The Option Investor Newsletter Thursday 05-10-2001 Copyright 2001, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/051001_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 05-10-2001 High Low Volume Advance/Decline DJIA 10910.40 + 43.40 10979.10 10868.80 1.05 bln 1868/1222 NASDAQ 2128.86 - 27.77 2197.03 2128.69 1.73 bln 1902/1942 S&P 100 651.42 - 0.72 658.85 651.10 totals 3770/3164 S&P 500 1255.18 - 0.36 1268.14 1254.56 54.4%/45.6% RUS 2000 490.58 + 0.40 494.33 490.40 DJ TRANS 2899.76 + 34.03 2908.76 2865.73 VIX 27.24 - 0.58 27.57 26.71 Put/Call Ratio 0.69 ****************************************************************** One Toe Over The Line! Slowly it crept, step by cautious step. After a better than expected Chain Store Sales Report the markets gapped open on bullish investor sentiment. The Nasdaq was helped by a report from Morgan Stanley that called the bottom on the chip sector. The sentiment failed to hold and the Nasdaq fell to close -67 points below its open and a -27 loss. The Dow managed to sneak in a close over 10900 if only by 14 points. Could the bulls be testing the bears resolve by sneaking just a toe over their line in the sand at 10900? The best news of the day was the Chain Store Sales Report which posted a surprisingly strong gain of +3.8%. This was the strongest gain since the +4.8% from January. The gains were mainly due to better weather conditions which prompted consumers to buy summer clothing. Discount stores continue to outperform department stores as consumers are being more cost conscious. The gains in sales took some of the heat off the consumer sentiment bias. If consumers are still buying at a strong pace then their outlook can't be very bad. Layoffs continue to increase and could slow this pace over the summer. Also several analysts said the increase in sales was due to drastic mark downs and inventory clearances which will be negative for profits. The initial claims for unemployment fell last week to 384,000 from a revised 425,000 from the prior week. The indicator tends to be volatile and the 41K drop in initial claims is not material and does not specifically indicate that unemployment is better and companies are hiring again. This could easily spike even higher than the 425,000 number from last week after the layoffs announced this week take effect. AMD said today that they felt the PC market had bottomed out. Several analysts upgraded AMD saying Intel could not win a price war and the chips AMD was selling were cheaper and fit with the discounted PC equipment being sold now. AMD gapped up on the news but fell when the competing chip comments began. Morgan Stanley came out this morning with an upgrade of chip equipment makers. They upgraded AMAT, LRCX, KLAC, NVLS and TER to "strong buy" from "outperform." They felt the sector would start to rebound in early 2002 and predicted share prices could rise +40% by years end. They said "the train had left the station" on these stocks. Immediately afterwards Merrill, Goldman Sachs, Credit Suisse First Boston and Cantor Fitzgerald all disagreed with the Morgan Stanley call. CSFB said they "remain skeptical" about PC orders increasing in the second half of the year. Goldman said the sector could still go down in the near term and rated only a 50% chance that orders would increase this year. Merrill said the Morgan scenario was "not likely." Let's see, one for a rebound and four against. Can you guess what happened to chip stocks after the gap open. Clue - they did not go up. RMBS was found guilty of fraud by a federal jury on Wednesday. They said Rambus had not informed the organization that sets standards for semiconductors about its patent applications. Infineon had complained that RMBS was not playing by the rules and made it hard to comply with patent infringement requirements. This could impact other cases like the Micron and Hyundai cases. They are claiming RMBS patents are not valid and an attempt to back patent processes that others use. This could halt royalty payments if some patents are found to be unenforceable. Bad news for Rambus, good news for other chip stocks. While the chip/PC companies were battling it out in the analyst war all day IBM was planning a sneak attack after the close. IBM held its spring analyst meeting tonight to say they were going to spend massive amounts of money on networking going forward. Saying the PC price war was getting ugly they are going to continue to focus on services and networking which is where the corporate economy is going. They said hand held PC devices would eventually dwarf the desktop PC and connecting those devices would be big business. IBM has an $85 billion backlog of orders in their service businesses and things are looking rosy. They said they were only looking for single digit revenue growth but upped estimates for double digit earnings growth. After saying harsh things about the PC box makers and good things about their profits going forward it is likely DELL, HWP and GTW could come under pressure on Friday. Dell and HWP will both release earnings on May 17th. Oracle took another hit today after Salomon Smith Barney lowered estimates for the quarter. They lowered estimates to $.13 and analysts consensus was $.15. There have been several rumors lately that ORCL would warn for the second consecutive quarter. The ECB cut rates overnight by a quarter point to 4.5%. This was the first cut since 1999 and helps relieve the pressure on the Fed. The Fed had felt it was on its own to rescue the world economy by slashing U.S. rates. With help from our friends there is a better chance of global success. Bank stocks were up slightly on the news. Wondering why the markets are listless? TrimTabs.com said today that only $400 million came into stock funds in the week ended on Wednesday. This is compared with $15 billion the week before. Turn off the cash spigot and buyers dry up quickly. There is still a lot of cash on the sidelines and in fund hands but whenever the flows slow the spending also slows. Where to from here? With the PPI and Retail Sales on Friday, Industrial Production on Monday and the FOMC on Tuesday, it will be anything but boring. There are plenty of things to move the markets and the only thing we are unsure of is direction. The S&P rallied one point over resistance at 1267 and promptly fell back again giving back all the gains and slipping below yesterday's close. The Nasdaq opened higher and fell all day on a constant stream of negative news. The IBM conference should provide a boost to IBM on Friday which would also boost the Dow. The Dow's gains today were on the financials and retailers as well as materials stocks. If Retail Sales tomorrow follow the Chain Store Sales today then retailers could follow through. The banks should hold their gains in front of the FOMC meeting and there is nothing other than profit taking to impact MMM and DD which were big winners today. The downgrade on ORCL and the negative comments by IBM on the PC sector could cause ORCL, DELL, HWP, GTW, SUNW, INTC and CSCO to continue their fall on Friday. This sets the Nasdaq up for a fall although there was no new news. Simply a restatement of known facts. The Dow's close over 10900 is positive and should it hold those gains OR even rise slightly, that would be bullish for the market. Still 11000 is going to be a formidable opponent and any gains between now and the FOMC decision are likely to be hard fought and easily lost. Enter passively, exit aggressively! Jim Brown Editor Away from your computer? Call 900-378-PICK and get this information along with the intraday updates including plays. **************** MARKET SENTIMENT **************** Cheeky! By Matt Russ We raised our glasses in a toast to the ECB, which unexpectedly cut interest rates today, with hopes that it would help drive the Dow 30 through the 11,000 mark. But, today would not be the day. The ECB recently warned of rising inflation and todays move only undercuts their credibility. And so the U.S. markets continued to be choppy, seeking a trend. Talk about trendless, the SPX.X closed two-hundredths of a point above its opening price. Oh, how we need volatility! The VIX.X sunk below 27 briefly today, but settled at 27.24. Should make for some cheap May premiums going into expiration next week. Let's just hope it doesn't implode any further. NASDAQ & QQQ Man, it hurts to even look at the Nasdaq chart. This says it all. Gaps up, gaps down, all met by selling pressure at some point. Today was no different. The COMPX gapped up near 2200 again, setting the high of the day, and then sold off throughout the session, closing at 2129. Notice that these gap up openings are getting lower and lower, and today's just happened to line up with the red downtrend line that I drew on Tuesday. Coincidence? Nope. Those Nasdaq market makers are playing the levels, gapping their stocks up to resistance and whacking them throughout the day. The market is telling us that there's no reason to buy. So what should we do? Ride this train back down the tracks. We were looking to 2165 as support from Tuesday, but Wednesday's whipsaw trading put an end to that. A key break of 2150 today could attract more selling, however, it's worth noting that volume on the Nasdaq the past two days has been around 1.7 bln shares. Next support is 2089. If that gives way, 2000 would conceivably be our next stop. Resistance is at 2150 and the dominant downtrend line. The QQQs gave up the $46 level today. Watch for support at $45.30, and then at the 38.2% retracement level of $43.43. SPX & OEX Sellers jumped on the S&P 500 again today at 1268, but 1254 was as low as they could take it. This bullish wedge continues to narrow on the SPX.X, bound on the upside with 1270. I've said it once and I'll say it again, we are at a pivotal point on the SPX. The likely catalyst to break these barriers tomorrow could be the PPI. Retail Sales numbers also will be released. Yesterday, buyers stepped in at 1247 and at 1250, so this area will be a support level to watch. We all know where resistance is, so keep an eye on 1270 as this broad index continues to coil. The same goes for the OEX.X, the S&P 100, which is bumping into 660. OEX support lies at 648 - 650. DOW 30 The INDU has been stair stepping higher, establishing higher highs and higher lows. Support levels have been proven at both 10700 and 10800. Today, after the gap up on the word that the ECB cut rates, the Dow 30 topped out at 10979. Given the ECB's action, we thought that having the Europeans on board to fight slowing global economic growth would boost the Dow through 11,000. However, the Bank Index (BKX.X) rolled over shortly after the open without even testing its resistance at 900. Leading the Dow today to its 43 point gain were the Cyclicals. Caterpillar (NYSE:CAT) made 52-week highs(see the Call Play List), with Dupont (NYSE:DD) and United Tech (NYSE:UTX) each gaining. While typically perceived as boring, this group itself is at a pivotal point. Check out the Cyclical Index (CYC.X) below. Its long-term downtrend line is right there. A break above this line will likely bring the techs along with it and drive the Dow through resistance, just as it did in April '99. And vice versa. All of these stars are aligning and now we're just waiting for the celestial break. On the Dow, intraday support is now at 10900, with the 11,000 mark overhead. We are waiting for that moment. The pressure, indeed, is building. This break is so close, yet the signals are not giving us a clear resolve. PPI tomorrow will be a tradable number, but the Fed's call on Tuesday might be the ultimate catalyst. Either way, we will be able to take advantage of this low volatility and short time premiums in May contracts next week. My gut says QQQ puts off resistance near 2200. Trade Smart, Matt Russ ********************** CBOT Commitment Of Traders Report: Friday 05/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade(CBOT). Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials (Current) (Previous) (Current) (Previous) S&P 500 Open Interest Net Value +36513 +57298 -41144 -61741 Total Open Interest % (+14.90%) (+26.22%) (-6.05%) (-8.52%) net-long net-long net-short net-short DJIA Futures Open Interest Net Value -6592 -3478 +7488 +5051 Total Open Interest % (-57.98%) (-20.21%) (+25.09%) (+16.58%) net-short net-short net-long net-long NASDAQ 100 Open Interest Net Value +4288 +2520 -10972 -10299 Total Open Interest % (+22.06%) (+11.28%) (-17.02%) (-16.11%) net-long net-long net-short net-short What COT Data Tells Us ********************** Indices: Dramatic changes this week as Commercials have reduced their net-short positions on the S&P 500 by 2.5 percent. In addition, we see extreme divergence on the DJIA with the Small Specs doubling their short positions while the Commercials increased their long positions by 8.5 percent. From here were are in limbo until %values actually switch to flat or net-long sometime in the future. We could see fluctuation of positions oscillate up and down for weeks or even months to follow. A major market hurdle will be the S&P 500 commercial traders moving to net-long in accumulation stage and that is still undetermined from here. Data compiled as of Tuesday 05/01 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/051001_1.asp PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** NXTL $17.40 -0.61 (-2.34) Unfortunately, the wireless sector was not able to muster up enough strength to propel NXTL past tough resistance at $20 this week. Pervasive malaise in the technology sector seems to have destroyed the momentum for the time being, and NXTL has fallen out of its previous upward channel. Due to the fact that the stock has closed below our stop level, we are dropping it tonight. VRSN $53.31 -1.64 (-2.51) Very nimble day traders could have taken a quick gain on Wednesday with a move from $54.50 to almost $57 in a few hours. However, as is the case with most technology stocks, the movement in VRTS is highly dependent on the movement in the sector, and the GSO.X has not been performing up to par the last two days. Today's drop of nearly 5% in GSO.X is somewhat disconcerting for software stocks going forward, and considering the fact that VRSN has closed below our stop level of $54, we are dropping it tonight. LAB $38.17 -1.60 (-2.03) It appears that resistance at $40 may be too formidable for now. After spending the past week attempting to break through that level, shares of the NYSE Specialist firm now appear to need a breather. Stochastics have crossed over bearishly, today's reversal of over 4 percent, and weakness in peers SCH and NITE are just some of the reasons that this may be the case. Add to that the close below its 5 and 10-dmas (at $39.70 and $38.56, respectively) and our stop price of $39, and we have little choice but to drop coverage. PUTS: ***** MMM $118.04 +1.11 (-1.95) Despite formidable resistance at the $120-122 area, it appears that the bulls and bears alike are not yet ready to make a firm break in either direction. With strong support at $115, traders seem quite comfortable to keep MMM in this range for now. This lack of volatility, which may be good for stock traders, is not as favorable for option players, since premiums decay over time. While still below our stop price of $119, we are no longer recommending any new positions. SGR $57.01 +1.56 (-0.09) We are taking gains on our put play in SGR. The recently slow decent of the stock has provided us with a successful play. However, it appears now that SGR may be ready to move higher. Stochastics have crossed over bullishly, and today's gain of 2.81 percent on 1.13 times the average daily volume was enough to put the stock just above our closing stop price of $57. In keeping with our sell rules, we are taking our gains off the table, to be used on future plays. FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Thursday 05-10-2001 Copyright 2001, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/051001_2.asp ******************** PLAY UPDATES - CALLS ******************** MO $52.32 +0.94 (-0.43) After dipping to $51 earlier in the week, MO regained some momentum on Thursday afternoon. It is important to note that MO found strong support at $51, which held strongly. On Thursday, MO stated that Kraft's Nabisco plans to roll out distribution of its chocolate filled Oreo cookie by June, but did not give further information due to the "quiet period" required by the SEC before a stock offering. The closer we get to the IPO, the more momentum MO is likely to gain. At this point, the date has not been finalized, but MO has stated that the company intends to complete the IPO by the end of June. At this point, a pullback to the 10-dma of $51.50 would be a possible entry point. MO is encountering strong resistance at $54, and a break above this level could be a green light for additional entry points. Remember to keep an eye on others in the sector, like LTR and RJR and move closing stops up to $50.50. GDW $61.98 +1.10 (+3.23) GDW opened with a gap up of almost a full point, and held onto its gains the entire day. A dip to $61 which occurred in the mid morning turned out to be a superb entry level, as the stock quickly rebounded on heavy volume. Substantial buying is occurring here, as GDW continues to move on approximately one-and-a-half times the average daily volume. GDW's next resistance level is $62.40, and it seems likely that we may cross it ahead of the Fed meeting next week. A move above $62.40 with heavy volume could be a good entry point for conservative traders. More aggressive types might want to wait for another pullback to $61.50, if others in the sector are continuing to demonstrate strength, such as ASFC, WM and GPT. We are moving stops up to $60. STOR $18.02 +1.22 (+2.62) It looks like we're another step closer to the $20 challenge! Today's bullish open gave way to impressive trading above the $18 level, rewarding traders who had open positions. Plus, the successful test of $17.57 at noontime further confirmed the stock's capacity to endure market gyrations. Although it must be noted that leaders in the storage sector like EMC and NTAP are simply trading sideways. Therefore, it's important to remember to play STOR on its own merits. In an effort to safeguard our capital, we'll continue coverage over the weekend only if STOR delights us with a CLOSE above $17. And please, don't get greedy. Lock in profits as STOR targets the $20 level. If this stellar performer rocks through the opposition, you can always jump back into the momentum for another round. Now if we only had to rely on an analyst call, then STOR would be top pickings. Today Dain Rauscher Wessels and Robinson Humphrey awarded STOR with a Speculative Buy and Outperform, respectively. AOL $52.45 +0.45 (+0.25) As we've reiterated, the key to estimating AOL's upside moves is a bullish market coupled with a cooperating sector. Today was such a scenario. After days of lackluster activity, a bold open at $52.98 clearly set the stage for profit opportunities. Along with other media stocks such as VIA.B, DIS, and NWS, AOL broke out of the choking confinement set by its upper resistance. The chance to take some cash off the table became available for those traders looking to unload open positions. Going forward, look for today's test of the $52 level (previous resistance) to sustain the share price and serve as a launching point for those interested in taking subsequent entries. MER $65.85 +0.18 (-1.70) A dismal day for the financial group on Wednesday, in conjunction with Merrill Lynch's announcement to cut 20% of its investment management unit by the end of the year, didn't entice many buyers. However the $65 support, which also marks our closing stop, managed to sustain the share price. Today's spirited marketplace also offered little incentive for traders to take positions in MER. But on the bright side, lower-than-average volume accompanied any selling and this is certainly a good indication for those holding long positions. An enterprising entry off this level could lend lucrative gains, but there's a big IF involved. A more conservative approach is to wait for a visible move through the $67.50 and $68 before jumping into this play. YHOO $18.23 -0.63 (-1.79) Considering the broad based weakness exhibited by the Nasdaq Thursday, YHOO fared comparatively well, as the stock is holding up above its 50-dma of $17.43. News of the closing of a major Internet fund, as well as a revenue forecast slashing by Terra Lycos (TRLY) did not bode well for INX.X over the last two days. We still feel that the short-term downside risk is somewhat limited here compared to the upside potential. When the Nasdaq dropped to 2000 the week of April 24th, YHOO found strong support at $17.50, from which it promptly rebounded to a high of over $23. If we see a rebound in the Nasdaq in anticipation of the Fed meeting, it is possible that the same scenario could replay. Traders could take positions on a bounce from $17.50, if INX.X and others in the sector like AOL are strong. We are setting closing stops tight at $17.50, so end the position if YHOO closes below this point. CAT $53.43 +1.43 (+2.88) With or without cooperation from the NYSE, shares of leading earth-moving equipment maker Caterpillar have been inching steadily forward and in the process, making new 52-week highs. Yesterday, despite a flat to down day for the Old Economy index, CAT was up fractionally on news that the company raised $1.1 billion in the bond market, taking advantage of recently lowered interest rates. An up day for 3-letter issues today helped the stock to move strongly higher, gaining 2.75 percent on over 1.18 times the average daily volume. A positive earnings report from one of CAT's distributors, Finning International, in which the company posted strong new equipment sales figures, was certainly good news for CAT. Continued buying pressure leading to a break above $54 on volume may allow conservative traders to take a position, but note that the real resistance lies at $55. To protect our profits, we are upping our closing stop price from $50.75 to $51.75. Bounces off support at $53, $52.50 and $52 may allow aggressive traders to make a play, but keep an eye on sector peers DE and DOV. GPS $32.41 +3.61 (+4.31) When we initiated coverage on GPS yesterday, we cited strong fundamental reasons as well as positive technical factors leading to this decision. A favorable economic environment and a host of upgrades, along with a nice consolidation pattern leading to a successful test of the bottom of its up-trend channel, were just a few of the reasons that made this play an attractive one. Today, the stock exploded, gapping up at the open and ending the day up over 12.5 percent on 3.7 times the average volume. An upgrade from WF Van Kasper, from a Buy to a Strong Buy rating, certainly did its part to bring out the buyers. But the bulk of the credit goes to strong retail numbers due to warmer-than-expected weather, helping apparel makers to post higher than anticipated sales figures. The company also came out to say that first-quarter earnings (due next Thursday) would surpass current Street estimates. At this point, we are tightening our stop up, from $27.50 to $31.50. High-risk players looking for an entry may look for low volume pullbacks to support at $32 and $31.50, but confirm sentiment with movement in peers AEOS and ANF. Please be aware that Retail Sales figures due tomorrow may also affect trading! A break above $33 on continued buying volume may allow for an entry on strength. LLY $85.01 -0.50 (+1.03) Missing the drop list by the hair of its chin, LLY spent another day consolidating its recent advance. Just like the broader markets, our play can't decide if it wants to continue upwards or sit out. Resistance between $86-87 has been formidable, and the stock has now fallen to rest just a penny above our $85 stop. Only time will tell whether the bulls can get re-invigorated as we head into another weekend and the May 15th FOMC meeting rapidly approaches. The return of buyers should lift LLY from current levels, providing aggressive traders with another attractive entry point. Beware of the bears though; volume is still below the ADV, but gradually increasing the past few days. Not only that, but today marked the stock's first close below the 10-dma (currently $85.45) in almost 3 weeks. The more prudent approach might be to initiate new positions on continued strength as LLY rallies through intraday resistance near $86. The Pharmaceutical index (DRG.X) is having a hard time as well, sitting right on its recent ascending trendline; unless it can resume its uptrend by bouncing from the 396-397 level, LLY will have a hard time moving significantly higher. Insofar as the DRG.X, watch for a breakout above 400 to confirm strength in LLY. ******************* PLAY UPDATES - PUTS ******************* GMST $37.60 -1.66 (-2.20) Investor interest in GMST continues to be blasť. Despite news on Wednesday that the company had won a new deal with cable provider Shaw Communications, shares of the digital media provider headed lower, dropping $1.00 or about 2.5 percent on weaker than average trading volume. Today, the stock lost another 4.23 percent of its value, with trading volume once again light - only 87 percent of the ADV. Continued apathy on the part of bulls could work in our favor, especially in light of the positive announcements from the company. Any negative factors that may arise leading to even a slight increase in selling, with few willing bidders at the moment, could accelerate GMST's slide. With that in mind, a break below $37.50 on volume may allow traders to enter on weakness. Just be aware that GMST may find support from its 50-dma at $36.65. Failed rallies at the 5 and 10-dma, at $39.35 and $40.61 respectively, along with horizontal resistance at $38.25 and our new closing stop price of $39, may allow aggressive traders to make a play. Track sector sentiment by following movement in peers SFA and WINK. AMAT $51.01 -0.03 (-0.52) Dueling analysts made for some early excitement in the Semiconductor stocks this morning before more rational thinking prevailed. It started before the open with a Morgan Stanley upgrade of several chip equipment companies, including AMAT, to Strong Buys. Salomon Smith Barney chimed in, citing evidence of a bottom in the semiconductor equipment sector. That gave the bulls the shot of adrenaline they needed, helping AMAT to gap up above $54 at the open, and providing aggressive traders with an attractive, but risky entry point as the stock began to rollover almost immediately. Dissenting opinions hit the newswires before amateur hour was even over, with Goldman Sachs citing the group has not turned around, and CSFB disagreeing with Morgan Stanley's earlier call and advising investors to sell these stocks into strength. The tape tells the rest of the story, with the sellers in control for the rest of the day, stripping AMAT of all of its early gains by the close. While the gap open steamrolled our $53 stop, the bearish activity for the remainder of the day gives us good cause to keep AMAT on the playlist. We are still looking for AMAT to fall through the $50 support level, and that will be the trigger for conservative traders to take a position. More aggressive entries can continue to be taken on failed intraday bounces near the $53 level, so long as our stop is not violated on a closing basis. Continue to monitor the Semiconductor index (SOX.X), as a drop below the important 600 level will likely correspond to AMAT taking out the $50 level. HGSI $58.42 -2.43 (-3.35) As expected, the Biotechs are continuing to weaken, and today the BTK.X punctured the 555 level with hardly a struggle. HGSI isn't looking much better, falling back through the $61 and $60 levels in short order. The rally attempt from earlier in the week was unable to clear the $64 resistance level, and the rollover provided some attractive entries for aggressive traders. By lunchtime, the stock had begun to find support between $57-58 and spent the remainder of the day consolidating near this level. This is likely to be the next significant battleground between buyers and sellers, and we would look to initiate new positions as HGSI drops below $57, preferably on increasing volume and continued weakness in the BTK.X. After the sharp downward move today, we are ratcheting our stop down to $62. Aggressive traders can consider new positions on an intraday bounce near this level, so long as sellers remain in control. The next major level of support to watch for will be near $54, and this will be a good area to consider locking in some profits. JNPR $53.61 -3.76 (-7.52) Once again, Networking stocks took it on the chin and JNPR got hit for 6.5% loss, closing near the bottom of its $6 intraday range. The less-than-stellar earnings report from CSCO is still weighing heavily on the Networking index (NWX.X), and upward moves continue to provide attractive entry positions for put plays in the sector. After a bullish open across the broader markets, which allowed JNPR to open just south of $60, the sellers didn't waste any time pushing the stock lower. The only green on the screen came during lunch hour and was quickly followed by increasingly heavy selling right into the close. The straw that broke the camel's back was a conference call between ABN Amro and JNPR's VP of Investor Relations. The key point from the call was that JNPR gave no guidance going forward; not the kind of cheerful news that investors are currently craving. JNPR is now sitting just above significant support near $53, and is quickly approaching the $51 support level, last seen just before the Fed's surprise interest rate cut on April 18th. The bottom line is that there hasn't been any noticeable pickup in the Telecom Equipment sector, and optimistic bulls are watching their recent paper gains disappear. We have lowered our stop to $56, and aggressive traders will want to target new entries on an intraday bounce near this level. NVLS $49.49 -0.11 (-1.46) Another victim of the conflicting analyst calls this morning, NVLS provided vigilant traders with some nice profits by the time the closing bell rang. It started before the open with upgrades to the Semiconductor Equipment stocks to Strong Buy ratings from Morgan Stanley. Salomon Smith Barney, chimed in citing evidence of a bottom in the equipment sector. Less than an hour into the trading day, Goldman Sachs and CSFB were lobbing their dissenting opinions into the fray, citing no visible evidence that there is any improvement in the sector. Trading in NVLS seemed to follow the whims of the analysts, gapping up at the open and temporarily slicing through our $51 stop. While it looked bad for the bears at the open, they quickly got their second wind as the Semiconductor index (SOX.X) rolled over and ended right at its low of the day, having given up almost its entire early gain. On a daily chart, we can see the clear "Shooting Star" doji pattern, which certainly doesn't favor the bulls' chances in the next few sessions. Because of the bearish action in the sector and NVLS, which ended the day more than 6% off its high, we are comfortable keeping the play alive as we head into Friday. Aggressive traders will want to target shoot new entries near our $51 stop, while the more conservative approach will be to wait for NVLS to fall through the $48 support level. ************** NEW CALL PLAYS ************** AGGRESSIVE: BA - The Boeing Company $65.95 +0.95 (+1.45 this week) The Boeing Company, an aerospace company, operates, together with its subsidiaries, in three principal segments: Commercial Airlines Operations, Military Aircraft and Missiles, and Space and Communications. Commercial Airplanes Operations is involved in the development, production and marketing of commercial jet aircraft. The segment also provides related support services, principally to the commercial airline industry worldwide. The Military Aircraft and Missiles segment is involved in the research, development, production, modification and support of military aircraft, including fighter, transport and attack aircraft; helicopters; and missiles. The Space and Communications segment is involved in the research, development, production, modification and support of space systems, missile defense systems, satellites and satellite-launching vehicles, rocket engines and information and battle management systems. After reaching a 52-week high of $70.93 on December 8th, and Dipping to a low of $49.36 during the Dow sell off on March 22nd, Boeing has formed an almost perfect chart pattern for bullish traders. Excellent news which has been released recently combined with strength in the Dow average and the defense sector have combined to move BA into the spotlight. Aerospace and military defense stocks have been attracting investors of late, as the new federal budget is anticipated to include substantial increases in spending on new defense programs. Over the last week, BA has announced several new large contracts. Today, BA confirmed that American Airlines had ordered 15 new Boeing 767 Airplanes. BA has also received a new US fighter jet contract. In addition, Wall Street took notice when XMSR launched its second Boeing 702 satellite this week. Today's close above previously strong resistance at $65.50 is a very bullish sign, and should bode well for BA going forward. Also, the announcement by Boeing that the company plans to move its headquarters to Chicago seemed to stimulate interest in the company on Thursday. Traders could take positions at current levels, if others in the sector like LMT are rallying. A pullback to support at $65.50 is possible, and could be an entry point for more aggressive traders. We are setting stops at $64, right above the 10-dma of $63.91, so be prepared to end the play if BA closes below this level. ***May contracts expire next week*** BUY CALL MAY-60 BA-EL OI=5763 at $6.30 SL=4.50 BUY CALL MAY-65*BA-EM OI=8463 at $1.85 SL=1.00 BUY CALL JUN-60 BA-FL OI= 255 at $7.20 SL=5.50 BUY CALL JUN-65 BA-FM OI=1587 at $3.60 SL=1.75 http://www.premierinvestor.com/oi/profile.asp?ticker=BA ************* NEW PUT PLAYS ************* AGGRESSIVE: QLGC - Qlogic Corp $44.35 -2.89 (-4.94 last week) QLogic Corporation is the leading manufacturer of fibre channel bus adaptors. The company is also a designer and supplier of semiconductor and board level input/output (I/O) components They've been designing and marketing SCSI-based (small computer system interface) products for over 12 years and sells its products to server, workstation, and date peripheral makers. Blue-chip clients include Compaq, Dell, Hitachi, IBM, and Quantum Corporation. A crucial break through QLGC's support caught our attention and prompted immediate coverage of this semiconductor player. In recent trading, the $46 level sustained QLGC amid any adversity. But now that earnings are just around the corner and the NASDAQ is floundering, the tides are turning - and not in favor of QLGC! Investors seem to be preparing for the worst. Ironically, it's expected that they'll come in at $0.28 p/s in comparison to last year's same quarter of $0.24. The company is preparing to release its earnings next Tuesday, May 15th, after the market close; but mark your calendars, we NEVER hold over an announcement. This week QLGC lost over 10% of its value; and on the day, its slide under the critical $46 support amid robust trading with a $2.89, or 6.1% loss. And then there's the sector itself to consider. Today's strong sell-off across the board saw the Semiconductor Index (SOX.X) tank almost 30 points from open to close. Currently, there's support at 620, with another safety net around 605. A major signal for downside sentiment would be a break through 600! Use this index measurement to help plan your strategy on QLGC. Put entries might be found on rollovers from the 5-dma ($47.27) or more conservatively, from the 10-dma ($45.69) in a declining market. If you enter on downward momentum through $44, consider targeting the proximity of $40 for an exit point. We'll continue coverage on QLGC through the weekend as long as it stays below $46.50 on Friday's close. ***May contracts expire next week*** BUY PUT MAY-50 QLC-QJ OI=181 at $7.20 SL=5.00 BUY PUT MAY-45*QLC-QI OI=671 at $3.90 SL=2.50 BUY PUT JUN-45 QLC-RI OI=168 at $6.60 SL=4.50 BUY PUT JUN-40 QLC-RH OI=199 at $4.20 SL=2.50 http://www.premierinvestor.com/oi/profile.asp?ticker=QLGC BRCM - Broadcom Corporation $38.35 -1.90 (-4.64 this week) Broadcom Inc. is the leading provider of highly integrated silicon solutions that enable broadband communication and networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs develops and supplies complete system on a chip solutions and related applications for digital cable set top boxes and cable modems, high speed local and metropolitan optical networks, carrier access, satellite, DSL, and network processing. Earnings this week from Cisco had a palpable effect on communications chipmaker Broadcom, as the company is a major supplier to the networking giant. While CSCO managed to beat lowered Street estimates by a penny, lack of visibility going forward continues to plague the sector. In a market that does not like uncertainty, this was not good news. Merrill Lynch analyst Michael Ching came out yesterday and re-iterated his Neutral rating on BRCM, along with sector peers such as AMCC CNXT, PMCS and VTSS. The decline of capital expenditures by the Telecom sector has no doubt taken its toll. Excess inventory continues to weigh on the stock prices of high tech equipment manufacturers, inventory that is depreciating as it sits on the shelves. Technically, the stock has been making a series of lower highs and lower lows. While BRCM was able to break above its 50-dma (now at $35.74) in late April, it appears now that the stock may test its major moving average support. Today's decline of 4.72 percent on higher-than-average volume put the stock below psychological support at $40. Continued selling pressure leading to a break below $38 may allow cautious traders to take a position, but confirm with volume. Failed rallies as BRCM approaches the 5 and 10-dma at $41.68 and $42.14 respectively, along with horizontal resistance at $39.50, $40 and our closing stop price of $41, may provide potential entries for aggressive traders. When making a play, make sure that movement in the Philadelphia Semiconductor Index (SOX) confirms sector weakness. ***May contracts expire next week*** BUY PUT*MAY-40 RCQ-QH OI=6001 at $4.10 SL=2.50 BUY PUT MAY-35 RCQ-QG OI=6016 at $1.90 SL=1.00 http://www.premierinvesor.com/oi/profile.asp?ticker=BRCM ********************* PLAY OF THE DAY - PUT ********************* JNPR - Juniper Networks $53.61 -3.76 (-7.52 this week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. Most Recent Write-Up Once again, Networking stocks took it on the chin and JNPR got hit for 6.5% loss, closing near the bottom of its $6 intraday range. The less-than-stellar earnings report from CSCO is still weighing heavily on the Networking index (NWX.X), and upward moves continue to provide attractive entry positions for put plays in the sector. After a bullish open across the broader markets, which allowed JNPR to open just south of $60, the sellers didn't waste any time pushing the stock lower. The only green on the screen came during lunch hour and was quickly followed by increasingly heavy selling right into the close. The straw that broke the camel's back was a conference call between ABN Amro and JNPR's VP of Investor Relations. The key point from the call was that JNPR gave no guidance going forward; not the kind of cheerful news that investors are currently craving. JNPR is now sitting just above significant support near $53, and is quickly approaching the $51 support level, last seen just before the Fed's surprise interest rate cut on April 18th. The bottom line is that there hasn't been any noticeable pickup in the Telecom Equipment sector, and optimistic bulls are watching their recent paper gains disappear. We have lowered our stop to $56, and aggressive traders will want to target new entries on an intraday bounce near this level. Comments While shares of Juniper firmed in after hours trading Thursday evening, the stock took out several key support levels during the regular session and appears technically weak. We're looking for JNPR to work its way towards the $50 level during Friday's session. Aggressive traders might consider entering new positions near the open Friday morning, IF the Nasdaq weakens as it did during Thursday's opening. Confirmation of continued weakness would be provided if JNPR falls below the $53.64 level, which would provide an entry and should put the stock on the path towards $50. ***May contracts expire next week*** BUY PUT MAY-55*JUX-QK OI=10057 at $5.10 SL=3.00 BUY PUT MAY-50 JUX-QJ OI=10076 at $3.00 SL=1.50 BUY PUT JUN-55 JUX-RK OI= 1490 at $8.30 SL=6.00 BUY PUT JUN-50 JUX-RJ OI= 7454 at $6.00 SL=4.00 http://www.premierinvestor.com/oi/profile.asp?ticker=JNPR ************************ COMBOS/SPREADS/STRADDLES ************************ Industrial Stocks Rebound! Strength in blue-chip shares pushed the Dow higher today with retail and cyclical issues leading the rally. Wednesday, May 9 Stocks retreated today on concerns over demand in the networking equipment industry after Cisco Systems (NASDAQ:CSCO) said future capital spending is uncertain. The NASDAQ closed down 42 points at 2,156 and the Dow finished down 17 points at 10,866. The S&P 500 index was down 5 points at 1,255. Trading volume on the Big Board hit 1.04 billion shares with advances beating declines 16 to 14. Activity on the NASDAQ was light at 1.77 billion shares exchanged with losers outpacing winners 21 to 17. In the bond market, the 30-year Treasury rose 1 1/32, pushing its yield down to 5.66%. Tuesday's new plays (positions/opening prices/strategy): Stratos (NASDAQ:STLW) JUN12C/JUN10P $11.00 debit collar ADC Tele. (NASDAQ:ADCT) AUG10C/AUG7P $0.15 debit synthetic Metricom (NASDAQ:MCOM) JUL5C/JUL5P $0.30 credit synthetic Today's bearish activity provided two excellent opportunities to enter our new combination positions. MCOM opened lower and the initial credit was slightly higher than expected. The synthetic position in ADCT also offered an acceptable entry price but STLW was less cooperative. The stock opened at $10.50, pushing the cost of the protective Put to $1.50 and the issue remained near that price for most of the session. The bullish collar was not available at the target debit on a simultaneous order basis, but we will watch for additional entry opportunities in the coming sessions. Portfolio Plays: The equity markets consolidated today as renewed selling in the technology group weighed heavily on many segments of the Dow and S&P 500 index. Most of the selling pressure on the NASDAQ was attributed to Cisco's (NASDAQ:CSCO) vague earnings outlook. Cisco slumped to $19 Wednesday after the company reported third quarter earnings that beat estimates by a penny but offered no specific revenue guidance for the rest of the year. Cisco also said that fourth quarter revenues would be down as much as 10% from the third quarter. Several analysts raised their 2001 and 2002 earnings estimates on the stock to reflect a lower expense while others said the company's long-term growth rate of 30% to 50% will be almost impossible to achieve. The selling pressure spread to the semiconductor sector, where stocks were hampered by an industry report that predicted global semiconductor revenues will decline 17% in 2001 to about $188 billion. The data also suggested that the industry will experience a slow recovery in 2002. Other technology groups also retreated including Internet and computer hardware shares and Microsoft (NASDAQ:MSFT) led the software sector lower despite an announcement it will launch the next version of Windows operating system, Windows XP in October. On the Dow, Procter & Gamble (NYSE:PG), Alcoa (NYSE:AA), Boeing (NYSE:BA) and Merck (NYSE:MRK) were among the industrial leaders while Home Depot (NYSE:HD) and Intel (NASDAQ:INTC) pulled the blue-chip average lower. In the broader market, gold, natural gas, oil, chemical, biotechnology and utility shares advanced while bank and brokerage, retail and airline issues generally consolidated. Despite the lackluster session, the Spreads section had lots of activity. The big surprise occurred on Tuesday evening as Shire Pharmaceuticals Group (NASDAQ:SHPGY) announced that it received notification that the proposed merger with BioChem (NASDAQ:BCHE) had been approved. Shire also announced that, assuming closing takes place on Friday 11 May 2001, the average Shire ADS price, to determine the exchange ratio for the purposes of the merger, is $48.78. On the basis of an average Shire ADS price of $48.78, the exchange ratio to be applied would be 2.2757 Shire ordinary shares being issued for each BioChem Share. However, it is more complicated than that as the company is Canadian and there is a difference between the ratio for Shire common stock and the ADS shares (SHPGY) that are issued here in the United States. Most investors will receive ADS shares equal to the exchange ratio divided by three. In simple terms, the value of each BCHE share is roughly equivalent to 75.8% of the price of a SHPGY share, or about $35.85, based on today's opening prices. So, what kind of options did we have in the bearish position (MAY-$37C/MAY-$35C) and were there favorable adjustment opportunities? The easiest alternative was to simply buy the stock (near $35.50 for most of the morning) and the sell the long Call option (at $0.40-$0.55), thus establishing a simple Covered-call with a new cost basis of approximately $34.25. (Remember, we also have a $0.75 credit from the original spread position.) The profit range begins at our new cost basis and maximum gain is at $35.00. Another possible strategy is to simply wait for the closing date and adjust the original spread based on the price of Shire, which will determine the exact value of BCHE shares (75.8% of SHPGY). Since there is no reason for a significant rally, now that the news is public, and the technical character of SHPGY is less than outstanding, a "wait-and-see" approach may be more effective for aggressive traders. Among other active issues, our new Reader's Request position in Watson Pharmaceuticals (NYSE:WPI) has definitely experienced a change in character after the company posted favorable results in its quarterly earnings report. The issue has moved back above a recent resistance area near $50 on increasing volume and the new buying support is very solid. Our Put-calendar spread at $45 is unlikely to produce a profit without an adjustment so we decided to roll into a bullish, Put-credit spread at $50. The original position had a debit of $1.00 and the credit for the JUN-$50 Put is approximately $2.00, thus the new cost basis will be near $49. In the technology portfolio, Cisco (NASDAQ:CSCO) was the most prominent issue in the news as the company's record of posting greater sales and bigger profits came to a halt after 11 years. The networking equipment giant posted a quarterly loss and gave no guidance on when business could return to normal. Cisco's CEO hinted that some of the industry's capital spending issues might be improving and that long-term prospects remain healthy, but he also said that profits for the next quarter would be flat. Our long-term calendar spread at $20 appears to be correctly positioned as the issue has established a new comfort zone near $19. Those of you that participated in the roll-out to JUN-$20 options (in the short-position) on the day of the announcement made an excellent decision and the play is already profitable. Thursday, May 10 Strength in blue-chip stocks pushed the Dow higher today with retail and cyclical issues leading the rally. The Dow ended up 43 points at 10,910 but the NASDAQ slid 27 points to 2,128 even as some popular analysts issued bullish comments on the chip equipment group. The S&P 500 index was unchanged at 1,255. Trading volume on the NYSE reached 1.05 billion shares with advances beating declines 3 to 2. Activity on the NASDAQ was light with 1.73 billion shares exchanged and no significant bias in the technology index breadth. In the bond market, the 30-year Treasury fell 1 5/32, pushing its yield up to 5.75%. Portfolio Plays: Industrial stocks rallied today with the Dow posting modest gains on strength in a variety of sectors. The top performers were DuPont (NYSE:DD), American Express (NYSE:AXP), Home Depot (NYSE:HD), United Technologies (NYSE:UTX), Walt-Mart (NYSE:WMT), and Walt Disney (NYSE:DIS). The blue-chip average has recently been confined to a relatively narrow trading range as neither buyers nor sellers have been able to take control and today the outcome was much the same as the 11,000 mark again proved to be a formidable barrier. Mediocre earnings reports have been the problem in past weeks and the lack of future revenue guidance is also a major concern for most investors. Technology stocks are plagued by similar conditions but semiconductor shares received a boost today from analysts at Morgan Stanley Dean Witter, who said that "the train has left the station" and the recent market retreat creates opportunity in an upward trend. The brokerage also reported that upside estimate adjustments should begin in earnest by early 2002. Other select NASDAQ groups moved higher including networking issues but computer software, hardware and data storage stocks continued to slump. In the broader market, the retail sector rallied amid a plethora of "same-store sales releases" which revealed better-than-expected results. Advances were also seen in the financial, cyclical and gold sectors while renewed selling pressure surfaced in the oil service, utility, airline and insurance segments. The bullish activity in industrial issues dominated the Spreads portfolio and a number of positions benefited from the upbeat activity. Lowe's (NYSE:LOW) was a big winner, up over $43 to a new high near $64. Our bullish, Put-credit spread at $55 should expire at maximum profit. The strength in the retail group also boosted Liz Claiborne (NYSE:LIZ) and our sold Put option at $40 (an adjustment from last month's bullish spread) is expected to expire with a small gain for the overall position. Brokerages performed well during today's session and the recent spreads in Lehman Bothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) profited from the move. Financial services provider Providian (NYSE:PVN) rebounded from near-term selling pressure and our bullish play at $45 appears safe for now. On the downside, some of the new selections in the small-cap technology group are suffering from profit-taking and it remains to be seen whether these declines will substantially affect the recent recovery in these issues. One position that has definitely gone awry is Unitedhealth Group (NYSE:UNH) and as we commented last week, traders that did not take action when the issue moved below near-term support at $60 should set aside funds to purchase the issue; in the event of assignment. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** PEP - PepsiCo $46.54 *** Options Activity! *** PepsiCo (NYSE:PEP) is engaged in the snack food, soft drink and juice businesses. The company, through its many subsidiaries, markets, sells and distributes salty and sweet snacks in the United States and internationally. Pepsi also makes concentrates of Pepsi, Mountain Dew and other brands for sale to franchised bottlers in the United States and globally and produces, markets, sells and distributes juices under several Tropicana trademarks in the United States and internationally. Pepsi's domestic food business is conducted by Frito-Lay North America, and its global snack food business is conducted through Frito-Lay International. Their soft drink business operates as the Pepsi-Cola Company and is comprised of two business units, Pepsi-Cola North America and Pepsi-Cola International. PEP options have been active this week on speculation that its plan to acquire Quaker Oats (NYSE:OAT) could run into regulatory problems. Some traders believe the soft drink giant's takeover of the popular cereal maker could be derailed due to antitrust concerns and a Federal Trade Commission official recently said commission investigators fear the buyout will give Pepsi too much control over the U.S. sports drink market. In its defense, Pepsi said that in discussions as recent as Thursday morning, it had no indication from FTC officials of problems with the merger and they are continuing their dialogue with the FTC to reach a mutually acceptable outcome. The FTC's five-member commission, which must assess whether the deal complies with U.S. antitrust laws, is scheduled to vote in the next several weeks on whether it should go to court to block the deal. Apparently, investors are either in favor of a potential problem with the merger or they simply aren't concerned with the issue as the stock has rallied significantly since the rumors began. In any case, the current technical indications are bullish and traders who believe the trend will continue can attempt to profit from that outcome with these combination positions. PLAY (aggressive - bullish/credit spread): BUY PUT JUN-42.50 PEP-RV OI=2168 A=$0.50 SELL PUT JUN-45.00 PEP-RI OI=1878 B=$1.10 INITIAL NET CREDIT TARGET=$0.70-$0.75 ROI(max)=38% B/E=$44.30 - or - PLAY (speculative - bullish/synthetic position): BUY CALL JUL-50.00 PEP-GJ OI=6294 A=$1.20 SELL PUT JUL-42.50 PEP-SV OI=2410 B=$0.90 INITIAL NET DEBIT TARGET=$0.00-$0.10 TARGET PROFIT=$0.80-$1.00 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $1,550 per contract. http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=PEP ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** NSC - Norfolk Southern $22.39 *** Cheap Speculation! *** Norfolk Southern's (NYSE:NSC) railroads operate on thousands of miles of railway in the states of Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia, and in the Province of Ontario, Canada. The company's railcars carry raw materials, intermediate products and finished goods primarily in the Southeast, East and Midwest, and to and from the rest of the United States and parts of Canada. Regularly scheduled passenger operations on NS' lines consist of Amtrak trains operating between Alexandria and New Orleans, and between Greensboro and Selma, North Carolina. NSC shares vaulted higher today, extending a 5-day rally after company officials outlined new services and investor initiatives as well as restructuring initiatives and comprehensive analyses of key businesses to help increase shareholder value and improve business growth. The company CEO said, "Norfolk has the network, determination and value to be the most successful transportation company in the 21st century" and investors applauded the upbeat attitude. Analysts are encouraged by Norfolk's progress in the first quarter of 2001, in which the corporation saw an improved operating ratio and growth in railway operating revenues, fueled by double-digit increases in their coal and intermodal divisions. Indeed, the future looks bright for the company and although the current trend is bullish, the issue has come a long way in just a few weeks, up from $16 in late April. Now the question is, "Where to from here?" and traders who want to speculate on that outcome can profit from future volatility with these favorably priced positions. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-22.50 NSC-EX OI=22 A=$0.70 BUY PUT MAY-22.50 NSC-QX OI=10 A=$0.65 INITIAL NET DEBIT TARGET=$1.25 TARGET PROFIT=$0.35-$0.50 - or- PLAY (conservative - neutral/debit straddle): BUY CALL JUN-22.50 NSC-FX OI=25 A=$1.25 BUY PUT JUN-22.50 NSC-RX OI=0 A=$1.20 INITIAL NET DEBIT TARGET=$2.30-$2.35 TARGET PROFIT=$0.75-$0.95 http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=NSC ****************************************************************** AC - Alliance Capital $49.03 *** An Old Favorite! *** Alliance Capital (NYSE:AC) is a global investment management firm best known for its growth style of equity investing. Assets under management are almost $400 billion and Alliance Capital manages retirement assets for many of the largest public and private employee benefit plans (including many of the U.S. Fortune 100 companies), for public employee retirement funds across the United States, and for foundations, endowments, banks, and insurance companies worldwide. Alliance Capital is also one of America's largest mutual fund sponsors, with almost 6 million shareholder accounts and a family of diversified fund portfolios that are distributed globally. Alliance Holding owns over 40% of Alliance Capital, the operating private partnership. AXA Financial owns interests in both Alliance Holding and Alliance Capital, amounting to an approximate 57% economic interest in Alliance Capital. Alliance Capital has been one of our best performing candidates in the Debit Straddles category and once again, the technical indications and the option premiums favor a neutral position in the issue. AC has relatively inexpensive option premiums, a history of adequate price movement and there are future events or activities that may generate volatility in its industry (the upcoming FOMC meeting/interest rate announcement). This process of selection provides the foremost combination of low risk and potentially high reward but as with any recommendation, it must be reviewed thoroughly, so you can make your own decision about the future outcome of the position. AC - Alliance Capital $49.03 PLAY (conservative - neutral/debit straddle): BUY CALL JUL-50 AC-GJ OI=289 A=$2.40 BUY PUT JUL-50 AC-SJ OI=196 A=$3.10 INITIAL NET DEBIT TARGET=$5.30-$5.40 TARGET PROFIT=$1.35-$1.50 http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=AC ****************************************************************** NVLS - Novellus Systems $49.49 *** Trading Range? *** Novellus Systems (NASDAQ:NVLS) manufactures, markets and services advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as unique equipment for preparing the device surface for these deposition processes. The company supplies high-productivity deposition and also surface preparation systems used in the production of integrated circuits. Novellus focuses on advanced thin film deposition systems and surface preparation equipment including processes such as Chemical Vapor Deposition, Physical Vapor Deposition, photoresist strip, electrofill, and residue removal systems that provide high film quality while attaining the high levels of productivity required to meet the semiconductor industry's need for high-volume, low cost wafer production. Novellus options were active today after an analyst at Morgan Stanley raised his investment ratings on the top manufactures of equipment used in the production of semiconductors, saying the stocks had hit bottom and positive earnings momentum would return early next year. The analyst also said the recent pullback in the chip equipment stocks had created a buying opportunity as the industry moves into a positive cycle that will result in increased earnings estimates beginning in earnest by early 2002. That's a very optimistic outlook considering the recent profit forecasts by other companies in the group but most experts believe that the bottom of the cycle is approaching. We also favor a number of companies in this sector and since NVLS has a relatively stable trading range and a solid support area near $35, we are going to sell OTP premium for credit and use the earned income to offset any losses on the downside, in the event of assignment. PLAY (conservative - neutral/credit strangle): SELL CALL JUN-65 NLQ-FM OI=1944 B=$0.80 SELL PUT JUN-35 NLQ-RG OI=1212 B=$0.70 INITIAL NET CREDIT TARGET=$1.60-$1.75 ROI(max)=14% UPSIDE B/E=$66.60 DOWNSIDE B/E=$33.40 http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=NVLS ****************************************************************** ********** 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
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