggressive entries couldn't be found near the 10-dma ($45.58) if MO is experiencing wider than usual intraday swings and the markets are attune to such a strategy. Otherwise, it's much safer to wait for a definitive breakout through $48 before taking additional positions. BUY CALL APR-40 MO-DH OI= 5000 at $7.80 SL=5.25 BUY CALL APR-45*MO-DI OI= 8278 at $3.50 SL=1.75 BUY CALL MAY-40 MO-EH OI= 257 at $8.50 SL=6.00 BUY CALL MAY-45 MO-EI OI= 458 at $4.70 SL=2.75 BUY CALL MAY-50 MO-EJ OI= 2597 at $2.00 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=MO *************************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=1956 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-01-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040101_4.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=1957 ************************************************************ ************* NEW PUT PLAYS ************* AMGN - Amgen - $60.19 (+2.50 last week) Amgen is a global biotechnology company that discovers, develops manufactures, and markets human therapeutics based on advances in cellular and molecular biology. The company manufactures and markets four human therapeutic products, Epogen, Neupogen, Infergen, and Stemgen. Amgen uses wholesale distributors of pharmaceutical products as the principal means of distributing the company's products to hospitals, pharmacies and clinics. As one of the premier profitable biotechnology stocks, as well as a key bellwether for the sector, Amgen demonstrated a high level of technical strength during the beginning of the biotech onslaught which occurred over the last several months. However, since falling below the converged 200 and 50 dmas of $67.50 on March 12, Amgen's strength has fallen dramatically. That drop occurred simultaneously with a collapse in the BTK.X below a critical support level of 500, which had held since May of 2000. A weekly chart of Amgen now shows a major head and shoulders pattern forming over the last year, with the left shoulder forming at $76 on January of 2000, the head forming at $81 last July, and the right shoulder forming at $74 during March. Amgen actually fell to $45.44 when the Dow collapsed to 9100 on March 22, and since rebounded, but was unable to rally past a lower high at $62 this week. Unfortunate news regarding one of their products as well as a downgrade may have killed the last short term glimmer of hope for Amgen. JP Morgan analyst David Molowa cut first quarter estimates for Amgen, based on a projection of slowing sales for one of their key cancer products, Neupogen. According to Molowa, Neupogen sales are being hurt by competition from Immunex, as well as slowing market penetration. While Amgen rallied slightly with the health care sector this week when the Johnson & Johnson Alza deal was announced, it subsequently made a daily pattern of lower highs at $62, $61, and $60. Amgen is poised to roll over from current levels, which could be a good entry point, particularly if taken in conjunction with a roll over in the BTK.X from current levels. Below $60, there is light support until $57.50. A break below $57.50 on strong volume would be a more conservative entry point, and could lead Amgen to the $53 level. We are setting stops at $62, close positions if Amgen closes above this level. In addition to monitoring BTK.X, it is helpful to watch others like HGSI and DNA. BUY PUT APR-60*YAA-PL OI=7147 at $3.75 SL=2.50 BUY PUT APR-55 YAA-PK OI=5786 at $2.06 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=AMGN XLNX - Xilinx Inc $35.13 (-10.87 last week) Xilinx develops and markets complex programmable logic solutions. Their design software allows clients to customize chips to meet specific needs. The company's solutions include advanced integrated circuits, software design tools, predefined system functions delivered as cores of logic, and field engineering support. They primarily market to electronic makers who use the chips in telecommunications and data processing equipment, industrial controls, military and aerospace applications, and networking equipment. Blue chip clients include Alcatel, Cisco, Fujitsu, IBM, Lockheed-Martin and Nokia. Unnerved investors may have thought the worst was over, but chipmaker XLNX led the semiconductors lower as the NASDAQ continued its slide on concerns of eroding corporate profits. After Palm and Nortel Networks lowered their sales forecasts, XLNX fell off the cliff. The historical support at $40 crumbled under the broad selling pressure. At the moment, XLNX is teetering precariously at the $35 level. Xilinx's counterparts like MXIM, CRUS and MU have also taken severe lashings of late. With the general sentiment of more earnings disappoints to come, we're anticipating more weakness across the sector. The Philadelphia Semiconductor Index (SOX.X) provides traders with a panoramic account of the semiconductors, so look for continued action under the 550 level for bearish confirmation. More specifically, if traders take XLNX through $35 on respectable volume, then get ready to jump on this put play. The more aggressive types might also find an entry if XLNX rolls over near the trailing 5-dma, at $39. Lows of this magnitude haven't been seen since October 1999, which of course leads us to the topic of using stops for protection. We have a closing stop set at $38; although if you're erring on the side of caution or playing a sharp decline, set your intraday stops accordingly. BUY PUT APR-40 XLQ-PH OI=3813 at $6.88 SL=5.00 BUY PUT APR-35*XLQ-PG OI=4925 at $3.63 SL=1.75 BUY PUT APR-30 XLQ-PF OI=3143 at $1.69 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=XLNX ***************** CURRENT PUT PLAYS ***************** ADBE - Adobe Systems $34.97 (-0.72 last week) A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. So will ADBE deliver profits for us again in the month of April? Recall our profitable play from early March, as we rode ADBE down to its lows near $25. After a brief rally, the Computer Software index (GSO.X) is testing its lows again, and if support near $170 on the index fails, the downside pressure on stocks like ADBE could be significant. After reaching a recent peak at $38, the stock began to weaken, and despite a vigorous rally attempt on Friday, the 5-month downtrend line (currently $37) is still unbroken and likely to continue pressuring the share price. Stochastics have rolled over from overbought on the daily chart, and with volume on the rise again, ADBE looks like it could easily retest its lows as we head into the heart of earnings disappointment season. Technology investors continue to be unforgiving of disappointments, and although it is hoped that most of the bad news is already priced into the market, it is that type of hoping that helped many investors to blow up their accounts last year. A couple of notable warnings or disappointments in the Software sector is likely all that would be needed to drive ADBE back to test its March lows. After Thursday's sharp drop, we ratcheted our stop down to $35, and Friday's close was just the merest fraction below this level, keeping our play alive for another day. Aggressive traders can consider new positions if the price weakens near current levels, but beware of continued buying the pushes the stock through our stop. The conservative approach may be best at this juncture; look to initiate new plays on a drop through either the $34 or $32 intraday support levels, depending on your risk tolerance. BUY PUT APR-40 AEQ-PH OI=3345 at $6.50 SL=4.50 BUY PUT APR-35*AEQ-PG OI=1885 at $3.00 SL=1.50 BUY PUT APR-30 AEQ-PF OI=1816 at $1.20 SL=0.50 http://www.premierinvestor.net/oi/profile.asp?ticker=ADBE VRTS - Veritas Software $46.24 (-7.64 last week) As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. VRTS provides products for most popular operating systems, including UNIX and Windows NT, as well as a full range of services to assist its customers in planning and implementing their storage management solutions. Just when we thought our ride on VRTS might be just about played out, the bears came back to abuse the Software stocks again, driving the stock solidly below the $50 support (now resistance) level. In fact, the selling intensified on Thursday, driving the NASDAQ to a new intraday low, as well as VRTS. Tagging the $42 level Thursday afternoon, the stock got a little help on Friday as the bulls charged back, raising the price back over the $45 level, but $47 remained as stubborn resistance. Although the price fell back towards the end of the day, it is looking like VRTS may be reaching the end of its bearish trend, so we are protecting our position be keeping a tight stop at $48, also the site of the 5-dma. Another factor that will likely be pivotal next week is any news in the Software sector. The Software index (GSO.X) is resting right on major support near $170, and any bearish developments could break the back of this support. The logical consequence of this development would be to drag VRTS through its support, now sitting near the $42 low from last week. Conservative traders will want to wait for the bears to break the back of this support level before initiating new positions, while those with a higher risk tolerance can consider any failed rally near our $48 stop as an attractive entry point. Confirm weakness in the Software sector by watching the GSO.X; if it bounces from last week's lows, it will be an indication that the bears will have a hard time breaking the back of VRTS' $42 support level. BUY PUT APR-50 VIV-PJ OI=12904 at $7.70 SL=5.50 BUY PUT APR-45*VIV-PI OI= 6470 at $4.90 SL=3.00 BUY PUT APR-40 VIV-PH OI=15656 at $2.95 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS DPMI - DuPont Photomasks Inc. $43.87 (-6.11 last week) DuPont Photomasks leads the photomasks industry with one of the most technically advanced manufacturing networks. The company supplies photomasks to the global semiconductor industry from 13 strategically located facilities in North America, Europe, and Asia, and derives 25 percent of its current revenues from leading edge photomasks with .18 micron or smaller design rules. DuPont photomasks also produces and supplies photoblanks and pellicles. Headquartered in Round Rock, Texas, DuPont Photomasks posted worldwide sales of approximately $328 million in fiscal 2000. DPMI has been on a steady decline all week, as the stock lacks a near term catalyst necessary to stimulate a rally. Furthermore, the earnings which were released by Micron on Thursday may provide the selling momentum necessary to push DPMI below strong support at the $40 level, and possibly lower. The semiconductor sector did not respond well to Micron's earnings, which were reported on Thursday after the close. Micron reported a pre-tax net loss of one cent per share, down sharply from the year ago profit of thirty cents per share. Micron also stated that their inventories peaked about five weeks ago, and have been on a steady decline, which prompted Prudential and Lehman Brothers to upgrade the stock. However, the semiconductor sector seemed to want to see solid proof that demand for chips is increasing and investors were not satisfied with MU's forward outlook. As a result, SOX.X lost over 4% on Friday, and dropped below an important support level of 550. DPMI has established a pattern of lower highs at $50.80, $46.83, and $45. At this point, DPMI is starting to form a rounded roll over from current levels, which could be a good entry point, and would likely lead the stock to $42.50. For conservative traders, a break below $42.50 on strong volume could be a good entry point which could lead DPMI to strong support at $40. If DPMI breaks the $40 level, it could possibly drop to the 52-week low at $28.50. Monitor the SOX.X for an indication of sector strength, and move stops to $45. We will close positions if DPMI closes above this level. BUY PUT APR-45*DUD-PI OI= 66 at $4.40 SL=2.75 BUY PUT APR-40 DUD-PH OI=168 at $2.10 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=DPMI AETH - Aether Systems Inc. $13.00 (-3.44 last week) Aether Systems Inc. is a leading provider of wireless and mobile data products and services allowing real time communications and transactions across a full range of devices and networks. Using its engineering expertise, the ScoutWare family of products including the Aether Intelligent Messaging (AIM) software platform, and its network operations and customer care center, Aether seeks to provide comprehensive, technology independent wireless and mobile computing solutions. Aether develops and delivers wireless and data mobile services across a variety of industries and market segments both in the United States and internationally. It just goes to show that in the long run, the fundamentals and technicals go hand in hand. While optimism over the staggering potential of wireless helped drive AETH to breath-taking heights last year, and the sex appeal of triple-digit revenue growth gave the bulls much to be excited about, a number of realities have come home to roost. Behind the backdrop of a weakening economy, slower than expected wireless handset sales along with delays in the deployment of next generation networks have severely hampered the growth of AETH's customer base. What's more, analysts have questioned the excessive costs incurred to generate what have been called "low quality earnings". Add to that a 35 percent increase in float due to a share lockup which expired on February 25th and its no wonder that the AETH sits near its all-time low. Having breached $15 support this week, the stock fell further on strong volume. Over the past three sessions, the stock has found support above the $12 mark. A break below this level could allow conservative traders on weakness, but confirm with volume. Failed rallies as the stock approaches resistance from the 5-dma at $13.91 and our closing stop price (moved down from $15 to $14) may allow higher risk players to take a position. Look to competitors CMVT and OPWV in gauging sector sympathy. BUY PUT APR-15 *HIZ-PC OI=218 at $3.50 SL=1.75 BUY PUT APR-12.5 HIZ-PV OI=210 at $1.81 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=AETH ISSX - Internet Security Systems $27.36 (-5.14 last week) Internet Security Systems is the leading provider of total information security management for networks, servers, applications and desktops. Not only does ISS offer market-leading, best of breed security management systems for security assessment, policy enforcement and intrusion detection - all built on the company's SAFEsuite security management platform - it also provides superior customer service, consulting and education offerings that significantly reduce the complexity and expense inherent in protecting online assets. ISS approaches Internet security through a complete lifecycle approach, offering a managed solution that covers the full continuum of Internet security needs. The bulls and bears have been arguing over the viability of Internet security stocks for quite some time now. Despite the detonation of the dotbomb space, bulls have been arguing that because security is such a vital part of any e-business strategy, it should be considered a necessity and therefore, less immune to the suppressive forces of a slowing economy. The bears, upon hearing this, would point out that this was the same argument that was used for the Storage sector, which has fallen sharply on the heels of warnings from leaders such as BRCD and EMC. While ISSX held up fairly well in March in the face of the NASDAQ's decline, it appears now that the bears are winning. With that, we recently added ISSX as an aggressive put play. Connecting the highs and lows since mid-February reveals a downward trending regression channel, one that to this day continues to hold. The 5 and 10-dma, now converged at just above $30, have acted as formidable resistance throughout ISSX's retreat. Higher risk players may look for failed attempts to surpass this level as a signal to jump in, along with resistance at $28.50 and $27.75, but confirm the rollover with volume. Also be aware that we have placed a closing stop at the $30 mark. For conservative traders, a break below $26 could allow for an entry, but the even more cautious will want to wait for a bearish plunge below $25 support before taking a position. Correlate entries with direction in sector sisters CHKP and VRSN. BUY PUT APR-30*ISU-PF OI=226 at $4.88 SL=3.00 BUY PUT APR-25 ISU-PE OI=133 at $2.00 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=ISSX OPWV - Openwave Systems Inc. $19.84 (-4.72 last week) Openwave Systems Inc., the combination of Phone.com and Software.com, is the worldwide leader of open Internet-based communication infrastructure software and applications. Openwave's customers are communication service providers worldwide, including wireless network operators, wireline carriers, internet service providers, portals, and broadband network providers. Openwave was formed in November of 2000 following the merger of Phone.com Inc. and Software.com Inc. After OPWV fell below $20 on Wednesday, the selling intensified, and took the stock all the way down to $15.96 on Thursday. This occurred simultaneously with a drop in the software index, GSO.X, below 185 to support at the 170 level on Thursday. While GSO.X recuperated on Friday, the index only rallied to 181, a significantly lower level than the week's high at 195. OPWV rallied on Friday with the Nasdaq, possibly due to an analyst upgrade. Dresdner Kleinwort Wasserstein inititated coverage on OPWV with a buy rating, which followed an upgrade by W.R. Hambrecht this week, which upgraded OPWV to a strong buy. Nevertheless, OPWV has a long way to go before the stock can re establish a true upward trend, and, at this point the odds seem stacked against this in the near term. Since the beginning of March, OPWV has rolled over from each lower high at $32, $29, and $25, with strong volume, indicating heavy selling. Some of this selling may come from former holders of Phone.com and Software.com, which merged to create OPWV. If this pattern continues, OPWV should roll over from the $20 level, which could be a good entry point. Alternatively, conservative traders could wait for a move below $19.40, which could lead OPWV back to its 52 week low at $15.96. Monitor others in the sector, like NTOP and CTRA, and set stops at $22. Exit positions if OPWV closes above this level. BUY PUT APR-25 UGE-PE OI=880 at $6.60 SL=4.50 BUY PUT APR-20*UGE-PD OI=882 at $3.00 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=OPWV NSM - National Semiconductor $26.75 (-2.90 last week) National Semiconductor is a leading technology provider of analog solutions and related semiconductor products. The company promotes its system-on-a-chip (SOC) components, which combine microprocessors with logic, memory, and other functions on a single chip. Its Geode SOC products serve a variety of markets; particularly wireless communications and power management. Customers include Compaq, Nortel Networks and Samsung. Investors can't even find relief in a sector that's been in a downward spiral! The chip stock made a nice recovery recently. In looking to put some money to work, investors figured the chips were the best choice to yield positive results. But given the tough business market ahead and the downturn in tech spending, which translates to high inventories and low demand, their short-term conjecture didn't reap the rewards. Despite the oversold conditions, NSM and rivals Analog Devices (ADI), Linear Technology (LLTC), Maxim Integrated Products (MXIM) are once again getting kicked to the curb. Last week, Lehman Brothers, Goldman Sachs, and Banc of America started NSM with a Market Perform rating and citing the downside risk. And to add fuel to the fire, NSM experienced strong selling on news of Palm and Nortel's Networks lowered forecasts. On Wednesday, NSM was cut down $2.90, or 10% on 2.4 times the ADV. Thursday's upside action through the $28 level and subsequent rollover offered excellent, but aggressive, entry opportunities. The more cautious should avoid playing the current trading channel between $28 and $26. Instead, be patient and consider buying into weakness as NSM slides under $26 and makes a high-volume charge for the next level of support at the converged 30 & 50 DMAs, which currently trace $24 and $25. Amid a major decline, expect buyers to step in as NSM approaches the $20 level. Keep stops according to your risk portfolio and lock in gains early! We'll exit the play if there's a CLOSE above the $28 mark. BUY PUT APR-30*NSM-PF OI=600 at $4.10 SL=2.50 BUY PUT APR-25 NSM-PE OI=933 at $1.15 SL=0.00 http://www.premierinvestor.net/oi/profile.asp?ticker=NSM SONS - Sonus Networks $19.94 (-8.06 last week) Sonus Networks furnishes the voice infrastructure solutions that let public network providers -- long distance carriers, wholesale carriers, ISPs, and cable operators -- offer voice and data networks. Essentially, the company's hardware and software facilitates the voice transmissions and provides efficient routing. When we started coverage on Thursday evening, SONS was on the verge of its destruction - the beginning of its end, so to speak. The well-established bottom support at the $20 level was at stake. We anticipated that a cavalry of buyers weren't frothing at the mouth to buy up shares of this networker; especially with JNPR and CIEN investors singing the blues. We advised buying into high-volume declines and locking in gains quickly. The enterprising traders who espoused aggressive reactionary skills saw profit opportunities in Friday's session, but you had to be willing to jump in early and get out fast! Intraday, SONS slide $3.53, or 17.8% on over twice the normal trading volume. At this point in the play, look for continued volume on the decline and more weakness across the technology markets to drive SONS below Friday's $16.25 intraday low. Cracking the 52-week low, at $10.69, is the next objective. We're maintaining our closing stop at $23 to provide some room for the play to operate. But beware that taking adventurous entries on downward bounces from the upper 5 & 10 DMA ($23.76, $25.11) lines poses additional risk and isn't for the more cautious trader. BUY PUT APR-25 UJS-PE OI=1001 at $6.25 SL=4.25 BUY PUT APR-22.5 UJS-PX OI=4358 at $4.50 SL=2.75 BUY PUT APR-20 *UJS-PD OI= 484 at $2.88 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=SONS ******************************** WEEKLY UPDATES FOR VARIETY PLAYS ******************************** LOW VOLATILITY: USAI $23.94 (+1.44 last week) What a week it was for USAI. One would have thought that after last Sunday's Oscar awards, in which "Traffic," a USA Film production, won Best Screenplay, Best Director, and Best Supporting Actor for Benecio del Toro, the stock would have bidded on Monday. Not so. The pullback to the 50-dma at $22 was the technical move that got the buyers out on Tuesday. USAI continued to receive buying interest throughout the week while retesting the 50-dma on Thursday. Yet, it was Friday's action that finally saw the stock move above resistance at $23.50. Look for a pullback to this previous resistance for a supportive bounce to enter. Below that lies intraday support from Thursday at $23. A break below and USAI may be heading back to the 50-dma for another test, currently at $22.19. A bounce from that technical would be a viable entry, yet watch the volume to the downside to determine the force of the liquidation. If USAI pushes higher, resistance stands at $24.50 and then $25. Our stop remains at $22 on a closing basis. BUY CALL APR-20* QTH-DD OI=678 at $4.25 SL=2.75 BUY CALL APR-22.5 QTH-DX OI=654 at $2.13 SL=1.00 BUY CALL MAY-25 QTH-EE OI= 7 at $1.38 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=USAI ************************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=1966 ************************************************************** ***** LEAPS ***** Just In Time! By Mark Phillips Contact Support It took us several weeks to get it done, but I think the new LEAPS section is coming along nicely. With a far better method of both communicating our entry strategy and tracking our performance, it should provide you with a better tool for making your LEAPS investment decisions. Just in time too, as it looks like the markets could be nearing the end of their long decline in the next couple months; as long as the earnings picture isn't too ugly! The last remaining housekeeping task is that of gradually working through the old playlist and either dropping those plays or adding them to the new Portfolio. Along those lines, we are actually doing quite well. With the rash of New Plays and Drops over the past 2 weeks, the old playlist has been whittled down to only 3 stocks, CPN, DELL, and MU. JWN is still shown in the list, but will be gone by next week due to the fact that we added it to our actual Portfolio on Friday. Each of these old plays are sitting on our Watch List awaiting entries into the Portfolio, with that of CPN looking the least likely at the current time. On the back of the California energy debacle, shares of CPN finally broke out to new highs last week. Due to the continuing uncertainty in the broad equity markets, we are hesitant to chase the stock higher by ratcheting our entry price higher. If the breakout failed to hold above $50, we would be faced with the an entry price near the highs, watching the bears have their way. We would rather wait for confirmation that the stock wants to head higher before increasing our entry target. In fact, those of you that picked up CPN near the $40 level may want to tighten up your stops to protect your profits. So how are our new Watch List and Portfolio doing, you ask? Not half bad, if I do say so myself. With far better control over when we actually take a position, and the utilization of rigid stops I think the performance will be pretty impressive once we get a few more months down the road. Even now, the likes of WM, GENZ, and WMT have certainly gotten things off to a good start; especially when you consider that those entries all took place just over a week ago! All right, enough self-congratulatory rhetoric, what should we expect going forward? While we are deep in the middle of the earnings warning season, soon to be followed by the earnings disappointment season, there are definitely some positive signs in the markets. Sure, the NASDAQ tested its lows again last week, but despite some notable earnings warnings, it is looking like much of the Technology sector has grown tired of the incessant selling. We have reasonably healthy economic reports keeping the field clear so that the Fed can continue to reduce interest rates in the months ahead. This helped Financial stocks to stage a pretty impressive recovery last week, and as we all know, we need the Financials to participate if we are going to have a meaningful rally. Then we have the Commercial Traders behaving themselves and not shorting this market back into the dirt over the past week (see Market Sentiment for details), and I have to admit I am encouraged. Throw in a VIX reading that spent the entire week north of 30, ending the week at 33.82, and I am starting to think the necessary amount of fear is getting factored into this market. Have we seen the ultimate market lows? I don't think so, but I also don't think they are very far below current levels, meaning that I think our downside risk is limited. At this juncture, I am willing to start nibbling at attractive plays, but only if they come to me, hit my entry point, and their overall sector is showing signs of strength. Needless to say, Semiconductor plays are suspect with the SOX.X testing its lows again. I would be hesitant to initiate new positions on plays such as MU, NSM and TXN until we see that the overall sector is capable of recovering without incurring any more collateral damage. One cautionary comment before I sign off for the week. We are now approaching the May-July time period, where we will start to see the issuance of 2004 LEAPS. If you are looking to initiate new positions in a Buy-and-Hold manner, I would strongly recommend avoiding the 2002 LEAPS in favor of the 2003s. The 2002 LEAPS can still be used, but more in an active trading manner, as they only have a bit more than 9 months of time premium. Time decay will start to have a more pronounced effect, eroding the premium through the life of a position if you intend to hold the LEAPS for 4-6 months. Even more conservative investors may want to wait for the issuance of the 2004 LEAPS which will begin to arrive at the end of the May expiration cycle. For details on this process, please refer to the article I wrote last year around this time, "The New 2003 LEAPS." You can find it in the LEAPS archives from May 31, 2000. The process outlined in that article is still accurate and should give you a roadmap of the LEAPS rollover cycle for your planning in the months ahead. Have a profitable week, and make those entry points come to you. Mark Phillips Contact Support Current Playlist (Old Format) SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT CHANGE MU 11/26/00 JAN-2002 $ 45 WGY-AI $13.13 $10.50 -20.00% JAN-2003 $ 45 VGY-AI $17.25 $15.70 - 8.99% DELL 01/07/01 JAN-2002 $ 20 WDQ-AD $ 5.25 $ 8.75 66.67% JAN-2003 $ 25 VDL-AE $ 5.63 $ 8.88 57.64% CPN 01/21/01 JAN-2002 $ 40 YLN-AH $10.50 $20.50 95.24% JAN-2003 $ 40 OLB-AH $15.38 $25.40 65.20% JWN 02/18/01 JAN-2002 $22.5 WNZ-AX $ 3.30 $ 1.10 -66.67% JAN-2003 $ 25 VNZ-AE $ 4.10 $ 1.95 -52.44% LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '02 $ 35 WUT-AG $ 3.50 $ 3.30 - 5.71% $ 28 '03 $ 35 VUT-AG $ 6.10 $ 5.60 - 8.20% $ 28 AOL 03/23/01 '02 $ 40 WIU-AH $ 8.00 $ 8.40 5.00% $ 35 '03 $ 40 VAN-AH $11.60 $12.10 4.31% $ 35 GENZ 03/23/01 '02 $ 85 YGZ-AO $24.50 $28.00 14.29% $ 74 '03 $ 90 OZG-AR $27.75 $30.90 11.35% $ 74 SWS 03/22/01 '02 $ 18 YWF-AT $ 4.10 $ 4.00 - 2.44% $ 15 '03 $ 20 VWZ-AD $ 5.00 $ 5.00 0.00% $ 15 WM 03/22/01 '02 $ 50 WWI-AJ $ 6.00 $10.50 75.00% $ 43 '03 $ 50 VWI-AJ $ 9.20 $13.80 50.00% $ 43 WMT 03/23/01 '02 $ 50 WWT-AJ $ 7.00 $ 9.00 28.57% $ 41 '03 $ 50 VWT-AJ $11.00 $13.60 23.64% $ 41 JWN 03/30/01 '02 $ 20 WNZ-AD $ 1.65 $ 1.65 0.00% $ 14 '03 $ 20 VNZ-AD $ 3.30 $ 3.30 0.00% $ 14 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL MU 03/18/01 $38 JAN-2002 $ 40 WGY-AH JAN-2003 $ 40 VGY-AH DELL 03/18/01 $20-22 JAN-2002 $ 25 WDQ-AE JAN-2003 $ 25 VDL-AE CPN 03/18/01 $43-44 JAN-2002 $ 45 YLN-AI JAN-2003 $ 50 OLB-AJ GE 03/25/01 $37 JAN-2002 $ 40 WGE-AH JAN-2003 $ 40 VGE-AH NSM 03/25/01 $23-24 JAN-2002 $ 25 WUN-AE JAN-2003 $ 30 VSN-AF QQQ 03/25/01 $39-40 JAN-2002 $ 40 WD -AN JAN-2003 $ 45 VZQ-AS TXN 03/25/01 $32-33 JAN-2002 $ 35 WTN-AG JAN-2003 $ 35 VXT-AG GS 04/01/01 $82-83 JAN-2002 $ 90 WSD-AR JAN-2003 $ 90 VSD-AR NOK 04/01/01 $21-22 JAN-2002 $ 25 WIK-AE JAN-2003 $ 25 VOK-AE New Portfolio Plays JWN - Nordstrom, Inc. $16.28 Patience was rewarded this past week, as JWN dropped right to our entry price of $16. After testing this level 4 out of 5 days, it looks like support is going to hold, as the health of the Retail sector has been on the mend. Finally on Friday, the bears were unable to puncture support and it looks like there could be a mild rally in the immediate future - just so long as earnings warnings don't kill the sector. Better than expected Consumer Confidence numbers certainly didn't hurt, and leads one to believe that we could actually be on the mend. We have placed our stop at $14, to protect against that which we currently can't see. That much of a drop would constitute technical violation, as it would have JWN trading at a new 52-week low, not the kind of action we are looking for in successful LEAPS plays. As the markets sort out their near-term direction, you can still use dips to the $16 support level as an opportunity to add new positions. BUY LEAP JAN-2002 $20.00 WNZ-AD $1.65 BUY LEAP JAN-2003 $20.00 VNZ-AD $3.30 New Watchlist Plays GS - The Goldman Sachs Group $85.10 So you're looking for a lower-risk way to play the likely recovery in the Financial markets in the months ahead? How about a global Financial stock to balance your portfolio. GS is a global investment banking and securities firm, providing a wide range of services to a substantial and diversified client base throughout the world. The company is one of several that has seen its rate of growth slow due to more sedate action in the equity markets, but as the economy improves in the months ahead with the help of the Fed's continuing reductions in interest rates, GS is poised to stage a nice recovery. Just finishing with its latest downward move, the stock is looking like it is just about to reverse directions and head north of the century mark again. Support appears to be rock solid at $80, and we want to catch a bounce above this level, say between $82-83. The current corrective move on the daily chart should bring the stock back to that level one more time to allow us onboard before the weekly Stochastics emerges from oversold on its northward journey. Use the health of the overall Brokerage index (XBD.X) to gauge the health of the sector, and verify that the $80 support level doesn't fall victim to the bears. If it does, we will need to re-evaluate the suitability of the play for our portfolio. BUY LEAP JAN-2002 $90.00 WSD-AR BUY LEAP JAN-2003 $90.00 VSD-AR NOK - Nokia Corp. $24.00 Without question, the leading wireless handset manufacturer, NOK has been taking market share from both MOT and ERICY, and this fact can be seen in the stock charts. While all three have seen dramatic reductions in their stock prices over the past year, of the three, only NOK is showing bullish signs of life. Layoffs are hitting across the industry due to the economic slowdown, but NOK's seem to be the least drastic. Add in the fact that the Finnish phone-maker announced last week that it would be buying back 50 million shares of its own stock beginning as early as Friday, and we definitely have the beginnings of a bullish outlook. While the company has reduced its sales growth outlook for the first quarter, it left the earnings per share forecast unchanged, perhaps indicating that the fundamentals for the company are not nearly as bad as originally thought. After confirming support in early March near the $21 level, NOK has been timidly moving higher, and this looks like our opportunity to do some bottom fishing before the recovery really gets underway. We are looking for another dip to the $21-22 level to provide us with an attractive entry point, as we move through the April earnings cycle. Earnings are currently scheduled for April 20th, so keep that in mind when contemplating new positions. Be careful if the bears manage to drive NOK to new lows. A break below $20 will have us re-evaluating the health of the stock and the suitability of the play for the LEAPS portfolio. BUY LEAP JAN-2002 $25.00 WIK-AE BUY LEAP JAN-2003 $25.00 VOK-AE Drops CRUS $14.94 Only 3 weeks old, and the new Watch List has proven its utility. We were looking for the stock to drop to the $17 support level again to give us an attractive entry point. Well, it dropped to that level on Thursday, but unfortunately it kept right on dropping due to the company's earnings warning for the next 2 quarters on Friday. A quick look at the precipitous decline on Wednesday and Thursday is all we need to be convinced that somebody knew about the warning ahead of time and took the opportunity to unload their shares ahead of the warning. By Thursday, volume had swelled to more than triple the 2 million share ADV. While the action on Friday was definitely encouraging, with strong buying volume pushing the stock gradually higher throughout the day, the fact that it couldn't clear $15 by the close leads us to believe that there may be more pain ahead before CRUS is ready for sailing on the high seas again. We'll keep it on our radar screen watching for conditions to improve. When they do, look for the stock to once again appear on the Watch List. ************************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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The Option Investor Newsletter Sunday 04-01-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040101_5.asp ************* COVERED CALLS ************* Candlestick Charting Basics: Reversal Patterns By Mark Wnetrzak The majority of technicians use historical price charts to reflect the daily movement and volume action in a specific instrument. A chart is simply a representation of the conditions that exist in the underlying instrument. Technicians watch for price clues that alert them to changes in the market psychology and primary trend. Unfortunately, while they can be helpful in projecting potential movement and character, chart patterns cannot predict the future. A reversal signal implies that a prior trend or its character is likely to change in the near future. Common bar-chart reversal indicators include "double top" (or bottom), "head-n-shoulder," and "island" formations. Although the term "reversal pattern" is commonly used to identify a relatively abrupt change in direction, most trend reversals occur over a slightly longer period, often days or even weeks. Primary trends usually transition to sideways price actions or consolidation patterns before continuing with a definitive directional movement and for this reason, it is more accurate to think of reversals as simply changes in the current trend. Recognizing the emergence of reversal patterns is a valuable tool that will help increase profits in all of your trading positions. With timely knowledge of a prospective change in character, you can adjust your trading style to reflect the new outlook for the issue. There is one important fact to remember. When a potential change is underway, new positions should be opened only when the reversal pattern signals a move towards the direction of the major trend. The majority of candlestick patterns are trend-change or reversal indicators. Two of the most common formations are the "hammer" and "hanging-man." These candlesticks have long lower shadows and small real bodies that are near the top of the daily range. The color of the body is not as important but it is slightly more bullish if the body of the hammer is white, and in contrasts, more bearish if the body of the hanging man is black. The long lower shadow should be twice the height of the real body and it ideally it will have almost no upper shadow. The longer the lower shadow and the smaller the real body the more meaningful the indication. These candlestick lines can be bullish or bearish depending on when they appear in a trend. When this candlestick emerges in a downtrend, it is a signal that a bullish change in character may soon occur. If this line appears after a rally, the bullish move may be at an end. It may seem strange that the same candlestick can identify both bullish and bearish reversals but the outlook is based on results similar to those that follow "Island" formations in standard bar charts. In recent weeks, the hanging man has been an important tool for timing profitable exits. As with any technical indication, it is important to confirm the bearish trend with this type of signal. The difficulty is determining when the actual reversal will occur as a hanging man generally appears while the market is inundated with bullish optimism. In most cases, the issue opens near the daily highs, then declines sharply, and finally rallies to close back at the high. How do you know if the recovery will continue or falter? If the stock opens significantly lower the next day, investors who purchased shares at the open (or close) will be in a losing position and may decide to cut their losses quickly. The potential for a new downtrend is based on the distance between the real body of the hanging-man and the opening price the next day. The greater the distance, the higher the probability for a bearish change in character. This unique pattern is just one of the ways in which candlesticks measure the emotional element of a specific issue. The names are simply a colorful mechanism used to describe the character of the market at the time these patterns are formed. After hearing the phrase "hanging man", what trader wouldn't go running for cover? Next week, we will review another group of technical indicators and as we progress to more advanced formations, you will discover which patterns work best for your style of trading and the market in which you participate. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield SGSF 8.75 7.88 APR 7.50 1.88 *$ 0.63 10.0% ELNK 10.38 12.13 APR 10.00 1.38 *$ 1.00 9.7% IGEN 13.31 18.94 APR 10.00 4.25 *$ 0.94 9.0% UTHR 16.94 17.44 APR 15.00 3.25 *$ 1.31 8.3% MTSN 14.00 15.13 APR 12.50 2.44 *$ 0.94 7.1% ADBE 28.63 34.97 APR 25.00 5.13 *$ 1.50 5.5% SHFL 21.25 25.19 APR 20.00 2.44 *$ 1.19 5.5% BRKS 43.47 39.75 APR 40.00 5.63 $ 1.91 5.5% NRG 30.84 36.40 APR 30.00 2.60 *$ 1.76 5.4% LTXX 19.00 18.69 APR 17.50 2.31 *$ 0.81 5.3% IGEN 15.19 18.94 APR 12.50 3.25 *$ 0.56 5.1% SHFL 20.94 25.19 APR 17.50 4.38 *$ 0.94 4.1% ATVI 24.63 24.31 APR 22.50 3.13 *$ 1.00 3.4% CPRT 21.81 20.49 APR 20.00 2.63 *$ 0.82 3.1% SMTC 34.75 29.44 APR 30.00 6.00 $ 0.69 2.6% GLC 23.73 21.90 APR 22.50 2.35 $ 0.52 1.8% CLPA 6.22 4.09 APR 5.00 2.06 $ -0.07 0.0% ICST 20.13 16.00 APR 17.50 3.38 $ -0.75 0.0% VECO 52.31 41.56 APR 45.00 9.88 $ -0.87 0.0% *$ = Stock price is above the sold striking price. Comments: An interesting week with Nortel (NYSE:NT) warning again and the end-of-quarter maneuvering by fund managers. We will continue to monitor Activision (NASDAQ:ATVI) closely as it moves into a lateral consolidation phase. Copart (NASDAQ: CPRT) managed to rally off its 150 dma and may actually make a run to a new high. Semtech (SMTC) has suffered with the recent horrid action in the Semiconductors and is at a key moment. Cell Pathways (NASDAQ:CLPA) dropped a dollar this week after being sued for securities fraud (which the company denies). The stock appears to have made a successful test of the December low with Friday's "hammer" bottom candlestick. We will look for confirmation next week. Veeco Instruments (NASDAQ:VECO) and Integrated Circuit System (NASDAQ:ICST) are testing strong support areas. Any further weakness should signal an exit. Positions Closed: Seitel (NYSE:SEI), Bed Bath & Beyond (NASDAQ:BBBY) NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield ACPW 20.31 APR 17.50 ACQ DW 3.75 33 16.56 21 8.2% CTLM 24.44 APR 20.00 UUM DD 5.38 24 19.06 21 7.1% EBAY 36.19 APR 30.00 QXB DF 7.38 880 28.81 21 6.0% HPOW 8.00 APR 7.50 HQF DU 1.13 977 6.87 21 13.3% LTBG 11.44 APR 10.00 LKQ DB 1.94 301 9.50 21 7.6% METHA 17.94 APR 15.00 QME DC 3.50 2245 14.44 21 5.6% Sequenced by Target Yield ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield HPOW 8.00 APR 7.50 HQF DU 1.13 977 6.87 21 13.3% ACPW 20.31 APR 17.50 ACQ DW 3.75 33 16.56 21 8.2% LTBG 11.44 APR 10.00 LKQ DB 1.94 301 9.50 21 7.6% CTLM 24.44 APR 20.00 UUM DD 5.38 24 19.06 21 7.1% EBAY 36.19 APR 30.00 QXB DF 7.38 880 28.81 21 6.0% METHA 17.94 APR 15.00 QME DC 3.50 2245 14.44 21 5.6% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ACPW - Active Power $20.31 *** Unique Energy Storage! *** Active Power (NASDAQ:ACPW) designs, manufactures and sells power quality products that provide the consistent, reliable electric power required by today's digital economy. They are the first company to commercialize a flywheel energy storage system that provides a highly reliable, low-cost and non-toxic replacement for lead-acid batteries used in conventional power quality installations. In January, Active Power reported that revenues for the 4th-quarter totaled $2.7 million, up 468% from the same period last year and 99% sequentially. Active Power's CEO stated that market demand for their battery-free power quality solutions remains strong and is very optimistic about their near and long term growth prospects. In March, Lehman Brothers started coverage on Active Power with a "strong buy" rating and a price target of $31. A favorable cost basis from which to speculate on the future success of Active Power. APR 17.50 ACQ DW LB=3.75 OI=33 CB=16.56 DE=21 TY=8.2% http://www.premierinvestor.net/oi/profile.asp?ticker=ACPW ***** CTLM - Centillium Communications $24.44 *** Bottom Fishing *** Centillium Communications (NASDAQ:CTLM) designs and markets communications chipset solutions for central office equipment, digital loop carrier line cards, and customer premise equipment for DSL, premise networking and Voice-Over-Packet. Centillium beat estimates in January on revenues of $24.3 million, due to significant sequential growth in product shipments and design wins. The stock rallied strongly in January but has since dropped to support as investors price-in the continued weak demand environment in communications components companies. Centillium continues to forge a Stage I base and actually rallied after being downgraded by Robertson Stephens. A favorable cost basis from which to speculate on Centillium's future. APR 20.00 UUM DD LB=5.38 OI=24 CB=19.06 DE=21 TY=7.1% http://www.premierinvestor.net/oi/profile.asp?ticker=CTLM ***** EBAY - eBay $36.19 *** Internet Speculation *** eBay (NASDAQ:EBAY) has developed a Web-based community in which buyers and sellers are brought together in an auction format to buy and sell items such as antiques, coins, collectibles, stamps, computers, memorabilia, and toys. eBay enables trade on a local, national and international basis with local sites in 60 markets in the U.S. and country-specific sites in the United Kingdom, Canada, Germany, Austria, France, Italy, Japan, Australia, and Korea. The company recently announced it will open trading Web sites for Ireland, New Zealand and Switzerland. eBay's revenue nearly doubled last year and analysts expect above a 50% annual growth rate for the next 4 years. eBay appears to have made a successful test of its December low, and over the last few weeks, has outperformed the NASDAQ. Favorable short-term speculation. APR 30.00 QXB DF LB=7.38 OI=880 CB=28.81 DE=21 TY=6.0% http://www.premierinvestor.net/oi/profile.asp?ticker=EBAY ***** HPOW - H Power Corp $8.00 *** Fuel Cell Systems Part II *** H Power (NASDAQ:HPOW) is a leading fuel cell development company and one of the first providers to complete a commercial sale of a proton-exchange membrane (PEM) fuel cell system. PEM fuel cells generate electricity efficiently and cleanly from the electro- chemical reaction of hydrogen and oxygen. With rising fuel costs and calls for stricter vehicle emission requirements, fuel cell companies are drawing the attention of Wall Street. This week, a bill has been submitted before congress that will provide a $1,000 per kilowatt tax credit for purchasers of stationary fuel cell systems that supply home electricity. H Power has been targeting rural markets for its electric generators and passage of the bill could spur sales. With the stock in a Stage I consolidation phase, H Power offers a reasonable entry point for those investors who are bullish on the company's future. Earnings are due on Thursday, April 5. APR 7.50 HQF DU LB=1.13 OI=977 CB=6.87 DE=21 TY=13.3% http://www.premierinvestor.net/oi/profile.asp?ticker=HPOW ***** LTBG - Lightbridge $11.44 *** Bottom Fishing Part II *** Lightbridge (NASDAQ:LTBG) provides customer relationship management solutions that enable communications service providers to initiate and maintain relationships with their subscribers. Clients rely on Lightbridge's Telesto. network of integrated customer acquisition and risk management solutions to forge customer relationships. The company's traditional and Web-based offerings are designed to facilitate rapid application approval, minimize fraud and expand the opportunity to retain high-value customers. Lightbridge, which recently completed its merger with Corsair Communications, expects to see 20% total revenue growth over last year with total gross margins in the mid fifty percent range. The stock appears to have made a successful test of its December low as it continues forging a Stage I base. We favor a cost basis close to technical support and just above a logical stop-loss exit point. APR 10.00 LKQ DB LB=1.94 OI=301 CB=9.50 DE=21 TY=7.6% http://www.premierinvestor.net/oi/profile.asp?ticker=LTBG ***** METHA - Methode Electronics $17.94 *** Bottom Fishing Part III *** Methode Electronics (NASDAQ:METHA) manufactures component devices for OEMs of information processing and networking equipment, voice and data communications systems, consumer electronics, automobiles, aerospace vehicles and industrial equipment. Methode's Board of Directors recently declared a dividend of all of Methode's shares in Stratos Lightwave (NASDAQ:STLW). The shares will be distributed as of April 28, 2001 to holders of record of Methode's Class A and Class B common stock as of the close of business on April 5, 2001. Currently, the dividend equates to about 1.5 shares of STLW for each share of METHA. Methode has been forming a Stage I base at a strong historical support area and has recently moved above its 30 dma. For speculators who favor taking advantage of the current positive momentum provided by the STLW distribution. APR 15.00 QME DC LB=3.50 OI=2245 CB=14.44 DE=21 TY=5.6% http://www.premierinvestor.net/oi/profile.asp?ticker=METHA ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield NXCD 10.31 APR 10.00 DQX DB 1.00 357 9.31 21 10.7% UTHR 17.44 APR 15.00 FUH DC 3.13 121 14.31 21 7.0% VANS 22.56 APR 22.50 VQG DX 0.94 68 21.62 21 5.9% WON 23.02 APR 22.50 WON DX 1.35 58 21.67 21 5.5% IDX 8.48 APR 7.50 IDX DU 1.25 252 7.23 21 5.4% THQI 38.00 APR 35.00 QHI DG 4.13 139 33.87 21 4.8% ************************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=1967 ************************************************************** *********************** CONSERVATIVE NAKED PUTS *********************** Success Basics: The High Cost of Ego By Ray Cummins There is little room for pride or presumption in today's demanding financial markets. In fact, unbiased reflection and action has never been more appropriate considering the recent decline in equity values. Unfortunately, human nature is just one of the many obstacles that all traders must overcome before they can be successful in the stock market. Each and every position has the potential to be affected by some emotion and the influence of these feelings is the biggest single factor one must understand if he expects to profit on a consistent basis. The majority of traders have an opinion about the condition of the stock market and the manner in which they can profit from its future movement. When asked about recent positions, most will reply with confidence that the strategies they have used resulted in a successful outcome. Unfortunately, a high degree of conviction can frequently lead to failure. The trouble begins soon after the initial trading decision has been made. As the new position matures, the reasons for the trade, whether accurate or timely, are often adjusted to support the original outlook. The facts just seem to fall into place. The market character, the earnings outlook, the potential for favorable developments. All of the available supporting evidence is included in the rationalization, whether relevant or not, and a plethora of reasons to remain in the position are marshaled in defense of this decision. Its no different with analysts and financial gurus; those that attempt to forecast the market's future on a regular basis. Each and every one has a long list of justifications for the current trends or "why the market has declined" and "when the market will recover." Inflationary issues, economic conditions, developments in technology, and changes in the political arena are all given as common explanations for situations that have yet to be proven "predictable." The problems with attempting to explain the events of the past or forecast the outcome of the future are numerous, but the primary reason to avoid this trait is simple. Once you have entered a position with this attitude, you will continue to assemble and connect information in a manner which will support the original conclusion, rather than reflect the actual conditions of the market. The fact is, the majority of investors have trouble recognizing that all situations change and there is no perfect and complete method of knowing when, where, and how these developments will occur. In the early stages of learning and throughout most of our adult lives, we are trained to make decisions in a positive and absolute manner. We are taught to endorse and defend our ideas with resolve. In essence, we strive to be correct! It is a conditioned response; simply a matter of existence in today's society. Based on the customs of our culture, changes in opinion are sometimes seen as a failure to arrive at the proper solution during the initial assessment. That is why it is so difficult to admit when we are wrong, to take the loss (even when it is small), and to correct our original observations after reassessing a new position. Human nature is the culprit here and until one can overcome the debilitating effects of pride and presumption, there is little hope for prosperity in the stock market. For most traders, profit comes from the timely participation in proven strategies. As with any investment or speculative venture, the key is to remain alert for signs of a change in character or directional trend, and respond promptly and decisively when and if such events occur. One manner in which that can be easily accomplished is through the use of a structured trading system. Next week, we will review this approach along with some of the most common and successful methods that professionals use to manage their positions. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS CANDIDATES ***** Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield OATS 9.25 9.03 APR 7.50 0.44 *$ 0.44 13.3% MCDTA 24.31 18.88 APR 17.50 0.56 *$ 0.56 11.2% AAPL 19.63 22.07 APR 15.00 0.50 *$ 0.50 9.8% BSX 18.45 20.18 APR 17.50 0.80 *$ 0.80 9.6% AAPL 23.00 22.07 APR 17.50 0.44 *$ 0.44 9.5% THQI 33.88 38.00 APR 30.00 1.38 *$ 1.38 9.0% SCIO 19.38 23.00 APR 15.00 0.44 *$ 0.44 8.9% TMAR 17.31 15.00 APR 15.00 0.56 $ 0.56 7.8% DDS 20.30 21.94 APR 17.50 0.40 *$ 0.40 7.6% GLC 23.44 21.90 APR 20.00 0.55 *$ 0.55 7.4% MTON 27.25 32.75 APR 20.00 0.50 *$ 0.50 7.3% ESCM 21.75 24.06 APR 17.50 0.38 *$ 0.38 6.8% AMD 29.44 26.54 APR 22.50 0.35 *$ 0.35 6.1% OLOG 25.00 24.81 APR 22.50 0.56 *$ 0.56 6.0% ANF 32.30 32.70 APR 25.00 0.55 *$ 0.55 5.7% LRCX 29.44 23.75 APR 22.50 0.31 *$ 0.31 5.4% VTS 36.98 31.95 APR 30.00 0.62 *$ 0.62 5.3% MTON 31.69 32.75 APR 22.50 0.31 *$ 0.31 5.1% ADVP 49.94 54.27 APR 40.00 0.75 *$ 0.75 5.0% CRUS 24.44 14.94 APR 17.50 0.31 $ -2.25 0.0% *$ = Stock price is above the sold striking price. Comments: A couple upgrades on Monday has helped Boston Scientific (NYSE: BSX) rally this week and alleviate our worries. However, Trico Marine (NASDAQ:TMAR) continues to test its 150 dma - consider an early exit or rolling down to a May $12.50 strike. The recent volatility in Veritas (NYSE:VTS) has definitely been difficult to bear - make sure you wish to add the stock to your portfolio. Lam Research (NASDAQ:LRCX) may be a candidate for an early exit as its recent move points to a failed rally. Cirrus Logic (NASDAQ:CRUS) has violated its December low after an earnings warning and we will show the position closed next week. NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield APHT 20.50 APR 15.00 HQY PC 0.56 37 14.44 21 17.4% ASMI 17.69 APR 15.00 IQB PC 0.31 89 14.69 21 9.6% HOTT 28.00 APR 22.50 UHO PX 0.38 112 22.12 21 9.1% IGEN 18.94 APR 15.00 GQ PC 0.25 14 14.75 21 9.0% SBYN 12.75 APR 10.00 QYS PB 0.50 31 9.50 21 23.7% SCIO 23.00 APR 17.50 UIO PW 0.25 262 17.25 21 7.5% Sequenced by Target Yield ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield SBYN 12.75 APR 10.00 QYS PB 0.50 31 9.50 21 23.7% APHT 20.50 APR 15.00 HQY PC 0.56 37 14.44 21 17.4% ASMI 17.69 APR 15.00 IQB PC 0.31 89 14.69 21 9.6% HOTT 28.00 APR 22.50 UHO PX 0.38 112 22.12 21 9.1% IGEN 18.94 APR 15.00 GQ PC 0.25 14 14.75 21 9.0% SCIO 23.00 APR 17.50 UIO PW 0.25 262 17.25 21 7.5% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** APHT - Aphton Corp. $20.50 *** What's Up? *** Aphton (NASDAQ:APHT) is a biopharmaceutical company developing products using its innovative vaccine-like technology for neutralizing hormones that participate in gastrointestinal system and reproductive system cancer and non-cancer diseases; and the prevention of pregnancy. The Company's lead product, an anti-gastrin immunogen, is in two separate Phase III clinical trials for pancreatic cancer in the US and Europe; in a pivotal trial for chemo-refractory colorectal cancer; and in a Phase II study in gastric (stomach) cancer. The SCO Group Covers APHT with a Buy Rating and the stock rallies $7? Ok, but we prefer a conservative entry point with a more reasonable cost basis. APR 15.00 HQY PC LB=0.56 OI=37 CB=14.44 DE=21 TY=17.4% http://www.premierinvestor.net/oi/profile.asp?ticker=APHT ***** ASMI - ASM International $17.69 *** Cheap At This Price? *** ASM International, N.V. (NASDAQ:ASMI) designs, manufactures and sells equipment and solutions used to produce semiconductor devices, or integrated circuits. The company's production equipment and solutions are used by both the front- and back-end segments of the semiconductor market. ASM International's products in the front-end market segment grow or deposit thin films onto wafers primarily using a process called chemical vapor deposition, or CVD. CVD deposits films on the wafer's surface through chemical reactions using gases at high temperatures. Its products in the back-end market assemble and package individual dies into finished semiconductor devices using stand alone and automated lines of equipment. The company also manufactures leadframes, copper carriers on which dies are mounted as part of the back-end assembly process. Shares of ASMI surged last week even as the company issued a profit and sales warning. Analysts said the bullish activity was due to new orders for the company's next generation 300 millimeter tools and the current favorable valuation of ASMI's shares. APR 15.00 IQB PC LB=0.31 OI=89 CB=14.69 DE=21 TY=9.6% http://www.premierinvestor.net/oi/profile.asp?ticker=ASMI ***** HOTT - Hot Topic $28.00 *** Bracing for a Rally *** Hot Topic is a mall-based specialty retailer of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. Hot Topic recently reported record results for both the fourth quarter and the 2000 fiscal year. The company opened 62 new stores last year and increased net sales by 52%. Hot Topic is continuing to post strong sales (up 10% in February) and will open 65 new stores and six Torrid stores this year. The technicals remained bullish during the recent consolidation phase and now the stock appears ready to resume its uptrend. APR 22.50 UHO PX LB=0.38 OI=112 CB=22.12 DE=21 TY=9.1% http://www.premierinvestor.net/oi/profile.asp?ticker=HOTT ***** IGEN - IGEN International $18.94 *** Rally Mode! *** IGEN (NASDAQ:IGEN) develops and markets biological detection systems based on its proprietary ORIGEN technology, which provides a unique combination of sensitivity, reliability, speed, and flexibility. ORIGEN-based systems are used in a wide variety of applications, including clinical diagnostics, pharmaceutical R & D, life science research, and industrial testing for food safety and quality control. The company recently announced a joint venture to develop a test for the "mad cow disease" that would allow screening of infected cows in slaughterhouses. This week, a favorable court ruling granted a summary judgment in IGEN's favor. Technically, the move above the January high confirms the new bullish trend and creates an area of support above our cost basis. APR 15.00 GQ PC LB=0.25 OI=14 CB=14.75 DE=21 TY=9.0% http://www.premierinvestor.net/oi/profile.asp?ticker=IGEN ***** SBYN - SeeBeyond $12.75 *** Cheap Speculation *** SeeBeyond (NASDAQ:SBYN) enables the seamless flow of information within and among enterprises in real time. The SeeBeyond eBI Suite offers a rapidly deployable and infinitely scalable infrastructure for application integration, B2B connectivity and business processes optimization. SeeBeyond continues to expand its operations with several new partnerships and is growing its customer base in the Asia Pacific region. A recent 4-year deal with GM should bode well for future earnings and has sparked trader interest. The chart is painting a double bottom formation and this position offers a reasonable entry point for those wishing to add SeeBeyond to their portfolio. APR 10.00 QYS PB LB=0.50 OI=31 CB=9.50 DE=21 TY=23.7% http://www.premierinvestor.net/oi/profile.asp?ticker=SBYN ***** SCIO - Scios $23.00 *** New Drug Approval? *** Scios (NASDAQ:SCIO) is a biopharmaceutical company engaged in the discovery, development, and commercialization of novel human therapeutics based upon its capabilities in both protein- based and small-molecule drug discovery and development. The company focuses its proprietary research and development efforts primarily in the areas of cardiorenal and inflammatory disorders, and Alzheimer's disease. The company has research and development collaborations with Chiron Corporation, DuPont Pharmaceuticals Company, Eli Lilly, GenVec, Kaken Pharmaceutical and Novo Nordisk A/S. Scios also operates a Psychiatric Sales and Marketing Division, which provides operating cash that funds the other activities of the company, principally research and development efforts. A recent report suggests Scios expects its experimental drug Natrecor to become by mid-summer, the first new treatment in more than a decade for acute congestive heart failure. Based on the recent bullish indications, traders are also optimistic on this outcome. APR 17.50 UIO PW LB=0.25 OI=262 CB=17.25 DE=21 TY=7.5% http://www.premierinvestor.net/oi/profile.asp?ticker=SCIO ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield TLGD 25.75 APR 20.00 THF PD 0.56 76 19.44 21 14.2% SPOT 39.19 APR 35.00 OQO PG 0.88 450 34.12 21 10.3% IBIS 27.50 APR 20.00 UIB PD 0.38 300 19.62 21 9.4% MCCC 19.56 APR 17.50 MUD PW 0.38 0 17.12 21 9.0% OLOG 24.81 APR 22.50 OOQ PX 0.44 0 22.06 21 7.9% CIT 28.88 APR 25.00 CIT PE 0.40 228 24.60 21 7.2% *************************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=1958 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ One of the World's Most Unique Financial Markets! By Ray Cummins All of the great cities around the globe contain breathtaking monuments: Paris with its Eiffel Tower, Rome its coliseums and renaissance architecture and of course, the fabled skyline of New York. London is a member of that elite group and it has emerged from each era in its 2000 years of history more varied and magnificent, while becoming richly endowed with the vast treasures of a proud civilization. With its unique mixture of cultures and customs, from the pomp and ceremony of the daily changing of the guard at Buckingham Palace to the dazzling neon theatre district that is Piccadilly Circus, London is a colorful tapestry of living antiquity. This happy marriage of old and new is most evident in the heart of the City, another name for London's financial district and the site of the original Roman town. Gleaming office blocks surround the 1000-year old Tower of London, striking an unusual contrast in a region with a long tradition of innovation and excellence as a center of trade in European markets. As its nickname suggests, the City is no more than a square mile and is approximately equal to the local authority area of the Corporation of London. Within this narrow rectangular corridor, various markets and exchanges cluster in sensible geographical divisions with banking, stocks and commodities, and insurance all established in unique locales. Much like the design of New York's infamous Wall Street, it is possible to walk from one end the City to the other in only a few minutes and the hub of the district at the Royal Exchange affords a suitable junction for access to separate areas of the financial community. In the past, the Royal Exchange has been the home of Lloyds of London, the Foreign Exchange Market and LIFFE Financial Futures Market. Its regal prominence is downplayed only by the presence of the Bank of England, home of the British Government's monetary arm and the place where foreign financial institutions post their representatives. Among the other noticeable buildings are the Mansion House (the Lord Mayor's home), the Stock Exchange tower and a number of global insurers and repositories including Lloyd's, Barclays and National Westminster Bank. Together, these entities control the bulk of the region's monetary transactions whether they relate to securities, foreign exchange, insurance, underwriting or commerce. The foundation of London's equity markets dates back to the late seventeenth century, when the city was one of the largest trading ports in Europe and a center for many types of economic activity. As the exchange of commodities with the population of surrounding regions increased, speculators began to participate in these new ventures in return for a share of the potential profits. But in those days, ocean voyages were risky and most investors were not prepared to finance a long, dangerous journey unless they could convert their shares to currency at any time. This demand for liquidity led to public meetings at local pubs and coffee houses where individual stock in a current endeavor could be sold or exchanged, and future projects could be funded. In 1802, the London Stock Exchange was officially established with the idea that a controlled and recognized procedure should be instituted to enable investors to buy and sell common shares without undue difficulty. The benefits of this activity were interdependent as reduced market risk made it easier for companies to collect money to continue production or finance future expansion. The actual workings of the London Market were much the same as any securities exchange in America until 1986, when major changes were introduced to enable banks and investment houses to link with broker/dealers, thus forming large financial conglomerates capable of competing with other leading exchanges around the globe. The system has evolved into a unique electronic platform much like the NASDAQ, where there is no physical trading floor; simply a computerized network among participating member firms. In recent years, London's capacity to keep pace with the overseas trading community is as much about the ability to exploit the benefits of new technology as it is to realize a potential market opportunity. To meet these challenges, Great Britain's financial institutions have led the way with disciplined innovation in a state of the art business environment. With this type of global commerce, necessity dictates change and the region has enjoyed enormous growth in monetary activity following the launch of a single currency; the euro. London's major banks and brokerages are now the world center of the European markets, with one-third of all foreign exchange turnover and virtually all Euro-traded derivatives business. This increased demand has created a number of new opportunities for the development of more exotic financial products and LIFFE (London International Financial Futures and Options Exchange) has responded quickly and effectively to the unique needs of today's changing markets. Established in 1982, LIFFE is one of Europe's foremost financial exchanges, offering the ability to transact in the world's broadest range of equity, currency and commodities products. Until recently, the exchange functioned in a similar manner to its counterparts in the United States, with an open "outcry" auction in a "pit" on the trading floor. Now, an electronic trading platform called LIFFE CONNECT has been installed, offering one of the world's most advanced and complete market environments with extremely efficient trade execution in a truly global exchange. With over $500 billion transacted on the system every day, more business by value is entrusted to LIFFE CONNECT than to any other electronic exchange. The need for innovation is constant and LIFFE has undergone a reinvention of its design structure and business potential by embracing technology, partnerships and alliances. In 1999, the Chicago Mercantile Exchange and LIFFE announced an alliance to provide customers in both regions with new and expanded product opportunities and electronic access methods. Earlier this year, LIFFE furthered the development of futures on global stocks with the successful launch of its Universal Stock Futures; contracts on company shares worldwide. The product is a market standard, creating new opportunities in foreign equities and providing an efficient alternative to trading company shares worldwide. The combined market capitalization of this global benchmark is over $5 trillion and additional contracts will be introduced in the future. LIFFE recently affirmed its position as the world's leading electronic derivatives exchange, announcing a unique partnership with the NASDAQ to develop the global stock futures market for customers in the United States and Europe. Using a powerful combination of strengths and skills to develop the derivatives markets, LIFFE and NASDAQ will provide single stock futures on a wholly electronic platform. LIFFE already has an an unrivalled distribution network, available in more countries than any other electronic trading system and the new alliance will link with other overseas clearing organizations to create the most comprehensive exchange in the world. Our technologically advanced society is moving rapidly toward electronic trading across an array of financial instruments in every geographic region and investors will benefit from future access to these new markets. LIFFE has assembled the necessary ingredients for success in this environment and London's historic foundation in the financial world has provided an opportunity for the exchange to emerge as dominant player in the global market. In our next discussion, we will examine the daily activities on the trading floor and learn how this unique exchange has emerged as the leader in electronic trading innovation. Cheerio! Get 10 FREE Issues of Investor's Business Daily. No obligation. 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