Option Investor

Daily Newsletter, Monday, 06/04/2001

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The Option Investor Newsletter                   Monday 06-04-2001
Copyright 2001, All rights reserved.                        1 of 1
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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

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

Click here for more information:


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.


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:



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


No new puts tonight.


CELG - call
Adjust from $25 up to $30

ISSX - put
Adjust from $51 down to $50


No dropped calls tonight


No dropped puts tonight


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

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

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

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

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,



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

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.


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


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