The Option Investor Newsletter Monday 06-04-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/2311_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 06-04-2001 High Low Volume Advance/Decline DJIA 11061.50 + 71.10 11071.70 10938.90 1.18 bln 1986/1087 NASDAQ 2155.93 + 6.49 2305.73 2198.14 2.31 bln 2027/1786 S&P 100 654.48 + 4.87 654.49 647.63 totals 4013/2873 S&P 500 1267.11 + 6.44 1261.17 1256.36 58.3%/41.7% RUS 2000 507.32 + 5.60 507.32 501.72 DJ TRANS 2878.24 - 8.81 2889.46 2868.95 VIX 22.83 - 1.13 24.35 22.82 Put/Call Ratio 0.53 ****************************************************************** Waiting on Warnings The Nasdaq Composite (COMPX) bounced around its waterline Monday on volume that was terribly light. Meanwhile, the Dow Jones Industrial Average (INDU) advanced back above the 11,000 level, led by gains in energy and cyclical issues. But, again, volume was ultra-light on the NYSE. The 50-day average volume on the Nasdaq is currently 1.86 billion and 1.12 billion for the NYSE Composite. Monday's trading activity totaled 1.29 billion on the Nasdaq and a mere 839 million on the NYSE. I normally publish these numbers in my Monday columns for good reason. We can extrapolate from these low volume readings that participation and conviction are very low among market participants. Now, this could be a function of seasonality or the lack of economic data points this week, or the fact that second-quarter earnings warning season is upon us. Whatever the reason, the lack of conviction in the marketplace does call for doing a lot less on the part of traders. Forcing trades is a recipe for disaster! In the short-term, I think a good strategy to employ would be to wait for data points either on the economic or corporate profit fronts. Since this week's economic calendar is relatively moot, we're going to need guidance from corporate America to get this market moving. However, whether that guidance is to the upside or downside remains to be seen. One sector that has been performing well and has the potential for upside surprises is the Biotechnology Sector (BTK.X). Evidence of the potential for upside surprises came from Morgan Stanley Monday morning. The brokerage firm raised estimates for IDEC Pharmaceuticals (NASDAQ:IDPH) based on recent sales data. Shares of IDEC finished $3.79 higher Monday. The BTK has staged a nice advance recently, and now faces significant resistance at the 650 level. A breakout above that level is likely to carry the BTK up to the 700 level in the short-term, and positively impact several of OI's call plays, such as Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG), Noven (NASDAQ:NOVN) and Protein Design Labs (NASDAQ:PDLI). There are several mid-quarter conference calls coming out this week to be aware of. On tap to give guidance this week include Amazon.com (NASDAQ:AMZN), Hewlett-Packard (NYSE:HWP) and most importantly, Intel (NASDAQ:INTC). The chip giant was the target of several analysts Monday morning, who were attempting to get ahead of the company's first-ever mid-quarter conference call on Thursday. The consensus seems to expect Intel to lower its guidance Thursday, so any upside surprise could act as a catalyst for the chip sector and the broader tech sector. On the topic of semiconductors, Cypress Semi (NYSE:CY) warned this morning. Cypress, the maker of high performance integrated circuits, said that revenue would fall about 30 percent sequentially from its last quarter to roughly $180 million. The company's CEO, T.J. Rodgers, noted, "Business conditions have not materially improved in the market segments that [Cypress] serve[s]." But, in the same breath, Rodgers said, "The Wireless Infrastructure and Wireless Terminal segments...have exhibited some positive movement." Despite its warning, shares of Cypress finished fractionally higher. On the flip side of guidance, Xilinx (NASDAQ:XLNX) reaffirmed its fiscal first-quarter guidance after the bell Monday. The maker of programmable logic devices (PLDs) reported that its previously lowered guidance on April 19th hasn't changed, and that officials expect revenue in the $305 - $346 range. What's more interesting is that Xilinx reported that cancellations and delays in orders have substantially slowed and that its inventory turnover has improved. Shares of Xilinx advanced in the after hours session and could impact the broader tech sector Tuesday morning. Keep in mind that Xilinx is a supplier to Cisco Systems (NASDAQ:CSCO). Intel's guidance Thursday and Xilinx's comments after the bell Monday will most certainly impact price action in the Philadelphia Semiconductor Index (SOX.X) this week. Hopefully the SOX can follow the lead of its neighbors, the 76ers, and step up this week. The SOX has been hovering just above the 600 level for last couple of trading sessions, and a breakdown below that level could signal further trouble for the Nasdaq. But Xilinx's comments Monday evening will boost the index, at least Tuesday morning. What traders will want to watch for, at least in the short-term, is for the SOX to clear the 620, which has kept a lid on the index the last three session. A nice advance above that level should carry the SOX up to 650. My highlighting of the BTK and SOX is very intentional, in that it's my belief that the two hold the key to the Nasdaq's progress. As for the Dow (INDU), although the energy sector has been out performing as of late, I think going forward we'll need continued participation from the Bank Sector (BKX.X) and the Cyclical Sector (CYC.X). Since breaking out of its ascending wedge at 900, the BKX has been consolidating its gains above that level. Now, the interest rate sensitive index is having trouble near 930. Look to leaders within the sector, such as BankAmerica (NYSE:BAC), Citigroup (NYSE:C) and J.P. Morgan Chase (NYSE:JPM) to carry the BKX higher. The cyclicals played a major role in carrying the Dow to its 71 point gain Monday, which included Boeing (NYSE:BA), Caterpillar (NYSE:CAT) and DuPont (NYSE:DD). Since breaking above its long standing descending trend line in mid-May, the CYC has been consolidating. And any pullback down to the 550 area would offer entries into the aforementioned names. Conversely, an advance above 565 would allow for the Dow to further advance past the 11,000 level. I'd like to emphasize that Monday's trading was the type that was very difficult to game and is very likely to persist as we enter the summer. But, if we get through this second-quarter earnings season relatively unscathed, we could be in for a nice summer rally. What we'll need to hear is further comments like that from Xilinx Monday evening. That is, the technology business is stabilizing, which should be followed by an improvement. On the other hand, what we don't need is continued blow ups like the one delivered by Sun Microsystems (NASDAQ:SUNW) last week. Eric Utley Editor www.OptionInvestor.com ================================================================== Advanced Chart Reading with Retracements Online Interactive Seminar This Sunday ================================================================== Eric Utley, Contributing Editor for OptionInvestor and IntradayTrader, will be presenting a two hour interactive online seminar at 8:00 PM EST, on Sunday June 10th. Eric will teach attendees how to use Fibonacci retracement brackets to better manage risk and increase profits. The seminar will benefit both investors and traders and Eric will incorporate current examples in his presentation, along with requests from attendees. Click here for more information: http://www.premierinvestorseminars.com/onlineseminars/eric061001.asp ================================================================== June Online Seminar Calendar ================================================================== You can take the following seminars without leaving the comfort of your home or office. They are interactive and allow you to question the presenter during the presentation. You do not need any special software to take the seminar but you must have a 56K Internet connection or faster for best results and a separate phone for the audio portion. If you are interested in these seminars please click here for more information. http://www.premierinvestorseminars.com/seminarcalendar.asp Wed Jun-6 Introduction to Technical Analysis - Derek Baltimore Thr Jun-7 Using Volatility to Pick Stocks - John Seckinger Sun Jun-10 Advanced Chart Reading & Retracements - Eric Utley Sun Jun-10 Basic Technical Analysis - Austin Passamonte Tue Jun-12 Starting with Point & Figure Charts - Jeff Bailey Wed Jun-13 Ask the Analyst - Eric Utley Wed Jun-13 Basic Option Strategies - Jim Brown Thr Jun-14 Using Volatility to Pick Stocks - John Seckinger Thr Jun-14 Basic Candlesticks - Jon Farnlof Sun Jun-17 7 Steps to Play Picking - Eric Utley Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins Tue Jun-19 Profiting From Failed Technical Patterns - John Seckinger Wed Jun-20 Chart Patterns, Flags, Pennants, Wedges - Derek Baltimore Wed Jun-20 Entry Point, Exit Point - Jim Brown Thr Jun-21 Day-Trading for People WIth Day Jobs - Jon Farnlof Sun Jun-24 Determining Support and Resistance - Derek Baltimore Sun Jun-24 Ask The Analyst - Eric Utley Tue Jun-26 Assessing Risk with Point & Figure - Jeff Bailey Tue Jun-26 Charting, Stage Analysis - Mark Wnetrzak, Ray Cummins Wed Jun-27 Big Cap Strategies - Jim Brown Wed Jun-27 Conservative CC/NP - Mark Wnetrzak, Ray Cummins Click here for a detailed explanation of each: http://www.premierinvestorseminars.com/seminarcalendar.asp ************** NEW CALL PLAYS ************** PDLI - Protein Design Labs $82.66 +4.41 (+4.41 this week) Pursuing the prevention and treatment of disease through the development of humanized monoclonal antibodies, PDLI has fundamental patents that cover many such antibodies. Eleven companies have licenses under these patents for humanized antibodies that they have developed. PDLI has licensed certain rights to its first humanized antibody product, Zenapax, to Hoffman-La Roche and its affiliates, which market Zenapax for the prevention of kidney transplant rejection. In addition to testing Zenapax for the treatment of autoimmune disease, the company has several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, asthma and cancer. When was the last time you saw a breakout like this? After two weeks of bumping its head on resistance at the 200-dma (currently $78.35), PDLI got a boost from the broader Biotechnology index (BTK.X) and burst higher today. Making the move even more significant, buying volume came in nearly 40% above the ADV on a day where volume in the broader markets was pathetically weak. The BTK index has been stumbling its was higher in recent weeks and today's rally brought it to its highest close since late January. PDLI has now broken solidly out of its downtrend that began in early November and culminated with a nice double-bottom formation in early April. One other point worth mentioning is that today's rally pushed PDLI through the 38% retracement of the November through April decline. This opens the door for a run at the 50% retracement, sitting at $90.50, also the site of significant historical resistance. You'd think with a breakout like that, there would be some significant news to fuel the move, but you'd be wrong. This appears to be a purely technical breakout, with the potential to develop some real momentum. Use intraday dips in the vicinity of $78 as an opportunity to get onboard at a better price. More conservative entries will appear as PDLI surges through today's high ($83) on continued strong volume. Initially we are placing our stop at $77, just below the 200-dma. A daily close below that level would represent a painful technical failure and a premature end to the anticipated momentum run. ***June contracts expire in less than two weeks*** BUY CALL JUN-80 RPV-FP OI=646 at $6.10 SL=4.00 BUY CALL JUN-85*RPV-FQ OI=994 at $3.50 SL=1.75 BUY CALL JUN-90 RPV-FR OI=290 at $1.80 SL=0.75 BUY CALL JUL-85 RPV-GQ OI=186 at $8.60 SL=6.00 BUY CALL JUL-90 RPV-GR OI= 34 at $6.70 SL=4.75 BUY CALL JUL-95 RPV-GS OI= 26 at $5.10 SL=3.00 SELL PUT JUN-75 RPV-RO OI=768 at $1.40 SL=3.00 (See risks of selling puts in play legend) Average Daily Volume = 1.75 mln http://www.premierinvestor.com/oi/profile.asp?ticker=PDLI ************ NEW PUT PLAY ************ No new puts tonight. ***************** STOP-LOSS UPDATES ***************** CELG - call Adjust from $25 up to $30 ISSX - put Adjust from $51 down to $50 ************* DROPPED CALLS ************* No dropped calls tonight ************ DROPPED PUTS ************ No dropped puts tonight ************** TRADERS CORNER ************** The Bulls Didn't Leave...They Just Moved By Mark Phillips While that may sound like an oxymoron, the difference in definition is very important to the current state of our markets. Remember the catch-phrase from last year, "Sector Rotation". When you get right down to it, we are seeing the same thing today, but investors have become more and more selective after being beaten up by the market over the past year. Our job as investors is to determine where the money is flowing to, and of course where it is flowing from. Put another way, we need to find the sector that is being rotated into, but just as important is determining which sector is being rotated out of. When the Technology bubble burst last spring, it didn't take long to survey all the market sectors and determine who the winners were going to be and correspondingly, who the losers were. Technology was the big loser, owing to the huge, and excessive run up. But there were winning sectors that began to emerge even before the echo of the first weak NASDAQ bounce had faded. In textbook fashion, Energy and Healthcare stocks began to rebound in short order, and their respective rallies provided shelter for shell-shocked Tech investors that could interpret the changing landscape. When we are looking for safe havens for our hard-won investment dollars, especially in a weakening market, we need to start at the sector level to determine those pockets of strength. Look at a daily chart of the AMEX Oil Index (XOI.X), and you can see that the recovery that began in late February 2000 has turned into a mature uptrend, delivering consistent profits. Although mature, the XOI index showed us in late April that it still had a few more tricks in store as it broke through the $560 resistance level and scaling to new all-time highs. How about the S&P Health Care Index (HCX.X) for the last 9 months of 2000? Beginning with a low of $604 in the first week of March, this index of defensive stocks clawed its way above the $950 level by the end of December, despite the overall bear market. For those that are keeping score, that's a 57% gain! Believe me when I say that there were ample opportunities to jump aboard that train as it continued north before the bottom fell out in January. Remember last fall when the final shoe dropped in the Technology sector and Networking and Storage stocks started taking a beating? Look what happened to the HCX index during the same period of time. All we had to do was follow the index higher, buying the dips like we learned to do with Technology in 1999. I know what you're thinking..."Thanks for the history lesson, but how about something I can use right now!" Ask, and it shall appear. It's a pretty safe bet I'm not going to point you at the Semiconductor or Networking sectors. The first is totally schizophrenic, while the latter could use a heavy dose of Prozac as it limps along with nary a sign of life. No, the fundamentals are just too ugly in the playground of bulls past. When was the last time you took a good long look at the Biotechs? Although this sector was one of the first to get taken out to the woodshed last spring, there are definite signs of health appearing here. Of course it hasn't hurt that good news is flowing in the form of new product announcements, some of which appear to be making a down payment on the long-standing promise of Biotechnology providing a cure for afflictions such as cancer. Take a look at the daily chart over the past 2 months. The initial upward surge required some consolidation before the new uptrend (red line) took effect, but it is looking more and more like the bulls are firmly in control of the sector. So now that we have found a sector that investors are rotating INTO, how do we take advantage of it? Well in the case of the Biotechs, we can take the lazy approach and trade the Merrill Lynch Biotechnology HOLDR (AMEX:BBH), which represents a basket of leading Biotech stocks, and trades in tandem with the BTK index. But for those adventurous souls that enjoy the exercise, drilling down to look at some individual equity charts can be quite profitable. We already know that the Biotech sector is looking healthy, and all we have to do is scroll through a dozen of our favorite stocks in this arena, looking for one or two that appear to be stronger than the rest of the pack. Then we have a high-odds trading opportunity where we can run with the bulls without getting trampled. As a quick note of interest, two leading Biotech companies Protein Design Labs (NASDAQ:PDLI) and Imclone Systems (NASDAQ:IMCL) are currently featured on the OIN Call list. Hopefully this little exercise provides a glimpse of how they arrived there. See you next time, Mark ********************** PLAY OF THE DAY - CALL ********************** CELG - Celgene Corp $33.00 +2.26 (+2.26 this week) Celgene Corporation is a biopharmaceutical company that develops and commercializes human pharmaceuticals and agrochemicals. The Company has developed and integrated a large set of proprietary target and drug discovery technologies to accelerate the application of genomics to the discovery of new classes of gene- regulating drugs. The Company's drug discovery and development programs are focused in several disease areas in which gene dysregulation plays a major role in the onset and progression of disease, including cancer and inflammatory diseases. Celgene's lead compound, THALOMID, is in clinical trials for the treatment of a variety of cancers and is being marketed for the treatment of ENL, a complication of leprosy. Celgene is also awaiting FDA approval for Attenade, a drug to treat attention deficit disorder. Most Recent Write-Up An admirable rebound in the Biotech Index (BTK.X) on May 17th accompanied Celgene's announcement that they plan to pursue a major trial to further evaluate THALOMID as a potential therapy for late stage renal cell carcinoman. The recent news released from the American Society of Clinical Oncology about novel treatments for cancer also helped boost the sentiment surrounding many of the biotech stocks. Investors lost no time. Shares of this potentially profitable company were sent into motion. A steady climb from the $20 level positioned CELG to challenge the tough line of resistance at $30. On Friday, CELG succeeded in breaking through the subservient trading realms on 1.5 times the ADV. It's likely the news that Celgene had begun clinical studies to determine if its THALOMID drug, when combined with Roche Holding AG's Xeloda, is effective in treating colorectal cancer generated additional excitement within the industry. In recent weeks the volume has been average to exceptional, so of course look for heavy trading to incite future gains. The next objective is to make an unbridled charge towards $40; although be prepared for some light resistance in the vicinity of $35. If the penchant for the sector remains intact, look for powerful momentum to keep the BTK.X topside of the climacteric 600 level. Trading of this magnitude gives players the green light to jump on CELG in an advancing market - assuming CELG is not bucking the trend! We're initiating a protective stop at $25 and will drop coverage if CELG cannot maintain a position above this mark on a CLOSE. Comments Celgene advanced above its relative high at $33.25 Monday, and settled at the $33.00 level. The stock does not have any meaningful resistance above $33.25 until the $37.00 level. CELG offers a good risk-to-reward if it can clear the $33.25 level on heavy volume in the coming sessions. ***June contracts expire in less than two weeks*** BUY CALL JUN-25 LQH-FE OI= 485 at $8.30 SL=5.75 BUY CALL JUN-30*LQH-FF OI= 630 at $3.70 SL=1.75 BUY CALL JUN-35 LQH-FG OI= 108 at $1.00 SL=0.25 BUY CALL JUL-30 LQH-GF OI=1154 at $5.40 SL=3.50 BUY CALL JUL-35 LQH-GG OI= 913 at $2.75 SL=1.50 Average Daily Volume = 2.16 mln http://www.premierinvestor.com/oi/profile.asp?ticker=CELG ******************* 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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