The Option Investor Newsletter Tuesday 06-05-2001 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/5010_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 06-05-2001 High Low Volume Advance/Decline DJIA 11175.84 +114.32 11196.53 11043.44 1.11 bln 1987/1091 NASDAQ 2233.66 + 77.73 2244.23 2167.24 1.82 bln 2461/1363 S&P 100 662.09 + 7.61 663.93 654.05 totals 4448/2454 S&P 500 1283.57 + 16.46 1286.62 1267.11 64.5%/35.5% RUS 2000 516.48 + 9.16 516.48 507.32 DJ TRANS 2917.42 + 39.18 2920.73 2875.03 VIX 21.22 - 1.61 23.00 21.11 Put/Call Ratio 0.55 ****************************************************************** X Marks The SOX Programmable logic device maker, Xilinx (NASDAQ:XLNX), ignited a rally in tech shares Tuesday. The company reported Monday evening that its business was showing signs of improvement - that is, increased visibility. In case readers missed Monday's Market Wrap, that evening Xilinx officials reported that they were seeing a slowdown in cancellations in orders. In addition, they also said that inventory turnover had improved. While part of Xilinx's improved visibility may be a product of capturing market share from its competitor Altera (NASDAQ:ALTR) - who warned not too long ago - it may also portend a recovery in the tech food chain, part of which starts with the beleaguered telecom business. Coincidentally, Lucent Technologies (NYSE:LU) - the epitome of a beaten down tech/telecom company - reaffirmed its fiscal third-quarter guidance Tuesday morning. Lucent officials reported that their cost cutting efforts would result in a sequential improvement over the company's second-quarter operating loss of 37 cents per share. While the Lucent news didn't necessarily suggest that demand in the telecom space was picking up, it did lend to the idea that business isn't getting any worse, which was well received by the market. The combined guidance of Lucent and Xilinx set the tech sector a light, with solid internals and decent volume on the Nasdaq. Trading on the Nasdaq reached 1.8 billion shares exchanged, which is in-line with the exchange's 50-day average. What was especially encouraging with the guidance delivered by Lucent and Xilinx was the combined impact on shares of tech bellwether Cisco Systems (NASDAQ:CSCO), which gained $1.81 on the day, or 9.2 percent. Lucent is a competitor of Cisco's, and Xilinx is a supplier to the networking giant. Indeed, Xilinx boosted the Philadelphia Semiconductor Index (SOX.X) above the 620 resistance level we addressed in Monday's Market Wrap. The SOX traded as high as 656 Tuesday, before pulling back on profit taking near the close. Nevertheless, the chip index ended with a 6.74 percent gain Tuesday. I've tried to make it clear in past columns, that it is my belief that the SOX leads the Nasdaq, hence my focus. And going forward, the SOX does have some resistance around the 665 level (plus or minus 10 points). Beyond that general area, the BIG hurdle for the SOX is the 700 level - for both psychological and technical reasons. There's some supply on the point & figure chart on the SOX up around the 700 level, and 700 is also the current site of the 200-dma. In short, I think if the SOX convincingly clears the 700 level over the short- or medium- terms, the Nasdaq Composite will make its way towards 2500. In terms of pullbacks, the SOX should now find support around the 625 (plus or minus 5 points) area. While the Nasdaq's price action was impressive Tuesday, and volume was pretty good, too, there are a couple of disconcerting developments I see on the daily chart. For one, the COMPX is testing the 50 percent retracement from its peak in late January to its trough in early April. The 50 percent retracement currently sits at 2250. This particular retracement bracket has been a very good trading tool recently, as evidenced on the chart below. My second cause for concern is that the COMPX appears to be forming a head-and-shoulders (H&S) top, which is a bearish indeed. The left shoulder was traced on May 1st at 2232, and the head was traced on May 22nd at 2328...is it a coincidence the COMPX closed at 2233 Tuesday? One point away from its left shoulder? (While some technicians may disagree, I'd put the COMPX's neckline at 2100) I appreciate human psychology and its tendency to fulfill prophecies, thus my reason for pointing out the H&S top in the COMPX. And if this pattern is indicative of a pullback in the COMPX, the bearish price objective is roughly 1870. (Difference from head to neckline subtracted from the neckline.) Conversely, the Nasdaq could certainly reject the H&S, advance above the 2250 retracement level, scare the shorts and retest its relative highs around 2328. If this scenario plays out in the coming days, momentum-based strategies may work best. If the Biotechnology Index (BTK.X) continues on its tear, the Nasdaq will have a better chance of rejecting its H&S top. The BTK was bolstered by positive analyst comments Tuesday morning, delivered by J.P. Morgan. Although, the BTK does appear overbought at current levels, and bullish traders in the sector might start looking to book gains in the coming sessions. Insofar as the Dow Jones Industrial Average (INDU) is concerned, it's comfortably back above the 11,000 level and judging by Tuesday's action, feels like it wants to test its relative high at 11,350. We got confirmation from both the Bank Sector Index (BKX.X) and Cyclical Index (CYC.X), with a modest breakout in the former. I'd suggest monitoring the BKX and CYC in an attempt to game the INDU in the coming sessions. Second to the Xilinx and Lucent guidance Tuesday, perhaps the best piece of news was the lack of a major earnings warning. And the longer we go without a big blow-up in the tech and telecom spaces, the more nervous the shorts grow and the more encouraged the bulls grow. On deck Wednesday morning is Hewlett-Packard (NYSE:HWP), who is delivering its analyst meeting at 11:00 AM EST. Keep this event in mind when trading Wednesday morning as H-P can have an impact on several hardware makers, such as IBM (NYSE:IBM), EMC (NYSE:EMC) and Sun Microsystems (NASDAQ:SUNW), among others. The H-P conference could move the market one way or another, so stay tuned into that event. (You can log into the conference call through Yahoo's Finance site.) Keep an eye on the key resistance levels I set forth tonight, especially in the Nasdaq. The shorts are growing nervous, and the buyers could be waiting higher so any advance from current levels could be perpetuated to the upside in excess. But just keep in mind there are a few red flags being waived, such as the extreme level of complacency indicated by the Market Volatility Index (VIX.X). The VIX fell to yet another new yearly low Tuesday at 21.22. Then again, with the VIX at such low levels, premiums are decreasing, which can benefit speculators willing to take on risk and those looking to lock in recent gains with some cheap hedges. Questions, concerns and comments are welcome at: firstname.lastname@example.org 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 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 *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ **************** MARKET SENTIMENT **************** Bulls On Parade By Russ Moore The dust was flying as the tech bulls stampeded down Wall Street leaving a few trampled bears in their path. What was the catalyst behind this impressive rally you ask? How about a couple of tech companies i.e. Xilinx and Lucent, offering a reaffirmation of projected earnings. The NASDAQ was out of the gate in a hurry, on its way to a 3.6 percent gain with the big-cap stocks on the NDX leading the way. The NDX put in a stellar performance with a 4.6 percent jump. The blue chip DOW wasn't quite sure what it wanted to do in the early going but by the afternoon session was well on its way to a triple digit gain, or a 1.0 percent climb. Sectors moving forward included biotechs, drugs, retailers, paper, cyclicals, and brokerages. Utilities, the darling of defense, were on the negative side. Volume picked up somewhat with the NYSE trading 1.11 billion shares and the NASDAQ doing 1.83 billion. Market breadth was of course positive on the NYSE at 20/11 and on the NASDAQ at 25/14. We did have some economic data out today, but given the way market action unfolded, it doesn't seem to have been given much weight by investors. For those expecting an early economic recovery the numbers had to be disappointing. Non-farm productivity fell 1.2 percent, down from the expected 0.7 percent. Unit labor costs were revised up to 6.3 from 5.2, the largest increase in eleven years. Factory orders dropped 3 percent versus the 2.5 percent expected and the NAPM non-manufacturing came in at 46.6, slightly lower than the anticipated 47.7. What does all this data mean? The economy is still showing signs of weakness via slowing growth and, when we throw in an increased possibility of inflation down the road, we could very well be headed for a bout of Stagflation. Option Investor Market Sentiment provided by www.Indexskybox.com === VIX Tuesday 06/05 close: 21.22 VXN Tuesday 06/05 close: 53.90 30-yr Bonds Tuesday 06/05 close: 5.67% Total Put/Call Ratio: .68 Equity Option Put/Call Ratio: .58 Index Option Put/Call Ratio: 1.81 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 33.60 Current close: 47.85 Volume/Open Interest Maximum calls: 50/90,848 Maximum puts : 45/71,054 Moving Averages 10 DMA 47 20 DMA 47 50 DMA 44 200 DMA 64 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 548.16 Current close: 662.09 Volume/Open Interest Maximum calls: 680/5,750 Maximum puts : 530/9,661 Moving Averages 10 DMA 657 20 DMA 657 50 DMA 632 200 DMA 695 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 1081.19 Current close: 1283.57 Volume / Open Interest Maximum calls: 1250/42,669 Maximum puts : 1250/43,876 Moving Averages 10 DMA 1275 20 DMA 1272 50 DMA 1224 200 DMA 1326 === DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 9,047.56 Current close: 11,175.84 Volume / Open Interest Maximum Calls: 100/51,299 Maximum Puts 100/72,501 Moving Averages: 10 DMA 11,054 20 DMA 11,043 50 DMA 10,582 200 DMA 10,642 ***** CBOT Commitment Of Traders Report: Friday 06/01 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +70242 +63916 -68496 -70908 Total Open Interest % (+33.61%) (+31.81%) (-9.48%) (-10.01%) net-long net-long net-short net-short Small Specs Commercials DJIA futures Open Interest Net Value -4226 -7101 +5812 +8925 Total Open interest % (-30.65%) (-51.65%) (+16.24%) (+23.70%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 Open Interest Net Value +2912 +444 -11508 -9946 Total Open Interest % (+14.80%) (+2.24%) (-18.82%) (-14.87%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices:.Commercials reduced their net-short positions on the S&P 500 by half a percent while Small Specs added two percent to their net-longs. We are seeing increasing divergence on both the DJIA and NASDAQ 100 with Commercials reducing long positions on the DJIA and adding to their shorts on the NASDAQ 100. Small Specs cut back dramatically on the DJIA net short positions while adding to their net-longs on the tech index. Gold: Commercials are now at a five-year net short extreme, while small specs are opposed at a five-year net long extreme in full speculation. Commercials are end users of gold and are hedging current inventory purchased at lower prices. They seem to feel the risk/reward clearly lies to the downside in prices right now and made a dramatic move from accumulation to distribution in the past four weeks: 5/08: 17,247 contracts net-long 5/15: 13,915 contracts net-short 5/22: 65,250 contracts net-short 5/29: 68,443 contracts net-short Gold could rally considerably higher this year, but we expect at least one pullback from current levels based on the action above. Copper: Commercials have been building extreme net-long position in this industrial metal, a bullish sign for economic health. Eurodollars: Commercials are at a five-year extreme net-short on an interest rate play in reflection of lowered rates currently and ahead. Summation: Commercials are looking for lower interest rates, lower gold and higher copper prices based on their positions here. Of particular notice was the switch in gold from net short last week to net short this week, a warning sign that large users are now selling into the current retail rally. Data compiled as of Tuesday 05/29 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/060501_1.asp *********** OPTIONS 101 *********** When Experience Contradicts the Experts By David Popper When I began investing in early 1998, it felt a bit like taking a stab in the dark. After a few rounds of beginner's luck, I was convinced that investing was easy. I drew the conclusion that any stock which declared a split was destined to go up regardless of any other factor. I also read IBD voraciously, and was convinced that successful investors only "bought high and sold higher." In January of that year B.J.Services (BJS:NYSE) declared a 2:1 split scheduled in April. I reasoned that the stock was splitting, and that oil was a commodity in demand. I also noted that BJS was a leading oil integrated oil services provider and had a low PE. I debated about purchasing options or the stock. I chose the stock. I purchased 1000 shares of BJS and sat back waiting to become a millionaire. Over the course of the next 3 months I witnessed the unthinkable happen. BJS went from $35 to $11 as oil went to $10 a barrel. In utter frustration I sold. In 2001 that stock recently hit $80 a share. Someone made an 800% profit in two and a half years while I lost 2/3's of my investment. The BJS trade has kept me humble ever after. I have perhaps overanalyzed the mistakes that I made. I could talk about the lack of being aware of the general market for oil. I could also talk about my lack of understanding of simple chart analysis. The stock was in a decline and just breached its 200 day moving average. I could talk about the lack of selling discipline. I could also talk about the problem of placing all of eggs in one basket. I could talk about several other mistakes. The trade was a complete course in how to make a bad trade. I would instead like to concentrate on another issue. This is the issue of recognizing the opportunity of a lifetime when it presents itself. There have been several times over the last three years, where I have noticed quality stocks in essential sectors being unfairly punished for whatever reason, only to later rise from the ashes and shine. While most people sat around, wrung their hands and made predictions for the demise of the sector, others purchased low risk positions and doubled, tripled, and quadrupled their money. Oil was not going to stay at $10 a barrel. The sector has always cycled. In hindsight, this was a no brainer, even though every analyst was recommending that the stock be sold. Yes, it took patience and guts to hold oil services stock in 1998. The sector was rated on the bottom of the list in IBD and others were bailing out. It would not be fun to have money tied up in this "dead" sector while the net was racing. But which investor would be better off today? Do you want other examples? Check out the health care industry's performance in 1999/2000 compared with its performance in 2000/2001. Also, look at the the utilities. By using common sense and simply noticing if there are sectors, which are essential to the economy, and which are beaten down, one could purchase shares and await the inevitable. The returns are fantastic and there is far less danger than trading the current popular stocks. It does take nerve to employ such a strategy. It is impossible to pinpoint a bottom so it is very possible that the stocks you select will continue down for a time. If you employ basis chart analysis, however, using 6 month, 1 year, 5 year, and 10 year charts in conjunction with each other, you can be more accurate. Further, when these stocks are at their lowest levels, the the news is extremely negative, and the predictions are dire. It takes courage to see through the smoke and realize that this is an essential sector which will come back. Warren Buffet's mentor, Benjamin Graham once commented that the way to consistently in the market is to buy these critical sectors when the stocks tank, and to sell when they are on the rise. Because he was a fundamentalist, and not a technician, he stated that stocks purchased may continue to go down, and that stocks, which are sold, may continue higher. He was not concerned because his profit was healthy. If this strategy was used, but enhanced with chart analysis, the profits could be enhanced. If option strategies were employed, such as writing OTM covered calls, while awaiting the rebound, the profits would be enhanced. Simply put, there are treasures available in those essential sectors which are not currently being mined by the majority of the active traders. The BJS story of its temporary demise and 800% resurrection will continue to happen. Some investors will continue to make quiet fortunes in these overlooked areas. ************** TRADERS CORNER ************** Revisiting Some High Potential Sectors By Scott Martindale Today, I'd like to revisit some of the "high potential" sectors I have discussed over the past several months to see how they've performed and whether any might be poised to move from here. But first, the weather report. The markets closed strongly above important levels today. For many stocks, short-term technicals have turned up sharply from deeply oversold levels, but I'm always concerned about "too much, too fast." Needless to say, last week was disappointing. I expected a pre-holiday pullback and some relief of the overbought market conditions, and then perhaps a Nasdaq run to 2500 -- but it wasn't even close. I never expected high-volume panic selling like we got on Wednesday. I guess we're still not beyond that kind of behavior. This week we're seeing a moderate-volume rally. I started writing puts again, but I didn't make many large commitments before the panic. I grudgingly stopped out of some naked positions, but held most others. Although I may have been a bit early on some of my technology plays, they are now showing good accumulation, and short-term stochastics have turned up from deeply oversold, which is encouraging me to hang on. Some, such as those in drugs and biotech, have been doing quite well all along. Semiconductors, which should lead any sustained tech rally, were strong today on some good earnings reports, so my positions are looking good again. Cash is piling up on the sidelines, but the "permabears" are squealing that Greenspan cannot create corporate earnings by cutting rates and printing money -- he can only fuel inflation and flight from bonds, and create another stock market bubble that will inevitably burst worse than ever. Nevertheless, consumer sentiment is increasingly optimistic, and I remain so as well. Over the past year, I periodically have written about high- potential sectors to watch and play. Today, I thought I'd review some of them to see what the possibilities might have been. First of all, the basket of tech stocks that I started watching several weeks ago that seems to have the greatest gains when the Nasdaq rallies did quite well today. BEA Systems (NASDAQ: BEAS), Human Genome Sciences (NASDAQ: HGSI), Juniper Networks (NASDAQ: JNPR), Mercury Interactive (NASDAQ: MERQ), and Ballard Power (NASDAQ: BLDP) are still looking like investor favorites. Only JNPR has shown any significant weakness since the March-April selloff in tech. They have been volatile and explosive -- perfect for options traders and speculative investors who bought on extreme weakness while others were selling. Some of the sectors I have written about include energy and power generation, alternative power, superconductors, power chips, and application service providers (ASP's). As you can see, most of them are energy related. Energy is the lifeblood of economic growth, and as conventional energy sources deplete while demand grows, all related sectors stand to benefit in any economic climate other than a global depression. Petroleum will remain the dominant energy source for the foreseeable future. Diverse players in this space include ExxonMobil (NYSE: XOM), USX-Marathon Group (NYSE: MRO), Anadarko Petroleum (NYSE: APC), Nabor Drilling (AMEX: NBR), Seitel (NYSE: SEI), Apache (NYSE: APA), Global Marine (NYSE: GLM), BJ Services (NYSE: BJS), and Halliburton (NYSE: HAL). They have been consolidating recently after some strong gains this year, and the technical picture indicates that all are now in the midst of renewed upside moves, as demonstrated by the AMEX Oil Index (AMEX: XOI). Independent power producers and natural gas players include Excelon (NYSE: EXC), AES Corp. (NTSE: AES), Calpine Corp. (NYSE: CPN), Shaw Group (NYSE: SGR), Dynegy (NYSE: DYN), Enron (NYSE: ENE), Williams Companies (NYSE: WMB), El Paso Energy (NYSE: EPG), Questar (NYSE: STR), and Western Gas Resources (NYSE: WGR). A one-year chart of CPN shows its strength has coincided with the California power crisis, but it has been extremely weak lately as some of its contracts may be threatened. This strong, growing company can be highly news-driven in short-term price swings -- great for options plays. It has dropped out of its $50-56 trading range, heading toward the low-40's, and has violated its 200-day moving average. Notice though that the stochastic seems poised for another upswing. For conservative investors, it may be time to exit, but to me this is not a stock for the trash bin. For speculative investors, this might be a buying opportunity. Alternative energy is much more speculative. These stocks have been running up on news of petroleum shortages and market manipulations, as well as on reports of new contracts. Some companies include Capstone Turbine (NASDAQ: CPST), AstroPower (NASDAQ: APWR), Ballard Power (NASDAQ: BLDP), Plug Power (NASDAQ: PLUG), Fuel Cell Energy (NASDAQ: FCEL), and Mechanical Technology (NASDAQ: MKTY). They, too, are consolidating after a big run from the April lows, and for several the stochastic is emerging from oversold territory. Superconductors promise to improve the efficiency of things like power generation and storage, magnetic resonance imaging (MRI), cryogenic refrigeration, and wireless transmission. Key players include American Superconductor (NASDAQ: AMSC), Intermagnetics General (AMEX: IMG), Conductus (NASDAQ: CDTS), and Superconductor Technologies (SCON). My personal favorite, SCON, has shown signs, but hasn't yet given me a "really big" move this year because of the general telecom malaise, although it may be preparing for another run at $10. However, AMSC and IMG have been moving lately thanks to their association with the hot sectors of power generation and health care. The chart shows that AMSC may only be taking a breather before continuing to climb, although it will have to challenge overhead resistance in its 200-day moving average. Power semiconductors are used to regulate power conversion, control electrical flow, distribute electrical loads, save energy, or make ordinary appliances "smart." Players include Advanced Power Technology (APTI), International Rectifier (IRF), and IXYS Corporation (SYXI). APTI and SYXI have been relatively stagnant, but IRF has been particularly strong, given that virtually any electrical device would be better with their chips. It moved up big today, and the technical picture remains good. In 1999 Red Herring Magazine named enterprise ASPs as one of their Top Trends for 2000. Then many observers went negative on the sector, with Technology Investor Magazine naming the ASP as one of its "doomed technologies." Players include Corio (NASDAQ: CRIO), USinternetworking (NASDAQ: USIX), Digex (NASDAQ: DIGX), and Citrix Systems (NASDAQ: CTXS). On average, they have doubled in price from their April lows, but have languished overall for the year -- good for limited-risk call options on extreme weakness, but not great for long-term investment. So, all of these sectors have shown a propensity for speculative rallies following good news or technical weakness. Some are moving pretty well right now. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2214 ************************************************************** 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: ***** OAKT $10.94 +0.00 (-0.05) Boring! That is an apt one-word description of OAKT. We initiated coverage looking for a volume backed move through $12.50, and the stock never got close. The past week has seen the price trapped between $10-11, and volume continues to dry up. While the bulls could reappear any time, we've lost patience and are dropping coverage tonight. PUTS: ***** MIR $35.55 -2.57 (-2.55) Bulls Eye! Today's action took MIR down 6.7%! The powerful slide under $37 and the 50-dma measurement spelled disaster. As a result of the technical breakdown and volatility, the June 40 & 45 contracts delivered hefty gains for many traders. Instead of pushing the limits and getting greedy, we're exiting MIR this evening on target. If by chance you have existing put positions, there may be more downside IF the share price stumbles below $35 amid a high-volume rush. Use extreme caution going forward and plan on locking in gains as MIR approaches the $30 level. BLDP $54.99 +0.54 (+0.43) The play started off on the right foot. Quick-fingered traders were provided with a variety of entries to ride the subsequent decline to $51.50 last Thursday. Unfortunately, it doesn't appear the market will provide an adequate environment going forward. Strength in some of the energy-related stocks and BLDP's evolving pattern of higher-lows gives us clear warning. It's time to move on to more lucrative opportunities; notwithstanding the penny close within our stop parameters. CREE $30.20 +2.47 (+2.40) With the bullish move in Semiconductor stocks, sellers stepped aside, allowing CREE to rise throughout the day, and volume remained solid. Although our $31 stop hasn't been violated yet, it appears the prudent move is to step aside right now. Daily stochastics are reversing in oversold territory, signaling us that the risk in the play currently outweighs the potential reward. JNPR $46.58 +2.14 (+3.79) Networking stocks seem to be coming back to life, as demonstrated by the 5% rally in the Networking index today. The recovery in JNPR was more sedate, but the stock did tack on more than $2, surging solidly through our $45 stop and holding onto most of the gains at the close. Oscillators are once again pointing northward, indicating that buyers have once again achieved the upper hand. We posted some juicy gains since we initiated coverage and are perfectly happy to take those and move on to the next play. PMCS $35.78 +3.88 (+3.70) A positive mid-quarter report from chip stock XLNX seems to have been all it took to light a fire under the Networking and Semiconductor sectors and PMCS bulls were all too happy to join the party this morning. As is the case with many beaten-up Technology stocks, PMCS is being buoyed by improving market sentiment and managed to clear our $35 stop on solid volume. Violated stop means a drop, and we aren't going to argue with the market. *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. 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The Option Investor Newsletter Tueday 06-05-2001 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/5010_2.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ ******************** PLAY UPDATES - CALLS ******************** CELG $34.57 +1.57 (+3.83) CELG staged a nice run through $33.25 on heavy volume today. Trading activity was double the norm as the bulls took CELG to $36.48, flirting with the $37 resistance level. CELG proved to be a great risk-to-reward play. A pullback to the vicinity of $33 and $34 provides a more aggressive entry versus buying into subsequent momentum, but of course, the market will dictate the approach. JP Morgan came out this morning and raised its rating on CELG to a Buy citing the company could benefit from expanded clinical tests on Thalomid to be used in conjunction with other cancer drugs. Rival Human Genome Sciences (HGSI) also received an upgrade from the influential brokerage firm, who is very bullish on the biotech sector going forward. In response to the rising share price, we've upped our closing stop to $32. AMGN $70.02 +0.13 (+1.44) The Biotech Index staged a nice breakout through the significant resistance at 650 today, peaking at a six-month high! And across the sector, competitors like IMCL and DNA experienced significant topside gains. AMGN was positively effected showing strength throughout the session, but unfortunately the $70 resistance is proving quite formidable and stymied its advancement. A bullish close above the resistance, at just a mere fraction from the stock's intraday high, suggests AMGN is on the brink of a breakout. But again, let's wait for the confirmation. In an effort to avoid a major mishap we've raised our closing stop to $67. A dashing bounce off the current level signals traders to jump into the momentum. Look for the BTK.X to also challenge its next level of resistance at 700 in an advancing marketplace. NOVN $36.24 +3.22 (+4.18) The positive sentiment and continued advances within the Biotech industry is fueling many stocks, including NOVN. Today Myriad Genetics announced it discovered the human gene responsible for high total cholesterol and high density lipoprotein levels in people who have suffered heart attacks at an early age. The company's triumphant breakthrough and JP Morgan's upgrades on CELG and HGSI pumped up the general excitement. On the day, NOVN tacked on a whopping $3.22, or 9.8%. With the $35 resistance now cracked and NOVN pushing the envelope at $38, the stock is positioned to challenge last January's $41.50 ceiling. If intraday gyrations allow, traders might opt for an entry near the $35 and $36 level. Honestly, it may be just as risky to jump into a wave above $38 in light of the historical barrier near $40. Today's huge spike prompts us to raise our closing stop to $33.50 for protection. Today, Novan Pharmaceuticals held its Annual Shareholder's Meeting, but there wasn't any market moving news to report. CEFT $51.34 +1.15 (+0.84) Well it didn't quite make it over the top, but shares of CEFT managed to finished just cents from the intraday high as it fought to shatter the $52 upper resistance. The consolidation continues at these higher trading levels. The more conservative approach suggests that traders stay on the sidelines until the uptrend resumes course. A clean break of $51 provides an opportunity to jump into the momentum and target $55 on the upside. Keep closing stops at $49 until there's some action to justify a change. ITG $54.35 +1.46 (+2.10) A valiant charge from the open took ITG to $55.49 and through the stubborn resistance. Volume was exceptional at 2.2 times the ADV. However, make no mistake. The stock needs to shatter this $55 barrier and hold gains going forward if it's to remain a viable call play. The $54 level should evolve as near-term support and provide a nice launching pad to take entries. Continue to monitor other financial service companies like IFIN (+2.95) and INET (+0.69), which notably, also fared well in today's market. We're tightening the reins and raising our closing stop to $53 to avoid potential profit taking in coming days. CB $76.28 +0.88 (+1.93) While it doesn't provide the explosive moves we are currently seeing in Biotech stocks, the Insurance index (IUX.X) is making a convincing show of wanting to break through the $775 resistance level. CB is performing even better than its sector. After yesterday's do-nothing day, our play surged through the 200-dma (currently $75.25) and closed just below the $76.50 resistance level. New entries look attractive on a continuation of the rally, as CB pushed through resistance, opening the door for a run at the $80 resistance level. More aggressive traders can target shoot intraday dips to the $75 level, or even $74 when initiating new positions. We need to see the IUX successfully break through its own resistance to keep the bulls interested in CB, so keep this index on your radar screen if you decide to play. Keep stops set at $74. CD $19.22 +0.22 (+0.24) Putting one foot in front of the other, CD continues to creep higher on a consistent basis. Pressure is building for a breakout over the $19.50 resistance level, and if the bulls continue to charge ahead, it still looks like the $23 level is a viable target. Volume picked up in today's session, helping CD to regain the $19 level and inch closer to that long-awaited breakout. The 10-dma (currently $18.96) continues to provide support and this seems a good target level for aggressive traders to shoot for in initiating new positions. More conservative traders will want to see CD clear the $20 level before opening new positions. Look for volume to continue to increase as CD advances. A close below our $18 stop level would be a significant technical failure and would see CD making a quick trip to the drop list. IMCL $54.70 +2.28 (+1.61) After consolidating its recent gains yesterday, IMCL spent all day Tuesday in rally mode, closing very near the highs of the day. The heavy volume that accompanied last week's breakout has abated, dropping volume back to the ADV over the past 2 days. Support firmed near $52 during yesterday's quiet session, so we are raising our stop to that level to preserve our profits. The Biotech sector has been leading the NASDAQ higher over the past several sessions and the Biotechnology index (BTK.X) managed to tack on another 5% gain on Tuesday. The bulls charged right through the BTK's $665 resistance level as though it wasn't even there and this helped IMCL to scale the $54 level. Although the stock is getting a bit extended here, if IMCL can clear the congestion between $55-57, the next level to challenge will be $61. Aggressive traders will want to wait for an intraday pullback near the $52 support level before initiating new positions, while conservative players will want to wait for the bulls to push through $57 before playing. As long as the BTK remains in rally mode and volume remains solid, IMCL looks like it still has room to run. Move stops up to $52 to preserve your profits. PDLI $90.39 +7.73 (+12.14) Go, Biotechs, go! Hardly pausing to allow us to get onboard this morning, PDLI shot higher right from the opening bell. After the initial surge this morning, the stock paused to consolidate between $87.50-89.00 and then the bulls pushed it higher right into the close. When we mentioned the $90 resistance level, which fell to the bulls in the final 30 minutes, we didn't think we'd hit it so soon. The Biotech index is still in rally mode, helping to lift all ships in this sector. As long as it continues, the next obstacle will be $95, followed by $98. PDLI is deep into overbought territory now, and likely to see some profit taking in the near future. To protect your profits, move stops up to $84 in case the bears come out to play. Look for an intraday pullback in the vicinity of $87-88 to provide new entries or continue to play the momentum run, entering as PDLI surges through the $91 level. VRSN $56.60 +2.30 (+0.36) The broad Technology rally appeared just in time, helping VRSN to find support near $54. While volume was still a bit light, our play did manage to clear the $56 resistance level today. The stock tested the $58 level early in the day, but the bulls couldn't hold off the bears, resulting in a bit of afternoon profit taking. Closing back over the 30-dma (currently $55.83) is a good sign for the bulls, but we still have the daily Stochastics flashing a warning signal as they are still pointing down, just entering the oversold region. The $55-56 level looks like it could provide a good level for initiating new positions, although aggressive traders may want to hold out for another bounce between $53-54. We are moving our stop up to $53, so plan your trades accordingly. The more conservative approach will be to wait for strong volume to push VRSN through the $58 resistance level before initiating new positions. ******************* PLAY UPDATES - PUTS ******************* A $34.10 +0.60 (+0.13) The share price was crimped between $33.50 and $34.35 throughout today's session, reflecting yesterday's lack luster trading. This extremely narrow range combined with the robust volume invites danger on the scene. As the battle between the bulls and bears plays out, traders are stuck between a rock and a hard place. One hand, the bulls can't generate enough oomph to bring A topside of $35, but on the other, the bears haven't managed to it through $33 either. Be patient for a high-volume break through the $32 bottom support before jumping into this put play. Keep closing stops at $35. A game of wait-and-see doesn't create profits, but it sure protects capital! AIG $81.70 +0.63 (+1.61) The Insurance Index inability to stay sub-745 raises concerns. It'd be much to our advantage if this broad sector measurement rendered some serious downside action over the near-term. The lack of sector cooperation, with the likes of PGR (+2.44) and SPC (+0.98) making headway, is buoying AIG at the $80 support level. We need AIG to make a charge for $75 and the 52-week low at $72.64 soon. Consider buying into the weakness as AIG violates the $80 support before targeting a rollover strategy. While we hang in limbo, our closing stop remains in place at the $83 level. ISSX $48.66 +1.87 (+0.64) The Technology market got off to an early start this morning floating nearly all boats higher. By midday, it was looking like ISSX would take a quick trip to the drop list this evening, but the bears showed up just in time. After tagging a daily high of $51.80, the bulls just ran out of conviction, and the bears were more than happy to slash off better than half the intraday gains. ISSX was kind enough to close below our $50 stop level, and the real encouraging point was the way selling volume ramped up right into the close. After surging through the $49.50 resistance level in the morning and then falling back through it in the afternoon, it looks like the bears are back in charge. Beware of another buying surge, but aggressive traders can consider new positions on another rollover near the $50 level. More conservative players will want to wait for ISSX to drop back under $48 before taking a position. Watch out for support near $46, and let volume be your guide. NEWP $33.15 +1.25 (+1.07) NEWP got left behind in the rally in the Networking index (NWX.X) today, keeping it a prime candidate on the put list. Sure it managed to eke out a gain today, but it wasn't very impressive in the face of the strong sector-wide move. That's just what we want to see in our put plays -- pick on the weakling in the sector. Over the past week, the lows have been getting lower, and resistance at $35 is looking stronger on a daily basis. We are keeping our stop at $35 and aggressive traders can target new entries at this level or at the $34 intraday resistance level. Conservative traders will want to wait for more weakness to materialize before playing; a drop through the $31 support level on increasing volume will be just the ticket. Keep an eye on the NWX index, as weakness there will likely renew selling pressure in NEWP. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2215 ************************************************************** ************** NEW CALL PLAYS ************** SGP - Schering-Plough Corp $43.76 +1.14 (+1.06 this week) Schering-Plough develops and markets pharmaceutical products and treatment programs worldwide. It operates in three principle product lines: prescription drugs, animal health products, and over-the-counter (OTC) drugs. At the top of the company's pharmaceutical inventory is the world's leading antihistamine, Claritin. Some OTC drugs that you may be familiar with include brand names Afrin, Dr. Scholl's and Coppertone. Schering-Plough along with dominant drugmaker Johnson & Johnson (JNJ) lifted the DOW higher today. The Pharmaceutical Index's (DRG.X) change was rather minimal at 0.83%; however at 410, it's flirting with a critical level of resistance. Others in the sector like BMY, ABT and MRK currently emulate the same plight as they hover at precarious levels. SGP and JNJ on the other hand, are breaking through their respective levels of opposition in rising markets. Both companies had their own news to toot around the Street, but it was SGP that received an upgrade to Strong Buy from Dain Rauscher today. They brokerage firmed also issued a $60 price target citing the anticipated FDA approval of a PEG-INTRON plus ribavirin combination therapy as major catalysts, going forward. Nonetheless, SGP faces a formidable task as it approaches the upper $40 range and specifically, $48.74. Last February, SGP fell from investors' grace and plummeted from this higher price level. It'll be a psychological achievement if SGP can break the chain and regain a position above $50. A break of these historical shackles should generate lots of upward momentum and provide traders with profit potential over the short-term. Confirmation of continued strength across the sector should become evident as the DRG.X rallies above its imminent resistance at 415 and 420. It's also a good plan to monitor specific drug stocks to get an even better feel for the overall sentiment. Traders might find an entry into this momentum play on a pullback to $41.50 or $42; or more conservatively wait for another visible breakout and buy into that swell. We'll drop coverage if SGP fails to make a bullish close above the $42 mark. ***June contracts expire in less than two weeks*** BUY CALL JUN-35 SGP-FG OI= 1334 at $9.00 SL=6.25 BUY CALL JUN-40 SGP-FH OI=13906 at $4.10 SL=2.50 BUY CALL JUN-45 SGP-FI OI= 3140 at $0.75 SL=0.00 BUY CALL JUL-40*SGP-GH OI= 352 at $5.00 SL=3.00 BUY CALL JUL-45 SGP-GI OI= 936 at $1.90 SL=1.00 Average Daily Volume = 7.48 mln http://www.premierinvestor.com/oi/profile.asp?ticker=SGP XOM - Exxon Mobil $91.55 +0.72 (+2.60 this week) Widely known as one of the world's largest integrated oil companies, XOM has a broad scope of operations. Engaged in exploration for and mining and sale of coal, copper, and other minerals, the company manufactures and markets basic petrochemicals including olefins, aromatics, polyethylene and polypropylene plastics. XOM also has interests in electric power generation facilities. Incorporated in 1882, XOM operates or markets products in the United States and approximately 200 other countries and territories. After failing to hold above the $90 level a little over 2 weeks ago, XOM fell back to consolidate in the $87-88 area and is taking another run at achieving new highs. Getting the current rally going again was news yesterday that the company managed to win two of Saudi Arabia's three multibillion-dollar gas deals. With a long history of in Saudi Arabia, XOM beat out fierce competition to achieve the leadership position in the prized $15 billion South Ghawar development and the $5 billion Red Sea gas deal. That was enough to push the stock through the $90 resistance level yesterday, and despite OPEC making no change to their production levels today, XOM managed to extend its gains today. This is a limited play, as resistance near $95 is likely to halt the bulls in their tracks. News out after the close today that inventory levels of crude oil and gasoline climbed again could put pressure on shares of the oil conglomerate tomorrow. Look for the $90 level to hold as support, confirming the recent breakout. We have placed a tight stop at $90, as a close below this level will be another technical failure signaling us to take our money elsewhere. Aggressive traders will want to target a bounce near the $90 support level for new positions, while more conservative traders will want to wait for continued strength to push XOM through $92 resistance before playing. Confirm sector strength by looking for positive movement in the Oil index (XOI.X) before leaping into new positions. ***June contracts expire in less than two weeks*** BUY CALL JUN- 90 XOM-FR OI=10327 at $2.30 SL=1.25 BUY CALL JUN- 95 XOM-FS OI= 9876 at $0.35 SL=0.00 BUY CALL JUL- 90*XOM-GR OI=18276 at $3.90 SL=2.50 BUY CALL JUL- 95 XOM-GS OI=16228 at $1.50 SL=0.75 BUY CALL JUL-100 XOM-GT OI= 3750 at $0.50 SL=0.00 Average Daily Volume = 6.10 mln http://www.premierinvestor.com/oi/profile.asp?ticker=XOM ************* NEW PUT PLAYS ************* NETE - Netegrity Inc $38.02 +6.62 (+4.29 this week) Netegrity is a provider of software and services that manage and control user access to Web-based e-commerce applications. The company's SiteMinder product is a directory-enabled secure user management system, which is used to build and manage what is commonly known as a portal. Netegrity also offers professional services that support its software product offerings. WOW! NETE experienced a huge surge in today's session tacking on more than 21% on 1.7 times the ADV. The leading provider of solutions for securely managing e-business announced that Gartner, one of the most respected authorities in the access management space, has once again placed Netegrity in the leadership position in the Gartner Extranet Access Magic Quadrant. This is the second year in the row that Netegrity has been awarded this honor and may explain the spike in share price today. So you ask, why in the world are we adding NETE to our put list? Let's not mince sentiment here. This is a speculative play for the more adventurous types. We're looking for NETE to complete the head-and-shoulders formation and rollover. A rise into the vicinity of $43 would close the gap on recent highs and set NETE up for profit taking. This scenario presents the ideal entry in terms of risk and reward. The first objective target on the downside is the previous resistance at $35, followed by a second wave of losses taking NETE to the $30 and $31 bottom support. Take a look at a daily chart for visual confirmation. A close above $44 portends there may be a bullish challenge of $47.13, the intraday high set on May 21st. If the momentum that carried NETE upward today results in a close above $44, we'll immediately drop coverage. ***June contracts expire in less than two weeks*** BUY PUT JUN-45 UPN-RI OI= 22 at $7.80 SL=5.75 BUY PUT JUN-40*UPN-RH OI=219 at $3.60 SL=1.75 BUY PUT JUN-35 UPN-RG OI=516 at $1.30 SL=0.75 Average Daily Volume = 1.40 mln http://www.premierinvestor.com/oi/profile.asp?ticker=NETE ELNT - Elantec Semiconductor $30.61 -2.76 (-2.39 this week) Elantec is engaged in the design, manufacturing and marketing of high performance analog integrated circuits, primarily for the video, optical storage, and DSL markets. The company offers approximately 150 products such as amplifiers, drivers, faders, transceivers and multiplexers, most of which are available in multiple packaging configurations. ELNT targets high growth commercial markets in which advances in digital technology are driving increasing demand for high speed, high precision and low power consumption analog circuits. A better than expected mid-quarter business update from XLNX last night set the Semiconductor sector on fire this morning, and by the time the closing bell rang, the Semiconductor index (SOX.X) had posted a 6.5% gain. Gains were seen across the sector throughout the day, except for our new play, ELNT. So what kept this stock from advancing with its sector? What else, an earnings warning and the announcement of layoffs. The company lowered its earnings estimate from 10-11 cents per share to 6-8 cents, before taking a $2.9 million charge associated with its announced 15% workforce reduction. The rally on the SOX couldn't brighten the dark skies this created, as ELNT dropped more than 8% on more than double its ADV. If the sector falters in its current recovery (entirely possible with resistance looming just overhead at $650), the loss of this buoyant effect should be enough to really pull the rug out from beneath ELNT. The stock ended the day tenuously perched on the $30 support level, but if this support fails, the stock could quickly drop to major support near $25. While it isn't a big move, it is certainly enough to allow us to book a solid gain. Place stops at $33 and consider taking new positions on any failed rally below this level. More conservative traders will want to wait for the $30 support level to fail before taking a position, and weakness on the SOX will just stack the odds further in our favor. ***June contracts expire in less than two weeks*** BUY PUT JUN-30*UET-RF OI=107 at $1.45 SL=0.75 BUY PUT JUN-25 UET-RE OI= 40 at $0.40 SL=0.00 BUY PUT JUL-30 UET-SF OI= 5 at $3.50 SL=1.75 BUY PUT JUL-25 UET-SE OI= 0 at $1.45 SL=0.75 Wait for OI!! Average Daily Volume = 976 K http://www.premierinvestor.com/oi/profile.asp?ticker=ELNT ********************* PLAY OF THE DAY - PUT ********************* ISSX - Internet Security Systems $48.66 +1.87 (+0.64 this week) Internet Security Systems is a global provider of security management solutions for protecting e-business. The company's Adaptive Security Management approach to information security protects distributed computing environments from attacks, misuse and security policy violations, while ensuring the confidentiality, privacy, integrity and availability of proprietary information. ISSX delivers an end-to-end security management solution through its SAFEsuite security management platform coupled with around-the-clock remote security monitoring through the company's managed security services offerings. Most Recent Write-Up The Technology market got off to an early start this morning floating nearly all boats higher. By midday, it was looking like ISSX would take a quick trip to the drop list this evening, but the bears showed up just in time. After tagging a daily high of $51.80, the bulls just ran out of conviction, and the bears were more than happy to slash off better than half the intraday gains. ISSX was kind enough to close below our $50 stop level, and the real encouraging point was the way selling volume ramped up right into the close. After surging through the $49.50 resistance level in the morning and then falling back through it in the afternoon, it looks like the bears are back in charge. Beware of another buying surge, but aggressive traders can consider new positions on another rollover near the $50 level. More conservative players will want to wait for ISSX to drop back under $48 before taking a position. Watch out for support near $46, and let volume be your guide. Comments ISSX suffered a terrible close Tuesday. The stock rolled over in a big way during midday trading and accelerated to the downside into the close. Volume on the way down near the close exceeded volume that accompanied the stock's advance earlier in the day. If Tuesday's finish is indicative of near-term price action, ISSX appears as if it wants to work lower. Use a rollover near resistance at $50 to gain entry. Or, consider entering on weakness if the Nasdaq is in the red and ISSX falls below $48 on heavy volume. ***June contracts expire in two weeks*** BUY PUT JUN-50*ISU-RJ OI=154 at $4.10 SL=2.50 BUY PUT JUN-45 ISU-RI OI= 54 at $1.40 SL=0.75 BUY PUT JUL-45 ISU-SI OI=309 at $4.30 SL=2.75 BUY PUT JUL-40 ISU-SH OI=318 at $2.65 SL=1.25 Average Daily Volume = 1.80 mln http://www.premierinvestor.com/oi/profile.asp?ticker=ISSX ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2223 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Who Said There Would Be No Summer Rally? U.S. equities soared today with the Dow enjoying a triple-digit gain and the NASDAQ continuing its recent recovery as investors speculated that a technical bottom is finally in place. Monday, June 4 Blue-chip stocks ended higher today in light trading as investors searched for companies that will weather the economic slump. The Dow ended up 71 points at 11,061 and the NASDAQ closed 6 points higher at 2,155. The S&P 500 index was also up 6 points at 1,267. Volume on the NASDAQ was the lightest so far this year with only 1.29 billion shares exchanged. Technology advances beat declines 20-to-17. Trading volume on the NYSE was also extremely low with just 840 million shares traded. Big Board winners outpaced losers by almost 2-to-1. In the bond market, the 30-year Treasury rose 11/32, pushing its yield down to 5.67%. Sunday's new plays (positions/opening prices/strategy): C & B (NASDAQ:CHBS) JUN50C/JUN45C $0.35 credit bear-call Kohl's (NYSE:KSS) JUN70C/JUN65C $0.40 credit bear-call Shire (NASDAQ:SHPGY) JUL60C/JUL45P $0.10 debit synthetic Sycamore (NASDAQ:SCMR) SEP10P/J0340P $27.50 credit Put-LEAPS Although they did not meet our target prices, the two bearish positions offered acceptable entry credits. Shire Pharma was available at the suggested entry price. There were also a few contracts traded at the target credit in the "Reader's Request" position in Sycamore. Market Activity: A lack of commitment marked today's session, with equity values moving in a small range before finishing "in the black." Stocks that ended positive achieved relatively small gains and analysts said the lackluster action was expected with the market entering a seasonally slow period. Optimism concerning remarks from Fed Chair Alan Greenspan added some support after he suggested there are few signs of inflationary pressure in the U.S. economy. The chief financial officer noted that increasing costs continue to be absorbed by companies rather than consumers, but he also said rising energy prices might have a greater impact on the economy than previously thought. Investors offered mixed opinions about Greenspan's comments but most agreed the overall market trend is improving. On the Dow, Johnson & Johnson (NYSE:JNJ), Exxon Mobil (NYSE:XOM) and United Technologies (NYSE:UTX) led the gainers. DuPont (NYSE:DD) also edged higher after the Wall Street Journal said that Bristol-Myers Squibb (NYSE:BMY) and Novartis (NYSE:NVS) my be competing for DuPont's pharmaceutical division. Among the Dow's losers were Wal-Mart (NYSE:WMT), McDonald's (NYSE:MCD) and General Motors (NYSE:GM). There was little significant activity on the NASDAQ, but Cisco (NASDAQ:CSCO) was a popular issue after a British newspaper said the firm is planning to bid $17 billion for the U.K. telecom equipment maker Marconi. The semiconductor segment was also in the news after Bear Stearns cut its earnings estimates on chip giant Intel (NASDAQ:INTC). Analysts at Goldman Sachs backed the bearish outlook, saying the company would likely report disappointing news at its upcoming meeting. Another stock in the sector, Cypress Semiconductor (NYSE:CY) reduced its second quarter revenue and earnings estimates but traders said that was no surprise as the reduced revenues were already "priced-in" to the issue's share value. In the broader market, oil, financial, biotechnology and select drug issues advanced while airline and retail stocks limited the market's upside. Portfolio Activity: The Spreads section enjoyed a number of favorable moves in the banking and brokerage groups with Merrill Lynch (NYSE:MER) among the top performers. Also moving higher were Providian (NYSE:PVN), Mellon Bank (NYSE:MEL), American Express (NYSE:AXP), State Street (NYSE:STT) and A.G. Edwards (NYSE:AGE). The bullish move in AGE provided a small profit in our recent "time-selling" play and we will begin to look for a potential early-exit opportunity. There were other broad market segments that participated in the upside activity and PepsiCo (NYSE:PEP) and Stone Energy (NYSE:SGY) were beneficiaries of the bullish momentum. In the technology group, Hewlett Packard (NYSE:HWP) and Cisco (NASDAQ:CSCO) were the big surprises with HWP climbing higher after settling an old lawsuit with Pitney Bowes (NYSE:PBI) and Cisco up on rumors of an offer for telecom equipment maker Marconi. The Cisco calendar spread has reached a favorable (35%) closing profit. The "watch-list" included Alexion (NASDAQ:ALXN), MRV Communications (NASDAQ:MRVC) and Sinclair Broadcasting (NASDAQ:SBGI), and all three positions finished the day higher. With the Alexion calendar spread, we are watching for a favorable exit opportunity as the front-month premiums begin to decline. Both MRVC and SBGI have struggled in recent sessions and we were monitoring each issue for favorable recovery signals. MRVC finished the day lower but did offer a near break-even exit on the long option and SBGI rebounded over 5%, so we will remain in the bullish position for now. Tuesday, June 5 U.S. equities soared today with the Dow enjoying a triple-digit gain and the NASDAQ continuing its recent recovery as investors speculated that a technical bottom is finally in place. The Dow Dow was up 114 points to 11,175 and the NASDAQ closed 77 points higher at 2,233. The S&P 500 index was up 16 points at 1,283. Big Board volume hit 1.11 billion shares, with winners outpacing losers by 2 to 1. NASDAQ trading was mild with only 1.8 billion shares exchanged. Technology advances beat declines by 24 to 13. In the bond market, the 30-year Treasury rose 15/32, pushing its yield down to 5.65%. Market Activity: Technology stocks rallied today and the buying pressure spread to the broader market as investors decided that stocks are indeed at bargain prices. Traders say the technical indications suggest a significant bottom is being formed and with the current interest rates at favorable levels, analysts believe there is potential for a solid recovery in 2002. In addition, today's headlines showed some popular hi-tech companies reaffirming earnings projections, lending credence to the view that the economy will improve in the coming months. On the NASDAQ, chip companies were a hot commodity and networking and software issues also enjoyed excellent gains. Computer hardware issues moved higher with shares of International Business Machine (NYSE:IBM) and Hewlett-Packard (NYSE:HWP) among the blue-chip technology winners. The Dow Industrial Average was supported by bullish activity in a number of issues. Johnson & Johnson (NYSE:JNJ), Alcoa (NYSE:AA), International Paper (NYSE:IP) and Boeing (NYSE:BA) were the major catalysts. The broader market received a boost from biotechnology stocks with shares of Myriad Genetics (NASDAQ:MYGN) and Human Genome Sciences (NASDAQ:HGSI) up on news of positive drug developments. Analysts say "Biotech" is one of the strongest segments of the market and the speculative buying appears to support that view. Among other groups, finance, paper and cyclical sectors rallied while utility, gold and natural gas issues generally retreated. Portfolio Activity: Tuesday was a banner day for the Spreads section with a surplus of favorable activity in the bullish positions. The majority of technology issues moved higher and stocks in the blue-chip and broader-market categories also performed very well. Among the biggest (percentage) gainers were Intel (NASDAQ:INTC), Stratos Lightwave (NASDAQ:STLW), Cisco (NASDAQ:CSCO), Linear Technology (NASDAQ:LLTC) and MRV Communications (NASDAQ:MRVC). Microsoft (NASDAQ:MSFT) was also a popular issue, up almost $2 to $72.60 and the move suggests a possible test of resistance levels near $73.50 and $74 in the coming sessions. For more than a month, MSFT has been thwarted by resistance near $72 but with today's breakout, there is definite potential for more bullish movement. Since our short (call) option in the bearish spread is at $75, we will monitor the issue closely for signs of continued upside strength as it approaches that range. The bullish trends also produced some winners in the section with Shire Pharmaceuticals (NASDAQ:SHPGY), Costco (NASDAQ:COST), A.G. Edwards (NYSE:AGE) and Alexion (NASDAQ:ALXN) providing excellent short-term gains. One issue we must monitor for additional upside bias is Optimal Robotics (NASDAQ:OPMR). Today the stock rebounded to a recent high near $32.50 and we don't want to let the bearish spread at $35 become a losing play. Total Fina (NYSE:TOT) and Electronic Data Systems (NYSE:EDS) are the other bearish positions in the portfolio but for now, they are both comfortably below the sold (call) strike prices. Questions & comments on spreads/combos to Contact Support ****************************************************************** - UPCOMING SEMINAR - ****************************************************************** This month I will be conducting an instructional seminar for new traders who are interested in the fundamentals of "time-selling" strategies. The general topics of discussion will be: - Increasing portfolio returns with long-term options (LEAPS) - Reducing the cost of these options with covered-calls - Learning to sell time (and potential) for a profit You can take the seminar without leaving the comfort of your home or office. It is interactive and you can ask questions after the presentation. You do not need any special software to attend the presentation but you must have a 56K Internet connection or faster for best results and a separate phone to listen to the audio portion. If you are interested in this seminar, please click here for more information: <http://www.premierinvestorseminars.com/seminarcalendar.asp> ****************************************************************** - SPECULATION PLAYS - Today's positions are based on recent increased activity in the stock and underlying options. All of these plays offer favorable risk/reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** TSFG - South Financial $18.45 *** What's Up? *** The South Financial Group (NASDAQ) is a financial holding company. The company operates through subsidiaries consisting of Carolina First Bank, a South Carolina state-chartered commercial bank; Citrus Bank, a Florida state-chartered commercial bank; Carolina First Mortgage Company, a mortgage banking company, and the Blue Ridge Finance Company, Inc., an automobile finance company. The company provides a range of banking services, including mortgage, trust and investment services, designed to meet substantially all of the financial needs of its customers. The company conducts its business through 74 locations in South Carolina, five locations in North Carolina, and 15 locations in northern and central Florida. As of the beginning of the year, the company had over $5 billion in assets, $3.7 billion in loans, $4 billion in deposits and $468 million in shareholders' equity. It has been so long since we offered a "bullish" diagonal spread that when I saw the favorable July option premiums in this issue, I knew there was only one way to offer the candidate in a spread. There has been no public news about South Financial Group beyond comments of consolidation in the sector, but the recent activity in the issue suggests that "something" may be in the works. The stock has jumped 15% in just three days and the near-term option prices are inflated as well. Officials from the company haven't made any comments about the recent stock or options activity, so there is little to go on other than the "heavy-volume" buying. The issue is due for a consolidation but the excess premium in the short-term options should help our position when the stock eventually retreats. Traders who believe there is additional upside potential in TSFG can speculate on that outcome with this low-cost combination play. PLAY (speculative - bullish/diagonal spread): BUY CALL AUG-17.50 QCF-HW OI=629 A=$2.00 SELL CALL JUL-20.00 QCF-GD OI=35 B=$0.75 INITIAL NET DEBIT TARGET=$1.10-$1.20 TARGET PROFIT=50% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=TSFG ****************************************************************** HYSQ - Hyseq $16.66 *** A Big Move! *** Hyseq (NASDAQ:HYSQ) researches and develops biopharmaceuticals to treat acute and chronic diseases. The company is conducting its pre-clinical studies on IL-1Hy1 anti-inflammatory and CD39L4 anti clotting product candidates, and is researching a number of other candidates for its clinical pipeline. Their biopharmaceutical products are proteins produced by novel, rarely expressed genes. The company uses its proprietary technology with its partners for therapeutic and diagnostic target discovery, in pharmacogenomics and polymorphism analysis, and with its DNA analysis tools such as the HyChip system. Hyseq is another issue with outstanding bullish activity and no news to explain the movement. In addition, option buyers are out in force with 703 contracts of the JUN-$17.50 (call) options trading today against an existing open interest of 0. That is a substantial change in the option series volume for a relatively unknown issue and suggests there is more to this move than simply bullish character in the overall sector. The activity may be due in part to short-covering as the float on this stock is fairly small. In addition, there may be new participation by a mutual fund or other institutional trader that believes in the future of the company's proprietary diagnostic technology. Regardless of the reason for the move, a change in character is definitely underway and traders who think the trend will continue can profit from future bullish movement with this position. PLAY (conservative - bullish/covered-call) BUY STOCK HYSQ ASK=$16.48 SELL CALL JUL-15.00 HUH-GC OI=435 B=$2.85 TARGET COST BASIS=$13.60 PROFIT(max)=$1.40 YIELD=10.2% -or- PLAY (speculative - bullish/debit spread): BUY CALL JUL-12.50 HUH-GV OI=155 A=$4.70 SELL CALL JUL-15.00 HUH-GC OI=435 B=$2.85 INITIAL NET DEBIT TARGET=$1.75 PROFIT(max)=45% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=HYSQ ****************************************************************** WLL - Willamette Industries $48.89 *** Merger Outcome? *** Willamette Industries (NYSE:WLL) is an integrated forest products company with 105 plants, located in the U.S., France, Ireland and Mexico. The company owns 1.7 million acres of forestland in the U.S. and manages it continuously to produce building materials, composite wood panels, fine paper, office paper products, unique corrugated packaging and grocery bags. The outcome of the takeover battle between Weyerhaeuser (NYSE:WY) and Williamette is expected to conclude this week as Williamette shareholders will vote Thursday on whether to elect a slate of directors backed by Weyerhaeuser, who would then vote to accept their $5.5 billion offer. Weyerhaeuser, a rival timber company that has been unsuccessful with its buyout offers for Willamette is fighting to get three directors on Willamette's board. Some experts say a vote for Weyerhaeuser means more problems, but with a big payoff down the line. A vote against means Weyerhaeuser's $5.5 billion offer to buy Willamette fails, possibly removing up to a third of the company's market value in the process. If the Weyerhaeuser board is elected, they will likely proceed with the $50 cash tender offer and if they lose, the company will likely withdraw all bids for Williamette. Analysts are predicting an extremely close board vote, with either side winning by a very small percentage and with the potential for an increased bid unlikely, shares of WLL have fallen in recent sessions. Traders who agree there is little potential for a large upside move in this issue may speculate on the outcome of the vote with this position. There are unusually large BID/ASK spreads in the WLL options, to prevent arbitrage by institutional players. But, a retail participant should have no problem achieving a favorable opening credit as traders exit their previous positions prior to the meeting on Thursday. PLAY (speculative - bearish/credit spread): BUY CALL JUL-55 WLL-GK OI=638 A=$0.70 SELL CALL JUL-50 WLL-GJ OI=4015 B=$1.80 INITIAL NET CREDIT TARGET=$1.25 PROFIT(max)=33% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=WLL *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. 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