The Option Investor Newsletter Sunday 04-08-2001 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/040801_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 9791.09 - 87.69 9878.78 +374.00 9504.78 -318.63 -207.87 Nasdaq 1720.36 -119.90 1840.26 - 88.42 1928.68 + 37.77 - 49.80 S&P-100 577.35 - 28.23 605.58 + 24.87 580.71 - 7.28 - 12.72 S&P-500 1128.43 - 53.74 1182.17 + 42.34 1139.83 - 10.70 - 23.03 W5000 10318.40 -327.45 10645.85 +170.55 10475.30 - 84.07 -223.31 RUT 434.66 - 15.87 450.53 + 7.26 443.27 + 1.47 - 10.36 TRAN 2687.03 - 84.33 2771.36 +126.02 2645.34 + 13.97 - 71.64 VIX 36.76 + 2.94 33.82 - 1.09 34.91 - .38 + 2.66 Put/Call .91 .76 .52 1.08 ****************************************************************** Bear Relief? After Thursday's DELL induced rally for the major averages, Friday's Jobs Report caught everyone by surprise, sending the NASDAQ lower by 64.70 points and the Dow($INDU) down 126.90. That was enough to get the ball rolling back to the downside from the opening bell. Then, Pacific Gas & Electric, a subsidiary of PG&E (NYSE:PCG), filed for voluntary Chapter 11 bankruptcy as it gave up on a panacea for the California energy crisis. But taking a closer look at Friday's tape, a little profit taking after Thursday's gains shouldn't be entirely unexpected. The Dow was up 400 points the day before! The big news on Friday was the Jobs Report. The Unemployment Rate came in-line at 4.3% but the Non-Farm Payrolls were lower-than-expected, -86,000 versus -67,000. This was the biggest loss in jobs since November 1991 during the last recession. Simply put, this growing trend of layoffs throughout the economy on all levels, corporate, retail, services, is starting to add up. As a result, fear of a weaker economy and looser job market than previous thought drove investors to do a little selling. So was this cause for true macroeconomic concern or just an excuse to take profits after the previous day's run-up? I would have to say the latter. It was Friday and the market had been shaky all week; all the more reason to take what you got and go home. More importantly, the Non-Farm Payroll number was for March - a lagging indicator. If anything, the surprise number coincides with the turbulent trading in March, characterized by an increasingly volatile market and corporate warnings. Deeper into the report revealed that construction jobs were actually up, indicating that the housing market remains strong. This weaker report even stirred up chatter about an intermeeting cut again. Hmmmm. Let's not count on that to help the market repair, just look what the past three cuts have done. The other major event was Pacific Gas & Electric's filing for Chapter 11 bankruptcy. There has been little relief out in Cali with the energy fiasco and a filing of this magnitude carries massive credit risk implications. This is the third largest bankruptcy in U.S. history with $24.18 bln in assets, only behind Texaco in 1987 and Financial Corp. of America in 1988. Stating a "failed" political and regulatory process, CEO Robert Glynn gave up on solvency and decided to let the courts resolve the financial problem, i.e. court-ordered rate hikes. With $9 bln in debt outstanding, the ripple effect to creditors will begin to unravel. Moody's has already lowered its outlook on the State of California's "Aa2" general-obligation debt from "stable" to "negative." Something like bad to worse, but not an all-out ratings downgrade. Parent company PG&E (NYSE:PCG) lost 37%, or $4.18, to $7.19. Energy stocks were sold with reckless abandon in fear of the implications of such a bankruptcy. Calpine (NYSE:CPN), Enron (NYSE:ENE), and Duke Energy (NYSE:DUK) all sold off quickly but found buyers after the steep declines. But this California crisis will fade into the background as earnings begin this week. Both DUK and ENE will be reporting earnings on Tuesday. Monday kicks off with Banc of America (NYSE:BAC) and Eli Lilly (NYSE:LLY), among others. Tuesday has some high profile names: Intel (NASDAQ:INTC), Phillip Morris (NYSE:MO), Texas Instruments (NYSE:TXN), and Veritas Software (NASDAQ:VRTS). Later in the week, we'll see how badly the quarter was for the likes of Yahoo (NASDAQ:YHOO), America Online (NYSE:AOL), Juniper Networks (NASDAQ:JNPR), Biogen (NASDAQ:BGEN), and General Electric (NYSE:GE). The fate of the stock market now lies in Corporate America's hands. It will very well help complete this bottoming process in the NASDAQ. The market won't be listening to the earnings number so much, rather the guidance going forward, visibility, and inventories. With reeling demand and overbuilt inventories, tech companies will need to unload them to begin a fresh slate. Corporate earnings are going to give the market the needed catalyst to finish this painful decline. My thinking goes hand in hand with the CBOE Volatility Index, VIX.X. The increase in volatility, a measure of general market fear, to levels near 40 gives the appearance that it is coiling to spike upward. As I mentioned on Wednesday, these are trying times that we must get through in order to technically recover. A spike up in volatility will coincide with a spike down in the market. I was discussing the VIX.X with a colleague and we noticed the uncanny resemblance to late 1998, culminating with a massive spike on October 8th to a historic high of 60.63. This was the day that Long Term Capital Hedge Fund collapsed and the Fed cut rates. The VIX.X action prior to that event as it traded in the 40s looks quite a bit like the current chart. A spike toward 50 should be expected in this bottoming process, for good measure. This would allow the bulls to step in with size to the downside and reverse this dominant downtrend. Looking forward, earnings, earnings, earnings will be in the spotlight. After Friday's rumors that Motorola (NYSE:MOT) is having liquidity problems, the stock tanked to a low of $10.50. The company emphatically denied having any credit problems but the past six months have been a nightmare for MOT, handing out 22,000 pink slips in the process. Their earnings on Tuesday after the bell will be watched very closely as the company will potentially post a loss for the first time in more than 15 years. This will certainly set the tone on the Street. In addition, more economic numbers are slated for release with PPI and Retail Sales on Thursday. These releases will either fuel speculation that the Fed may move intermeeting or quell the idea until the May 15th FOMC meeting. Right now, it feels like the market is building up to make a move. The VIX.X is poised at high levels and forward guidance is going to be crucial during these earnings reports. Let's be honest, it isn't likely that we are going to hear a great deal of good news from companies. We are in a trough right now and until we see some light, downside risk still remains even though it may be limited. It is widely thought that the NASDAQ has solid support at 1500, which is minimal considering it closed at 1720 on Friday. Remember that we only have a four day trading week, with the markets closed on Good Friday. Volume should lighten as the week goes on. Watch out for that time decay on April options over the three day weekend. Overnight risk increases in earnings season as gaps become more common due to after-hours releases. Trade what the market gives you, not what you hope the market will do. Just an aside, I want to thank all of you at the Denver Seminar this weekend that took to time to come to my presentation on Option Volatility and for all the great questions in Friday's Chalk Talk. Enjoy the rest of the Seminar and best of luck in 2001. Trade smart. Matt Russ Editor *************************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=1999 ************************************************************ **************** MARKET SENTIMENT **************** Maybe By Austin Passamonte Is this rally for real? Have the bottom callers finally hit it right? Only time will tell is the old cliché so applicable here again tonight. Thursday's wild short squeeze did not totally sell off and collapse as so many skeptics suspected. Friday actually closed a bit stronger than we expected as bears failed to keep pushing down lower lows. A bit of retracement was almost foregone after +402 Dow points were added to the tally. A double handful of lower tier tech warnings and weak employment reports were good excuses to do so. Proof of pudding served with roast bear will be the market's ability to shrug off further warnings and negative news. We know it's coming; no sense in trying to pretend or fool ourselves otherwise. Big, important companies will come out and give poor results and horrible forecasts. How the markets hold up from there makes or breaks bullish sentiment from here. And if bullish sentiment is broken one more time it may be more than they can handle. Each market plunge washes out more weak hands and forces lower lows. Right now the Dow remains the index of focus as NASDAQ's lost their moment in the spotlight some time ago. Should the old index close below the venerable 9,000 level it could get really ugly for the bulls. Another critical earning's season looms ahead during option expiration cycle. Opportunity for significant gains will exist more sessions than not. Safely harvesting our share while remaining clear of harm's way remains our order for the future. Trade the daily trend with care! **************** VIX Friday 04/06 close: 36.76 VXN Friday 04/06 close: 79.56 30-yr Bonds Friday 04/06 close: 5.48% 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 (04/06/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 615 - 600 12,459 3,843 3.24 595 - 580 9,234 11,040 .84 OEX close: 577.352 Support: 575 - 560 4,436 13,029 2.94 555 - 540 823 9,259 11.25 Maximum calls: 600/ 6,902 Maximum puts : 520/11,280 Moving Averages 10 DMA 583 20 DMA 589 50 DMA 639 200 DMA 726 NASDAQ 100 Index (NDX/QQQ) Resistance: 45 - 43 255,407 134,050 1.91 42 - 40 307,962 99,517 3.09 39 - 37 99,892 95,612 1.04 QQQ(NDX)close: 36.30 Support: 35 - 33 39,210 86,466 2.21 32 - 30 4,259 59,421 13.95 29 - 27 206 422 2.05 Maximum calls: 45/158,055 Maximum puts : 43/72,854 Moving Averages 10 DMA 38 20 DMA 40 50 DMA 49 200 DMA 73 S&P 500 (SPX) Resistance: 1200 10,114 14,112 0.72 1175 8,570 6,951 1.23 1150 21,260 16,522 1.23 SPX close: 1128.43 Support: 1100 2,674 21,785 8.15 1075 379 14,489 38.23 1050 575 16,686 29.02 Maximum calls: 1275/25,535 Maximum puts : 1100/21,785 Moving Averages 10 DMA 1143 20 DMA 1149 50 DMA 1239 200 DMA 1369 ***** COT DATA As of Friday 04/06. S&P 500 - Small Specs Commercials +55279 -56907 (+25.70%) (-8.05%) Net-Long Net-Short Full report to resume next Tuesday. No significant changes to note at this time as well. ************************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=1984 ************************************************************** ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/040801_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=2011 ************************************************************** *************** ASK THE ANALYST *************** Duty Free By Eric Utley Prior to this bear market, the thought of losing 20 percent in a mutual fund year-over-year was inconceivable. After all, aren't mutual funds run by "professionals" who know how to manage risk? As it turned out, 2000 revealed that many of these funds and their managers didn't know how to manage risk. A certain fund family here in Denver managed to lose some 60 percent of its investors' monies in two of its funds - 60 percent! I'm sure that those losses have not sat well with investors. Add to the poor performance the fact that investors might have had to actually pay taxes on distributions by the funds, all the while losing capital, and we have a recipe for frustration and anger. Those two aforementioned emotions morphed into a massive shift in capital out of the poor performing funds who distributed taxable gains to their investors. Enter the redemption factor. If I had money in a fund that lost 50 percent last year and had to pay taxes on the distributions, I'd either liquidate part of my position to pay for those taxes or move my money altogether. And I'm willing to bet that most investors would do the same thing. My point is this: I believe that the redemption issue has kept a lid on equities since the beginning of this year. And with the tax deadline here in the United States quickly approaching, I think that the tax-related selling will abate and could free the tape of some selling, provided the earnings warnings stabilize. Two more quick thoughts: I received several requests to look further into ViaSat (NASDAQ:VSAT), which I first reviewed in this column last week. I didn't have time this past week to delve into this company because I was busy preparing for, and participating in the seminar here in Denver. However, I plan on getting in touch with a few of my sell-side friends next week and making some phone calls concerning this company...stay tuned! Finally, I do apologize for the small number of stock reviews this weekend, but my time was limited for the above mentioned reasons. I'll be back next week with a full plate of money making ideas so make sure to send in some good requests to the e-mail address below. Thanks. Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Genzyme General - GENZ Please advise your comments on Genzyme. Appears to be on a steady rise? - Regards, Sunil Thanks for the pertinent request, Sunil. It is my opinion that there are only a few companies in the biotech sector that actually have solid fundamentals - Genzyme General (NASDAQ:GENZ) is one of them. The majority of the companies in the biotech sector lose money from operations, and many of these companies are built upon HOPES that their drugs will receive regulatory approval one day and actually earn money. But, I'm not completely bearish on the entire group. I think biotechnology will be one of the better performing groups over the next, say, ten years. The reason I believe biotech stocks are a good long-term investment is because of the shifting demographics in the United States along with the technological advances in the group. The demand for existing and new drugs will steadily rise as the population of the United States steadily ages. However, there are many risks in the biotechnology sector, which is why I believe extreme selectivity should be employed when investing in the group. I think Genzyme is one of the best companies to invest in for the long-term. The company has one of the most diverse product portfolios in the sector; it does not have to rely upon the sales of one drug - many biotech concerns do. Furthermore, the company has a solid earnings track record and enviable estimates. Genzyme is expected to earn $2.33 cents per share this year, and $2.90 for 2002. Taking Friday's close, shares of Genzyme trade, on a 2002 basis, at roughly 32 times earnings. It's expected annual earnings growth is about 20 percent. As such, shares of Genzyme currently trade with a price-to-earnings growth ratio (PEG) of 1.6: 32 PE / 20 percent year-over-year earnings growth. The reason I went through this calculation is to suggest that shares of Genzyme, and their stable growth, are not necessarily cheap. Having said that, I think it would be prudent for the stock to come in (read: pullback) before entering long-term positions. Now to digress from my rambling, Sunil, let me address your request. Shares of Genzyme have been advancing recently due to the quality of the company and its earnings. I think market participants in the biotech sector have been flocking to quality, and the stock has been a recipient of that rotation. Furthermore, Goldman Sachs (NYSE:GENZ) recently upgraded shares of Genzyme, which I think stoked the upward momentum. While the underlying fundamentals are in place to support an advance in Genzyme and, indeed, its price action has been relatively strong recently, I would be a little hesitant to enter an intermediate-term trade in the stock at current levels. And the reason for my hesitation is because of the weakness in the broader biotech sector as measured by the AMEX Biotechnology Index (BTK.X). You can see on Genzyme's chart below that the stock has been trading relatively well and bucking the weakness in the BTK. But...the trend in the BTK is obviously to the downside. Even though shares of Genzyme are trading well and the company, in my opinion, is one of the best in the biotech sector, the trend in the BTK begs caution from the long side. Having said that, once the BTK stabilizes and traces a bottom, shares of Genzyme might be worth closer consideration. ---------------------------- BEA Systems - BEAS Why is this stock going up and showing such resistance to going down? I shorted it at $23.975 and it has done nothing but go up. I am patiently waiting for it to sink. The target on the downside is supposedly $15.00. - Thanks, Jean Thank you for the request, Jean. We've been hearing the term "visibility" for quite some time. The term relates to companies with the ability to forecast, with some accuracy, future sales and earnings. And I think part of the reason that shares of BEA Systems (NASDAQ:BEAS) have been trading relatively well lately is because the company has visibility into its coming quarters. Back in February, BEA Systems actually raised earnings guidance when it reported its most recent quarterly numbers. In short, the company reported that it was seeing stability in orders from its customers and, more importantly, growth in those orders. Furthermore, just last week, during a technology conference sponsored by Salmon Smith Barney, officials from BEA Systems reaffirmed the guidance they had given back in February during their earnings report. Wall Street welcomed the news and bestowed several positive comments upon the company. So, that answer your question, Jean. BEA Systems is outperforming its peers in terms of earnings performance, which is lending an underlying bid to its shares. However, the underlying fundamentals in the broader e-commerce software sector continue to deteriorate as measured by the myriad earnings warnings from BEA Systems' competitors such as E.piphany (NASDAQ:EPNY). In short, Jean, your bearish stance on BEA Systems is correct in that the company operates in a sector with terrible fundamentals. And that much may weigh the stock down in sympathy, especially with additional warnings from the group. However, BEA Systems' out performance in earnings and relative strength in price may require astute risk management from the short side. ---------------------------- Mattson Technology - MTSN Give me your take on MTSN. It's in a tough sector but seems to be making a slow steady climb over the last 3 months. I onw the stock and have been doing covered calls on it. Seems to have a steady pattern of bouncing from its 50-dma to its upper [Bollinger] band. - Thanks, JPD Thanks for writing in, JPD. Mattson Technology (NASDAQ:MTSN) is a relatively small capital equipment maker in the semiconductor sector. The company, as of Friday's close, trades with a market cap of roughly $375 million. Its competitors in the chip equipment space include Applied Materials (NASDAQ:AMAT), KLA - Tencor (NASDAQ:KLAC) and Teradyne (NYSE:TER). Shares of Mattson are getting pretty cheap in terms of both sales and earnings multiples. On a trailing basis, shares of Mattson trade at 11 times earnings and about 1.5 times sales - those are valuations that are conducive, or perhaps, indicative of a bottom in the stock relative to the cycle in the broader chip sector. I think Mattson is a good stock to use a covered call strategy as, in my opinion, the downside risk in the broader chip sector, as measured by the Philly Semi Index (SOX.X), is somewhat mitigated. As such, I wouldn't expect Mattson to fall substantially from its current levels. However, that doesn't necessarily mean that I'm bullish on the stock. Rather, I'd expect sideways trading in Mattson until the chip sector begins to rebound. Obviously, if you're using the covered call strategy, JPD, you'd like to see Mattson trade sideways. On a side note, I'd like to point out that the chip equipment makers, such as Mattson, typically lead the recovery in the broader chip sector. As such, I'd expect Mattson to be one of the first stocks in the chip group to rebound once the cycle reverses. ---------------------------- 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 9th, 2001 Tuesday ======= Richmond Fed Mfg. Survey Mar Forecast: NA Previous: 2.0 Wednesday ========= Export Prices ex-ag. Mar Forecast: NA Previous: -0.10% Import Prices ex-oil Mar Forecast: NA Previous: -0.10% Oil & Gas Inventory 6-Apr Forecast: NA Previous:303.2MB Thursday ======== Initial Claims 7-Apr Forecast: NA Previous: 383K PPI Mar Forecast: 0.10% Previous: 0.10% Core PPI Mar Forecast: 0.10% Previous: -0.30% Retail Sales Mar Forecast: 0.00% Previous: -0.20% Retail Sales ex-auto Mar Forecast: 0.20% Previous: -0.30% Chain Store Sales Mar Forecast: NA Previous: 2.8% Friday ====== Business Inventories Feb Forecast: 0.30% Previous: 0.40% Mich Sentiment-Prel. Apr Forecast: 91 Previous: 91.5 ECRI Wkly Leading Idx. 6-Apr Forecast: NA Previous: -5.4% Week of April 16th ================= Apr 17 CPI Apr 17 Core CPI Apr 17 Housing Starts Apr 17 Building Permits Apr 17 Industrial Production Apr 17 Capacity Utilization Apr 18 Trade Balance Apr 18 Leading Indicators Apr 19 Initial Claims Apr 19 Philadelphia Fed Apr 19 Treasury Budget ************************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=2020 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 04-08-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040801_2.asp ************** TRADERS CORNER ************** Benefiting Using Indicators During Times Of Uncertainty By Renee White Last week, we began a discussion on the technical indicators that I will use to assist me in choosing stocks to play for the recovery. With so many stocks near their lows, buyers will soon need to decide if they will cherry-pick the best stocks with the best fundamentals, at the best price, or try to follow where bigger money is placing their bets to ride the wave of the "smart money" flow. On Balance Volume (OBV), like the RSI discussed last week, can be found in many technical charting and quote programs. If you want to follow the money, consider this indicator. Like the RSI, I do not trade against its singular reading, but rather as an adjunct to other technical tools when trying to make decisions. If I have an opinion, there is comfort in knowing that a comparative study of different types of indicators lean in the direction of my underlying bias. On the other hand, a divergence may cause me to study a pattern more closely, perhaps even awakening me to a pending reversal before the crowd. OBV (developed by Joe Granville) is a short-term technical indicator that gives a clue where money is shifting. It is a momentum volume indicator which relates volume on up days (or down days) to price change, as a running total of volume. I consider it a clue if money is actually flowing into or out of a security because it takes into consideration the volume of the move. For those that like to follow "smart money," you can find more information on this indicator from his book, "New Strategy of Daily Stock Market Timing for Maximum Profits." Since OBV changes daily due to the security's total up-volume or down-volume, it is used as another indicator that may show movement before the underlying price changes significantly to a new trend. A rising OBV while the underlying is still flat or in a basing pattern would suggest that "smart money" is rotating into the security. Once the strength in the security becomes obvious, the stock price begins to move upward out of the basing pattern. At this time, both the OBV and the stock price will move ahead together, establishing an uptrend, until the pattern is broken. By following the OBV, one can catch pivot points before major moves in a security, either breaking out to the upside, or breaking down from an established trend line. Like the RSI, following its support and resistance lines are as important as watching these levels in the underlying security. If you are bullish on the stock, you want a rising OBV with each peak being higher than the previous peak (higher highs), and with dips bouncing while keeping higher lows than the previous low. Obviously, this is reversed if you are playing the short side of the market with a bearish bias. As a bear, you want lower highs and lower lows confirming your downside bias in both the equity and the indicator. Another clever rule using OBV helps with decisions during those times when there is confusion in the direction of your equity after a pullback. According to Stephen Achilles in "Technical Analysis from A to Z," if the OBV uptrend pulls back then whip-saws with bounces up and down, OBV is considered broken if that action lasts more than 3 days. In other words, if a rising trend becomes an uncertain trend for more than 3 days (moving sideways without a clear follow-thru trend), then the original trend is said to be broken and one should take profits instead of holding further. On the other hand, if that sideways action lasted 2 days then returned to the rising uptrend, it should be read as a trend that was never broken. One other note on this: If the price in the security moves before or without the OBV movement, it is considered a suspicious move without confirmation. Taking the bullish equity trade may prove costly because reportedly, this occurs at bull market tops. However, something pertinent for today is that the reverse is also true at bear market bottoms. The security may fall without or before the OBV. In the weeks to follow, I'll continue discussing how I use different indicators to analyze information. Soon we will look at charts and compare the different messages these signals send. In the meantime, here is an email question to think about. ******** Dear Renee, Speaking of RSI, would you offer a comment on RSI versus DJIA index divergence on the monthly chart? Looks pretty scary to me. Thank you, Jerry Hi Jerry. You're right. Things look scary in that index. At the close of Thursday as I write this, it is interesting to note that the RSI on the DOW Jones Industrial composite ($INDU), slightly took out congested resistance from the last several months between 48-52, by closing at 52.80 on the daily chart. At first glance, that might feel like an entry, especially with the volume surge today. Yet, my stochastic reading (which I haven't discussed yet), gives an indication that this may be nothing more than a bear trap rally in this index, since it shows over-bought at a lower Dow high than the last over-bought reading when the Dow was at 10,800. Since I am writing this article on Thursday after a huge rally with volume, it will be interesting to see if this reading holds true, or if the rally can sustain a continued advance next week. When I look at the monthly chart as you suggested, I see the scary divergent RSI reading showing lower highs and lower lows accelerating since April of 1999, roughly where the range-bound trading began for the Dow. Another thing I notice is that the RSI close of 41.40 on the monthly chart read today (Thursday), is slightly lower than the August 1998 low during the Asian crisis, and right at the level of the 1990-1991 recession. Back to the daily chart and reviewing the past year, RSI has shown lower lows since August 14th when it read 77.26 with an intraday Dow high of 11,177. With the daily chart showing an RSI close of 52.80 today, it is clear we are still dropping in relative strength on this index. Today's rally puts us at a resistance level on the daily and a support level on the monthly chart. Before I would feel better, I'd want the daily to clear resistance with a smile AND see a bounce up off of that monthly support level along with improvement in other indicators. Good study, Jerry! ************************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=2012 ************************************************************** *********** OPTIONS 101 *********** Does History Repeat Itself? By Lynda Schuepp We hit the 100-month moving average on Nasdaq on Wednesday, now what? We are in uncharted territory or are we? This bear market has been the worst decline in the Nasdaq since 1973. Currently, the Nasdaq has declined 68% as of Wednesday. The lows were put in on the S&P and the Dow on March 22nd. Since the highs back on March 31st, 2000, the S&P has declined 30% and the Dow has declined 21%, meeting the minimum definition of a bear market (20%). I think that's good news. In the bear market of 1973, the Nasdaq declined 60%. Both the Dow and the S&P declined over 47% but this time they have only declined 21% and 30% respectively. Does this mean the S&P and the Dow have more downside? The bear market of 1973 probably is the closest fit to the current situation. That decline lasted for almost two years. You have to dig a little deeper to unravel the mystery. From the bottoms in 1974 to the peak of the next bear market (8/87) the S&P & the Dow rose 400% and the Nasdaq rose 700%. From the bottom of the 1987 bear market to the peak in March last year, the S&P and the Dow rose 700% but the Nasdaq rose a whopping 1700%! Clearly, the Nasdaq was overvalued. Hindsight is wonderfully accurate. Looking at the ranges from lows to the highs in the previous two bear markets, it appears that the Dow over-corrected and the Nasdaq under-corrected, if you look at the percentages. So what does that mean? Let's look at the three charts. Monthly Chart of Nasdaq: Note my comments about finding support at the 100 period moving average in my article on March 18th. It appears that the Nasdaq is finding support at the 100 period moving average, which it also found back at the bottom of the 1987 bear market. It is too early to tell, but my bet is we are close to a bottom. Monthly Chart of S&P: Looking at the monthly S&P chart above you can see that the S&P moved too far and too fast, extending it way past the 100 MA. In fact, the S&P tracks almost perfectly with the 50 period MA. Every major and not so major correction went down and held around the 50 period moving average. The current price of the S&P is just below the 50 moving average. Monthly Chart of Dow Jones: Looking at the monthly chart of the Dow, the 50 period moving average provides a great historical fit. Notice how last month it dipped below and this month it is flirting with it. This is a great sign and it is finding strong support. Also a healthy sign is that the Dow corrected through time, in other words it drifted sideways until it caught up with the moving average. Conclusion: All three major market averages are finding support at major moving averages (50 or 100), where they have found support in past bear markets. If history repeats itself, then we should be close to a bottom. However, before it's off to the races, history also shows us that we will go through a couple of real volatile months followed by some sideways action and they we can smile again for another 10 years. So how do we play it? Volatility is much lower the farther out you go, especially in the QQQ's. The April implied volatility of the "at-the-money" calls is .74 versus the January '03 calls with an implied volatility of .52, which represents what is called a skew. What this means is that is a great time to be a buyer of long-term options or a seller of short-term options. Conversely, it is bad to be a buyer of short-term options or a seller of long-term options. Adjust your strategies according. A simple strategy that takes advantage of this skew would be a covered call, selling the April 40 calls and buying the stock or buying the Jan'03 40 calls. The April 40 calls have ranged in price from $0.40 to $2.25 in the last five days. Buy the LEAP and wait for the pop, then sell an out-of-the-money call against it. Remember, if an option has 9 months or more to expiration you only have to put up 75%. Not a bad way to go in these times of uncertainty. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* WCOM - CALL Worldcom Inc. $18.38 (+0.19 last week) See details in sector list Put Play of the Day: ******************** HGSI - PUT Human Genome Sciences Inc $42.44 (-3.56 last week) 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=2021 ************************************************************** ************************** 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 No dropped puts this weekend *********** 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 ************** GPS - Gap Inc. $24.70 (+1.23 last week) Gap Inc. is a leading international specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, and Old Navy brand names. Fiscal 2000 sales exceeded $13 billion. As of March 3, 2001, Gap Inc. operated 3.740 stores in the United States, the United Kingdom, Canada, France, Japan and Germany. The company also operates online stores for customers in the United States. The retail sector has been performing comparatively well in the overall weak market environment, and after forming a series of higher lows last week, RLX.X has moved above its 200 dma of 840, which is a sign of formidable technical strength. Retail stocks and other consumer cyclicals tend to lead the market when an economic recovery is anticipated, and within the specialty apparel retail sector, few companies are as well positioned as Gap Inc. to profit from increasing investor attention. After reporting earnings on March 1, GPS dropped below its 50 and 200 dmas. However, since that point, GPS has formed a rounded bottom pattern, and has made a strong series of higher lows starting with a drop to $22.18 on March 22, the day the Dow dropped to 9100, and subsequently rebounded. Following this drop, GPS consolidated between support at $23 and resistance at $24 until last week. On April 5, GPS cleared resistance at $24, which is now support, and is well positioned to make a move toward clearing $25, and possibly the converged 200 and 50 dmas at $26.62. Excellent news released last week may entice investors to shop for more GPS stock. Last Monday, Warren Buffet's holding company Berkshire Hathaway disclosed that they had purchased 8 million shares of GPS, or .9% of the company. GPS is scheduled to report first quarter earnings on May 17, which leaves plenty of time for this play. However, GPS, WMT and other retailers will report same store sales on April 12, and conservative traders might not want to hold over this report. Traders can take positions at current levels, or at a pullback to support at $24.50. A break above $25 with strong volume would be an excellent entry point for conservative traders. Watch others in the sector like WMT and AEOS, as well as RLX.X, and close positions if GPS closes below $23.50. ***April contracts expire in two weeks*** BUY CALL APR-20 GPS-DD OI= 40 at $5.00 SL=3.00 BUY CALL APR-25*GPS-DE OI=4996 at $1.25 SL=0.75 BUY CALL MAY-20 GPS-ED OI= 82 at $5.40 SL=3.50 BUY CALL MAY-25 GPS-EE OI=1075 at $2.00 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=GPS MRK - Merck & Co $76.42 (+0.52 last week) Merck is a global pharmaceutical company, which specializes in the development of human and animal health products. They are the #1 industry leader in the US and #2 worldwide. Some of its more prominent drugs include Zocor and Meycaor (cholesterol drugs), Pepcid (an anti-ulcerant), top-selling hypertension drugs, Vasotec and Prinivil, and more recently the AIDS medication, Crixivan. The drug maker also provides pharmaceutical benefit services through Merck-Medco Managed Care which it sells to corporations, labor unions, and insurance companies. It's been awhile, but it looks like traders have once again flocked to the drug stocks as a safe haven in uncertain times. Since hitting it's all time high late last year, shares of pharmaceutical giant Merck had been on the decline. In connecting the highs and lows since that time, a downward trending regression channel can clearly be seen, as a weakening NYSE took its toll, along with heavy selling as drug stocks were at historically high levels of valuation. An upgrade in the latter part of March from Lehman Brothers analyst Tony Butler helped to turn things around, as he offered bullish comments on the Pharmaceutical sector, suggesting the possibility that drug companies could exceed earnings estimates, and calling current levels a buying opportunity, rating Merck a Strong Buy. The settlement of a major dispute with the Brazilian government over AIDS drug prices also helped to take a weight off the stock. Bouncing strongly off support at $66, MRK has since advanced steadily. Having now broken to the upside from it's upper downtrend line, the stock found support at that level and now, appears poised to challenge its 50-dma, just above at $77.18. A bullish surge above this moving average could be an ideal entry point for conservative traders, provided that Merrill Lynch's Pharmaceutical HOLDR (PPH) confirms upward movement. For higher-risk traders, pullbacks to the 5 and 10-dma (at $74.74 and $74.40) may provide potential entry points, but make sure that MRK is back above our stop price of $75 by the market close. ***April contracts expire in two weeks*** BUY CALL APR-70 MRK-DN OI=2096 at $7.30 SL=5.25 BUY CALL APR-75*MRK-DO OI=9670 at $3.40 SL=1.75 BUY CALL MAY-75 MRK-EO OI=2155 at $5.00 SL=3.00 BUY CALL MAY-80 MRK-EP OI=3498 at $2.35 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=MRK *************************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=2000 ************************************************************ ********** 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 04-08-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040801_3.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=2001 ************************************************************ ****************** CURRENT CALL PLAYS ****************** AGIL - Agile Software $13.13 (+2.10 last week) Agile Software develops and markets collaborative manufacturing commerce solutions that speed the build and buy process across the virtual manufacturing network. Agile Anywhere (formerly Agile Workplace) is a Web-based, collaborative software suite that helps global companies and their partners add, update, and manage product content throughout the manufacturing supply chain. The company's offerings are well suited for participants connected in outsourced supply chains, as well as those managing multi-site engineering, manufacturing, sales and distribution via the Internet. AGIL primarily targets computer, electronics, and medical equipment markets. Major clients include Gateway, Lucent, Texas Instruments, and Solectron. Software stocks have been taking it on the chin in recent weeks, and our AGIL play was no exception, declining almost 80% from its highs in late January. Things looked like they might be ready to improve by the middle of last week, so we added AGIL to our call list. Motivating our decision was the positive investor reception of the company's earnings warning and cancellation of the merger agreement with ARBA. While the stock gapped down after the news, it went right into rally mode. As it turned out, we were just in time, with the Software index (GSO.X) and AGIL launching higher on Thursday. The magnitude of the move was a bit too much and the bears came back to trim things down a bit on Friday. The big question is whether this rally still has legs or if the quick 3-day pop is all we're going to get. Judging by the charts, our play still has some room to run, if the bulls aren't too tired. The daily chart still has Stochastics pointed to the moon, but the buyers are running into resistance near $14. Then we have $16 and $18 levels of resistance lying in wait - it isn't going to be an easy road for the bulls. One thing to note is that volume has now dropped off to normal, with Friday's tally coming in just below the ADV. Aggressive entries are best found on a bounce from support, so long as it is above our $12 stop. Needless to say, conservative traders will want to wait for confirmed strength before playing - wait for AGIL to crest the $14.50 level before venturing into new positions. In either case, watch the GSO.X for confirmation of strength in the Software sector before trading. ***April contracts expire in two weeks*** BUY CALL APR-12.5*AUG-DV OI= 467 at $2.00 SL=1.00 BUY CALL APR-15 AUG-DC OI= 183 at $1.00 SL=0.00 High Risk!! BUY CALL MAY-12.5 AUG-EV OI= 101 at $2.81 SL=1.50 BUY CALL MAY-15 AUG-EC OI=1194 at $1.75 SL=1.00 BUY CALL JUL-15 AUG-GC OI= 237 at $3.00 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=AGIL WCOM - Worldcom Inc. $18.38 (+0.19 last week) Worldcom is a preeminent telecommunications company for the digital generation, operating in more than 65 countries with 2000 revenues of approximately $40 billion. Worldcom provides the innovative technology and services which are the foundation for the twenty first century. At an analyst meeting on March 14, WCOM's high profile CEO Bernie Ebbers, reiterated the company's previously stated forecast for first quarter earnings, and denied rumors that WCOM might give a profit warning. This event acted as a springboard for the stock, and starting on March 14, WCOM has been forming a bullish wedge pattern, with higher lows at $15, $16.50, $17.50, Friday's low of $18, and strong resistance at $20. The tighter this wedge becomes, and the the longer it progresses, the stronger the breakout is likely to be. This may require some cooperation from the telecom sector. After months of intense selling, the sector is starting to show signs of basing, as demonstrated by the charts of Q, SBC, BLS and others in the sector. WCOM demonstrated rock solid support at $16 on March 22, when the Dow hit its 52-week low of 9100. It is particularly impressive that WCOM managed to stay just a fraction above its 50 dma of $18.13 on Friday, amid the broad market weakness and the news that they were ordered by a Delaware court to pay a settlement to shareholders of Digex in a class action law suit. Traders could take positions at the current level, however, we are keeping stops tight at $17.50, so close positions if WCOM closes below this level. Alternatively, conservative traders could wait for a breakout above $19.50 on strong volume, which could potentially propel WCOM to the 200 dma of $25.31. ***April contracts expire in two weeks*** BUY CALL APR-15*JQD-DC OI= 9561 at $3.63 SL=1.75 BUY CALL APR-20 LDQ-DD OI=44217 at $0.50 SL=0.00 High Risk!! BUY CALL MAY-15 LDQ-EE OI= 7385 at $4.13 SL=2.50 BUY CALL MAY-20 LDQ-EE OI=11806 at $1.31 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=WCOM AEP - American Electric Power $47.34 (+0.34 last week) American Electric Power is a multinational energy company based in Columbus Ohio. AEP owns and operates more than 38,000 megawatts of energy, making it one of America's largest generators of electricity. The company is also a leading wholesale energy marketer and trader, ranking second in the U.S in electricity volume. AEP provides retail electricity to more than 9 million customers worldwide, and has more than $55 billion in assets, primarily in the U.S, with holdings in select international markets. Wholly owned subsidiaries are involved in power engineering, construction services, energy management, and telecommunications. The utility sector suffered a serious drop on Friday with the initial shock that Pacific Gas & Electric's utility subsidiary had filed for bankrupcy protection. AEP Sold off initially when this news was released, but rebounded at the close as investors realized that PCG's bankrupcy would have minimal impact on AEP. The news may actually increase investors' awareness of the acute energy shortage in the US, and the demand for power which can be supplied by companies like AEP. In an environment of earnings warnings, and excess inventory in the technology sector, the power producers are experiencing excessive demand for their products, which is not likely to abate at any time in the immediate future. In fact, the Energy Secretary Spencer Abraham recently stated that the US might need as many as 65 new power plants each year for the next twenty years. AEP is currently facing heavy resistance at the $48.98 level, which it has tried to penetrate since December. If AEP can clear $48.98 with heavy volume, the move should have enough momentum to bring AEP at least to the next resistance level at $50, and possibly to a new all time high. Aggressive traders could take positions at current levels, if UTY.X can regain strength. Alternatively, conservative traders might wait for a clean break above $49, with heavy volume. Watch others in the power sector like DUK and CPN, and keep stops at $46.50. We will close the position if AEP closes below this level. ***April contracts expire in two weeks*** BUY CALL APR-45*AEP-DI OI=203 at $2.75 SL=1.50 BUY CALL MAY-45 AEP-EI OI=846 at $3.30 SL=1.75 BUY CALL MAY-50 AEP-EJ OI=452 at $0.75 SL=0.00 High Risk!! http://www.premierinvestor.net/oi/profile.asp?ticker=AEP EQT - Equitable Resources, Inc. $72.45 (+3.45 last week) Equitable Resources is an integrated energy company with emphasis on Appalachian area natural-gas supply, natural-gas transmission and distribution, and leading-edge energy-management services. Equitable Resources, its divisions and its subsidiaries, offer natural gas products and energy services to wholesale and retail customers through three business segments: Equitable Utilities, Equitable Production and NORESCO. NORESCO provides energy-management services for projects across the United States and in selected international markets. The division focuses on energy infrastructure, performance contracting, and power quality related projects. It appears that despite what looks like random acts of selling on the part of the bears on Wall Street, there may be a method to their madness after all. Earnings are still the key to fundamental strength in a stock, as companies which have proven themselves to be consistent performers continue to attract investors. So while the markets have been testing their lows recently, shares of EQT have been bucking the trend, in the midst of making new all-time highs. As mentioned before, it's all about the earnings. With the company posting a 71 percent increase in earnings per share in its last earnings report in February, followed by an optimistic earnings call with positive comments form the CEO, this was just another stellar earnings report in a long line of equally strong numbers. Despite a slowing economy, the company has been able to maintain its winning ways, thanks to increases in production, energy prices and efficiencies in operation. Recently surpassing formidable resistance at the $67 level, the stock has steepened its up-trend, moving higher on the back of its 5-dma, now at $71.52. Pullbacks intra-day to this point as well as horizontal support at $71.80 may provide aggressive traders with potential entries, as long as the stock continues to close above our stop price of $71. For the more risk averse, a bullish surge above $73.50, confirmed by movement in peers DYN and SRE, could allow for an entry on strength. ***April contracts expire in two weeks*** BUY CALL APR-65 EQT-DM OI=260 at $7.80 SL=5.75 BUY CALL APR-70*EQT-DN OI=116 at $3.20 SL=1.50 BUY CALL APR-75 EQT-DO OI= 60 at $0.85 SL=0.00 BUY CALL MAY-70 EQT-EN OI= 15 at $5.30 SL=3.50 BUY CALL MAY-75 EQT-EO OI=103 at $2.85 SL=1.50 http://www.premierinvestor.net/oi/profile.asp?ticker=EQT ************************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=2013 ************************************************************** ********** 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 04-08-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040801_4.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=2014 ************************************************************** ************* NEW PUT PLAYS ************* LEH - Lehman Brothers Holdings $60.00 (-2.70 last week) Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Along with the rest of the Brokerage sector, shares of LEH have been in a nasty decline since the end of January. Weak trading volume is definitely cutting into revenues in the sector, but the real bite is coming from the lack of IPOs, the flow of which has all but dried up over the past 6 months. Investors are asking themselves when things are going to get back to normal, unaware that we may already be there. While the long-term trendline indicates the presence of support near $55, the 2-month descending trendline (now at $63) is pointing to more near term weakness. The whole Financial sector has been weak over the past several weeks, and this does not bode well for the broader market. As we all know, the broad market is unable to sustain a rally for very long if not supported by Financial stocks. So while things are weak, let's profit from the down side. Adding to the bearish sentiment is investor reception of Thursday's UBS Warburg upgrade; although it provided a boost on Thursday, most of those gains had evaporated by Friday's close. An intraday bounce could give a aggressive traders just the entry point they are looking for, as LEH runs out of steam and rolls over. Target a rollover near $63, also the site of our stop, for new entries. A more conservative approach will be to wait for a drop through the $60 support level, preferably on continued strong volume, before initiating new positions. The Securities Broker/Dealer index (XBD.X) should provide a view of the health of the overall sector; make sure it is showing weakness before playing. ***April contracts expire in two weeks*** BUY PUT APR-60*LEH-PL OI=2502 at $3.20 SL=1.50 BUY PUT APR-55 LEH-PK OI=1815 at $1.50 SL=0.75 High Risk!! BUY PUT MAY-60 LEH-QL OI= 130 at $5.90 SL=4.00 BUY PUT MAY-55 LEH-QK OI= 455 at $3.40 SL=1.75 BUY PUT MAY-50 LEH-QJ OI= 903 at $2.15 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=LEH QCOM - Qualcomm Inc $44.63 (-12.00 last week) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology is used in cellular phones, wireless telephone system equipment, and satellite ground stations. In addition, Qualcomm provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system called Globalstar. They are also the #2 supplier of digital cell phones following Nokia. Qualcomm has been working for several years to successfully introduce its CDMA technology to China. Unfortunately for the company, the escalating tensions surrounding our Navy surveillance plane getting caught flying in China's airspace has resulted in shares of QCOM losing over 21% since the incident occurred - on April Fool's Day, no less! Wells Fargo Van Kasper lost no time coming to the defense of this wireless leader. The brokerage firm reiterated its Strong Buy recommendation and issued a lofty $110 price target, but no matter, QCOM broke its $55 support level on robust volume. It's feasible to imagine that QCOM could resume a higher stature amongst investors over the longer-term; however at the moment, we're anticipating that the fragile US-China relations will continue to effectively drag down shares of QCOM next week. The faltering NASDAQ should also play a vital role in the success of this put play. The consistent trading under the 10-dma ($51.62) and in the vicinity of the 5-dma ($46.71) provides traders with a variety of entry scenarios. Aggressive traders might jump into this play as QCOM rallies into the upper resistance levels and rollovers on volume. Or, traders could consider buying into weakness as the share price moves to the underside of $43 and $44. Look for heavy volume, above 500 K intraday, to lead the declines. In other words, make sure the sellers are in control and the market pendulant is swinging in your favor. We'll exit QCOM if there's a bullish CLOSE above the $49 level. ***April contracts expire in two weeks*** BUY PUT APR-50 AAO-PJ OI= 8292 at $7.38 SL=5.25 BUY PUT APR-45*AAO-PI OI= 6451 at $4.38 SL=2.50 BUY PUT APR-40 AAW-PH OI=13860 at $2.44 SL=1.25 BUY PUT MAY-50 AAO-QJ OI= 2696 at $9.50 SL=6.50 BUY PUT MAY-45 AAO-QI OI= 4340 at $6.50 SL=4.50 BUY PUT MAY-40 AAW-QH OI= 1619 at $4.38 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM ***************** CURRENT PUT PLAYS ***************** MRX - Medicis Pharmaceutical $43.50 (-1.32 last week) Focused primarily on the treatment of dermatological conditions, MRX is an independent, specialty pharmaceutical company, based in the United States. Targeting major segments within dermatology, MRX provides products for the treatment of acne, rosacea, eczema, hyperpigmentation, pediculosis, psoriasis, and dermatitis. The company offers a long list of targeted products both by prescription and for the over-the-counter (OTC) market. MRX has been frustrating for all but the most patient traders, as it has failed to break down in the past week. On the other hand, it has been encouraging that the bulls don't seem to be showing much interest either. The real culprit here seems to be the broader Drug index (DRG.X), which spent the past week trying to decide which way to go. As of right now, it is a tough call to make, but it is leaning towards bear territory right now. Since peaking at the end of last year, this index has been under pressure from a variety of sources, but the net result has been to create a sustained 3-month downtrend, which looks to be ready for its next leg down. The recent downtrend in MRX is just over 2-months old, and after the reactionary bounce late last month, the stock looks like it is more than ready to roll over again. With the descending trendline at $44, and significant resistance at $45-46, our play is going to have a hard time reversing course and rallying without a powerful bullish move from the broader sector. Daily Stochastics is just about to drop out of the overbought region, and when it does, it should accompany MRX on a trip back to retest its lows near the $35 level. Consider aggressive entries on a southward bounce from the $45 level, keeping stops set at $46. More conservative players will want to wait for a break below the $43 or even $42 levels before taking a position. Keep in mind that the DRG.X index will provide a good measure of sector strength - make sure it continues to weaken. ***April contracts expire in two weeks*** BUY PUT APR-45*MRX-PI OI=39 at $2.95 SL=1.50 BUY PUT APR-40 MRX-PH OI=36 at $0.75 SL=0.00 High Risk!! BUY PUT MAY-45 MRX-QI OI= 0 at $4.40 SL=2.75 Wait for OI!! BUY PUT MAY-40 MRX-QH OI=55 at $2.00 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=MRX UNH - UnitedHealth Group $58.94 (-0.32 last week) Providing a broad range of resources to help people improve their health through all stages of life, UNH forms and operates markets for the exchange of health and well being services. The company's Health Care Services segment consists of the UnitedHealthcare and Ovations businesses. UnitedHealthcare coordinates network-based health services on behalf of local employers and consumers in six broad regional U.S. markets. Ovations is a business dedicated to advancing the health and well-being goals of Americans over the age of 50. Additionally, the company's Ingenix business operates in the field of health care data and information, analysis and application. Soaring with the rest of the Health Care sector, UNH was one of the darling stocks of the year 2000, but the bulls have recently lost their conviction. Since the beginning of the year, the stock has been stuck in a broad trading range between $63 at the upper end and $50 at the lower extreme. Rallying again over the past 2 weeks, UNH is starting to show weakness right at the upper end of its range. Adding to the bearish outlook is the fact that the highs since the first of the year have been gradually getting lower, and if the action over the past 2 days is any indication, the stock is just beginning its next trip down. Pressured by the descending trendline and the falling upper Bollinger band, UNH should have any upside moves capped near the $61 level, also the location of our stop. While UNH has been rolling over, the Healthcare Payor index (HMO.X), of which UNH is a component, is continuing on its mild uptrend. Relative weakness within its sector is encouraging for put buyers, and now all we need is for the broader sector to show some weakness. Attractive entry points still exist for aggressive traders on a rollover near the $61 level in the event of a failed intraday rally. However, with weakness starting to show on Friday, it may be the conservative approach that actually provides the entry on UNH as it falls through the $58 support level. ***April contracts expire in two weeks*** BUY PUT APR-60*UNH-PL OI=1601 at $2.75 SL=1.50 BUY PUT APR-55 UNH-PK OI=1253 at $0.85 SL=0.00 High Risk!! BUY PUT MAY-60 UNH-QL OI= 585 at $4.10 SL=2.50 BUY PUT MAY-55 UNH-QK OI= 647 at $2.15 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=UNH AMGN - Amgen $54.77 (-4.61 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. After climbing higher with the market bulls on Thursday, AMGN attempted to clear its 10 dma of $57.87 on Friday before rolling over with a surge of heavy volume. This confirms the pattern of rolling over from lower highs which AMGN established the first week in March. If the biotechnology sector, BTK.X cannot break out of its own downward channel then the near term outlook for AMGN will most likely be additional weakness. BTK.X rolled over from 480 last week and 470 on Friday, and is currently just below the 10 dma of 451. If BTK.X starts to fall below its current levels, AMGN may fall below $54.50, which could be an entry point for conservative traders. Alternatively, a failed rally from the $56 level would establish another lower high, and could be an aggressive entry point. The next support level is $52, and below that there is little support left until AMGN's 52-week low at $45.43 established on March 22. We are keeping stops tight at $58, so exit positions if AMGN closes above this level, as it would break the pattern of lower highs. Watch others in the sector like HGSI and DNA, as well as BTK.X for an indication of sector strength. ***April contracts expire in two weeks*** BUY PUT APR-60 YAA-PL OI=7185 at $6.75 SL=5.50 BUY PUT APR-55*YAA-PK OI=5909 at $3.38 SL=1.50 BUY PUT MAY-60 YAA-QL OI=1613 at $8.63 SL=6.00 BUY PUT MAY-55 YAA-QK OI=1638 at $5.75 SL=4.00 http://www.premierinvestor.net/oi/profile.asp?ticker=AMGN HGSI - Human Genome Sciences Inc $42.44 (-3.56 last week) Human Genome Sciences researches and develops proprietary pharmaceutical and diagnostic products to discover and ultimately, cure disease based on the understanding of human and microbial genes. HGS is one of the few genome sciences companies involved in developing gene-based therapeutics. The company possesses one of the largest databases of the genes of humans and microbes, which they refer to as its genomic database. The firm licenses a proprietary database of genes and partial gene sequences to such pharmaceutical giants as GlaxoSmithKline and Merck. WE initiated coverage on this biopharmaceutical on Thursday evening after watching HGSI make a strong rally attempt into the 10-dma line, near $44. The abrupt cease-and-desist order by this technical resistance signaled the possibility of a strong rollover in these volatile markets. There's no questioning the fact that this is a speculative play with inherent risks; however if you're disciplined and exit aggressively, you can minimize the gamble and more importantly, potentially lock in lucrative profits. Pertinent elements to corroborate before taking positions include a struggling NASDAQ, the Biotech Index (BTK.X) trading below the 450 level, and conservatively, HGSI declining through $40 on heavy volume. We're keeping a CLOSING stop at $44; although if you can handle the risk and all your ducks are lined up, you might take an entry in this vicinity if there's another failed rally attempt. Whichever way you play HGSI, be aware of the existing support at $38 and $40. Last week, Lehman Brothers cut its target price on HGSI by over 46% as well as cut estimates on rival pharmaceutical companies Imclone Systems (IMCL) and Genetech (DNA). ***April contracts expire in two weeks*** BUY PUT APR-45*HHA-PI OI=1877 at $5.50 SL=3.50 BUY PUT APR-40 HHA-PH OI=1536 at $2.75 SL=1.25 BUY PUT MAY-45 HHA-QI OI= 425 at $7.88 SL=5.75 BUY PUT MAY-40 HHA-QH OI= 597 at $5.13 SL=3.00 http://www.premierinvestor.net/oi/profile.asp?ticker=HGSI XLNX - Xilinx Inc $32.19 (-2.94 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. Last week, we saw shares of XLNX establish lower support levels at $32 and $30. The strong decline lined many pockets with profits. The subsequent intraday swings further provided traders with additional opportunities. It was especially comforting that the surprise rally in the NASDAQ on Thursday coupled with the sharp upside action in the semiconductor sector couldn't move XLNX back through the $36 level or trailing 10- DMA. These factors present strong evidence that XLNX still has downside potential over the short-term. Going forward, look for robust volume to move XLNX from the 5-DMA ($32) and through the $30 level. This bearish activity would give traders the green light to jump on this put play. Other enterprising options might include riding a wave of downside momentum from the upper resistance levels following another strong rollover. This strategy tends to be more risky, but can be quite lucrative if there's enough market volatility to spark interest. If you chose to trade the trading channel ($36 to $30), please consider locking in gains as XLNX approaches the lower end of the spectrum versus trying to capture a windfall. Our closing stop remains firm at the $36 mark. As you plan your portfolio, keep an eye on the SOX.X to give you an overall feeling of how the sector is reacting to market gyrations. ***April contracts expire in two weeks*** BUY PUT APR-35*XLQ-PG OI= 7483 at $4.88 SL=2.75 BUY PUT APR-30 XLQ-PF OI= 4128 at $2.25 SL=1.00 BUY PUT MAY-35 XLQ-QG OI= 2142 at $6.25 SL=4.25 BUY PUT MAY-30 XLQ-QF OI=11303 at $3.50 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=XLNX NSM - National Semiconductor $22.34 (-4.41 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. The ongoing downturn in tech spending, which ultimately translates to high inventories and low demand, combined with unnerving economic reports is wrecking havoc on an already anemic semiconductor sector. Bad news for investors, but good news for put players! NSM has been continually rewarding us with more downside action since we first added it to our roster. We decided to lower our CLOSING stop from $27 to $24 to reflect the recent decline and to safeguard our existing profits and capital. While it's grand that the Semiconductor Index (SOX.X) is having difficulty rising above the 500 level, there are signs that NSM is developing support at $22, and lower at $20. Related stocks like MXIM, LLTC, ADI, and even INTC may also be forming bottoms as a result of the very oversold conditions. Be cautious until the downtrend firms once again. If however, you're of the aggressive mind and a bull's charge falls short as NSM traces the 10-dma ($25.60) consider playing the downside momentum until volume signals the ride's over or NSM converges upon the bottom support. Keep intraday stops in place according to your risk preference; and of course, take into consideration the variances in the current marketplace before jumping into any play. ***April contracts expire in two weeks*** BUY PUT APR-25*NSM-PE OI=1991 at $3.40 SL=1.75 BUY PUT APR-20 NSM-PD OI= 769 at $0.70 SL=0.00 High Risk!! BUY PUT MAY-25 NSM-QE OI=2289 at $4.20 SL=2.50 BUY PUT MAY-20 NSM-QD OI=2492 at $1.55 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=NSM CIEN - Ciena Corporation $34.25 (-7.50 last week) Helping to satisfy the insatiable demand for bandwidth, Ciena makes dense-wavelength division multiplexing (DWDM) systems for use with long-distance fiber-optic communications networks. CIEN offers optical transport, intelligent switching and multi- service delivery systems that enable service providers to deliver and manage high-bandwidth services to their customers. The company's MultiWave DWDM systems allow optical fiber to carry up to 40 times more data and voice information without requiring more lines. CIEN's customers include long-distance carrier, competitive local exchange carriers (CLECs), Internet service providers and wholesale carriers. A rough week for the Networking space meant a rough week for CIEN, as the stock fell in sympathy with its sector on the heels of continued news of earnings warnings. On Monday, RBAK announced that it would miss first quarter estimates, posting a loss instead of an expected profit of 4 cents. This was matched by SCMR, who warned on Friday that company would miss its third quarter estimates. Still to blame for the weakness in demand is the slowing economy, which has resulted in massive cutbacks in capital expenditures on the part of Telecom companies. This is compounded by the large amount of inventory on hand that is either depreciating in warehouses, or being sold at much lower prices, thereby greatly reducing profit margins. As well, the bursting of the dotcom bubble has resulted in concerns that customers who have purchased equipment on loan may not be able to pay. This fundamental weakness has resulted in a technical breakdown of the stock's price. Since falling below support at $47 almost two weeks ago, CIEN has been trading lower on the back of its 5-dma (now at $37.21). Closing below support at $35, aggressive traders may target failed rallies above this point, along with horizontal resistance at $34.50, $36.50, the 5-dma, and $38. Please note that we are moving our closing stop down from $41 to the $38 level. For conservative traders, a break below $34 on volume could provide a potential entry point, but the even more cautious would wait for CIEN to fall below $33.50 before jumping in. Track sector sentiment using AMEX's Networking Index (NWX). ***April contracts expire in two weeks*** BUY PUT APR-35*EUQ-PG OI=17330 at $4.38 SL=2.75 BUY PUT APR-30 EUQ-PF OI= 3338 at $2.06 SL=1.00 http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN GMST - Gemstar-TV Guide International $26.75 (-2.00 last week) Gemstar-TV Guide International develops, markets and licenses proprietary technologies and systems that simplify and enhance consumers' interaction with electronics products and other platforms that deliver video, programming information and other data. The company's first proprietary system, VCR Plus+, is currently incorporated into virtually every major brand of VCR sold worldwide. The company has also developed and acquired a large portfolio of technologies and intellectual property to implement interactive program guides (Gemstar Guide Technology), which enable consumers to navigate through, sort, select and record television programming. With negative sentiment surrounding interactive television stocks over the past month, it's no surprise that GMST has followed its sector lower. It seems that shareholders are tuning out of the stock, as continued worries over a slowing economy weighs on the market as a whole. A number of analysts came out this week with comments on GMST this past week, as Friedman Billings initiated coverage on Tuesday with an Accumulate rating. Later in the week, Gerard Klauer Mattison upgraded the stock from a Buy to an Outperform rating. As well, UBS Warburg's analyst Thomas Eagan offered bullish statements on the entire sector, initiating coverage of GMST with a Strong Buy rating and a $37.17 price target, citing that the company's stable revenue base would allow it to generate and sustain new businesses leading to additional cash flow. Despite the accolades, the stock appears technically weak. Since peaking last September, the stock has been trading in a downward trending regression channel. Having broken this channel to the downside, the stock did manage to bounce, but resistance from the 10-dma (now at $28.27) has been formidable. As such, we are moving our protective closing stop down from $30 to $28. A rollover as GMST approaches resistance at $27, $28 and the 10-dma, may allow higher risk players to take a position, but confirm with volume. For the more cautious, wait for the stock to move back below its 5-dma at $25.53 with conviction before making a play, but make sure that sector sisters SFA and TIVO confirm sector weakness. ***April contracts expire in two weeks*** BUY PUT APR-30*QLF-PF OI=3622 at $5.00 SL=3.00 BUY PUT APR-25 QLF-PE OI=1470 at $2.38 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=GMST PMCS - PMC Sierra $19.87 (-4.87 last week) PMC Sierra is enabling the world's broadband communications revolution. The company derives its success by providing broadband semiconductor technology that has become an essential part of the global networking backbone. PMC Sierra is helping to allow network equipment manufacturers meet the requirement for products to break the bandwidth bottleneck, with their standard semiconductor architectural solutions. Major analyst coverage and strong institutional support can be a double-edged sword, as can be seen in the performance of PMCS' stock price over the past year. Once a company that enjoyed a larger than usual following from brokerage houses and institutional investors who flocked to buy its shares, this former star has since lost its shine. Upgrades have turned into downgrades amidst a slowing economy, affecting the entire Chip sector. With major customers such as Cisco slowing or even completely ceasing new orders, rapidly depreciating inventory has also been piling up, further compounding to a lack of earnings visibility. The institutional investors that once supported this stock have now become strong overhead resistance. Selling into any signs of strength, PMCS has recently been riding lower, with the 5-dma (now at $20.89) acting as a pressure point. The psychological importance of breaking below the $20 mark is also a good omen for our put play, as stocks that have fallen below this level have had a tendency to move much lower. Aggressive traders may target resistance at $20 along with the 5-dma, $21 and our closing stop price of $22, moved down from $23. Just make sure that the Philadelphia Semiconductor Index (SOX) is on your side before initiating a play. For conservative traders looking for an entry on weakness, a bearish plunge below $19 on volume could be the signal to enter, if competitor BRCM is also showing weakness. ***April contracts expire in two weeks*** BUY PUT APR-22.5 SQL-PX OI= 490 at $4.00 SL=2.50 BUY PUT APR-20 *SQL-PD OI=2633 at $2.50 SL=1.25 BUY PUT APR-17.5 SQL-PW OI= 216 at $1.35 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=PMCS ******************************** WEEKLY UPDATES FOR VARIETY PLAYS ******************************** LOW VOLATILITY: WR - Western Resources $24.35 -1.05 (+0.50 last week) As a consumer services company, WR primarily provides electric generation, transmission and distribution services to approximately 628,000 customers in Kansas and monitored services to approximately 1.6 million customers in North America and Europe. Rate-regulated electric service is provided by KPL, a division of the company, and Kansas Gas and Electric, a wholly-owned subsidiary. Monitored services are provided by Protection One, Inc., of which WR has an 85% ownership stake. Additionally, through its partial ownership of ONEOK, Inc., WR is involved in natural gas transmission and distribution services to approximately 1.4 million customers in Oklahoma and Kansas. WR's long-term chart (weekly interval) displays a strong technical position, which is conducive to our bullish bias in the stock. Indeed, shares of WR have traced a picturesque cup-with-handle formation over the last year and a half, and are now poised to breakout above the handle portion of the chart. We appreciate the fact that WR is a slow moving stock, but its options trade with a relatively low implied volatility. As such, if we can capture a small move in the stock, we should see the at-the-money option premiums increase, providing traders with solid profits. The stock did pullback Friday on the news of Pg&E (NYSE:PCG) declaring bankruptcy. WR may be insulated from that news as the company primarily operates in the Midwest United States. However, traders should incorporate the Pg&E news when weighing the risk-to-reward in WR. To digress, watch for WR to breakout above the $25 level on strong volume to gain new entry into the play. ***April contracts expire in two weeks*** BUY CALL APR-20 WR-DD OI= 0 at $4.70 SL=3.00 Wait for OI!! BUY CALL APR-25 WR-DE OI= 40 at $0.45 SL=0.00 High Risk!! BUY CALL MAY-20 WR-ED OI=123 at $4.60 SL=3.00 BUY CALL MAY-25 WR-EE OI=212 at $0.65 SL=0.00 High Risk!! http://www.premierinvestor.net/oi/profile.asp?ticker=WR ************************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=2022 ************************************************************** ***** LEAPS ***** Ready To Rumble! By Mark Phillips Contact Support The battle for dominance between the bulls and the bears has been intensifying again with large point swings in both directions on a daily basis, and volume moving towards the heavy side. Throw in a VIX that keeps flirting with the 40+ area, and it is no wonder that even the patient bulls are starting to get a little antsy. As you can see by the number of entries we have taken in recent weeks (our fledgling portfolio is now flush with 10 plays - America Online (NYSE:AOL) is a drop this week), we are among those that think it is time to go nibbling on attractive plays. While not the time to invest your whole wad of cash, for those with a longer time horizon, select LEAPS plays using the 2003 strikes look like a good balance between risk and reward. With all of the positions we have recently added to our portfolio, we made a bit more progress on whittling down our old playlist, which now only has two plays, Dell Computer (NASDAQ:DELL) and Calpine (NYSE:CPN). If the next couple weeks are as exciting as the past two, we could be looking at entries on those plays as well, completing the transition to the new portfolio and allowing us to say goodbye to the old playlist. Speaking of new plays, those of you that have been watching charts on our Watch List plays will notice a couple of irregularities this week. First off, although DELL traded below and then above our entry trigger this week, we couldn't make a case for an entry point. Early in the week, the stock was falling, and didn't bottom until it was just above $21. Before it could recover through our entry trigger at $23 on Wednesday, the market closed. The huge gap up on Thursday skipped right over our entry point, leaving us still on the sidelines. Gaps almost always get filled, and when this one does, we are likely to get a nice fill on DELL. Moving right along, we have CPN looking a little bit top-heavy. With the weakness this past week knocking a sizeable chunk off our gains, we are getting a bit nervous after seeing the breakout to new highs negated by the sharp drop in the past 6 sessions. We are leaving our entry target for the new portfolio in place at $43-44, but keep in mind that we want to see a solid bounce before taking a position. Keeping in mind that the new Portfolio/Watchlist system is a work in progress, we are implementing a new tweak this weekend. Notice that both Texas Instruments (NYSE:TXN) and NASDAQ-100 (AMEX:QQQ) have had their entry targets revoked and replaced by the word HOLD. If you've been watching the charts on either of these stocks lately, you watched in amazement as they sliced right through our entry targets without so much as a pause. I think the bottom is near on both of these, so I want to leave them on the Watch List, but I need to see another week or two of action before I can pick what I think is a prudent entry point and Stop Loss level. So they are on the Watch List, but let's hold off on actually taking a position, at least until next week. Given the wild swings in the major indices, and the solid volume, I am of the mind that the bottoming process has begun. Will we see new lows on the major indices? Quite possibly. The earnings season ahead of us will be pivotal - not what the actual earnings are, but how they compare to investors expectations. If they come in better than expected, we could be in a position in a few weeks to say the worst is behind us. The more likely scenario is that select companies will surprise to the upside and be rewarded in the next several weeks. Until we know how it will play out, the prudent course of action will be to be in cash or at least keep your position sizes small. Those companies that surprise to the downside are likely to continue to meet with stiff retribution, and the floggings could be severe, even from the currently depressed valuations. Another pivotal piece of data will be the last week's worth of data from the COT. If commercial traders in the S&P are continuing to cover their record shorts, it is a good signal that the bottoming process has begun. But like Austin reminds us frequently, until the Commercials have gone all the way to net long or at least neutral, the final bottom likely lies before us, not behind us. Tune into Market Sentiment this weekend for the full report. Finally, we need to keep our eye on the almighty VIX. Although it has been flirting with the 40 level, have you noticed the fundamental change on the daily chart? That's right!! The lower Bollinger band is in a sharp ascent, and will likely act to put in a temporary floor on the VIX in the low 30's. This looks an awful lot like the VIX chart from late 1998, where the lower Bollinger band rose into the 31-32 area, providing a springboard for the VIX to launch into the low 60's before it was all over with. There's no guarantee the pattern will repeat but it is one more piece of the puzzle to think about. One final note: Many thanks to all of you that have emailed me with encouragement and suggestions. We're working hard to implement those that we can, and the others...well, we'll keep them in mind for the future. We've had several requests for updates during the week whenever we initiate new positions in the LEAPS portfolio. Unfortunately, that just isn't a workable solution at the present time. The publishing schedule during the week doesn't allow for that kind of flexibility, and that is one of the primary reasons we are so precise in describing our entry strategy in the play write-ups. The actual play entry write-up is simply a recap after the fact, but from our previously defined entry target, you should be able to follow along at home. Once again, I'm out of space and time. Stick to your plan, and don't force trades - make them come to you. Let's get ready to rumble. 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 $ 7.90 -40.57% JAN-2003 $ 45 VGY-AI $17.25 $12.70 -26.38% DELL 01/07/01 JAN-2002 $ 20 WDQ-AD $ 5.25 $ 8.13 54.76% JAN-2003 $ 25 VDL-AE $ 5.63 $ 8.38 48.76% CPN 01/21/01 JAN-2002 $ 40 YLN-AH $10.50 $14.30 36.19% JAN-2003 $ 40 OLB-AH $15.38 $19.10 24.23% LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '02 $ 35 WUT-AG $ 3.50 $ 3.10 -11.43% $ 28 '03 $ 35 VUT-AG $ 6.10 $ 5.50 - 9.84% $ 28 AOL 03/23/01 '02 $ 40 WIU-AH $ 8.00 $ 8.20 2.50% $ 35 '03 $ 40 VAN-AH $11.60 $11.90 2.59% $ 35 GENZ 03/23/01 '02 $ 85 YGZ-AO $24.50 $26.10 6.53% $ 74 '03 $ 90 OZG-AR $27.75 $34.30 23.60% $ 74 SWS 03/22/01 '02 $ 18 YWF-AT $ 4.10 $ 2.65 -35.37% $ 15 '03 $ 20 VWZ-AD $ 5.00 $ 3.60 -28.00% $ 15 WM 03/22/01 '02 $ 50 WWI-AJ $ 6.00 $ 9.50 58.33% $ 43 '03 $ 50 VWI-AJ $ 9.20 $12.80 39.13% $ 43 WMT 03/23/01 '02 $ 50 WWT-AJ $ 7.00 $ 9.40 34.29% $ 41 '03 $ 50 VWT-AJ $11.00 $13.70 24.55% $ 41 JWN 03/30/01 '02 $ 20 WNZ-AD $ 1.65 $ 1.85 12.12% $ 14 '03 $ 20 VNZ-AD $ 3.30 $ 3.40 3.03% $ 14 GS 04/05/01 '02 $ 90 WSD-AR $14.00 $14.60 4.29% $ 77 '03 $ 90 VSD-AR $20.50 $22.60 10.24% $ 77 MU 04/05/01 '02 $ 40 WGY-AH $10.60 $ 9.50 -10.38% $ 33 '03 $ 40 VGY-AH $14.80 $14.20 - 4.05% $ 33 NSM 04/05/01 '02 $ 25 WUN-AE $ 5.50 $ 5.20 - 5.45% $ 20 '03 $ 30 VSN-AF $ 7.20 $ 7.00 - 2.78% $ 20 NOK 04/06/01 '02 $ 25 WIK-AE $ 4.70 $ 4.70 0.00% $ 20 '03 $ 25 VOK-AE $ 7.00 $ 7.00 0.00% $ 20 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL 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 QQQ 03/25/01 HOLD JAN-2002 $ 40 WD -AN JAN-2003 $ 45 VZQ-AS TXN 03/25/01 HOLD JAN-2002 $ 35 WTN-AG JAN-2003 $ 35 VXT-AG FON 04/08/01 $20-21 JAN-2002 $ 25 WO -AE JAN-2003 $ 25 VN -AE New Portfolio Plays GS - Goldman Sachs $86.00 When we added it to our Watch List last weekend, we really didn't expect that we would get an entry point so quickly, but by Thursday it was staring us right in the face. Given the volatile week seen by many sectors of the market, including the Brokerage stocks, you may be questioning our wisdom in calling this a lower-risk play in the Financial stocks. But it actually is a lower risk play due to our ability to quantify our risk - We entered the play as it rallied through our $83 trigger point last Thursday, and are placing a rigid stop at $77, a level that has not been violated since May of last year, and then only briefly. As the market recovers in the year ahead, GS should benefit both from the increase in trading activity and a revival of the IPO market. Additional dips near our entry level look attractive for entries if you missed your opportunity last week, but don't chase the stock higher. A key component of our lower risk approach in this trade is that our entry point is fairly close to our stop. BUY LEAP JAN-2002 $90.00 WSD-AR $14.00 BUY LEAP JAN-2003 $90.00 VSD-AR $20.50 MU - Micron Technology $38.40 Following the Semiconductor index (SOX.X) lower over the past couple weeks, it was almost inevitable that MU would give us a good entry point, provided it didn't follow the SOX to new yearly lows. Sure enough, shares of the DRAM chip company maintained their relative strength over the broader sector, confirming support near $34 while the SOX traced a new 21-month low. On the news front, we have competing factors duking it out for dominance in investors minds. On the one hand, MU states that they will be increasing production of DDR SDRAM chips, and Infineon claims to be seeing signs of a DRAM recovery. The bears aren't done yet though, as they are grasping at news that Merrill Lynch downgraded the stock from Buy to Neutral. No matter how you slice it, Semiconductor stocks will be pivotal to the eventual recovery on the NASDAQ, and we expect MU to be in the thick of it, as one of the most mature DRAM chip manufacturers. We got our solid entry on Thursday, as the bulls reasserted their authority, engineering a solid rally throughout the afternoon, beginning at our $38 entry price. We are starting out with our stop at $33, just below the $34 support level. BUY LEAP JAN-2002 $90.00 WGY-AH $10.60 BUY LEAP JAN-2003 $90.00 VGY-AH $14.80 NSM - National Semiconductor $24.45 It should come as no surprise that the wild gyrations in the Semiconductor index (SOX.X) would produce an entry on more than one of our Semiconductor Watch List plays. Sure enough, the weakness early in the week plunged NSM below our desired entry level of $23-24. But the recovery on Thursday was just as impressive, with the stock opening at $23, and rallying throughout the day to close at $24.10. Given the Technology weakness that developed again on Friday, we may be a bit premature to this party, but we'll take our chances with a tight stop at $20. Support there appears to be very strong, so a violation of that level would have us concerned about the viability of the play. Since trading to new lows in early December, NSM has been posting higher lows for the past 4 months, leading us to believe that the stock is on the mend, showing good strength relative to the broader SOX index, which is still weakening, hitting new lows again last week. So long as our stop isn't violated, BUY LEAP JAN-2002 $25.00 WUN-AE $5.50 BUY LEAP JAN-2003 $30.00 VSN-AF $7.20 NOK - Nokia Corp. $23.34 I don't know about you, but I'm ready for another venture in the Wireless arena. Defying the bears over the past 6 weeks, NOK continues to hold support near $21. Virtually every sector of Technology, including the Wireless HOLDR (AMEX:WMH), has been tracing new lows lately, and the fact that NOK refuses to join in is testament to its strength relative to the market, and the fact that the company is continuing to take market share from competitors like ERICY and MOT. Throw in the fact that the company is in the process of buying back up to 50 million of its own shares (always a bullish sign), and the signing of a $450 million contract for network equipment in Italy, and NOK is looking good near current levels. We had to forgo an entry on Thursday due to a large gap up, but we got our entry on Friday afternoon as the stock rallied through the $23 level in the final hour. Keep in mind that earnings are scheduled for April 20th, and in the current environment could move the stock either way. More conservative investors may want to wait until after the announcement before joining us in the play. We have set our stop at $20, as a break below this level would represent new yearly lows for the stock. BUY LEAP JAN-2002 $25.00 WIK-AE $4.70 BUY LEAP JAN-2003 $25.00 VOK-AE $7.00 New Watchlist Plays FON - Sprint Corp. $20.97 All you have to do is look at a chart of any of the major Telecom service providers like T, WCOM or FON, and you can see that the sector appears to have found bottom. How long the recovery takes is another matter, but as cheap as the LEAPS are at this point, we can see that it won't take much of a recovery to give us a double or more. We are willing to entertain entries near current levels, although aggressive traders may want to target-shoot an intraday dip near $20. The risk on this one is pretty low, as we can set a nice tight stop at $19. FON hasn't traded below that level, since late 1996, so it is likely to have some solid support between $19-20. Take advantage of the cheap LEAPS now, and enjoy the ride higher when the Telecom sector finally begins to recover. More conservative investors will want to stick with the 2003 LEAPS to give themselves more time to be right. BUY LEAP JAN-2002 $25.00 WO -AE BUY LEAP JAN-2003 $25.00 VN -AE Drops AOL $39.30 Ah, regret. A one-day dip was all it took to stop us out of our AOL play and we need to stick with our discipline and close it out. The broad weakness in the Technology sector on Tuesday dragged the stock down to post its lowest close since January 3rd, more than $1 below our $35 stop. The next 2 sessions saw a sharp recovery, making me wish I had placed a looser stop on the play, but there is no use crying over spilt milk. Time to move on to the other winners in the portfolio, both current and future. *************************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=2002 ************************************************************ ********** 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 04-08-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/040801_5.asp ************* COVERED CALLS ************* Charting Basics: Historical Pricing Versus Fundamental Value By Mark Wnetrzak Our series on technical analysis with Candlestick charting has generated some interesting comments from the readership. One of the most common questions we receive concerns our focus on an issue's share price history as opposed to the company's fundamental valuation. First, it's important to understand the difference between the two approaches. Fundamental analysis deals with factors that affect the earnings potential and market value of a corporation, whereas technical analysis is concerned primarily with price and trading history (trend and character) of the company's shares. Technicians welcome the idea that revenues and profitability ultimately determine the value of a company, but they also accept the concept that price, at any one point in time, represents an accurate consensus of share value to all market participants. In today's markets, a significant portion of daily trading is conducted by technical traders and that fact makes understanding the technical character of an issue as important as knowing the outlook for revenues and earnings. The premise of the technical trader is that past price behavior can be used to forecast future trends. There are many advantages to this style of trading. At the lowest level, it eliminates the necessity to understand the infinite components of fundamental valuation that analysts find so intriguing. In addition, trading strategies based on technical analysis generally provide more precise entry and exit signals, a benefit to investors who participate in short-term techniques. The methods of chart study vary from the simplistic approach; trend-lines and moving averages to elaborate and complex programs such as the Elliot Wave Theory. Of course, the goal of any trading system is to increase the odds of success and most analysts suggest the best place to begin is with well-known practices such as evaluating price/trend/volume, that have stood the test of time. Price charts are the basis for the oldest form of market analysis. A chart is simply a picture of price history. As market opinions change, so do the prices of the underlying instruments. Charts are constructed in various time-frames and are of many different types, but the key is that as more prices are plotted, historical patterns and formations evolve. This concept allows a technician to forecast how the current market will perform based on how it reacted to similar conditions in the past. There are also methods that attempt to identify price formations within seemingly random movements. Some technical studies, such as seasonal or cyclical analysis, believe prices tend to follow a predetermined pattern. Technicians that subscribe to the Elliott Wave Theory believe that collective trading behavior is predictable enough to project waves of price movement. Proponents of cyclical analysis suggest there there is a regularity in the way specific instruments perform at certain times in the calendar year. In most cases, drawing a chart is relatively simple, but reading and understanding one is often considered an art. As is the case with fundamental analysis, there are many interpretations to the formations of a chart, a fact that ensures the markets will remain fluid and dynamic. Fortunately, the study of Candlestick charting offers a method in which most traders can easily discern price tendencies or patterns that would be difficult or impossible to identify by more conventional means. That's the primary reason we are devoting a number of educational narratives to the subject and next week, the series will continue with another discussion on common patterns and formations. 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 HPOW 8.00 7.38 APR 7.50 1.13 $ 0.51 10.8% ELNK 10.38 11.31 APR 10.00 1.38 *$ 1.00 9.7% IGEN 13.31 16.75 APR 10.00 4.25 *$ 0.94 9.0% UTHR 16.94 15.13 APR 15.00 3.25 *$ 1.31 8.3% ACPW 20.31 19.13 APR 17.50 3.75 *$ 0.94 8.2% LTBG 11.44 10.56 APR 10.00 1.94 *$ 0.50 7.6% CTLM 24.44 24.91 APR 20.00 5.38 *$ 0.94 7.1% MTSN 14.00 13.75 APR 12.50 2.44 *$ 0.94 7.1% EBAY 36.19 35.50 APR 30.00 7.38 *$ 1.19 6.0% ADBE 28.63 34.05 APR 25.00 5.13 *$ 1.50 5.5% SHFL 21.25 21.63 APR 20.00 2.44 *$ 1.19 5.5% NRG 30.84 30.60 APR 30.00 2.60 *$ 1.76 5.4% LTXX 19.00 18.06 APR 17.50 2.31 *$ 0.81 5.3% IGEN 15.19 16.75 APR 12.50 3.25 *$ 0.56 5.1% SHFL 20.94 21.63 APR 17.50 4.38 *$ 0.94 4.1% ATVI 24.63 22.56 APR 22.50 3.13 *$ 1.00 3.4% BRKS 43.47 39.00 APR 40.00 5.63 $ 1.16 3.3% CPRT 21.81 19.51 APR 20.00 2.63 $ 0.33 1.2% CLPA 6.22 3.81 APR 5.00 2.06 $ -0.35 0.0% GLC 23.73 20.66 APR 22.50 2.35 $ -0.72 0.0% METHA 17.94 13.00 APR 15.00 3.50 $ -1.44 0.0% SGSF 8.75 4.44 APR 7.50 1.88 $ -2.43 0.0% *$ = Stock price is above the sold striking price. Comments: Did you really expect the rally to carry through today? Too far too fast! But it is making the bears a bit uneasy. Hopefully the rally provided a less painful exit for issues that were acting excessively horrid. Cell Pathways (NASDAQ:CLPA) appears to be holding at the December low. Time to weigh holding a losing position (rolling forward) verses exiting now for a small loss. We will show Galileo International (NYSE:GLC) closed as the technicals continue to deteriorate. Methode Electronics (NASDAQ:METHA) and Signalsoft (NASDAQ:SGSF) have fallen all week on no news and will also be shown closed. Copart (NASDAQ:CPRT) has had no follow through to last week's strength and even Thursday's incredible broad Market rally failed to move the stock above near term resistance. A break-even exit appears prudent with this worrisome action. Activision (NASDAQ:ATVI) is at a key moment as it has pulled back to its 50 dma. Don't linger too long as the next support level is around $18 - the January high and 150 dma. Don't forget to keep an eye on Nrg Energy (NYSE:NRG) as the Utility sector comes under pressure. Positions Closed: Seitel (NYSE:SEI), Semtech (NASDAQ:SMTC), Veeco Instruments (NASDAQ:VECO), Integrated Circuit System (NASDAQ:ICST), and Bed Bath & Beyond (NASDAQ:BBBY) - Murphy's Law candidate or a second chance to exit on the earnings rally? NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield IMNY 11.63 APR 10.00 MQN DB 2.31 1667 9.32 14 16.0% LTXX 18.00 APR 17.50 UXT DW 1.31 1517 16.75 14 9.7% VPHM 32.50 APR 30.00 HPU DF 3.75 2105 28.75 14 9.4% TIBX 8.97 APR 7.50 PAV DU 1.75 310 7.22 14 8.4% TVLY 17.81 APR 15.00 QUT DC 3.25 70 14.56 14 6.6% AAPL 20.59 APR 17.50 AAQ DS 3.60 1855 16.99 14 6.5% PCS 21.60 APR 17.50 PCS DS 4.50 334 17.10 14 5.1% 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). ***** AAPL - Apple Computer $20.59 *** Stage I Speculation *** Apple Computer (NASDAQ:AAPL) designs, manufactures and markets personal computers and other personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers. Most of the company's net sales to date have been derived from the sale of its Apple Macintosh line of personal computers and related software and peripherals. Apple Macintosh personal computers are characterized by their intuitive ease of use, innovative industrial designs and applications base, and built-in networking, graphics, and multimedia capabilities. The company offers a range of PCs and products, including related peripherals, software, and networking and connectivity solutions. Favorable short-term speculation with a reasonable cost basis for those investors who wish to "bottom fish" in the PC sector. APR 17.50 AAQ DS LB=3.60 OI=1855 CB=16.99 DE=14 TY=6.5% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=AAPL ***** IMNY - I-many $11.63 *** Internet Speculation *** I-many (NASDAQ:IMNY) is the leader in providing software and Internet-based contract management solutions and related professional services which enable businesses to manage complex trade relationships and facilitate B2B e-commerce. I-many's software is used by 8 of the largest 10 healthcare manufacturers in the world and leading consumer goods companies. The company recently acquired Intersoft International, the leading supplier of sales and marketing automation solutions for the food service broker industry, providing I-many a key link in the food service supply chain. With the Internet sector near historical lows and drawing investor attention, this position in I-many offers a reasonable entry point below a strong technical support area. APR 10.00 MQN DB LB=2.31 OI=1667 CB=9.32 DE=14 TY=16.0% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=IMNY ***** LTXX - LTX Corporation $18.06 *** Bracing for a Rally? *** LTX Corp. (NASDAQ:LTXX) designs, manufactures and markets automatic test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed- signal integrated circuits. The Company also sells hardware and software support and maintenance services for its test systems. LTX recently announced the release of its powerful VX III high-performance digital subsystem for its system-on- a-chip (SOC) test system, Fusion HF, which Texas Instruments (NYSE:TI) is purchasing to test its semiconductor solutions. Last week, LTX rallied out of 6-month Stage I base on high volume, moving above its 150 dma. The current pullback may be a buying opportunity as investors are beginning to nibble in the Semiconductor sector. A reasonable cost basis for investors who are interested in one of the stronger issues in the semiconductor sector. APR 17.50 UXT DW LB=1.31 OI=1517 CB=16.75 DE=14 TY=9.7% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=LTXX ***** PCS - Sprint PCS Group $21.60 *** Earnings Rally! *** Sprint PCS Group (NYSE:PCS) operates a 100% digital PCS wireless network in the United States, using a single frequency and a single technology. Sprint PCS, a subsidiary of Sprint Corp., comprises Sprint Corporations' wireless PCS operations. Sprint announced Thursday that it is continuing to see strong demand for wireless services and customer additions in the first quarter were substantially ahead of financial analysts' expectations. Sprint PCS Group added more than 800,000 direct customers and approximately 50,000 resale customers while the PCS's affiliates also had very strong growth. The company, which received several upgrades and new coverage on Friday, said it benefited from improved retention and expects to announce a sizeable increase in cash flow. We like the news and the strong two-day rally, but prefer a more conservative cost basis. APR 17.50 PCS DS LB=4.50 OI=334 CB=17.10 DE=14 TY=5.1% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=PCS ***** TIBX - TIBCO Software $8.97 *** Bottom Fishing! *** TIBCO Software (NASDAQ:TIBX) is a leading provider of real-time e-business infrastructure software. TIBCO's four product lines enable businesses to integrate enterprise applications, interact with other businesses in B2B commerce, and efficiently deliver personalized information through enterprise portals. TIBCO's products enable the real-time distribution of information through patented technology called The Information Bus(TM), or TIB®. TIB technology was first used to digitize Wall Street and has since been adopted in diverse industries including telecommunications, electronic commerce, manufacturing and energy. Last month, TIBX beat reduces estimates on revenues of $82.1 million. TIBCO was unable to provide any forward-looking guidance, stating that the continued economic uncertainty could impact their future earnings. The question to ask is: "Has this economic downturn already been priced into the stock?" If you answer yes, then this position offers a favorable cost basis from which to speculate on TIBCO's future. APR 7.50 PAV DU LB=1.75 OI=310 CB=7.22 DE=14 TY=8.4% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=TIBX ***** TVLY - Travelocity.com $17.81 *** Break-out! *** Travelocity.com (NASDAQ:TVLY) the leading travel Web site, provides Internet and wireless reservations information for more than 700 airlines, more than 50,000 hotels and more than 50 car rental companies. A database-driven travel marketing and transaction company, Travelocity offers more than 6,500 vacation packages, tour and cruise departures and a vast data- base of destination and interest information. The online travel industry is expected to grow to $33 billion by 2005 and Travelocity is well positioned to continue leading the this industry. This week, Travelocity celebrated its 5th year and announced five new innovations which should help the company to sell more travel than any other site. We simply favor the strong technical breakout on high volume that offers favorable short-term momentum. APR 15.00 QUT DC LB=3.25 OI=70 CB=14.56 DE=14 TY=6.6% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=TVLY ***** VPHM - ViroPharma $32.50 *** What's Up? ViroPharma! *** ViroPharma (NASDAQ:VPHM) is a pharmaceutical company engaged in the discovery and development of new antiviral medicines for the treatment of diseases caused by RNA viruses including: viral respiratory infection (VRI); viral meningitis; hepatitis C; and respiratory syncytial virus (RSV) diseases. The company has recently completed enrollment in their ongoing VRI Phase III studies, and expects to announce results in April. Pending favorable results, the company expects to file for a NDA later this year. No news since several upgrades in mid-March after ViroPharma announced its experimental treatment for the common cold was successful in reducing the duration of the illness and the severity of symptoms in studies involving more than 2,000 patients. The results; a rally to a new 52-week high on strong volume. A reasonable entry point for investors who want to speculate on a drug discovery stock. Due diligence is a must! APR 30.00 HPU DF LB=3.75 OI=2105 CB=28.75 DE=14 TY=9.4% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=VPHM ***** ***************** 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 (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield TIVO 5.03 APR 5.00 TUK DA 0.44 136 4.59 14 19.4% ACPW 19.12 APR 17.50 ACQ DW 2.75 38 16.38 14 14.9% SRCL 45.00 APR 45.00 URL DI 2.00 218 43.00 14 10.1% EBAY 35.47 APR 30.00 QXB DF 6.50 1023 29.00 14 7.5% DCLK 11.63 APR 10.00 QWE DB 1.94 517 9.69 14 7.0% BEAS 28.38 APR 22.50 BUC DX 6.50 502 21.88 14 6.2% *************************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=2003 ************************************************************ *********************** CONSERVATIVE NAKED PUTS *********************** Trading Basics: Improving the Probability of Profit By Ray Cummins There are a number of elements necessary to be successful in the options market. Knowledge, ability, and a suitable personality are among the common traits exhibited by professional traders and as a group, most conform to the same basic plan. They use sound and sensible methods for trading options; implementing strategies that work best for each particular situation. They acquire the proper tools for accurate analysis of potential candidates and construct positions based on the appropriate market outlook and risk/reward attitude of their portfolio. The decision to trade options on a regular basis requires serious consideration before a commitment can be made. Option trading is similar to an occupation or a career; it requires much more effort and dedication than a hobby. In fact the very nature of trading, as opposed to long-term investing, will prevent the majority of participants from devoting the time necessary to succeed, due to their regular jobs and responsibilities. With proper portfolio administration, investments can be left unattended for weeks but in contrast, some option positions need to monitored, evaluated, and adjusted almost continuously. Those who are considering the possibility of option trading as a principal vocation should determine if they can earn enough money after the cost of doing business to justify the endeavor. In short, does the potential profit justify the time needed to become successful? One of the most critical conditions for success which new traders often overlook is the importance of market selection. In most cases, option buying strategies work best in issues with high volatility; the rate of change on a daily basis. Of course, all markets can provide an opportunity for trading but those with low intra-day movement usually do not offer enough profit potential to justify the risk of the position. Gauging volatility in a market allows a trader to estimate potential returns and determine the correct methodology and approach for a particular trade. However, it is also important to identify situations that have acceptable price activity; that which can generate a reasonable profit with minimum capital exposure. The market must be somewhat predictable as opposed to one which exhibits extremely violent swings and the best conditions will be accompanied by vigorous trading volume in the underlying along with robust liquidity in its options. Professionals traders utilize various mechanical systems and exit strategies to manage their positions. The primary goal of every trader is to limit losses and maximize profits. Setting up rules before a position is initiated will help to control emotions and improve consistency with exit decisions. Of course, opening a new position is easier because you can choose from a variety of candidates and you don't have to buy unless you are completely satisfied. Successful traders will search through charts for the perfect opportunity, waiting for the best combination of bullish technical indicators and favorable market conditions. They study historical pricing patterns and perform extensive due-diligence until the number of reasons to buy becomes overwhelming. In all cases, the choice to trade is yours to make and the timing in new positions is not a constraint or limitation. However, the entry transaction is particularly important and it deserves your best analysis and judgment. In buying strategies, the option or issue should be one you want to own and the price must be technically favorable, with minimal downside risk. A timely entry requires a thorough knowledge of charting techniques and market trends and the entire process is something you must completely understand because a successful exit is by and large the product of a proper entry. An individual's personality plays an important and crucial role in the ability to profit in the options market. The reality of trading is that you need to have an insightful understanding of your character and emotional traits in order to identify personal strengths and weaknesses. We all have favorable and detrimental qualities and like everything else in life, the key to success is exploiting your positive attributes rather than trying to change your personality. For example, traders who find it difficult to make timely decisions might use strategies that require very few adjustments. Those that have trouble exiting a losing position should consider using a protective stop-loss, to ensure that a bad trade is not exacerbated by one's natural reluctance to delay the proper resolution. Another common personality trait among new traders is the desire to be perfect; to not have any losing trades. Unfortunately, the very nature of the market guarantees that it is unpredictable and a trader who can not learn to live with losing plays (and learn from them) will eventually endure the setbacks he was trying so hard to avoid. The cycle often continues to the point where, having relinquished his initiative, the trader is forever relegated to lost opportunities. These are just a few of the unwanted characteristics that can plague your trading career and next week, we will discuss more of the common techniques for achieving success in the options market. 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 APHT 20.50 15.44 APR 15.00 0.56 *$ 0.56 17.4% AAPL 19.63 20.59 APR 15.00 0.50 *$ 0.50 9.8% ASMI 17.69 16.56 APR 15.00 0.31 *$ 0.31 9.6% AAPL 23.00 20.59 APR 17.50 0.44 *$ 0.44 9.5% HOTT 28.00 26.88 APR 22.50 0.38 *$ 0.38 9.1% THQI 33.88 34.75 APR 30.00 1.38 *$ 1.38 9.0% SBYN 12.75 9.69 APR 10.00 0.50 $ 0.19 9.0% IGEN 18.94 16.75 APR 15.00 0.25 *$ 0.25 9.0% SCIO 19.38 20.63 APR 15.00 0.44 *$ 0.44 8.9% DDS 20.30 20.47 APR 17.50 0.40 *$ 0.40 7.6% SCIO 23.00 20.63 APR 17.50 0.25 *$ 0.25 7.5% GLC 23.44 20.66 APR 20.00 0.55 *$ 0.55 7.4% MTON 27.25 27.19 APR 20.00 0.50 *$ 0.50 7.3% ESCM 21.75 23.63 APR 17.50 0.38 *$ 0.38 6.8% OLOG 25.00 23.44 APR 22.50 0.56 *$ 0.56 6.0% ANF 32.30 34.79 APR 25.00 0.55 *$ 0.55 5.7% VTS 36.98 30.13 APR 30.00 0.62 *$ 0.62 5.3% MTON 31.69 27.19 APR 22.50 0.31 *$ 0.31 5.1% ADVP 49.94 55.94 APR 40.00 0.75 *$ 0.75 5.0% OATS 9.25 7.03 APR 7.50 0.44 $ -0.03 0.0% MCDTA 24.31 16.31 APR 17.50 0.56 $ -0.63 0.0% BSX 18.45 15.17 APR 17.50 0.80 $ -1.53 0.0% AMD 29.44 20.05 APR 22.50 0.35 $ -2.10 0.0% *$ = Stock price is above the sold striking price. Comments: Was that a Bear-trap rally on Thursday? Time will tell but it should have provided an opportunity to minimize losses. Boston Scientific (NYSE:BSX) threw a great curve ball last week when it rallied to a new high only to crash this week on news of Medinol's lawsuits. The position will be shown closed. Did you use Thursday's rally to exit Advanced Micro Devices (NYSE: AMD) or do you wish to own the stock? A retest of the support area around $16 is likely for those who decided to roll-down. Mcdata (NASDAQ:MCDTA) is testing support and is at a key moment. Wild Oats Markets (NASDAQ:OATS) broke down this week and the technicals suggest an early exit is in order. Metro One Telecom (NASDAQ:MTON) failed to move above the January high and appears to be forming a double-top formation. Monitor the positions closely as we move towards expiration. Tired of the recent volatility in Veritas (NYSE:VTS)? You can always buy back the puts and move on. Time to exit Galileo International (NYSE:GLC) or will the support area around $19 (October to December) hold? The quick drop in Aphton (NASDAQ:APHT) this week is worrisome though it should have provided a better (lower) cost basis. Positions Closed: Cirrus Logic (NASDAQ:CRUS), Trico Marine (NASDAQ:TMAR), and Lam Research (NASDAQ:LRCX). NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield UTCI 9.13 APR 7.50 URO PU 0.25 80 7.25 14 24.7% ACPW 19.13 APR 15.00 ACQ PC 0.31 63 14.69 14 16.3% PRGN 21.50 APR 15.00 GQP PC 0.31 1449 14.69 14 14.6% NVDA 62.63 APR 45.00 UVA PI 0.81 1060 44.19 14 13.2% CA 28.20 APR 22.50 CA PX 0.35 411 22.15 14 12.7% EBAY 35.47 APR 25.00 QXB PE 0.38 1857 24.62 14 11.0% BBY 47.49 APR 40.00 BBY PH 0.50 5007 39.50 14 9.0% 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 $19.13 *** 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. This position offers a favorable cost basis from which to speculate on the future success of ACPW. APR 15.00 ACQ PC LB=0.31 OI=63 CB=14.69 DE=14 TY=16.3% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=ACPW ***** BBY - Best Buy Company $47.49 *** Entry Point! *** Best Buy (NYSE:BBY) is a specialty retailer of popular consumer electronics, home office supplies and equipment, entertainment software and appliances. Best Buy provides a broad selection of name-brand models within each product line in order to provide customers with a meaningful assortment. The company currently offers approximately 5,800 products, exclusive of entertainment software titles and accessories, in its four principal product categories. In addition, the company offers a wide selection of accessories supporting its principal product categories. Retail stocks are a safe bet if the economy recovers and investors who want a position in one of the industry leaders should consider this conservative position. APR 40.00 BBY PH LB=0.50 OI=5007 CB=39.50 DE=14 TY=9.0% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=BBY ***** CA - Computer Associates $28.20 *** No Earnings Warning! *** Computer Associates International (NYSE:CA) delivers software that manages eBusiness. CA's solutions address all aspects of eBusiness process management, information management, and infrastructure management, enabling customers and partners to gain and sustain competitive advantages. Their unique eBusiness software portfolio is focused on six solution areas: enterprise management, security, storage, eBusiness transformation and integration, portal and knowledge management, and predictive analysis and visualization. Shares of system management firms rallied last week after BMC Software (NYSE:BMC) predicted its revenues would exceed prior guidance in the upcoming quarterly report. In the past week, dozens of software firms have warned that because of a slowdown in information technology spending, quarterly financial results would fall short of expectations. BMC offered a contrary outlook and traders can speculate that CA will also provide bullish guidance with this conservative position. APR 22.50 CA PX LB=0.35 OI=411 CB=22.15 DE=14 TY=12.7% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=CA ***** EBAY - eBay $35.47 *** 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. Last week, eBay shares moved higher after a Deutsche Bank Alex. Brown analyst said he expects the online auction service to beat his first-quarter estimates. Technically, eBay appears to have made a successful test of its December low and a cost basis near $25 seems very reasonable. APR 25.00 QXB PE LB=0.38 OI=1857 CB=24.62 DE=14 TY=11.0% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=EBAY ***** NVDA - Nvidia $62.69 *** Graphics Master! *** Nvidia (NAADAQ:NVDA) designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of personal computer user, from professional workstations to low-cost PCs. The company's 3D graphics processors are used in a wide variety of applications including games, the Internet and industrial design. Its graphics processors were the first to incorporate a multi-texturing graphics architecture designed to deliver to users of its products a highly immersive, interactive 3D experience with compelling visual quality, realistic imagery and motion, stunning effects, and complex scene interaction at real-time frame rates. Nvidia has regularly exceeded consensus forecasts while other chipmakers have continued to fall short of estimates or warn of disappointing sales, and the company's chips are in demand. The stock has reasonable support near the cost basis in this position, providing excellent speculation for those traders with a bullish outlook for the company. APR 45.00 UVA PI LB=0.81 OI=1060 CB=44.19 DE=14 TY=13.2% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=NVDA ***** PRGN - Peregrine Systems $21.53 *** On The Rebound! *** Peregrine Systems (NASDAQ:PRGN) offers business organizations an integrated suite of packaged infrastructure resource management application software. In addition, the company has recently introduced additional products designed to automate the processes associated with the procurement and use of infrastructure assets. These software applications are designed to manage the various aspects of organizational infrastructure from the moment an asset is leased, acquired, or taken from existing inventory until the moment it is taken out of service. Infrastructure assets include computers, computer networks, telecommunication assets, physical plant and facilities, corporate car/truck fleets, and many other assets. PRGN shares have rebounded over the past two days after the company said it would make its numbers for the March quarter. The company said it expects to report earnings of $0.16 per share on revenue of $170 million, compared to estimates of $0.16 per share on $168 million. Based on the bullish activity, it appears that investors agree with the company's positive outlook. APR 15.00 GQP PC LB=0.31 OI=1449 CB=14.69 DE=14 TY=14.6% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=PRGN ***** UTCI - Uniroyal Technology $9.25 *** On The Move! *** Uniroyal Technology is engaged in the development, manufacture and sale of materials employing compound semiconductor technologies, plastics and unique chemicals used in the production of consumer, commercial and industrial products. Uniroyal is organized into three primary business segments: Semiconductor and Optoelectronics, Coated Fabrics and Specialty Adhesives. The Semiconductor and Optoelectronics segment manufactures wafers, epitaxial wafers and package-ready dies used in high brightness light emitting diodes, and in power or microwave semiconductors. Coated Fabrics makes a wide selection of plastic vinyl coated fabrics used in furniture and seating applications. Specialty Adhesives manufactures liquid adhesives and sealants for use in the commercial roofing industry and in the manufacture of furniture, trailers and recreational vehicles. UTCI shares have rallied above the yearly highs on no news and traders are at a loss to explain the activity. Those of you who agree with the bullish technical outlook can speculate on a forthcoming announcement with this conservative position. APR 7.50 URO PU LB=0.25 OI=80 CB=7.25 DE=14 TY=24.7% http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=UTCI ***** ***************** 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 (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield TIVO 5.03 APR 5.00 TUK PA 0.44 45 4.56 14 39.5% YHOO 14.81 APR 12.50 YHZ PV 0.56 2104 11.94 14 29.1% AAPL 20.59 APR 17.50 AAQ PS 0.60 14557 16.90 14 22.7% BMC 23.10 APR 20.00 BMC PD 0.70 371 19.30 14 22.2% ITWO 16.94 APR 12.50 JQ PV 0.38 1292 12.12 14 21.9% PCS 21.60 APR 17.50 PCS PS 0.45 320 17.05 14 19.6% PPDI 45.75 APR 40.00 PJQ PH 0.81 500 39.19 14 13.2% ************** BROKERS CORNER ************** Margin Monster Many investors aspire to be eligible for uncovered (naked) option writing. This privilege is achieved through account size, investment objectives, investment experience, and suitability. However, as attractive as they may seem, there are some negative characteristics or risks to selling (shorting) uncovered options. For the purpose of this article, we will use naked put writing. As defined by the CBOE's glossary, uncovered (naked) put writing is defined as "a short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put." Naked put writing requires the use of margin. The margin requirement changes with the price of the underlying security as well as the option sold. In addition, the margin maintenance is set by the brokerage firm and may be higher than the requirement set by the regulatory agency. To determine the margin requirement if the maintenance is 20% and 10%, take the greater of 20% of the current price multiplied by the number of shares less any out of the money plus the premium or 10% of current price multiplied by the number of shares plus the premium. To illustrate, let's assume we want to write 10 contracts of the May 75 puts on an $85 stock. Let's also assume the premium is $1.75. First, multiply the stock price ($85) by 1000 (10 contracts X 100 shares per contract) and then by 20% to get $16,000 ($85 X 1000 X 0.20 = 16,000). Then, add the premium received of $1,750 ($1.75 X 10 contracts X 100 shares per contract). The current total is $17,750 (16,000 + 1,750). Then subtract the amount the stock is out of the money which is $10,000 (85 - 75 = 10 points out of the money X 10 contracts X 100 shares per contract from the previous number ($17,750). The total is $7,750 ($17,750 - 10,000). Unfortunately, we're not done. We have to calculate the 10% figure. Multiply the $85,000 by 10% to equal $8,500 and add the premium of $1,750 to total $10,250. We have to use the $10,250, which is the greater of the two calculations. Next, I will illustrate why I call them margin monsters. Assume the stock drops to $78 and the option premium increases to $3.50. Using the formula above, the 20% calculation is $16,100: (($78,000 X 0.20) + ($3.50 X 1000) - (($78 - $75) X 1000) = $16,100) While the 10% calculation equals $11,300: ($78,000 X 0.10 + ($3.50 X 1000) = $11,300) The new margin requirement is $16,100, an increase of almost $6,000. As the stock drops further, the requirement increases. Therefore, costing more and more to hold this position. Now that the tedious work is over, the hard part comes in with the decision of when to exit this position. Although the stock price is still above the strike price, the current premium is twice the premium received. Some investors might wait to see if the stock bounces. Some might decide to cut their losses and move onto something else. While others might wait to see no bounce occur only to see the stock price drop and the margin requirement increase. If the later happens, the trade no longer has as good a return as the initial. The investor that stays in the trade can rely on emotional justifications. For example, "it's a good stock or good company; it will bounce; owning it at a cost basis of 73.25 is a good entry; etc." When selling the strike price at or below technical support, the idea is to avoid owning the stock. The price difference between the strike and the stock when initiating the trade is there for a cushion. Therefore, if the stock violates that support, it may not be a good entry point. Some more aggressive traders write the puts in the money to take advantage of the higher deltas. This is assuming the stock will advance and allow the trader to buy to close the naked put and lock in a profit. The other side to this is allowing the premium to erode and capture a profit. For example, an $84 stock has a May 85 put priced at $5. There is $1 (85 - 84) intrinsic and $4 (5-1) in premium. If the stock is trading at $84 on May's expiration day, there will still be the $1 intrinsic but not much premium. My example only had the put $1 in the money. Some bullish traders sell much deeper in order to get a much higher delta or move in premium per dollar movement in the security. This is very risky and may require more margin than just shorting the underlying security. Do the math. Or have a broker than can do it for you. The amount of premium left on expiration depends on the volatility of the underlying security. Selling the premium can be a very risky strategy. Especially when the trade costs more to maintain than anticipated. A similar strategy that provides some downside protection as well as consistent margin requirements is a bull put spread or credit put spreads. I will cover the uncovered call writing in my next article. Stay tuned for spread strategies as well. If you have any additional questions regarding this article or any market related topics, please feel free to either e-mail or call toll free me at 877-925-0880. Robert John Ogilvie Rjogilvie@cutter-co.com Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any representation as to the accuracy, reliability or completeness of any charts, formulas, and /or research opinions presented herein. This article is intended solely for educational purposes. Nothing herein should be construed as an offer or solicitation to buy or sell any securities. Cutter and Company is a Member of the NASD, MSRB, and SIPC. Please read the OptionInvestor.com's Disclaimer. ************************ SPREADS/STRADDLES/COMBOS ************************ Another Failed Rally! Stocks retreated today after Thursday's big gains as concerns of sagging corporate profits weighed heavily on investors. Friday, April 6 Stocks retreated today after Thursday's big gains as concerns of sagging corporate profits weighed heavily on investors. A weak unemployment report added to the recent economic uncertainty and continued financial problems with a California utility ended any hopes for a broad market rally. The NASDAQ closed down 64 points at 1,720 and the Dow finished 126 points lower at 9,791. The S&P 500 index was down 23 points at 1,128. Market breadth on the Big Board was poor with 881 issues advancing, 2,129 declining and 218 unchanged. Volume came in at 1.25 billion on the NYSE and 1.84 billion on the NASDAQ. Technology declines outpaced advances 24 to 12. In the bond market, the 30-year Treasury rose 31/32 point, pushing its yield down to 5.46%. Market Activity: A slew of profit warnings combined with new fears of an economic recession pulled the major market indices lower today. Sycamore Networks (NASDAQ:SCMR), Tellabs (NASDAQ:TLAB) and Agilent (NYSE:A) led the slump in technology issues after all three companies said they would fall short of analysts' consensus earnings estimates. Shares of Motorola (NYSE:MOT) also plunged after CS First Boston said it expects consensus 2001 earnings to finish well below the current estimate because of continued weakness in some of its key businesses. Networking, semiconductor and Internet shares were among the worst NASDAQ performers. On the Dow industrial average, Intel (NASDAQ:INTC) and Hewlett-Packard (NYSE:HWP) led the losers in the blue-chip technology group while Citigroup (NYSE:C), J.P. Morgan (NYSE:JPM) and American Express (NYSE:AXP) slumped amid new selling pressure in the financial segment. The California energy crisis added to the downward momentum as Pacific Gas and Electric filed for bankruptcy. The company reported it is suffering from growing energy costs, which are now increasing by more than $300 million per month. Additional pressure came from an employment report that suggested the job market is weakening at a surprising pace with the unemployment rate at its highest level since 1999. All of these events added to the market's recent earnings worries and although analysts said the odds of a near-term reduction in interest rates have increased, investors continue to focus on the possibility of an economic recession. Portfolio Activity: Well, it's great to be back and based on the market activity over the past week, I picked a good time to go on vacation. Looking through the current positions in the Spreads/Combos Portfolio, it appears there were a number of significant moves during the last few sessions. The Debit Straddles group has benefited most from that activity and all of our bearish spreads remain profitable. However, some of the positions in the technology segment did not fare so well and only a few of the Covered-calls with LEAPS plays survived the most recent sell-off in NASDAQ stocks. Among the Calendar Spread positions, a number of issues offered favorable time-selling opportunities and all of the Credit Strangles are within the range of maximum return. Despite the recent downward trend, many of the bullish positions remain profitable and with the broader market attempting to build a technical bottom, there is excellent potential for a short-term recovery rally over the next few weeks. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** WMT - Wal-Mart $51.24 *** Reader's Request! *** Wal-Mart (NYSE:WMT) primarily is engaged in the operation of mass merchandising stores, which serve customers primarily through the operation of three segments. The Wal-Mart Stores group includes the company's discount stores and retail Supercenters across the United States. The SAM'S Club segment includes the warehouse membership clubs in the United States. The International segment includes all operations in Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico and the United Kingdom. One of our readers noticed the recent bullish activity in WMT shares and suggested a speculative position in the issue. Based on the established support level near $45 and the resistance at $55, a limited-risk play with low cost and high potential profit may be the best approach. PLAY (speculative - bullish/synthetic position): BUY CALL APR-55.00 WMT-DK OI=17275 A=$0.45 SELL PUT APR-47.50 WMT-PW OI=3170 B=$0.55 INITIAL NET CREDIT TARGET=$0.15-$0.20 TARGET PROFIT=$0.75-$1.00 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $1,750 per contract. http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=WMT ****************************************************************** - Speculation Plays - Today's positions are based on recent increased activity in the stock and underlying options. All of these plays offer favorable risk/reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** DBCC - Data Broadcasting $6.97 *** Cheap Speculation! *** Data Broadcasting (NASDAQ:DBCC) is the leading provider of market data to individual and institutional investors. The company delivers real-time stock quotes, financial information and news to the PCs, laptops and hand-held devices of millions of users via the Internet, dedicated transmission lines, wireless FM, cable and satellite. With the unique BondEdge service from its Capital Management Sciences division, Data Broadcasting also is a leading provider of fixed income portfolio analytics used for valuation and risk management purposes. Data Broadcasting recently merged with Financial Times Asset Management/Interactive Data, which had been a unit of the Financial Times Group, an international media company. Financial Times Asset Management is a leading source of comprehensive disclosure data, factor information and independent valuations for a comprehensive range of U.S. securities and offers full descriptive information on a number of U.S. municipal bonds. We discovered this position while searching for bullish small-cap stocks and thought it would be a good candidate for novice traders who are interested in time-selling strategies. Although the play requires relatively little up-front cost, there is an excellent potential for profit if the stock gradually moves higher over the next few weeks. In addition, the favorable premium disparity in front-month options provides a discounted entry price for the position. PLAY (conservative - bullish/calendar spread): BUY CALL MAY-7.50 BQD-EU OI=77 A=$0.56 SELL CALL APR-7.50 BQD-DU OI=191 B=$0.19 INITIAL NET DEBIT TARGET=$0.25-$0.31 TARGET ROI=25% http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=DBCC ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on these issues. Please review each play individually and make your own decision about the future outcome of the position. ****************************************************************** GENZ - Genzyme $93.93 *** Break-out Coming? *** Genzyme (NASDAQ:GENZ) makes and markets therapeutic products and diagnostic products and services, with an emphasis on therapies for genetic diseases. Genzyme General primarily consists of two business units, Therapeutics and Diagnostics. The Therapeutics business unit focuses on developing and marketing products for genetic diseases, including a unique family of diseases known as lysosomal storage diseases, and specialty therapeutics. Their Therapeutics business unit currently has three products on the market and several others in varying stages of development. The Diagnostics business unit develops, markets and distributes in vitro diagnostic products and genetic testing services. Genzyme General is a division of Genzyme Corporation and has its own common stock to reflect its value and track its financial performance. The company's earnings are due April 19. Genzyme was a welcome surprise in Friday's dismal market, moving up over $3 on excellent volume, even as the Biotechnology group retreated. There was no news to explain the activity but some traders suggest that institutions are buying GENZ because it is a top-tier company with solid operating earnings and a strong pipeline. Regardless of the reason, the issue appears to have excellent upside potential and this combination position offers a conservative way to speculate on its future activity. PLAY (conservative - bullish/credit spread): BUY PUT APR-75 GZQ-PO OI=1627 A=$0.65 SELL PUT APR-80 GZQ-PP OI=961 B=$1.15 INITIAL NET CREDIT TARGET=$0.60-$0.70 ROI(max)=14% B/E=$79.40 http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=GENZ ****************************************************************** MMM - Minnesota Mining $102.00 *** Rolling Over! *** Minnesota Mining & Manufacturing (NYSE:MMM) is engaged in the research, manufacturing and marketing of products related to its technology in coating and bonding for coated abrasives. Characterized by substantial inter-company cooperation, 3M's business has developed upon the research and technology of its original product, coating and bonding. This process consists of applying one material to another, such as abrasive granules to paper or cloth (coated abrasives), adhesives to a backing (pressure-sensitive tapes), ceramic coating to granular mineral (roofing granules), glass beads to plastic backing (reflective sheeting) and low-tack adhesives to paper. Lots of stocks have fallen from favor in the last few weeks and the recent downward trend in Minnesota Mining is an excellent example of a failed rally. The issue has broken the neckline of a near-term "head-n-shoulders" top formation and is on the verge of moving into a Stage IV downtrend. In the event of a recovery rally, the first area of resistance exists near $107 (below the neckline) with both the 30- and 50-dmas at $110 proving to be a difficult obstacle for any further upward movement. MMM - Minnesota Mining $102.00 PLAY (conservative - bearish/credit spread): BUY CALL APR-115 MMM-DC OI=1507 A=$0.45 SELL CALL APR-110 MMM-DB OI=3818 B=$1.05 INITIAL NET CREDIT TARGET=$0.70-$0.75 ROI(max)=16% B/E=$110.70 http://www.OptionInvestor.com/charts/mar01/charts.asp?symbol=MMM ****************************************************************** AVY - Avery Dennison $51.65 *** Low Risk - Low Reward *** Avery Dennison (NYSE:AVY) and its subsidiaries are involved in the production of pressure-sensitive adhesives and materials, and the production of consumer and converted products. The company also manufactures and sells a variety of consumer and converted products and many other items not involving pressure-sensitive components, such as notebooks, three-ring binders, organizing systems, markers, fasteners, business forms, tickets, tags and imprinting equipment. Products in this segment are under brand names such as Avery, Avery Kids, Marks-A-Lot and HI-LITER. The company's pressure-sensitive adhesives and materials subsidiary manufactures and sells specialty tapes, graphic films, reflective highway safety products and chemicals. In addition, its consumer and converted products segment manufactures and sells a range of Avery brand consumer products, custom label products, performance specialty films and labels, automotive applications and fasteners. Avery Dennison is an old favorite in the Credit Spreads Portfolio and the issue has provided a number of excellent opportunities over the past few months. The stock has traded in a relatively small range since late last year and there are no indications of a significant change in character. Friday's move took the issue back below a recent resistance area and without a major catalyst, it is unlikely the stock will recover to our sold strike price in the next two weeks. PLAY (very conservative - bearish/credit spread): BUY CALL APR-60 AVY-DL OI=232 A=$0.10 SELL CALL APR-55 AVY-DK OI=208 B=$0.45 INITIAL NET CREDIT TARGET=$0.40-$0.45 ROI(max)=9% B/E=$55.40 http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=AVY ****************************************************************** ************************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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