The Option Investor Newsletter Sunday 04-28-2002 Copyright 2001, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 4-26 WE 4-19 WE 4-12 WE 4-5 DOW 9910.72 -346.39 10257.11 + 66.29 10190.82 - 80.82 -132.30 Nasdaq 1663.89 -132.94 1796.83 + 40.64 1756.19 - 13.84 - 75.32 S&P-100 532.37 - 27.42 559.79 + 6.05 553.74 - 10.28 - 13.85 S&P-500 1076.32 - 48.85 1125.17 + 14.16 1111.01 - 11.72 - 24.66 W5000 10208.26 -426.79 10635.05 +129.08 10505.97 - 45.46 -224.31 RUT 501.50 - 15.90 517.40 + 1.94 515.46 + 17.70 - 8.70 TRAN 2722.63 - 74.24 2796.87 - 78.16 2875.03 + 96.62 -139.55 VIX 24.64 + 4.34 20.30 - 1.79 22.09 + .96 + 1.81 VXN 42.24 + 2.89 39.35 - 3.46 42.81 + 1.96 + 4.57 TRIN 1.82 1.18 1.03 1.67 TICK +367 -492 +460 +341 Put/Call .87 .79 .99 .78 ****************************************************************** Got That Sinking Feeling? by Jim Brown Don't say I didn't warn you. We are only eleven days into the historical spring crash period and all the major indexes have done just that, crashed! Positive economic reports and lingering earnings announcements could not entice traders back into the market. Fears of a double economic dip are rising despite the GDP news and even Bush got into the act by warning that the current bounce may not continue. Trend lines, moving averages and technical support levels all failed on Friday when a short covering rally failed to appear at the close. So much news, so little space. The GDP numbers led the economic hit parade on Friday with a huge 5.8% growth rate for the first quarter. What recession? This was the fastest rate of growth since 4Q-1999 but the fly in the ointment was inventory liquidation. Everyone has been pointing to the rapid draw down of inventory and the spurt of orders related to replenishing those levels. Those orders spiked the 1Q GDP but they are not expected to continue. Also, those inventory levels suddenly spiked upward which would indicate the rate of sales had slowed. Traders were hit with a double whammy. The super strong GDP could pressure the FED to raise rates preemptively and much sooner than expected. Secondly, the slowing consumption numbers caused concern that the economy could quickly dip back into recession during the summer. Granted, both of those scenarios would not happen at the same time but either one would have a negative impact to the markets. Consumers continued to drive the GDP numbers with retail purchases and new home buying. Businesses continued to cut spending but the pace of the decline is slowing. Defense was the strongest sector with a +19.6% increase. There is a catch 22 here which should be obvious to everyone. If businesses are continuing to cut spending, layoff workers and delay expansion plans then unemployment will continue to rise and raises will be hard to come by. This will put the consumers on a budget before summer is over and without the consumer to provide support the house of cards will collapse. Consumer sentiment numbers, which fell from 95.7 in March to 93 in April may already be the leading indicator for this problem. The expectation component fell to 89.1 but could have been influenced by the stock market. New home sales have now fallen for two months in a row which could also indicate a slowing of consumer demand. The markets continued to be pressured by more weak earnings and accounting problems. AOL posted a record loss of $54 billion although it was funny money not cash. Still traders are bombarded with these huge headline numbers on a daily basis. Stalwarts like General Mills, GE and Merrill Lynch are being killed on negative news. Adding to those headliners are the me too companies like Tyco, JDSU, VRSN, Dynegy, which were crushed by news, warnings and SEC investigations. Apologies by company executives don't cut it when the legal enforcement agencies come calling. The apology was only the first step as the Merrill Lynch CEO found out on Friday. That just laid the groundwork for civil lawsuits and a possible $2 billion fine/reimbursement for recommending stocks to the public that they were trashing internally. Dynegy was hit with another -4.81 loss on accounting concerns. Does this brain damage ever end? Debt ratings are dropping faster than hail in Kansas with TYC, DYN, GIS and MER getting the call on Friday. This is just the tip of the iceberg and as Moodys, Fitch and S&P catch up on their backlog it will clearly result in another downgrade wave. Companies with huge debt are seeing their shares drop with every passing day. After the Enron, Global Crossing, Tyco and ADLAC problems, stocks with high debt are being seen as possible targets of wrong doing. With the debt game more closely resembling a shell game nobody wants to be the last one holding stock in a heavily leveraged company. What is a trader to do? Focus on the trend and don't fight the tape. I got several emails today asking if XYZ stock was a good buy as these depressed levels. First, I cannot give individuals specific stock advise because I am not a broker. Second, I don't know your time horizon. If you want to hold GE for the next 10-20 years then $31.50 may be a good price. If you only want to hold it for two weeks then $31.50 may not be a good price. Why everybody wants to buy stocks on the way down is beyond me. Just because GE looks cheap at $31.50 does not mean it can't get cheaper. Remember CSCO at $45, $30, $25, $20, $15? It looked cheap at every price point but Friday's close at $13.93 was a new six month low. Is it cheap enough yet? Who knows, it depends on your time horizon. Two months, you can bet it will be lower. 20 years, you can almost guarantee it will be higher. Remember Lucent at $13? AOL at $27? Let's try not to catch the proverbial falling knife and simply follow the trend instead. I went through the prior paragraph to set the stage for our discussion of the markets this weekend. You might cover the eyes of any small children reading this with you. It is not a pretty picture and while there is no mention of blood and guts there is still plenty of red ink. The Dow closed at 9910, a level not seen since Feb-22nd and well below the critical 10,000 benchmark. It even closed below its 200 DMA of 9956. There is no joy in Mudville tonight. The problem only compounds as we move into the broader markets. The Nasdaq has broken through anything resembling a moving average long ago but the last ditch support levels have finally collapsed as well. Once below 1700 the index picked up speed and appears earthbound at meteoric speed. There is support at 1650 but without some good news soon that level will be road kill as well. The S&P-500 resembles the Nasdaq in its rate of descent. Support at 1100 is history, support at 1080 is toast and the index is clinging by its fingernails to Feb lows at 1075. Should 1075 fail we could only be a day away from October support levels at 1050. Do we dare imagine a triple digit S&P? I got a good laugh all week as TV commentators kept revising their "critical support levels." Every day a critical support level was given for whatever index was being discussed. As each day passed those "critical" levels were broken along with their premise. Each day there was no mention of the prior days critical level as though by not mentioning it the viewers would forget that it was different. These TV experts, who are supposed to report the news not make it, seem fixated at trying to pick the bottom. I know the feeling well since the majority of email we get does not ask "how far are we going to drop" but "when should I buy." The answer would be the same but the context of the questions prove that most investors are just that, investors, and not traders. Those TV commentators are selling to the vast majority of their audience, buyers not sellers. When the market feeds them day after day of losses the temptation is too great to try and be a hero by calling the bottom with a forecasted "support" level. Fortunately OIN readers appear to be learning that money can be made both ways. I just wish I could convince you to ONLY buy calls when the market is going up and puts when it is going down. There is that contingent that still believes a recommended call can be play any day just because it is recommended. But that is another lesson. Those who have been playing puts over the last week have done very well. We currently have more than an $8 gain in MXIM, $4 in MU, $6 in NVDA and $3 each in EBAY and ADI. Also, remember the VRSN put from last week at $25? We dropped it before earnings to avoid a surprise but it closed Friday under $10. I am not posting this to claim perfect results since everyone knows we have been stopped out of several lately. I only post this to emphasize that profits can be made both ways. Why? Because I think the downside chances are still better than upside as we go forward. You do not have to sit on the sidelines because the market is down. With that prelude let's get into the forecast. Up, down, flat and all of the above. Seriously! While Friday's close was very bearish there is a good chance there is a bounce in our future. The VIX rocketed to over 24 and very close to the levels seen just before the February bounce. Still a far cry from the 40 level seen in last April's sell off but still it is moving in the right direction. The put/call ratio rose to .87 and closer to a bullish reading. These represent fear coming back into the market and a necessary component to any future rally. The TRIN or Arms Index closed at 1.99 indicating a very oversold condition. Those indicators taken along with indexes nearing "critical support levels" (grin) are a recipe for a bounce. The Nasdaq should find support in the 1645-1650 area, which is only 15 points or so away. The S&P could find buyers in the 1060 level only 16 points away. The Dow should get a transfusion around 9750-9850. The Dow could also see a lift on Monday from an article in Barrons this weekend. They are profiling Boeing as lean, mean and oversold. A $2 takeoff by Boeing won't help however if Microsoft continues to accelerate to the downside. Speaking of downside another Dow component, Intel, is only 36 cents away from breaking the to a new six month low. This happened even after Intel made bullish statements last week. Apparently investors were not impressed with their continued cautious outlook. On a side note, the SOX closed below its 200 DMA and under support despite a large increase in the book-to-bill numbers this week. If semiconductors can't find support on good news then........ Traders will be watching the 500 level for a tradable bounce but will short a break under that level aggressively. While the oversold conditions may be pointing to a bounce soon it may not have legs and could only be a bear trap rally. I would look at any bounce as a new opportunity to buy puts cheap and not the beginning of a new bull market. My entry points for going long are so far out of range that they are not relative to this discussion. It is far too early to revise them downward since a short covering rally could occur very quickly and then die just as quickly. My entry points for going short were 10000/1725/1100 all of which have been penetrated substantially. This means you should already be short stocks or long puts. I would use those same levels as exit points. Should an oversold bounce occur then exit those shorts at 10000/1725/1100 OR BEFORE! Keep those seatbelts fastened and trade in the direction of the skid! Enter Very Passively, Exit Aggressively! Jim Brown Editor Editors Note: We are having a spring cleaning sale at OIN. We have rounded up the last remaining videos sets of the last seminar consisting of 10 four hour VHS cassettes and workbooks. I think we have eleven of them. Also we have a couple dozen of the year end special CD/Workbooks available. Watch the website this week for our special offers. Act fast because there are no more. When they are gone they are GONE! Click Here for the Video Tape offer: https://secure.sungrp.com/video/video.asp Click Here for the CD/Investor Guide offer: https://secure.sungrp.com/cd_clearence/02renewal.asp ******************** INDEX TRADER SUMMARY ******************** FEAR AND LOATHING by Leigh Stevens TRADING ACTIVITY AND OUTLOOK - Friday, sellers continued to vent their fear and loathing of stocks by continued sales of the week's casualties on missed earnings and revenue targets. The market has developed a full- blown bearish bias, as supposed "good" news, that of confirmation of strong Q1 growth reflected in the GDP number releaseD Friday, becomes yet another excuse to take the market down. Underlying the fundamental picture is the continued shocks and disappointments on the earnings front, of which conglomerate Tyco (TYC), net stock VeriSign (VRSN) and energy company Williams (WMB) are the latest examples -- Dynergy fell on the "loathing" aspect as it's subject to an SEC investigation on its accounting practices. Earnings both in the recent past and for expectations ahead, is what is really influencing the market day to day – "give me better earnings NOW!" could be rallying cry of the bears. I hate to have to keep revising downward my stock index downside objectives or targets and the expected low side of what I still assess will be a broad trading range for the market. But, I'm forced back to the drawing board. It was bothering me that I could possibly have a downside expectation for the DOW to test its February low in the 9600 area, while the S&P 500, benchmark for the fund mangers, was already almost THERE. The low in SPX on Friday was already at 1076, versus a Feb. bottom at 1074. If the Dow were to go down either another 380 points to either its intraday low (9530) or another 290 points to its prior Feb. closing low point (9620), the S&P would have to go down much more than around current levels. So a careful read with me of the longer-term weekly chart pictures below will maybe set a new realistic downside for the S&P. It may be a little harder to come up with objectives on the Nasdaq, but we can always key off from the S&P for our major downside target. We can be complacent, fat and happy bears on the longer-term picture, but what about the short-term -- is there rally potential close at hand that will give us that new opportunity to pick new put plays? Yes, I would expect one and one that may carry a bit higher than the anemic ones seen recently. One that would be worth playing for those that figure there are always two sides to every story or at least two trades. This expectation or prediction is simply based on the odds that when you get oversold enough AND reach short-term objectives, profit taking sets in and the short-sellers and bargain hunters all try to get through the same revolving door at once creating what might be called a (short) squeeze. Moreover, you have to account for the fund lemmings -- as we are right at (well, just under) the 200-day moving average of the Dow, that holy grail of the institutional set -- if a rally starts, fund managers are compelled to put some money to work. As they don't try to "time" the market for the most part -- never have, never will -- they have to think that 10,000 Dow is "THE" low and even a minor reversal to the upside can turn into a minor stampede. Important benchmark levels, like DOW 10K when successfully "defended" for a time, sets up more bearish sentiment later, when the market does reach a climax low -- when fear & loathing of stocks gets so extreme you are thinking that you had better buy that rental home to make any money on investments. And what is missing still from a "typical" major bottom is more upset, less complacency and more fevered options players buying puts like there was no bottom. By the way, put to call volume ratios are hardly indicating that kind of bearish extreme. When markets get overdone on the upside, what follows, at the end of it typically, is to get overdone on the downside. S&P 500 (SPX) Weekly/Daily/Hourly Charts: To equal in the S&P, what I think will be a possible bottom in the Dow in the 9600 area, downward momentum here, the 1050 area is closer to the mark -- note the weekly MACD momentum indicator (left, bottom), which is far from an oversold low. A move to somewhere between a 50% retracement (1059) and one that gives back 62% (1031) of the last major upswing, gives us a target zone. 300 Dow points would translate to about 30 points lower in the S&P, or to somewhere south of 1050, say 1046. Meanwhile, on the daily chart, the retreat finally to the lower envelope line or trading band, which marks the extend of "typical" S&P volatility, suggests we may be overdone on the downside here -- at least expect the RATE of decline to slow down for a while. The most solid price and pattern suggestion for a short-term (2 to a few days) rebound here is that, basis the hourly chart in the S&P 500, the index is almost at the lower boundary of its downtrend channel. This suggests we are nearing a possible upside deflection point, in the 1070 area, plus or minus a few points. I suggest, traders look to play a rally that may set up by the Monday close, or Tuesday early. Resistance and selling interest could be heavy on any return to the 1100 area, a key support knifed through on the way down. Next resistance appears at 1112, all the way back up to the top end of the channel. S&P 100 (OEX) Weekly/Daily/Hourly Charts: With the greater relative weakness in the S&P 100, perhaps a more realistic downside target for OEX is back closer to the fall lows in the 500 area and below. Actually, the low in the week that OEX bottomed was 480. Maybe THAT would get the volatility index (VIX) well above the low-20s!. Note the same deal with the trading bands. Nothing magically about that blue line, but this simple method has picked many extremes, at least temporary ones, for many years. The other thing to note on all the charts is that the oscillators on all time frames from daily to short and longer-term on the hourly, are lined up on oversold readings. Yes, the weekly MACD suggests keeping our focus on the longer-term bearish downside momentum, but we are talking a rebound not a major trend turnaround. Hourly work with the channel lines suggests a short-term buying opportunity may be close at hand as OEX approaches the lower boundary of the downtrend channel, which comes in around 528-530 currently. Resistance comes in at 545, then 552. Dow Industrials ($INDU & $DJX.X) Weekly/Daily/Hourly Charts: I think the Dow looks quite vulnerable to a substantial further move lower. All those money mangers noting the out performance of the big cap stocks by the small to mid cap companies are going to be trying to squeeze through that door and sell big and buy little. Those little people want to be big people anyway. 9525 looks like an intraday target, 9625 a weekly closing objective -- even a move to 9525 would not even complete a 50% retracement, which is a pretty normal give back in a stock or an average. 98.6 in DJX looks like a near-term downside objective, based on the normal distance from its 21-day moving average, at least when oversold, without some kind of rebound attempt. Maybe back up to the 21-day average at 102.2, which is often a deflection point and resistance. 98 appears again as the low end of the hourly downtrend channel, and "fulfills" the minimum downside objective implied by the bear flag pattern. A buy in this area for a trade, would offer some potential. 101.70 is the first resistance apparent from the hourly price pattern -- a prior important low, now likely to be a resistance point. 101-102 is the top of the downtrend channel that has a good recent record of capping any ambitious rallies. Nasdaq Composite ($COMPX) Weekly/Daily/Hourly Charts: South is the direction suggested by falling momentum. As with many of the other indexes, the weekly MACD never crossed above the "zero" line, which is showing that the rally off the Feb. bottom was never that strong. We have already retraced 62% of the prior big up move -- if the COMP were to retrace all that move, we're looking at potential for a huge further drop. However, based on a similar objective as the S&P however, another 4% drop puts the Composite to the 1600 area, which is my target. Watch the Composite on any further dip below 1650, such as to around 1647. Not to try and catch a falling "knife", but if stability develops, this may be a buy point. Again, we could get a good-sized rally going when we get oversold in all time frames from hourly to daily. Refining a possible downside objective and potential support, off the hourly chart, it looks like 1645 in the COMP. Nasdaq 100 ($NDX.X) Weekly/Daily/Hourly Charts: Based on the weekly downside momentum, expect a further substantial drop in the Nas 100. My downside objective is to the 1200 area currently based on the big chart weekly picture. However, near-term, I think we're due for a bounce and probably a playable bounce for agile sprinters. 1250 may develop as support, but judging by the downside acceleration at week's end and the close near the low of the day and week, a look at the hourly chart is in order as it would seem unlikely we are just going to stabilize near the weekly close. Fear and loathing runs deep particularly in the former darlings of tech. Amazing how love can turn to deep dislike once the warts are seen. Yes, the hourly chart downtrend channel line is not reached until around 1240 in the Naz. A bit lower here and watch for a sign of a reversal. It may come quickly. These short-covering type rallies don't give you long to get in at the lows. The more oversold, the more they tend to turn on a dime, at least for a time. Resistance first comes in at the former lows at the dashed level line -- it's not noted on the chart, but the level is 1325 approximately. The anticipated higher resistance is well above this, at the top of the uptrend channel, around 1358. Nasdaq 100 Trust Stock (QQQ) Weekly/Daily/Hourly Charts: Ah the Q's, most active most often. They had some range on Friday, if I can trust my data feed -- I did check 3 sources and they all had a (short-squeeze stampede?) high on Friday at 34.0. 27 is the ultimate longer range objective if we retreat back to the weekly low. Meanwhile, buy dips under 31, if we are to believe the lower envelope band indicates an area where the Q's might be at an extreme for a while. And, if we are to believe that the low end of the hourly channel as shown below, may be an area of upside deflection. Stay tuned. Index Trade Recommendations - SEVERAL SHORT-TERM TRADING IDEAS FOR CALL PURCHASES (OR LONG QQQ) AND PRICE LEVELS ARE SUGGESTED IN THE INDICES, BUT ALL ARE ONES I WOULD WANT TO PULL THE "TRIGGER" ON WHEN SEEN INTRADAY -- TO SEE EM IS TO KNOW EM! AM NOT READY TO BET THE RANCH, AS WOULD BE CASE AT A LIKELY MAJOR BOTTOM -- WELL, I WOULD BET THE PICK UP TRUCK. Long/Call Positions: Date: Bought XXX Calls at Stop: Trade Objective: Comments: Short/Put Positions: Date: Bought XXX Puts at Stop or risk parameters: Trade Objective: Comments: MAJOR MARKET INDICATORS - ADVANCES-DECLINES OSCILLATOR - This indicator is one that I've found to be among the more reliable of the general market indicators useful in helping identify key secondary and sometimes primary, market bottoms and market tops. Reversals tend to occur when extreme points are reached on a 10-day basis, with examples in recent weeks seen below for the NYSE and the Nasdaq markets, respectively. When you know that a very large net difference is going to be coming "off" from 10-days ago (e.g., +1500 0r -1900), we can sometimes anticipate that the indicator is likely to soon be dropping below, or rising above, the oversold or overbought line, respectively. An explanation of the construction of this indicator is below as a kind of footnote - you can read it if you don't know the construction method and want to or disregard it, if known already. Given one large plus net A-D number that will be taken out of the 10-day average over the next two trading sessions, we're likely near an oversold reading. This coupled with other signs of a bottom, especially involving bullish price and volume patterns, supports the possibility or a probability for at least a short- term rebound in the coming week. Advances minus declines - 10-day moving average: Advances minus declines - 10-day moving average: Explanation of construction and use - The plot of the 10-day moving average of the daily net difference between advancing and declining stocks can be seen as a type of oscillator, or a type of overbought/oversold indicator. To construct, we simple take each daily difference between stocks advancing and stocks declining, resulting in either a positive or negative number. A simple 10-day moving average of the daily net A-D tends to fluctuate in a fairly predictable range, with the extremes of that range tending to hit certain reoccurring levels. From these extreme points, market reversals often follow, often with a lag. We can consider the lower extremes to mark an "oversold" condition in the market and the upper extreme points to signify an "overbought" situation in the market. The NYSE and the Nasdaq markets tend to see movements in tandem, but they can diverge, which is why I do not take a sum of the two figures, but plot them separately. The graph of 10-day moving average is all that is shown in the charts above -- the daily net difference is not. However, the moving average is constructed from the last 10-days daily figures. The last point of the moving average line, a measured on the vertical price scale, might show a 10-day moving average of say -300. This means that a sum of all advances minus declines for 10 days resulted in an average of -300. Each day, the net difference from 11 days ago is dropped and today's net difference is added, followed by division by 10, resulting in today's moving average. Because the average changes or "moves" every day, it's a moving average.) Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Go to http://www.optionsxpress.com/marketing.asp?source=oinvest012 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** I Love It When A Plan Comes Together (George Pepard - The A Team) The telecom puts from last week are all on track for profits despite a bounce midweek. While SBC and BLS are taking their own sweet time the Qualcomm play dropped like a rock. The July $35 put for $3.00 closed at $5.60 on Friday with QCOM still heading south at a high rate of speed. Qualcomm - put (last week) This week For traders still wanting to enter this play I would look for an oversold bounce next week and pickup the July $25 put which is currently $1.30. ********** Celera Genomics Put Three weeks ago This week The CRA play has run its course and I would not enter it now. I would wait for a rebound to the $20 level and look for another break down. If you would like to try this again on a different stock then REGN is a likely target. The stock has bounced off $20 support for two years with lower highs the last three times. If it breaks $20 and you can see it closed three cents below on Friday then next support is in the $12-$15 range. It could go to $10. I would play the August $17.50 put at $1.90. Plenty of time and very little risk. This is a stock that could be played on any bounce as well since the bounces always seen to fail. Should it bounce off $20 here again then short the bounce and wait. Cima Labs Cima Labs is another candidate for the same type of play. It broke support at $20 on Friday and with confirmation on Monday could fall to the low teens or even the $10 range. This two year chart shows lack of investor interest and when the stock breaks $20 mutual funds start unloading. I would use the September $17.50 put currently at $2.30 ****************** Remember, these are all high risk plays and should only be made with 100% risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Ugly Week By Eric Utley The week was a poor one. But not bad enough to signal any kind of meaningful bottom on capitulation. While volume was active in Friday's session, it wasn't near the panic selling levels that accompany a washout. Nope, the masses still believe in technology even after Friday's failure, and that doesn't bode well for those stocks this summer. The sector scorecard from Friday was decidedly slanted with a negative technology bias. Big drops were seen in the Semiconductors (SOX.X), which were off by better than 4 percent. Though the Opticals (FOP.X) were the worst performing group of stocks in Friday's session, the drop in the SOX.X was the most detriment as it related to sentiment, and technicals. The amazing bid in the Gold and Silver Index (XAU.X) only confirmed the changing tide of sentiment. The CBOE Market Volatility Index (VIX.X) is starting to show signs of increased fear. The VIX has traded through the more important levels that we've been focusing on for the last several weeks. Now, I'm turning my focus to looking for a capitulation in fear in an attempt to spot a bottom. I think that we're a ways away from that event, but it's something to keep in mind as we work through this. The next level to monitor in the progression of fear is the VIX's 200-dma. It was a volatile week in the bullish percent data. The Nasdaq-100 went back and forth, ending in bear confirmed mode at the 31 percent level. That indicator is getting down there, where downside risk is lessened. It can always go lower as we saw last fall when it hit 0, so keep that in mind. But the lower it falls, the less risk in the NDX to the downside. Also, four of the five markets we cover bullish percent data for are now in a bear market of varying strength. Only the NYSE market, which is arguably the most important of them all, remains in a bull market position. However, once again, the ARMS Index is back into extreme territory, the short term indicator anyway. I would dare guess that the market is due for another short covering rally to work off its oversold nature, but that rally will probably be another gift as an entry point for the bears. While it's ugly, as traders, we need to take 'em where we can make 'em. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 9911 Moving Averages: (Simple) 10-dma: 10128 50-dma: 10276 200-dma: 9933 S&P 500 ($SPX) 52-week High: 1316 52-week Low : 945 Current : 1076 Moving Averages: (Simple) 10-dma: 1107 50-dma: 1128 200-dma: 1130 Nasdaq-100 ($NDX) 52-week High: 2071 52-week Low : 1089 Current : 1251 Moving Averages: (Simple) 10-dma: 1348 50-dma: 1420 200-dma: 1495 Gold and Silver ($XAU) The XAU once again found its defensive bid in Friday's session, once again it earned the day's best performing sector spot. It gained a whopping 4.81 percent for the day, finishing at a new yearly high. Sector leaders included Gold Fields (NASDAQ:GOLD), Anglogold (NYSE:AU), Harmony Gold (NASDAQ:HGMCY), Meridian (NYSE:MDG), and American Eagle Mines (NYSE:AEM). 52-week High: 78 52-week Low : 49 Current : 78 Moving Averages: (Simple) 10-dma: 73 50-dma: 68 200-dma: 59 Optical ($FOP) The FOP was the worst performing sector in Friday's session, losing 5.06 percent on the day. Leading to the downside included shares of Vitesse (NASDAQ:VTSS), JDS Uniphase (NASDAQ:JDSU), ADC Telecom (NASDAQ:ADCT), PMC Sierra (NASDAQ:PMCS), Nortel (NYSE:NT), Applied Micro (NASDAQ:AMCC). 52-week High: 139 52-week Low : 74 Current : 74 Moving Averages: (Simple) 10-dma: 83 50-dma: 88 200-dma: N/A ----------------------------------------------------------------- Market Volatility One thing that the VIX can be used for is spotting capitulation. When everyone's running for the exits, that's usually the bottom for stocks. The VIX isn't near capitulatory levels just yet. I'll be watching for a move above the 200-dma first, then for a print somewhere in the mid 30s. The VXN is still lagging the VIX. We need to see some more upside in the VXN before we get too excited about a potential bottom in the NDX. CBOE Market Volatility Index (VIX) - 24.56 +1.51 Nasdaq-100 Volatility Index (VXN) - 41.99 +1.81 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.87 461,710 403,024 Equity Only 0.79 389,247 306,902 OEX 0.92 15,858 14,556 QQQ 1.50 35,271 52,808 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 64 + 0 Bull Confirmed NASDAQ-100 31 - 2 Bear Confirmed DOW 53 + 0 Bear Alert S&P 500 64 - 1 Bear Alert S&P 100 59 - 1 Bear Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.53 10-Day Arms Index 1.24 21-Day Arms Index 1.39 55-Day Arms Index 1.20 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when the do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1243 1871 NASDAQ 1207 2332 New Highs New Lows NYSE 147 60 NASDAQ 138 123 Volume (in millions) NYSE 1,376 NASDAQ 1,705 ----------------------------------------------------------------- Commitments Of Traders Report: 04/23/02 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. 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 tend to be wrong. S&P 500 Commercial traders continued to ease off of their recent relative high in bearishness. The group added a few more longs than shorts last week for a slight drop in their net bearish positition. Small traders went in the opposite direction by dropping a small number of longs and adding a few shorts for a reduction in the group's near yearly high bullish position. Commercials Long Short Net % Of OI 04/09/02 320,101 411,075 (90,974) (12.4%) 04/16/02 322,578 411,245 (88,667) (12.1%) 04/23/02 327,373 414,991 (87,618) (11.8%) Most bearish reading of the year: (111,956) - 3/6/01 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 04/09/02 151,237 47,678 103,559 52.1% 04/16/02 150,529 50,424 100,105 49.8% 04/23/02 149,324 52,469 96,855 48.0% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 107,702 - 3/26/02 NASDAQ-100 Nasdaq commercials reduced their net bearish position again last week. The grouop maintained its long position for the most part, but brought in a number of shorts. Small traders grew a little less bullish by reducing their long position for a decline of about 800 contracts in the net bullish position. Commercials Long Short Net % of OI 04/09/02 28,985 35,221 (6,236) (9.7%) 04/16/02 32,024 35,723 (3,699) (5.5%) 04/23/02 32,046 34,125 (2,079) (3.1%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: 7,774 - 12/21/01 Small Traders Long Short Net % of OI 04/09/02 11,640 8,353 3,287 16.4% 04/16/02 12,458 10,572 1,878 8.2% 04/23/02 11,393 10,365 1,028 4.7% Most bearish reading of the year: (9,877) - 12/21/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Dow commercials dropped a significant number of longs during the most recent reporting period. The group's net bullish position was substantiall reduced. Meanwhile, small traders sneaked in a net bullish position by 28 contracts. Commercials Long Short Net % of OI 04/09/02 19,393 13,445 5,948 16.7% 04/16/02 19,080 14,267 4,813 14.4% 04/23/02 16,890 15,151 1,739 5.4% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 04/09/02 5,459 9,340 (3,881) (26.2%) 04/16/02 5,644 9,448 (3,804) (25.2%) 04/23/02 8,354 8,326 28 0.2% Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* OptionsXpress: "FOUR STARS"; 1 of the "BEST ONLINE BROKERS"--Barron's * 8 different FREE options pricing, strategy, and charting tools * Outstanding customer service--access to options specialists * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *************** ASK THE ANALYST *************** Lady Luck By Eric Utley I haven't decided if it's better to be lucky or good. That goes for life in general, and the market. As it pertains to the latter, I guess it really doesn't matter so long as I'm making money, which is exactly what I did in the Gold and Silver Index (XAU.X) over the last five days. I suppose that the timing of my piece last week involved a little luck, the glowing (no pun intended) profile of the precious stuff. I received some positive feedback, and discovered that several readers were on the right side of the more than 7 percent pop in the XAU.X last week. Congratulations if you were one of those "lucky" bulls like myself. Sticking with stocks in the strongest sectors of the market is the only way to be bullish right now. We've seen trends that formed early in the year continue through even last week in such sectors as the XAU.X, plus the super strong Health Care Index (HMO.X). The saying "the trend is your friend" rings more true this year than ever! In sticking with that theme, and because I received some good feedback from last week's piece, I thought I'd take a look at a sector on the other end of the market spectrum this week. The point and figure charts that appear in this column were created using www.StockCharts.com. Please send your questions and suggestions to: Contact Support ---------------------------- Telecom & Networking Some market watchers have begun to call for a bottom in the telecom sector. The same participants are suggesting that there are some values in the beaten down telecom space, using a contrarian thesis. I actually agree, to some extent, that there are some longer term values in the space. But they may become even more discounted in the months to come. The North American Telecom Index (XTC.X) is working with a vertical count of 360 currently, that's a full 200 points lower from where it closed last Friday. What's more, the XTC.X is five columns deep into a narrowing consolidation. That's right, it's trading in a triangle on its point and figure chart. The triangle is typically a consolidation that portends a large directional move. Using the prevalent trend in the XTC.X, my speculation is that the trend is lower. It will take a print below 545.00 to complete a bearish triangle in the XTC.X, which would portend much lower prices! XTC - Triangle There are several fundamental problems with the telecom business. First, revenues from core operations, such as long distance, are dropping due to increased competition from small start ups. Granted, a lot of those niche players have gone away, but there are still plenty of smaller, private firms hanging around to present problems to the bigger players. Just ask WorldCom (NASDAQ:WCOM) about problems. The other issue is the lack of profits coming from newer services, such as Internet. The same problem of competition arises, while the costs of updating and maintaining networks are drowning liquidity. As a result of the poor business conditions, the carriers have been forced to cut spending on new equipment even more this year. Enter the networkers. One of the hardest hit segments of the networking space has been the optical group. The reason these companies are doing so poorly is because they're nearly 100 percent dependent on telecom spending. Where other networkers such as Cisco Systems (NASDAQ:CSCO) and even a company like F5 Networks (NASDAQ:FFIV) have business outside of telecom in what is known as enterprise. The pure telecom dependent plays have been hardest hit, reinforced by last Friday's whacking in the Optical Sector Index (FOP.X), which set a new all time low. The index hasn't been around very long, so labeling its breakdown a new all time low should be taken into account. Looking at the stocks in the group trading at multi year lows does however bring it into context. FOP - Lower Lows The trend has obviously been lower in the opticals since the index debuted last fall. It will continue to follow the XTC in whichever direction it trades. Therefore, the XTC can be used as a leading indicator for a trading in the FOP components. With the XTC poised to break from a bearish triangle, there may be a lot more room to the downside in some of these already beaten up optical plays. The problem is that many of these stocks are already so low priced that using options for a trade is out of the question. So shorting the stocks outright may be the better way to play. And while shorting a $5 stock may not sound appealing at first, consider if you capture a $1 move in that stock. Now you might warm up to the idea with such a big percentage potential with minimal capital outlay. After all, time is money when it comes to capital. Here are some of the stocks to focus on in the optical group for more potential downside: Vitesse (NASDAQ:VTSS) PMC Sierra (NASDAQ:PMCS) Applied Micro (NASDAQ:AMCC) Newport (NASDAQ:NEWP) Juniper (NASDAQ:JNPR) Tellab (NASDAQ:TLAB) Who knows, you may even be able to take some of these stocks to zero. Williams Communication, a former member of the FOP, recently went into bankruptcy... ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* ----------------------------------------------------------------- Major Earnings This Week... ----------------------------------------------------------------- Symbol Company Date Comment EPS Est ABN ABN Amro Holdings Mon, Apr 29 Before the Bell N/A ACDO Accredo Health Mon, Apr 29 Before the Bell 0.30 AFC Allmerica Financial Mon, Apr 29 -----N/A----- 0.77 AFG American Financial Grp Mon, Apr 29 Before the Bell 0.51 STD Bnc Sntndr Cntrl Hisp Mon, Apr 29 -----N/A----- N/A BSB Banco Santander-Chile Mon, Apr 29 -----N/A----- 0.34 BAY Bayer AG Mon, Apr 29 -----N/A----- N/A BEC Beckman Coulter Mon, Apr 29 Before the Bell 0.43 CCJ Cameco Mon, Apr 29 After the Bell N/A CZ Celanese AG Mon, Apr 29 Before the Bell 0.01 CHTR Charter Communications Mon, Apr 29 Before the Bell -0.74 CHK Chesapeake Energy Mon, Apr 29 After the Bell 0.07 CTV CommScope Mon, Apr 29 After the Bell -0.02 CSGS CSG Systems Intl Mon, Apr 29 -----N/A----- 0.38 ENT Equant NV Mon, Apr 29 After the Bell -0.36 EOP Equity Office Prop Mon, Apr 29 Before the Bell 0.84 FRT Fed Relty Invstmt Trst Mon, Apr 29 -----N/A----- 0.66 FHCC First Health Group Mon, Apr 29 Before the Bell 0.29 GSPN GlobespanVirata, Inc. Mon, Apr 29 After the Bell -0.02 HGMCY Harmony Gold Mining Mon, Apr 29 Before the Bell 0.28 HUM Humana Mon, Apr 29 Before the Bell 0.28 JP Jefferson-Pilot Mon, Apr 29 After the Bell 0.82 KG King Pharmaceuticals Mon, Apr 29 Before the Bell 0.28 MVSN Macrovision Mon, Apr 29 After the Bell 0.16 MFC Manulife Financial Mon, Apr 29 After the Bell 0.42 MCY Mercury General Mon, Apr 29 -----N/A----- 0.48 NHY Norsk Hydro Mon, Apr 29 Before the Bell N/A NUS Nu Skin Mon, Apr 29 Before the Bell 0.15 OGE OGE Energy Mon, Apr 29 Before the Bell -0.10 REI Reliant Energy Mon, Apr 29 -----N/A----- 0.47 RRI Reliant Resources Mon, Apr 29 Before the Bell 0.23 RCII Rent-A-Center Mon, Apr 29 After the Bell 1.02 RSG Republic Services Mon, Apr 29 After the Bell 0.30 RHA Rhodia ADS Mon, Apr 29 Before the Bell N/A ROH Rohm and Haas Mon, Apr 29 Before the Bell 0.38 TEVA Teva Pharmaceutical Mon, Apr 29 -----N/A----- 0.55 YUM Tricon Glbl Restrnts Mon, Apr 29 After the Bell 0.77 TSN Tyson Foods Mon, Apr 29 Before the Bell 0.18 UMC United Microelec Corp Mon, Apr 29 Before the Bell 0.00 BER W.R. Berkley Mon, Apr 29 -----N/A----- 0.79 WRI Weingarten Realty Mon, Apr 29 After the Bell 0.78 XL XL Capital Mon, Apr 29 After the Bell 1.53 ATG AGL Resources Tue, Apr 30 -----N/A----- 0.87 AW Allied Waste Industry Tue, Apr 30 After the Bell 0.18 ACAS American Cap Strtges Tue, Apr 30 -----N/A----- 0.60 AWK American Water Works Tue, Apr 30 -----N/A----- N/A AU Anglogold Limited Tue, Apr 30 Before the Bell 0.34 AOC AON Corporation Tue, Apr 30 -----N/A----- 0.47 AOT Apogent Tue, Apr 30 Before the Bell 0.33 AVB Avalonbay Communities Tue, Apr 30 After the Bell 0.99 BF BASF Tue, Apr 30 -----N/A----- N/A BOW Bowater Tue, Apr 30 Before the Bell -0.83 BP BP Amoco Tue, Apr 30 Before the Bell 0.43 BTI British Am Tobacco Tue, Apr 30 -----N/A----- N/A CMX Caremark Rx Tue, Apr 30 -----N/A----- 0.23 CB Chubb Tue, Apr 30 Before the Bell 1.07 CNL CLECO Tue, Apr 30 -----N/A----- 0.26 CEFT Concord EFS Tue, Apr 30 Before the Bell 0.16 CIV Conectiv Incorporated Tue, Apr 30 Before the Bell N/A CAM Cooper Cameron Tue, Apr 30 Before the Bell 0.34 CVH Coventry Health Care Tue, Apr 30 -----N/A----- 0.38 CXR Cox Radio Tue, Apr 30 Before the Bell 0.06 CK Crompton Corporation Tue, Apr 30 -----N/A----- 0.05 DCX DaimlerChrysler Tue, Apr 30 -----N/A----- 0.28 DYN Dynegy Tue, Apr 30 Before the Bell 0.40 EOC Empr Nac de Elect Tue, Apr 30 -----N/A----- 0.13 ENI Enersis SA ADS Tue, Apr 30 -----N/A----- 0.01 EPD Enterprise Products Tue, Apr 30 Before the Bell 0.24 EOG EOG Resources Tue, Apr 30 -----N/A----- -0.03 EL Estee Lauder Tue, Apr 30 Before the Bell 0.19 FLR Fluor Tue, Apr 30 After the Bell 0.42 FTE France Telecom Tue, Apr 30 -----N/A----- N/A FMS Fresenius Medical Care Tue, Apr 30 -----N/A----- 0.28 FDP Fresh Del Monte Tue, Apr 30 Before the Bell 0.92 FUJIY Fuji Photo Film Tue, Apr 30 -----N/A----- N/A GEMP Gemplus International Tue, Apr 30 -----N/A----- -0.08 GILD Gilead Sciences Tue, Apr 30 After the Bell -0.06 JNY Jones Apparel Tue, Apr 30 Before the Bell 0.65 KTC Korea Telecom Tue, Apr 30 -----N/A----- N/A KCIN KPMG Consulting Tue, Apr 30 After the Bell 0.15 LAF Lafarge North America Tue, Apr 30 After the Bell -0.79 LR Lafarge S.A. Tue, Apr 30 -----N/A----- N/A MEE Massey Energy Company Tue, Apr 30 After the Bell 0.03 MXIM Maxim Integrated Prod Tue, Apr 30 After the Bell 0.19 MDR McDermott Intl Tue, Apr 30 Before the Bell 0.00 MCK McKesson Corporation Tue, Apr 30 Before the Bell 0.45 MX Metso Corporation Tue, Apr 30 Before the Bell N/A NFS Nationwide Fin Srvics Tue, Apr 30 After the Bell 0.82 NMR Nomura Holdings, Inc. Tue, Apr 30 Before the Bell N/A NVO Novo-Nordisk Tue, Apr 30 -----N/A----- N/A OMC Omnicom Group Tue, Apr 30 Before the Bell 0.68 PCAR Paccar Tue, Apr 30 Before the Bell 0.56 PB Pan American Beverages Tue, Apr 30 Before the Bell 0.22 PDX Pediatrix Medical Grp Tue, Apr 30 Before the Bell 0.53 PFGC Performance Food Tue, Apr 30 -----N/A----- 0.24 PER Perot Systems Tue, Apr 30 Before the Bell 0.17 PMI PMI Group Tue, Apr 30 Before the Bell 1.85 POL PolyOne Tue, Apr 30 After the Bell -0.03 PT Portugal Telecom SGPS Tue, Apr 30 -----N/A----- N/A PCP Precision Castparts Tue, Apr 30 Before the Bell 0.71 PG Procter & Gamble Comp Tue, Apr 30 -----N/A----- 0.83 QSFT Quest Software Tue, Apr 30 After the Bell 0.03 Q Qwest Communications Tue, Apr 30 Before the Bell -0.04 RCI Renal Care Group Tue, Apr 30 After the Bell 0.42 RYG Royal Group Tech Tue, Apr 30 Before the Bell 0.20 SDA Sadia S.A. Tue, Apr 30 -----N/A----- N/A SSFT ScanSoft Tue, Apr 30 Before the Bell 0.02 SEPR Sepracor Tue, Apr 30 Before the Bell -1.19 SBSA Span Broadcasting Sys Tue, Apr 30 Before the Bell -0.04 RIG Transocean Sedco Forex Tue, Apr 30 Before the Bell 0.16 VLO Valero Energy Tue, Apr 30 Before the Bell -0.09 VSH Vishay Intertechnology Tue, Apr 30 Before the Bell -0.02 WPL W.P. Stewart & Co Tue, Apr 30 Before the Bell 0.41 WSH Willis Grp Hldngs Lmtd Tue, Apr 30 Before the Bell 0.42 WEC Wisconsin Energy Tue, Apr 30 Before the Bell 0.65 ACE ACE Limited Wed, May 01 -----N/A----- 0.82 AXL Am Axle & Manu Hldngs Wed, May 01 -----N/A----- 0.73 APU AmeriGas Partners Wed, May 01 -----N/A----- 1.55 AIV Apartment Ivstmt & Man Wed, May 01 -----N/A----- 1.30 ILA Aquila, Inc Wed, May 01 Before the Bell 0.32 ABX Barrick Gold Wed, May 01 -----N/A----- 0.12 BHP BHP Billiton Ltd Wed, May 01 -----N/A----- 0.14 CRL Charles River Lab Wed, May 01 After the Bell 0.27 CPG Chelsea Property Group Wed, May 01 After the Bell 1.19 CRUS Cirrus Logic Wed, May 01 After the Bell -0.12 CMS CMS Energy Wed, May 01 -----N/A----- 0.63 CMCSK Comcast Wed, May 01 -----N/A----- 0.10 CNC Conseco Wed, May 01 Before the Bell 0.14 CUZ Cousins Properties Wed, May 01 After the Bell 0.53 DTC Domtar Wed, May 01 -----N/A----- 0.02 EDMC Education Management Wed, May 01 Before the Bell 0.37 EPN El Paso Energy Partner Wed, May 01 -----N/A----- 0.15 EC Engelhard Wed, May 01 Before the Bell 0.37 EQR Eqity Resi Prprts Trst Wed, May 01 During the Market 0.62 FCH FelCor Lodging Trust Wed, May 01 After the Bell 0.44 FSH Fisher Scientific Intl Wed, May 01 After the Bell 0.32 GGP Gen Growth Properties Wed, May 01 After the Bell 1.12 GG Goldcorp Wed, May 01 After the Bell 0.15 HIW Highwoods Properties Wed, May 01 After the Bell 0.92 HMT Host Marriott REIT Wed, May 01 -----N/A----- 0.19 IRM Iron Mountain Wed, May 01 Before the Bell 0.15 KMT Kennametal Wed, May 01 -----N/A----- 0.53 LANC Lancaster Wed, May 01 -----N/A----- 0.52 MDP Meredith Wed, May 01 Before the Bell 0.37 NWL Newell Rubbermaid Wed, May 01 Before the Bell 0.22 OCAS Ohio Casualty Wed, May 01 -----N/A----- 0.20 OKE Oneok Wed, May 01 After the Bell 0.57 OHP Oxford Health Plans Wed, May 01 Before the Bell 0.74 PCG PG&E Wed, May 01 -----N/A----- 0.59 PCLN Priceline.com Wed, May 01 After the Bell 0.02 PLD ProLogis Trust Wed, May 01 After the Bell 0.57 STR Questar Wed, May 01 -----N/A----- 0.63 RA Reckson Assoc Realty Wed, May 01 After the Bell 0.60 RSE Rouse Wed, May 01 -----N/A----- 0.78 DNY RR Donnelley & Sons Wed, May 01 -----N/A----- 0.16 SPI Scottish Power Wed, May 01 -----N/A----- N/A SHPGY Shire Pharm Grp Wed, May 01 -----N/A----- 0.30 STTS ST Assmbly Test Srvces Wed, May 01 -----N/A----- -0.28 SRCL Stericycle Wed, May 01 After the Bell 0.44 TU TELUS Communications Wed, May 01 Before the Bell N/A WEN Wendy`s International Wed, May 01 -----N/A----- 0.39 WGL WGL Holdings Inc Wed, May 01 After the Bell 1.13 AGU Agrium Thu, May 02 After the Bell -0.22 ACL Alcon Labs, INC Thu, May 02 -----N/A----- 0.30 AYE Allegheny Energy Thu, May 02 After the Bell 0.81 AC Alliance Capitl Mngmnt Thu, May 02 -----N/A----- 0.65 APCC Am Power Conversion Thu, May 02 After the Bell 0.12 AMKR Amkor Technology Thu, May 02 After the Bell -0.59 AVE Aventis Thu, May 02 -----N/A----- N/A BUH Buhrmann NV Thu, May 02 -----N/A----- N/A CVC Cablevision Systems Thu, May 02 Before the Bell -1.45 CPN Calpine Thu, May 02 Before the Bell 0.10 CPT Camden Property Trust Thu, May 02 After the Bell 0.90 CLU Canada Life Financial Thu, May 02 During the Market N/A CSB CIBA SPCALTY CHEM HLDG Thu, May 02 Before the Bell N/A CI CIGNA Thu, May 02 -----N/A----- 1.88 CLX Clorox Thu, May 02 Before the Bell 0.43 DDR Develop Divers Relty Thu, May 02 -----N/A----- 0.61 DVN Devon Energy Thu, May 02 Before the Bell 0.22 DISH EchoStar Communication Thu, May 02 Before the Bell 0.05 EP El Paso Corp. Thu, May 02 Before the Bell 0.88 ELN Elan Thu, May 02 Before the Bell 0.30 EMR Emerson Electric Thu, May 02 After the Bell 0.65 EPC Epcos Thu, May 02 Before the Bell N/A GOLD Gold Fields Limited Thu, May 02 -----N/A----- 0.05 GRP Grant Prideco Thu, May 02 Before the Bell 0.07 HCR HCR Manor Care Thu, May 02 Before the Bell 0.32 HNT Health Net, Inc. Thu, May 02 Before the Bell 0.46 HRC Healthsouth Thu, May 02 -----N/A----- 0.27 HTV Hearst-Argyle TV Thu, May 02 Before the Bell 0.11 ICI Imperial Chemical Thu, May 02 -----N/A----- N/A ITY Imperial Tobacco Thu, May 02 -----N/A----- N/A JHF John Hancock Fnl Serv Thu, May 02 After the Bell 0.70 NXY Nexen Thu, May 02 -----N/A----- 0.12 NXTP Nextel Partners Thu, May 02 -----N/A----- -0.33 OCR Omnicare Thu, May 02 Before the Bell 0.33 PNP Pan Pacific Retail Thu, May 02 Before the Bell 0.71 PY Pechiney Thu, May 02 -----N/A----- 0.21 PRGN Peregrine Systems Thu, May 02 After the Bell -0.06 PDS Precision Drllng Corp Thu, May 02 Before the Bell 0.68 RMG Rainbow Media Group Thu, May 02 Before the Bell 0.10 RMD ResMed Thu, May 02 After the Bell 0.29 SC Shll Transport Trading Thu, May 02 -----N/A----- 0.49 SBGI Sinclair Broadcast Grp Thu, May 02 After the Bell -0.08 SKYW SkyWest Thu, May 02 Before the Bell 0.28 SII Smith International Thu, May 02 Before the Bell 0.62 TLD TDC Thu, May 02 Before the Bell N/A IPG The Interpublic Group Thu, May 02 After the Bell 0.18 TKTX Transkaryotic Thu, May 02 After the Bell -0.54 UVV Universal Thu, May 02 After the Bell 1.03 VNO Vornado Realty Trust Thu, May 02 -----N/A----- 0.99 CRE CarrAmerica Realty Fri, May 03 Before the Bell 0.85 ENB Enbridge Fri, May 03 -----N/A----- N/A IC ICICI LTD Fri, May 03 Before the Bell N/A ROIA Radio One Fri, May 03 -----N/A----- -0.05 ================================================================= Upcoming Stock Splits This Week & Next... Symbol Company Name Ratio Payable Executable PRHC Province Healthcare 3:2 04/29 04/30 CUB Cubic Corp 3:1 04/29 04/30 OPTN Option Care 5:4 04/30 05/01 PFCB P.F. Changs 2:1 04/30 05/01 DRI Darden Restaurants 3:2 05/01 05/02 ABM ABM Industries 2:1 05/03 05/06 TJX TJX Companies 2:1 05/08 05/09 MCHP Microchip Technology 3:2 05/08 05/09 PNG Penn-America Group 3:2 05/08 05/09 WSM Williams Sonoma 2:1 05/08 05/09 CATY Cathay Bancorp 2:1 05/09 05/10 WTSLA The Wet Seal Inc 3:2 05/09 05/10 LH Laboratory Corp 2:1 05/09 05/10 FAST Fastenal 2:1 05/10 05/13 IFNY INFINITY Inc 2:1 05/10 05/13 BBY Best Buy 3:2 05/10 05/13 ================================================================= Economic Reports Wall Street is beginning to wrap up earnings season but it's still a very full week of announcements. Earnings news and views will maintain the spotlight while economists and analysts will be watching a week full of reports with economic data coming out every day this week. Click inside for a calendar. ================================================================= Monday, 04/29/02 Personal Income (BB) Mar Forecast: 0.5% Previous: 0.6% Personal Spending (BB) Mar Forecast: 0.4% Previous: 0.6% Tuesday, 04/30/02 Chicago PMI (DM) Apr Forecast: 55.0 Previous: 55.7 Consumer Confidence (DM) Apr Forecast: 108.0 Previous: 110.2 Wednesday, 05/01/02 Auto Sales (BB) Apr Forecast: 6.0M Previous: 6.0M Truck Sales (BB) Apr Forecast: 7.3M Previous: 7.3M ISM Index (DM) Apr Forecast: 54.6 Previous: 55.6 Construction Spending(DM)Mar Forecast: -0.1% Previous: 1.1% Thursday, 05/02/02 Initial Claims (BB) 04/27 Forecast: N/A Previous: 421K Factory Orders (DM) Mar Forecast: 0.7% Previous: 0.3% Friday, 05/03/02 Nonfarm Payrolls (BB) Apr Forecast: 60K Previous: 58K Unemployment Rate (BB) Apr Forecast: 5.8% Previous: 5.7% Hourly Earnings (BB) Apr Forecast: 0.3% Previous: 0.3% Average Workweek (BB) Apr Forecast: 34.3 Previous: 34.2 ISM Services (DM) Apr Forecast: 57.5 Previous: 57.3 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* OptionsXpress: "BEST OF THE WEB""FAVORITE OPTIONS SITE"--Forbes * 8 different FREE options pricing, strategy, and charting tools * No Hidden Fees for balances, limit orders, or service charges * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! 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The Option Investor Newsletter Sunday 04-28-2002 Sunday 2 of 5 ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * Free Streaming Quotes with 5 or more trades per month * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor015 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********************** INDEX TRADER GAMEPLANS ********************** SECTOR ACTIVITY/OUTLOOKS: I wrote an exhaustive Index Trader Wrap for this week and have now some key formats and "templates" set up for that section. For this section, I'm reminded of the Dell commercial currently playing over and over and over on cable channels, where the guy says "you go in for this and all they got is that -- it makes your head swim!" I am still swimming upstream in this Sector Wrap section trying to arrive at a format for how I bring the most value to you the reader as to highlighting some trading ideas involving sectors. Any ideas and feedback are welcome. No one is sending me a ton of mails about this section. Maybe because we don't always have good ways to play the sectors that are moving, either up or down, as far as option plays. One of my dissatisfactions is that I bought into too many sectors that looked like they were going to rebound a bit, as the market approached its Feb./early March lows. But, these have not followed though too much to the upside. Our iShares short play in Retail, a sector which got overdone to the upside, is doing ok. Wish I had more shorts in my quiver. Even slow moving sectors plodding higher like Utilities, fell apart this week on the bad news coming out of Dynergy -- in fact, the UTH HOLDR (trust) stock was holding some of DYN and suffered more than say the Dow Utility Average, which was nevertheless correcting big time. The disk drive makers, as reflected by the Disk Drive Index ($DDX.X) has been stronger than most other tech groups -- the GDP report tells us why, as Corporate upgrading of PCs has been strong in an otherwise lackluster IT spending. Some of the strongest sectors are not sectors at all, but what we can call grading by size -- as the business media talking heads are telling us endlessly, all you got to do is be in small and mid cap stocks -- be a small size bull and your pockets will be full. They, at the same time, are NOT telling us how we are all going to be able to be mostly invested in small and mid capitalization stocks and not blow THEIR valuations through the roof. When they get overly rich in terms of price/earnings, where are we going to go. By the way, when I took a look at the Russell 2000 (RUT) and S&P 600 small cap iShares they looked a bit toppy to me. These charts are below: Russell Ishares (weekly chart) S&P small cap Ishares (weekly chart) SO WHERE DO WE GO? As the downside potential of many of the beaten up tech sectors may not be all that great relative to put plays on individual stocks within that sector, especially as the momentum slows down and the premiums are a bit rich, how about the sizzling sector that have been going up like there was no tomorrow? In fact, some of them are going up precisely cause there may be no SAFE tomorrow -- especially oil services and gold stocks. I got some e-mails asking me for names of the stocks in some of the sectors that have mighty MO (MOmentum) here. Let me review and over the next couple of days in this section see what I could suggest in the what I will call the HOT SECTORS. Healthcare Payors Index ($HMO.X) has got STRONG upside MO here and projects higher - Point & Figure and other technical measures, such as looking at the top end of the broad weekly uptrend channel that HMO is in, suggests potential up to the 750 area. A list of the stocks is below the weekly chart. HMO.X (weekly chart) The stocks in the Healthcare Payer's Index ($HOM.X) -- figures on net gains were from Friday's close. The names and symbols of the stocks making up the index are for those wanting to take a look at the fundamental and technical picture for the individual companies in HMO. HMO.X component performance (image) Health Provider Index ($RXH.X) - I anticipate some resistance coming in around the 384 area, at the previously broken up trendline on the weekly chart -- sometimes a return and "touch" to this trendline, acts as the "kiss of death" - time will tell. Stay tuned. Meanwhile, if RXH can get through this area regain its uptrend, I get one projection, made on a technical basis, to around 430. I have not come up with the list of these stocks yet, so will look to provide this later on. RXH.X (weekly chart) Gold and Silver Index ($XAU.X)- had a strong week, with a close at 77.5 - one way to project potential is to look for a possible move up to the top end its weekly uptrend channel, up in the 100 area, which would be a double from its 2001 low. If I turn bullish on gold, after making a bear case for it, before bullion prices broke out to new highs last week, is probably the kiss of death for the glittering stuff. XAU.X (weekly chart) Until the end of last week, I hadn't liked the XAU technical pattern, due to what looked liked a bearish rising wedge, that I was seeing on the XAU daily chart. However, a strong surge Friday, negated that pattern with the decisive upside penetration of the upper trendline. Meanwhile the stocks that make up the XAU are posted below. XAU.X (daily chart) This "snapshot" was taken Friday (gold stock performance) Oil Services Index ($OSX.X) -- at 107.8 - has some resistance nearby at 112, but with a next upside target to 116; then major resistance comes in at 135, extending to around 143-145. OSX.X (weekly chart) STOCKS IN THE OIL SERVICES SECTOR INDEX ARE: (OSX.X components performance image) SECTOR WATCH - contu. >> DRG, the Pharmaceutical sector index ($DRG.X), (4/22). Rebounding from low end of a probable trading range and oversold. Moreover, investor attention may focus on DRB due to strength in other healthcare areas. DRG sector is playable by the purchase of the May 60 Merck (MRK EL) calls, a prominent stock in this sector, especially on a pullback in the stock to the 54 area -- getting close - 4/26 close: 54.47. LONG/CALL TRADES, PREVIOUSLY RECOMMENDED: >> Internet Sector index ($INX.X) - 4/17 Sector Trader suggestion: OPTION play: JNPR (Juniper Networks) May 15 Calls (JUX EC).JNPR objective is to $18, based on the stock having potential to retrace half of the Dec - Feb. downswing. The May 12.5's (JUX EV) Calls were later recommended. >> Telecom ($XTC.X) index - 4/15 suggestion: OPTION play: Sector stock, Level 3 Communications (LVLT)- 1)June 5 Call (HGY FA) suggested at .60 and under 2)LVLT outright purchase, with stock under $5, also suggested. Objective on LVLT stock is to 5.5/6 based on upside potential based on the stock continuing to advance within its current uptrend channel. >> Semiconductor Index ($SOX.X) - 4/15 Sector Trader suggestion: May 650 call play at 2.35 on 4/23 close. UPDATE: SUGGEST EXITING ANY SOX CALLS BASED ON WEAK WEEKLY CLOSE Break below the early-April lows at 548-548, suggests new down leg. WATCH: On any rebound this week -- look at puts in SOX-member stocks like Micron (MU), KLA Tencor (KLAC), Teradyne (TER), Applied Materials (AMAT) or Intel (INTC). >> Cyclical sector ($CYC.X) - 4/15 suggestion: 1.) iShares Cyclical Trust (IYC) - 4/16 open: 56.95 Objective: new high above 63.00 2.) OPTION play: CYC Sector stock, - Alcoa (AA) May 40 calls (AA EH) - 4/16 open: .60 WATCH: Any CYC break of technical support at 556-559 Sector stock play suggested -- Alcoa (AA) May 40 calls -- is a hold only, as stock broke technical support. Calls aren't worth selling, but the stock pattern turned bearish, with key support in the $33 area. >> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion: OPTION PLAY: XAL sector stock Southwest Airlines (LUV) Sept. 20 (LUV ID) call suggested at 1.25 or less. OBJECTIVE: $22 based on a rebound back toward the high end of the current uptrend channel. LUV has been holding technical support, but just. Retreat in the stock to BELOW 17.25, on a closing basis, would cause me to exit. >> Utilities Index - Holders trust shares (AMEX: UTH) Long at 95.25 Stop: 91.00 OPEN SHORTS/PUT PLAYS: >> RTH (AMEX: Retail sector trust stock) SHORT at 99.00 LOWER stop to 100 NOTE: RISK to REWARD guidelines - Determining an objective is important, even if it is a moving target, as this is the reward potential. Determining reward potential is critical to establishing whether a stop that makes “sense” (e.g., a sell stop that was placed under a key support level) would, if triggered, result in a dollar loss that is in proportion to profit potential; e.g., 1/3 of it. (On occasion, when the purchase price of call or put is equal to 1/3 or less of the estimated reward potential, there may not be a specific exit suggestion, as the cost of the option is equal to the amount that is being risked.) Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com *********************************************************** DAILY RESULTS *********************************************************** CALLS Mon Tue Wed Thu Week AZO 78.50 0.16 0.40 0.74 2.87 3.92 All time highs TKTX 41.07 0.97 -0.45 0.11 -0.34 0.19 Holding up PNRA 66.06 0.26 1.61 -0.86 -0.59 -0.94 Dropped, stop ACDO 60.01 -0.49 -0.32 -1.10 1.68 -2.67 Pulling back SLB 56.81 -0.98 0.43 -0.05 1.20 2.49 New, ready DGX 91.05 -3.30 -0.35 2.80 0.75 1.70 New, healthy SII 71.29 -0.73 1.49 -0.88 2.46 3.64 New, OSX.X! THC 74.48 -1.00 -0.25 0.09 0.92 0.40 Ready to break PUTS MU 26.00 1.40 -1.51 -2.09 0.25 -3.50 Going to $25? MXIM 48.19 -0.77 -1.54 -2.58 -0.17 -5.73 Picked top!! EBAY 49.70 -0.71 -1.25 -1.15 0.15 -4.69 Broken!!! NVDA 30.70 0.19 -1.50 -3.12 1.26 -6.54 Sub $20??? ADI 36.24 -0.45 -1.36 -1.56 -0.58 -4.81 Weak chips PLCM 19.01 -1.59 -1.58 0.56 -0.34 -3.13 Inst'l sales CVC 23.70 -1.90 0.02 0.41 -1.48 -4.01 New, worsened LRCX 25.16 -0.25 -0.57 -0.88 0.02 -2.91 New, chip shot SEBL 22.59 -1.30 -0.63 -1.42 0.52 -4.52 New, softening VRTS 26.22 -0.39 -1.72 -1.66 0.46 -4.40 Trending lower ************************Advertisement************************* DOES YOUR BROKER OFFER TRAILING STOPS ON OPTIONS? Trade online with trailing stops at OptionsXpress Trailing stops based on the option price or the stock price. Also: Contingent, Stop Loss, and "One Cancels Other" ordering Go to http://www.optionsxpress.com/marketing.asp?source=oinvest016 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* DGX - Quest Diagnostics $91.05 (+1.70 last week) See details in play list Put Play of the Day: ******************** LRCX - Lam Research $25.16 (-2.91 last week) See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ ACDO $60.00 (-2.78) A little bit of profit taking came into the Health Care sector on Friday and that was no great surprise after the run they've been on lately. But it was rather disconcerting to see ACDO give up more than 4% on the day (vs. a mere 0.3% for the HMO index), and the selling volume increased into the closing bell as the stock settled at its low of the day. That's right, investors took their profits and ran ahead of the weekend and more importantly ACDO's earnings report on Monday before the opening bell. With the poor price action and earnings on the calendar, ACDO leaves our playlist this weekend. PNRA $66.06 (-0.94) The defensive buyers who have been using PNRA as a parking place for short term capital lost some ground last week. The stock is looking a little toppy, given its failure to trace a new relative high. We fear a breakdown in next week’s trading, plus the triggered stop gives us more than enough reason to drop coverage this weekend. Use any short term bounce next week to cut losses. PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Go to http://www.optionsxpress.com/marketing.asp?source=oinvest012 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-28-2002 Sunday 3 of 5 ************************Advertisement************************* OptionsXpress: "FOUR STARS"; 1 of the "BEST ONLINE BROKERS"--Barron's * 8 different FREE options pricing, strategy, and charting tools * Outstanding customer service--access to options specialists * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** NEW CALL PLAYS ************** DGX – Quest Diagnostics $91.05 (+1.70 last week) Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Whoever said that bulls can't make money in a bearish market, has likely never applied sector analysis or relative strength analysis to their investing research. There is no doubt that the Health Care sector (HMO.X) is the strongest of any portion of the broad market right now, and as Technology and other economically sensitive stocks continue to fall, money is finding its way to this defensive sector. While not a component of the HMO index, shares of DGX are benefiting from the sector's strength as well as a solid earnings report just over a week ago, where the company beat Wall Street estimates by more than 10% ($0.67 vs. the $0.60 consensus). Given that earnings were released with the stock trading near all-time highs, it is no surprise that a bit of profit taking ensued. But DGX found support right at the $85 level and began surging higher again, breaking out to a new high on Friday and clearing the runway for more positive action ahead. The breakout over the $91 level initiated a fresh double-top breakout on the Pnf chart, and now the bullish target is set at $106. Rally ho! An intraday pullback into the $89-90 area would make for a solid entry into the play, although a bounce from $88 would be even better. Should the pullback fail to appear, then we'll look to open new positions as DGX rallies through the $92 level to new highs. Given the stock's rather volatile action, we're initiating the play with a rather wide stop down at $87. BUY CALL MAY-90*THC-ER OI=3069 at $3.00 SL=1.50 BUY CALL MAY-95 THC-ES OI= 324 at $0.75 SL=0.25 BUY CALL JUN-90 THC-FR OI= 97 at $4.70 SL=2.75 BUY CALL JUN-95 THC-FS OI=1311 at $2.20 SL=1.00 Average Daily Volume = 703 K SLB - Schlumberger $56.81 (+2.49 last week) Schlumberger Ltd. operates two businesses: Oilfield Services and SchlumbergerSema. Oilfield Services is a provider of exploration and production services, solutions and technology to the international petroleum industry. ShlumbergerSema is an Internet technology services company that provides information technology solutions to the telecommunications, utility, finance, transport and public sectors, and is also a supplier of smart card technology. Oil service shares continue rising. The group, as measured by the Oil Service Sector Index (OSX.X), is one of the best performing of the year. While the broader markets, especially the technology segments continue to struggle, bulls are finding just what they need from the energy service space. One stock that continues to trade very well in the oil patch is SLB, one of the bigger oil service firms. The company recently reported a lackluster earnings report, but its outlook is certainly on the rise, just like its shares. The move in SLB has been preceded by the breakout in the OSX above its quite meaningful resistance last week. The OSX.X appears to be heading for blue skies, with gentle sailing higher into the foreseeable future. That should bring the buyers back into the big quality names such as SLB, who has recently completed a short term consolidation. A quick glance at the daily chart with a 50-day moving average included will reveal a good breakout point to watch for next week at the $57.20 mark. Just make sure to confirm direction in the OSX.X before entering into strength. If there’s one thing we need in this market, it’s confirmation! Stops at $54.75. BUY CALL MAY-55*SLB-EK OI=15992 at $3.20 SL=1.75 BUY CALL MAY-60 SLB-EL OI=14369 at $0.85 SL=0.50 BUY CALL JUN-55 SLB-FK OI= 156 at $4.20 SL=2.25 BUY CALL JUN-60 SLB-FL OI= 569 at $1.85 SL=0.75 Average Daily Volume = 3.14 mln SII - Smith $71.29 (+3.64 last week) Smith International, Inc. is a worldwide supplier of premium products and services to the oil and gas exploration and production industry, the petrochemical industry and other industrial markets. The Company provides a comprehensive line of technologically-advanced products and engineering services, including drilling and completion fluid systems, solids-control equipment, waste-management services, three cone and diamond drill bits, fishing services, drilling tools, underreamers, casing exit and multilateral systems, packers and liner hangers. The unfortunate events taking place in the Middle East have caused a sellers strike in the oil space. What’s more, the prospects for an economic recovery have caused real buyers to move into the forefront of the energy sector. The lack of supply, from both short sellers and long liquidators, plus the buying pressure from the real buyers has created an imbalance in supply and demand in the Oil Service Sector (OSX.X). We certainly saw that idea reinforced last week with the big breakout in the OSX.X. Leading the charge has been shares of Smith International, one of the strongest stocks in the group. The stock broke above a major, major resistance level at the $69 mark just last week. Point and figure enthusiasts will recognize the move as a quintuple-top breakout, a very, very rare pattern indeed. But it just revealed how strong the buying pressure is in SII. A new upward trend appears to be just under way following the breakout above $69 last week, which should have trend traders on the alert for higher prices early next week. Use further strength in the OSX.X as confirmation for entries into SII at current levels. Intraday pullbacks between the $69 and $70 support zone can be used as entries on pullbacks. Our stop is in place at $69. BUY CALL MAY-70*SII-EN OI= 324 at $3.90 SL=2.25 BUY CALL MAY-75 SII-EO OI=1695 at $1.50 SL=0.75 BUY CALL MAY-70 SII-FN OI= 4 at $5.70 SL=3.75 BUY CALL MAY-75 SII-FO OI= 51 at $3.30 SL=1.50 Average Daily Volume = 1.23 mln ************************Advertisement************************* OptionsXpress: "BEST OF THE WEB""FAVORITE OPTIONS SITE"--Forbes * 8 different FREE options pricing, strategy, and charting tools * No Hidden Fees for balances, limit orders, or service charges * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest014 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** AZO – AutoZone, Inc. $78.50 (+3.92 last week) AutoZone is a retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of its more than 2900 stores in 42 states and Mexico carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items and accessories. Approximately half of its domestic stores also have a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations. Given the growing level of investor skepticism regarding the fabled economic recovery, it is hard to find bullish stocks outside of the Health Care, Energy and Precious Metals markets. That makes the resilience of AZO that more impressive, especially with the Retail index taking it on the chin again last week to the tune of a 3.3% loss. At the same time, AZO broke out again (this time above the $76 resistance level) and traded right to the $80 resistance level Friday morning before pulling back throughout the day to end with a fractional loss. That pullback from $80 was a high-odds signal for harvesting gains, as $80 was exactly the stock's high back in early December before beginning a multi-month consolidation process. AZO could very well be setting up for another breakout move, although we would expect to see a bit more consolidation before it gets running again. Take advantage of any intraday weakness to initiate new positions on a rebound from support, which is now building just above the $78 level. We could also enter on a rebound from the $77 level, but that is all the leeway we're willing to give the play, given the strong run it has recently had. Keep stops in place at $76.50. Momentum traders can open new positions on a decisive break above $80, as that breakout will likely induce a fresh round of buying, whether new buying or short-covering. BUY CALL MAY-75 AZO-EO OI= 923 at $4.60 SL=2.75 BUY CALL MAY-80*AZO-EP OI=1245 at $1.50 SL=0.75 BUY CALL JUN-80 AZO-FP OI=1296 at $3.30 SL=1.75 BUY CALL JUN-85 AZO-FQ OI=1112 at $1.60 SL=0.75 Average Daily Volume = 993 K THC– Tenet Healthcare Corp. $74.48 (+0.37 last week) THC is the second largest investor-owned healthcare services company in the United States. As of the end of May, 2001, the company's subsidiaries and affiliates owned or operated 111 general hospitals with more than 27,000 licensed beds and related healthcare facilities serving urban and rural communities in 17 states. The related healthcare facilities included a small number of rehabilitation hospitals, specialty hospitals, long-term care facilities, and numerous medical office buildings located nearby its general hospitals and physician practices. Never have the words "The Trend Is Your Friend" been more valuable than in the current market. While economically sensitive stocks are crumbling all around us, the Health Care index (HMO.X) is rocketing to new highs, seemingly on a daily basis. Witness Thursday's blast through the $600 resistance level, which paved the way for Friday's mild consolidation. Shares of THC have been working their way higher in a very predictable trend since the beginning of March. Each time the bulls pause to harvest some gains, it provides an opportunity to get onboard for the next leg higher. So long as the ascending trendline (currently $72.75) remains unbroken, we can take advantage of the dips to enter the play for the next move up the chart. So a pullback to this area looks good for new entries, although given THC's pattern of rallying for 7-10 days before pulling back, it appears the next high-odds entry will come from a breakout over the $74.75 level. Trade the breakout if it comes, or else wait for the pullback to support to enter the play, its as simple as that. We want to give THC a little leeway, so we are keeping our stop set at $71, right at the last reaction low. BUY CALL MAY-70 THC-EN OI=5005 at $5.00 SL=3.00 BUY CALL MAY-75*THC-EO OI=1119 at $1.50 SL=0.75 BUY CALL JUN-75 THC-FO OI= 269 at $2.60 SL=1.25 BUY CALL JUN-80 THC-FP OI= 141 at $0.75 SL=0.25 Average Daily Volume = 2.02 mln TKTX - Transkaryotic $41.07 (+0.19 last week) Transkaryotic Therapies, Inc. (TKT) is a biopharmaceutical company that develops protein- and cell-based therapeutics for the treatment of a wide range of human diseases. During 2001, the Company received its first product marketing approvals. TKT is building a broad and renewable product pipeline based on three proprietary development platforms: Niche Protein products, Gene-Activated proteins and Transkaryotic Therapy gene therapy. TKTX continues to display amazing relative strength in the face of broad market weakness. The stock held up very well for all of last week, managing a fractional gain for the week while most other four lettered stocks were whacked for multi percentage drops. Not only has the broader market been terrible, but the AMEX Biotechnology Sector Index (BTK.X) has been trading very week. The biotech sector broke down in a big way last week, below what had been a very important long term support level. The fact that TKTX didn’t follow its sector lower bodes very well for our bullish play on this stock. But as we saw last week, without help from the broader market and its sector, TKTX will have trouble making much upside progress. although the stock is holding up well and eked out a fractional gain last week, that’s not going to be enough to make us any money going forward. For this play to succeed, we need to see some stabilization in the broader market, as well as the biotech sector. If those two come together, then we should see a nice pop in TKTX during next week’s trading. Watch for a rebound from the $40 level during intraday weakness as a possible entry point, or a breakout above the $42.50 level on intraday strength. BUY CALL MAY-40*UFT-EH OI=103 at $3.70 SL=2.25 BUY CALL MAY-45 UFT-EI OI= 35 at $1.50 SL=0.75 BUY CALL JUN-40 UFT-FH OI= 10 at $5.10 SL=3.25 BUY CALL JUN-45 UFT-FI OI= 3 at $2.95 SL=1.75 Average Daily Volume = 427 K ************* NEW PUT PLAYS ************* CVC – Cablevision Systems Corp. $23.70 (-4.01 last week) Cablevision Systems Corporation owns and operates cable television systems and has ownership interest in companies that produce and distribute national and regional entertainment and sports programming services. Its Rainbow Media subsidiary operates cable networks including American Movie Classics (AMC) and Bravo. Rainbow's majority-owned Madison Square Garden properties include the famous sports arena, the New York Nicks (NBA), the New York Rangers (NHL), and Radio City Entertainment (the Music Hall and the Rockettes). Other CVC units are involved in electronics retailing (The Wiz), movie theaters, and competitive telephone service. It's the bull market in reverse, where breakdowns abound in any stock even remotely connected to Technology. New all-time lows are as common today as all-time highs were in March of 2000. One of the latest members of this inauspicious group is CVC, which spent most of last week trying to hold support near the $25.75 area. That jig was up on Thursday, as the stock fell through there and accelerated its decline on Friday, coming to rest at a new all-time closing low of $23.70. CVC has been on a sell signal since early January and is clearly under distribution. The PnF chart got another double-bottom breakdown in late March and the current bearish price target is $15. So there is clearly room for the stock to fall, and with the pattern lately surrounding earnings, things could remain ugly right into the company's earnings report next Thursday. Resistance is now firm in the $26.00-26.50 area and with the market still in decline, it would likely take a miracle to push CVC above that level. On an oversold bounce, the stock is most likely to run out of steam either at $25 or $25.75. A rollover near resistance will be our best entry into the play but we aren't ruling out a drop to fresh lows on Monday. Should the market continue to deteriorate, look to initiate new positions as CVC drops below the $23.25 level (Friday's intraday low). Stops are initially in place at $26.50. BUY PUT MAY-25 CVC-QE OI=2101 at $2.60 SL=1.25 BUY PUT MAY-22*CVC-QX OI= 176 at $1.20 SL=0.50 BUY PUT MAY-20 CVC-QD OI= 704 at $0.60 SL=0.25 Average Daily Volume = 1.76 mln SEBL – Siebel Systems $22.59 (-4.52 last week) Siebel Systems is a provider of eBusiness applications. The company's products enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, resellers, retail, and dealer networks. SEBL's eBusiness applications are available in industry-specific versions designed for the pharmaceutical, healthcare, telecommunications, insurance, energy, apparel, automotive, and finance markets. Through SEBL's applications, companies can create a single source of customer information that sales, service, and marketing professionals can use to tailor product and service offerings to meet each of their customer's unique needs. Software stocks have been trading heavy for months now and with the weakness in the Software index (GSO.X) on Friday, the break below the last line of support near $133 portends a revisit of the September lows. Despite a solid earnings report just over a week ago, shares of SEBL have been unable to break out of the bearish trend that has been in place since early March. Following the earnings report, the stock managed to pop up to the descending trendline (then at $28) before rolling over. Since then it has been a rapid decline, with SEBL suffering the fate of the GSO index and looking like it is headed back to test its September lows. There are still some support levels to be dealt with (62% retracement at $22.25, then $18-19 and finally $16), but with the broad markets breaking down below significant support, the bears are definitely in control. It is interesting to note that the double-bottom breakdown on the PnF chart from earlier this month forecasts a bearish price target of $13, which just happens to be the location of the September lows. With the negative tone of the close on Friday, we're likely to get a negative open. Look out for an oversold bounce, but new entries can be entertained on a drop below the $22 level. Alternatively, when the bounce runs out of steam (assuming we get one), look to initiate new positions on a rollover from intraday resistance, first at $24 and then $25. We are initiating the play with our stop set at $25.75 BUY PUT MAY-25 SGQ-QE OI=21818 at $3.30 SL=1.75 BUY PUT MAY-22*SGQ-QX OI= 4749 at $1.75 SL=1.00 BUY PUT MAY-20 SGQ-QD OI=14703 at $0.85 SL=0.25 Average Daily Volume = 17.4 mln LRCX - Lam Research $25.16 (-2.91 last week) Lam Research Corporation designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. The Company's products are currently used in the front-end of the wafer processing manufacturing cycle: etch, CMP, and post-CMP clean. The Semiconductor Sector Index (SOX.X) gave up a lot of ground last week. The index shed about 12 percent. That move was counter to what we have observed in the chip sector all year long. Namely, the trend of relative strength and out performance to the upside. It’s difficult to say with much accuracy whether or not last week’s move was the beginning of a multi month trend of weakness in the SOX, but it sure looked that way to us. That’s why we’re turning to yet another bearish play in the semi space in LRCX. But, before we go on, readers need not over leverage bearish positions in the chip space. We already have several other bearish chip plays working in our favor, and if you have positions in those plays already, you need not add another one with LRCX. The reason we’re adding LRCX to the put play list is because it looks like it needs to play catch up to the downside with its chip peers, making it a solid bearish play for readers who missed the downside moves in our other semi shorts. Those who don’t yet have a chip short position can look for a breakdown in LRCX next week below the $25 level. Such a double bottom breakdown should open the way to weakness down to the $22 level over the short term. Our stop is in place first at $27.50. BUY PUT MAY-30 LMQ-QF OI= 766 at $5.10 SL=3.25 BUY PUT MAY-25*LMQ-QE OI=2952 at $1.55 SL=0.75 Average Daily Volume = 2.65 mln ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * Free Streaming Quotes with 5 or more trades per month * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor015 Note: Options involve risk. 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The Option Investor Newsletter Sunday 04-28-2002 Sunday 4 of 5 ************************Advertisement************************* DOES YOUR BROKER OFFER TRAILING STOPS ON OPTIONS? Trade online with trailing stops at OptionsXpress Trailing stops based on the option price or the stock price. Also: Contingent, Stop Loss, and "One Cancels Other" ordering Go to http://www.optionsxpress.com/marketing.asp?source=oinvest016 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** CURRENT PUT PLAYS ***************** EBAY – eBay, Inc. $49.70 (-4.69 last week) After developing a Web-based community in which buyers and sellers are brought together in an efficient format, EBAY has emerged as the dominant online auction site. The eBay dynamic pricing format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. Items listed on eBay include collectibles, automobiles, art objects, jewelry, consumer electronics and a host of practical and miscellaneous items. Although based in the United States, through its subsidiaries, EBAY also operates trading platforms in Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. Just as a rising tide lifts all boats, a falling tide pulls them all downwards. Such is the case with EBAY, which is being sucked lower by the exodus of investor cash from the Technology sector. The NASDAQ appears destined to challenge its September lows and at the current rate of descent it could happen sooner, rather than later. Shares of EBAY haven't been able to hold their ground in the wake of the company's earnings report and on Friday the stock fell below the $50 level for the first time since the end of February. Now resting less than $1 above the February lows, the stock appears destined to also visit its September lows now that the ascending trendline (now at $52) has been decisively broken. Adding insult to injury, the print at $50 on Friday gave the PnF chart a fresh descending triple-bottom breakdown and the current vertical count is now $44. A rebound near the $51.50 or $52.50 resistance levels would likely provide the next high-odds entry point, although with the current market weakness, we may have to settle for entering on a drop through the $48.75 support level (February lows). In either case, lower stops this weekend to $52.75 BUY PUT MAY-50*QXB-QJ OI=5651 at $2.60 SL=1.25 BUY PUT MAY-45 QXB-QI OI=4357 at $0.95 SL=0.50 Average Daily Volume = 5.76 mln MXIM – Maxim Integrated Products $48.19 (-6.73 last week) MXIM designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. MXIM's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. All good things must come to an end and there are only two more days left to ride this successful Semiconductor play. Following its obedient rollover from the $58 level (right at the descending trendline), MXIM has been hit hard by the bears. Falling through the $50 level on Thursday and then the 200-dma on Friday, we're left to wonder when the carnage will end. A safe bet would be on the $46-47 support area, but with the long-term ascending trendline (currently $51) now broken and the Semiconductor index (SOX.X) now below its own 200-dma, MXIM could fall even further. The PnF chart paints an equally grim picture for the bulls, with the recent double-bottom breakdown giving us a tentative bearish target of $37. Unfortunately, we won't likely get to see that level during this play, as we'll want to have all positions closed before the company releases earnings on Tuesday after the closing bell. We can still enter new positions on a failed intraday rally near resistance, most likely near the $50 level. With the daily Stochastics already buried deep in oversold and the SOX approaching support near $500, the risks of an oversold bounce are too great to contemplate new positions on a breakdown below the $48 level. Either fade the rally as it fails or else use further weakness to harvest gains ahead of the company's earnings report. We are lowering our stop this weekend to $50.75. BUY PUT MAY-50*XIQ-QJ OI=8709 at $4.10 SL=2.50 BUY PUT MAY-45 XIQ-QI OI=7880 at $1.85 SL=1.00 Average Daily Volume = 5.70 mln NVDA – NVIDIA Corporation $30.37 (-6.55 last week) NVIDIA Corporation designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user. Used in a wide variety of application including games, the Internet and industrial design, the company's products were the first to incorporate a 128-bit multi-texturing graphics architecture. This design approach delivers to users a highly immersive, interactive 3D experience with compelling visual quality and stunning effects at real-time frame rates. NVDA sells its products to major PC manufacturers such as Compaq, Dell, Gateway, Hewlett-Packard and IBM. After failing to clear resistance up at $615, the Semiconductor index (SOX.X) has shed more than $100 (15.7%) in the past 7 days and in the process violated the 6-month ascending trendline, support at $555 and the 200-dma ($537). The next level of support lies near $500, but given the building bearish momentum, that support could be short-lived. Shares of NVDA were already under pressure when the SOX rolled over, and the sector weakness helped to ensure the rollover at NVDA's descending trendline (then at $40). Since then the stock has shed a fourth of its value and is resting precariously on the $30 support level. Should this support fail (and it appears that it will), it will likely lead to a retest of the September lows down near $23-24. Adding to NVDA's woes was the news in MSFT's earnings report that Xbox sales are running well below plan. Given the fact that NVDA makes the graphics chips for the game console, this weakness is sure to have a detrimental effect on the company's earnings in the future. With investors apparently giving up on the concept of a rapid or robust economic recovery, they are selling now and asking questions later. We'll continue to play this trend as long as it lasts, entering new positions either on a failed rebound near intraday resistance (now at $31.50 and then $33.25) or on a breakdown below the $30 level. We are lowering our stop this weekend to $34.25. Use the SOX as your guide for the play. As long as the sector continues to be weak, look for NVDA to head lower over the near term. BUY PUT MAY-30*RVU-QF OI=9414 at $2.75 SL=1.25 BUY PUT MAY-25 RVU-QE OI=2073 at $1.25 SL=0.50 Average Daily Volume = 11.1 mln PLCM - Polycom, Inc. $19.01 (-4.13 last week) Polycom manufactures and markets a full range of high quality, media-rich communications tools and network solutions, which enable business users to immediately realize the benefits of video, voice and data over rapidly growing converged networks. Although the company is primarily a video conferencing and voice conferencing product provider, it has recently entered the DSL access market, particularly in the area of integrated voice appliances and broadband access devices. How quickly investors forget about solid earnings in a bear market. After beating street estimates in its earnings release, shares of PLCM have been under heavy selling pressure, with the stock falling below the $20 level for the first time since early September of last year. It seems that the bloom is off this rose, and it is back below where it started right after the terrorist attacks. Not only that, but it looks like the bears have their sights set on testing and possibly breaking the $18 support level, at least if the PnF chart has anything to say about it. The bearish price target is currently $17, and it would make sense that once the $18 support level is breached, a whole new wave of selling could come in to drive PLCM down towards the $12-13 support level. Use any sort of failed intraday rally to initiate new positions near the $20 or $21 levels. Otherwise, feel free to chase the stock lower as it breaks below the $19 level. Just make sure to keep an eye out for a short-covering rally. It is likely to be short-lived and provide us with the next opportunity to enter new positions. We are lowering our stop to $21.50 this weekend. BUY PUT MAY-20*QHD-QD OI=1198 at $2.10 SL=1.00 BUY PUT MAY-17 QHD-QW OI= 89 at $1.05 SL=0.50 Average Daily Volume = 3.53 mln VRTS – Veritas Software $26.22 (-4.40 last week) As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. VRTS provides products for most popular operating systems, including UNIX and Windows NT, as well as a full range of services to assist its customers in planning and implementing their storage management solutions. No matter how bad things seem, they can always get worse. At last that's the way things seem to bullish traders in the Storage sector. The likes of EMLX and BRCD have been trading heavily for months now, but that's nothing compared to the weakness affecting shares of VRTS. In addition to the weakness in the Storage industry, VRTS is suffering the indignity of the Software sector (GSO.X) getting very close to testing its September lows. VRTS began its most recent downward leg after announcing earnings on April 16th. The conference call left investors with a less than inspired feeling about the future and they've been selling the stock hand over fist ever since. Beginning with the gap under the $32.50 support level in the wake of earnings, shares of VRTS continue to drift lower and are now resting right on significant support near $26. Once that level gives way, there is only the $24 support level between current levels and a full test of the September lows. With Friday's breakdown in the GSO index below the $133 support level, the group has taken a decidedly bearish turn. We would love to get an oversold bounce to give us a better entry point on a failed rally in the vicinity of intraday resistance near $28 ($29 would be even better). But if weakness prevails, we'll settle for entering the play as VRTS falls below the $26 level. Keep stops at $30.50 until after the breakdown and then ratchet them down to $29. BUY PUT MAY-30 VIV-QF OI=20062 at $4.50 SL=2.75 BUY PUT MAY-25*VIV-QE OI=13722 at $1.60 SL=0.75 BUY PUT MAY-22 VIV-QX OI= 788 at $0.75 SL=0.25 Average Daily Volume = 12.8 mln ADI - Analog Devices $36.24 (-4.81 last week) Analog Devices, Inc. is engaged in the design, manufacture and marketing of high-performance analog, mixed-signal and digital signal processing integrated circuits (ICs) used in signal processing applications. The Company produces a wide range of products that meet the technology needs of a broad base of customers and markets. Markets and applications for the Company's products include communications, computers and computer peripherals, consumer electronics, industrial, instrumentation, military and space systems and automotive electronics. Our bearish play on the Semiconductor Sector Index (SOX.X), using ADI as the vehicle to initiate the trade, worked very well indeed last week. The breakdown in the SOX.X below the key 550 support level was most encouraging, and should probably lead to a test of the psychologically significant 500 level sometime next week. That may be the spot where the shorts decide to cover, and where short term selling finally grows exhausted. It’s difficult to say with any degree of certainty with as crazy as this market has become, so the best we can do is defer to our levels, and manage risk accordingly. As for ADI, it broke below its February lows, revealing that it’s one of the weaker chip stocks in the group. That’s a positive for us leaning bearish. If the SOX.X continues down to the psychological 500 level that should pressure ADI closer to the $35 mark, where traders should start looking to book short term profits. At the very least, traders who are holding open positions should be looking to lower stops to protect against any forthcoming short covering rally. As for new entries, we’ll wait for a short covering rally of some duration to work off the short term oversold nature of ADI before taking new positions. BUY PUT MAY-40 ADI-QH OI=1283 at $4.50 SL=3.25 BUY PUT MAY-35*ADO-QG OI= 688 at $1.60 SL=0.75 Average Daily Volume = 2.87 mln MU - Micron $26.00 (-3.50 last week) Micron Technology, Inc. and its subsidiaries are principally engaged in the design, development, manufacturing and marketing of semiconductor memory products. The Company offers products that include dynamic random access memory, synchronous dynamic random access memory, double data rate dynamic access memory, legacy dynamic random access memory products, static random access memory products and Flash products. The mighty MU isn’t so mighty after last week’s performance. The stock led to the downside in what was an incredibly weak broader Semiconductor Sector (SOX.X). The reversal of relative strength in what had become the go to technology sector was pretty amazing last week, and we’re certainly happy that we were on the right side of the move with this play. Moving forward, there are a couple of key levels to monitor in the SOX.X going into next week’s trading. Probably the most important point to watch is the 500 mark, which is setting up to be a short covering level after last week’s pummeling of the group. As the SOX approaches that level, traders should be looking to tighten stops on open plays on MU. Specific to MU, however, the stock looks destined for the $25 level during this most recent leg lower. The $25 level to MU may or may not line up with the SOX at 500. No matter what, have a tight stop in place to protect those profits from any upside potential risk. We’ll be looking for rollovers from the $28 vicinity as new entry points next week. BUY PUT MAY-30 MU-QF OI=8506 at $4.40 SL=2.75 BUY PUT MAY-27*MU-QR OI=6150 at $2.55 SL=1.25 Average Daily Volume = 8.50 mln ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Go to http://www.optionsxpress.com/marketing.asp?source=oinvest012 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***** LEAPS ***** September Lows, Here We Come! By Mark Phillips mphillips@OptionInvestor.com While persistently weak all week, the markets didn't seem to really take a turn for the worse until the Dynegy news broke on Thursday. In case you missed it, the company missed earnings estimates, guided future estimates lower and was the target of an SEC inquiry, where the firm's revenue stream from energy trading is being called into question. I don't think I need to tell you that the analysts couldn't type up their downgrades fast enough, with BofA, JP Morgan, UBS Warburg and Salomon Smith Barney chiming in. The horses are all gone - quick, somebody close the barn door! Of course, it comes as no surprise that Goldman Sachs was out with an upgrade to Market Outperform. By the way, tell me again what Market Outperform means and why the self-aggrandizing carnival barkers can't do something simple. Buy, Hold or Sell. That's all the investing public needs, but the self-proclaimed experts on Wall Street need to keep things unnecessarily complex so that we don't point out that the emperor really has no clothes. Needless to say, we're dropping DYN this weekend, and the details are contained below. But while I'm on my soapbox, I feel the need to hit a couple of important points -- well, at least they're important to me. Long-time readers know that I have little respect for any of the Wall Street elite that call themselves analysts. There are some great ones out there, but the bad apples spoil it for everyone, us included. Another example of what I consider to be one of the worst firms in the business came out this morning with Goldman Sachs issuing a technical report that the market is oversold and they are expecting a rally, get this, TODAY! Not only was it a brazen call, but I think you'd agree that it was dead wrong. Now I make as many mistakes as the next guy, but here's the big difference, and the reason why it makes me mad. I freely admit when I'm wrong. These guys never do. When was the last time you heard from the Abbey Joseph Cohen's or Joe Battapaglia's of the world saying something like this, "Sorry, but we really blew it on our analysis of XYZ Corp. Clearly the stock is attracting flies and should be avoided like the plague. We'll do better next time." No, instead they'll hold Strong Buy ratings on these dog stocks all the way to zero. That was certainly the case with Enron on its way to irrelevancy. I live my life on the principle of personal responsibility and I don't feel that it should be acceptable for others in this profession to shirk their responsibilities. Clearly there have been some violations of that principle in the past few years and I for one am thrilled to see the NY Attorney General starting to go after the worst offenders. It isn't the fact that these guys are occasionally wrong -- we all are. What sends my blood pressure into orbit is the knowledge that some of these extremely well-paid analysts think it is perfectly acceptable to tell the public that a stock is attractive, while at the same time joking among themselves what a dog it is. That is fraud in my book and it should be punished as such. The loss of confidence that I (and many others) have in the analyst community is well deserved and I am looking forward to watching the process and seeing some of these guys (and gals) in the hot seat. Send a dozen or so of the worst offenders to the Big House and I think you'll see the industry clean up its act in a hurry. Then we'll have an analyst community in which we can once again place our trust. Alright, enough of my ranting. Let's get on with the show. Saddled with a series of earnings disappointments, more accounting concerns (DYN and TYC were the poster-children this week) and fears of the possibility of the Arab world using oil as a weapon, the markets really didn't have a chance. By the time it was over and done with, we had a long list of violated support levels as the bear market once again extended its claws. Semiconductors, Biotechs, Brokers, Software were all among the big losers last week. And even the mighty Cyclicals are flirting with a serious breakdown, calling into question the idea of the economic recovery. Even strong GDP numbers on Friday weren't enough to inspire any significant bullish action. Remember my skepticism of the market's slight gains last week? Well, we saw what the market was really made of this week and it is plainly seen in the updated table below. Index Close 4/12 Close 4/19 Close 4/26 Change DOW 10190 10257 9910 -280 S&P 500 1111 1125 1076 - 35 Nasdaq-100 1351 1385 1250 -101 While clearly not a stellar two weeks for the bulls, the point changes mask just how bad the carnage has been. All of the major indices have now broken below meaningful support. The SPX posted a new closing low (since late October) and barring a sharp bounce on Monday we appear headed to 1060 post haste. While the DJIA is holding up the best of the bunch, it is clearly in trouble after having broken back below the 10,000 level and the 200-dma on Friday. The September lows are looming large in the view-screen for Technology investors, with the Nasdaq-100 closing at 1250, just 100 points below the 1150 support from September. I've been saying for months that the September lows need to be tested and it appears that is precisely what we are going to get. The one encouraging thing that I saw last week was that somebody (actually a bunch of somebody's) finally got scared! Finally market participants get it, that recovery is not all-but-assured and that there is significant downside risk in the market. The VIX closed on Friday at 24.56, which is a far cry from where it was just one short week ago at 20. Let this serve as evidence for all the critics out there - A low VIX (below 20) means only one thing. The market is going lower. Period. End of story. It may meander below 20 for weeks before spiking on renewed fear, with the market selling off, but in the end, the low VIX will lead to a rising VIX, which accompanies a falling market. I hope this puts to rest (at least for the time being) any foolish notions that "this time a rising VIX will be caused by a rising market". Get over it, it isn't going to happen. Please understand that I'm not angry about this. I am passionate about the topic though as I know there are a lot of investors out there that look at the low VIX and somehow believe that this time it will be different. The faces change but the song remains the same. Just another group of unwitting participants fall victim to history repeating itself. Repeat after me, "VIX is high, time to buy. VIX is low, time to go!" Follow just this advice for the rest of your investing career and I believe you'll do quite well indeed. Now that I've said my piece on both the brokers and the VIX, let's take a look at our list of plays and see if there is anything of merit there. Portfolio: JNJ - I continue to be impressed with JNJ's strength relative to the broad market. Despite broad weakness in virtually every sector, JNJ continues to hold support at the $62 level and appears to be shaping up to actually move higher. While a significant market decline could have a detrimental effect, the current relative strength should continue to keep the stock in its uptrend. LUV - It was a nip and tuck battle last week in the Transportation sector, but in the end, the bulls managed to hold support near $2660, just above the 200-dma at $2650. The Airline index (XAL.X) similarly held above support in the $92-94 area, although the XAL is now below its 200-dma. LUV is holding in there above the $18 support level, which will be key to the longevity of our play. I still like entries near the $18 level, although a drop and close below $17.25 will bring it to a swift end. EK - With comments from company management that the Q1 represented the bottom for the company, EK has actually been holding up fairly well. That's a bit of a mystery to me, but I'm going to stick to my guns on this one. The market weakness dragged the stock down as low as $32 on Thursday, but there were still eager buyers due to the strength of that recent support level. Look for a drop through the $30 level to provide confirmation that the stock is headed south and keep those stops in place, in case we are wrong. Watch List: PG - Even with the broad market in decline, shares of PG have been holding up rather well. Over the past week, the stock has been riding the midline of its year-long ascending channel, but I have a sneaking suspicion that this support will give way over the near term. The lower end of the channel will provide our best support and most likely level for fresh entries going forward. Given the weakness in the broad market, I expect we'll see this level tested, especially surrounding the company's earnings report Tuesday morning. While it is still possible that PG will rebound from the midline support, I am going to err on the side of caution and lower our entry target back to the $85-86 area, the site of the lower edge of the ascending channel. MDT - If you need proof that it is an uncertain market, MDT certainly provides it. Last week the stock looked like it might be running away from us, and this week it is looking like it is going to break strong support near $43.50. If this support fails to hold up, then it looks like it may fall back to retest the $42 level. This week brings another change to the entry target, first in the $43-44 area and then down at $42. If initiating new positions near current levels we want to do it on price strength, not weakness. We do not want to try to catch a falling knife. Look for a rebound before playing, ideally with a close back over the $44 level. WMT - While it may seem puzzling that I'm keeping WMT on the Watch List, given the recent price weakness, my motivation is basically that the company remains the dominant leader in the discount Retail market. Due to the double-bottom breakdown on the PnF chart, I'm leaving the play on Hold, pending a better idea of where the stock will likely find support. The current bearish target from the PnF chart is $50, and that coincides nicely with the bullish support line, sitting at $51. The next big test is the 200-dma at $55.50, but I expect that one will fall to the bears assault over the near term. We want to be in place to take advantage of the price weakness when the stock does find a bottom and right now the low $50s looks like a high-odds bet. BRCM - Have you noticed that BRCM is actually starting to gain some strength relative to the Semiconductor sector? That's right, the stock has been falling along with the SOX, but it is looking stronger than the SOX right now. If the SOX can actually hold support near the $500 level, then BRCM could actually be in an attractive level to initiate new positions. But I don't think the $500 level is going to hold, at least not for long. Daredevils could try target-shooting entries near the $30 support level, but given the rampant Technology weakness, I will want to see some building strength both in the market and the sector before playing. MSFT - What can I say other than the fact that I clearly jumped the gun on this one. I thought the $55 support level would hold and shares of MSFT plunged through that level in short order this past week. All eyes are now on the $48-50 range, where MSFT found support back in September. A solid bounce from that area looks good for fresh entries and our target has been adjusted accordingly. But a drop through that level will not be a good sign and could set the stock up to challenge support near $43-44 from late 2000/early 2001. It is interesting to note that the PnF chart gives a bearish target of $44, so it may be worth paying attention to that level. We'll leave the play active, but make sure that new entries are taken on a solid bounce, not just short-covering. As you can see, I don't have a lot of conviction for initiating new positions right now, with the broad markets looking very heavy. A full retest of the September lows is simply a matter of timing in my opinion, and it looks to me like we are on our way. During that process, we should start to see the pockets of strength that will lead us off those lows and we'll start adding those to our Watch List in the weeks ahead. I look at the current market as a mirror image of the one we experienced in early 2000, with irrational drops in price on solid stocks. In early 2000, it was irrational price rises on little more than hype. The market is currently in the process of hammering out a bottom and as it does so, pockets of relative strength will emerge to show us the companies and sectors that will lead us to the next set of relative market highs. There are numerous missed plays to the downside that I'm kicking myself over, not the least of which is VRSN. More than once in the past 6 months I have seriously considered placing the stock on our LEAPS Put list, and as you can see by its meltdown last week, it would have been a wildly successful play. EBAY is another one that although we had it in our Portfolio late last year, we got stopped out just before the long downtrend commenced. Missed opportunities are legion, and our job is to try and find them before they pass us by. Stay tuned! Personal Note: I had some email problems last week and was unable to receive mail on Wednesday and Thursday. In the process of getting back online, I think there may have been some emails that just plain got lost. I know this because of messages that friends sent that never showed up. So if you emailed me in the past several days and I haven't responded, please resend your message, as I probably didn't get it the first time around. Thanks for your understanding! See you next week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: JNJ 03/05/02 '03 $ 60 VJN-AL $ 5.90 $ 7.10 +20.34% $61 '04 $ 60 LJN-AL $ 9.20 $10.70 +16.30% $61 LUV 04/12/02 '03 $ 20 VUV-AD $ 2.10 $ 1.70 -19.05% $17.25 '04 $ 20 LOV-AD $ 3.90 $ 3.30 -15.38% $17.25 Puts: EK 04/12/02 '03 $ 30 VEK-MF $ 2.70 $ 2.95 + 9.26% $36 '04 $ 30 LEK-MF $ 3.90 $ 4.50 +15.38% $36 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: BRCM 10/28/01 $30 JAN-2003 $ 35 OGJ-AG CC JAN-2003 $ 30 OGJ-AF JAN-2004 $ 35 LGJ-AG CC JAN-2004 $ 30 LGJ-AF MDT 03/10/02 $42, $43-44 JAN-2003 $ 45 VKD-AI CC JAN-2003 $ 40 VKD-AH JAN-2004 $ 45 LKD-AI CC JAN-2004 $ 40 LKD-AH PG 03/31/02 $85-86 JAN-2003 $ 90 VPG-AR CC JAN-2003 $ 85 VPG-AQ JAN-2004 $ 90 LPR-AR CC JAN-2004 $ 85 LPR-AQ WMT 03/31/02 HOLD JAN-2003 $ 65 VWT-AM CC JAN-2003 $ 60 VWT-AL JAN-2004 $ 65 LWT-AM CC JAN-2004 $ 60 LWT-AL MSFT 04/21/02 $48-50 JAN-2003 $ 55 VMF-AK CC JAN-2003 $ 50 VMF-AJ JAN-2004 $ 55 LMF-AK CC JAN-2004 $ 50 LMF-AJ PUTS: None New Portfolio Plays None New Watchlist Plays None Drops DYN $14.90 OUCH! Let's start this off right, with "I was wrong". Oh so wrong. There wasn't anything inherently wrong with the play on a Utility stock, but I guess I should have gone with a straight utility that hadn't had any involvement in the energy trading business. Right up until Wednesday night, I was looking at the stock's chart pattern and thinking that we were going to get a lovely entry. After the initial rally, DYN was gradually consolidating in a low-volume descending wedge pattern that looked like it would break higher from the vicinity of $26-27. But that all came to an end on Thursday following the company's poor earnings report, numerous downgrades and talk of more accounting irregularities attracting the SEC's attention. The punishment was delivered swiftly, with DYN giving up nearly half its value in two short days. Clearly this is not an investable stock until conditions improve and I would avoid it like the plague. With a PnF price target of $0, it seems clear that the stock is headed for single-digit status. KBH $48.70 All right, I've given up on this one, at least for the time being. Clearly, I was too early to play the downside in the Housing stocks as the group has once again broken out to the upside. I still view this sector of the market as being in a "bubble", but it isn't yet ready for a bearish play. I'm removing KBH from the Watch List this weekend in the wake of its recent breakout. But I haven't completely given up on it. It is just going to take some more time before it is ripe. I will continue to monitor this sector, and KBH specifically for signs of a more mature top and then you can look for this one to find its way back onto the Watch List. ************** TRADERS CORNER ************** Lead The Herd Austin Passamonte In Thursday night’s Market Sentiment section Kent did a fine job of providing us with our topic for the weekend! Kent noted that right when the markets were rolling over once again in March during another bear market failure, media pundits on CNBC and similar ilk were in full bull mode. That’s nothing new: the herd moves that way. Investors and traders have always bought tops and sold bottoms since the dawn of free enterprise system, and rest assured they always will. It is human nature to do so. Why? Emotional baggage. Weekly/Daily Charts: Dow & DJX May 104 puts) The Dow had been topping and stalling for what seemed to be forever but the masses were just getting comfortable with the idea that markets making new highs should continue higher. That’s an old adage left over from the great bull-run now deader than WCOM’s chances of still connecting phone calls two years from tonight. Markets making new highs are usually those just about to tip over these days instead. When the VIX broke below 20 and Dow was pressing 10,660 area I loaded the truck with DJX May 104 puts and noted that on a daily basis right here in OI all the way. Dollar cost average was right near 2.00 per contract with two months of time premium left until expiration. This wasn’t any big home-run play at all but the easy double-plus was practically free money. We couldn’t go out and steal +100% gains easier than this buy & forget about it trade came along. Weekly and daily chart stochastic values were creaming at us to short with both hands and feet. VIX readings at 19 was pure icing on the cake. Do you think the masses took this trade and doubled their money in nearly risk-free fashion? Nope... not at all. The masses didn’t do it because they just then got around to feeling good about the market going higher. Notice we emphasize the word feeling in there: it is this emotional bond with thought that most traders must connect before they can act on a financial decision. By the time they got done watching the Dow press to new recent highs and decided the upside was safe, the upside was over with. Keeping this thought in mind, when do you think the masses will finally capitulate and get short with reckless abandon? Right about the time Dow and other indexes finish this dip and begin the next bear market failed rally. With predictable sadness we know for sure a washout session will arrive where all of the sellers exhaust themselves, whereupon indexes will mark a near- term low and trend higher (for a little while) from there. We’ll know this short-term bottom is in when the VIX spikes, media is filled with doom & gloom and most financial newsletters see no bottom in sight. You & I will have our trusty weekly/daily chart signals turning up from oversold extreme to tell us that is the time to get long and stay that way. No proprietary junk or mumbo-jumbo required: just basic tools setup like we’ve shared here for the last two years, with more examples below. (Weekly/Daily Charts: DYN) Here’s a little goodie I found on April 5th when cruising the S&P 500 index looking for plays. DYN stood out as a pretty good short candidate at that time. Weekly chart was forming a loooong term bearish triangle and daily chart showed a trendline violation that day. XX September 22.5 puts (DYN-UX) were so cheap at 1.85 “ask”, why not grab plenty of time premium and hunker down for a spell? Didn’t take too long. Hopefully three weeks later those flashy ads that haunt us on Bubblevision won’t now feature employees crying at their desks over plunging 401K plans. Cruel joke on my part that isn’t funny and I sure hope & pray the stock doesn’t fall any further for employee’s sake. It took three weeks for this deliberate trade to work and work it did. Now the herd can have my puts at 300% above cost... I’m all done with them myself. If you didn’t want to tie up your capital for these lengths of time, how about those screaming short plays from last weekend? http://www.OptionInvestor.com/traderscorner/042102_1.asp The SOX was listed as a short at 582+, the OIH Oil Services HOLDR a short from 70 and the XAL Airlines Index short at 99.88 just five trading sessions ago. Since then the SOX has plunged to 514, XAL to 94.88 and OIH spiked to 72+ for a stopped out play. One small loss, one modest gain and one whopper of a gain in the SOX or SMH puts alone, not to mention taking time to ferret out the weakest components for puts on them alone. This is far from clairvoyance or magic. We don’t need any silly proprietary systems or nonsense like that. Just follow the trend, lead the herd by selling resistance and buying support. Almost Time To Buy Which leads us to our next and closing thought. Right now the herd is getting restless and in the midst of selling now that much of the damage is done. Pretty soon we will have chart signals buried in oversold extreme and turning bullish. We will have the VIX above 28 and possibly 30+. We will have CNBC nonsense and the lame lambs they push on screen telling us how there is no hope nor bottom in sight. That’s just about the time we need to begin scaling into distant-month calls in preparation for the next failed rally to begin. Make no mistake, there isn’t going to be any miraculous recovery in this stock market for months and possibly years. My guess is we close 2002 with a Dow below 10,000 and Nasdaq below 1200 if I had to lay wagers tonight. Whether that happens or not is moot: we are traders and will see plenty of gyration in between. Short plays in April were golden but that won’t work every month. Stick with your weekly/daily charts to gauge the trend, follow it with strict adherence and divorce any market bias or preference you may have. Many of us enjoyed massive profits in April and I cannot image how serious, active traders wouldn’t. We expect to do the same every month this year and beyond. Honor the trends, ignore the masses and lead the herd. Please do not be part of it! Best Trading Wishes, Austin Passamonte ************************Advertisement************************* OptionsXpress: "FOUR STARS"; 1 of the "BEST ONLINE BROKERS"--Barron's * 8 different FREE options pricing, strategy, and charting tools * Outstanding customer service--access to options specialists * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest013 Note: Options involve risk. 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The Option Investor Newsletter Sunday 04-28-2002 Sunday 5 of 5 ************************Advertisement************************* OptionsXpress: "BEST OF THE WEB""FAVORITE OPTIONS SITE"--Forbes * 8 different FREE options pricing, strategy, and charting tools * No Hidden Fees for balances, limit orders, or service charges * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest014 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* COVERED CALLS ************* Technical Analysis Basics: Understanding Sentiment Indicators By Mark Wnetrzak A number of analysts have commented on the recent increase in fear and anxiety in the stock market. The basis for studying sentiment gauges such as the equity-only put/call ratio is a concept known as the "contrarian" viewpoint. The most common methods of technical analysis use quantitative measures that characterize price movement to determine the future outlook for a particular instrument. Even the popular broad-market charting indices such as the advance/decline line and the equity overbought/oversold ratio are based on historical statistics. There is however, another class of indicators that does not rely on the mathematical analysis of specific trends or changes in volume and accumulation patterns to produce a trading signal. The theory behind these measures is that investors and analysts are particularly prone to simple psychological biases such as "running with the crowd" and the opposing perspective or outlook is often referred to as Contrary Opinion. The rationale for contrarian investing is simple: When the general public is bullish, they invest their money in stocks, some to the point of borrowing against portfolio collateral (margin). When most of the crowd's cash is already in the market, what money is left to push stock prices higher? On the other hand, when the majority of investors become bearish, they have already sold most of their stocks. If the average investor has more cash than stock, there is a lot of money waiting to be reinvested. Contrarian indicators are subjective and they don't rely on any specific signals, as opposed to most chart reading methods that measure quantity and quality. The underlying idea is that human nature and the "herd" mentality affects all of us because people feel comfortable when they share common beliefs and opinions. In fact, humans tend to coalesce around popular ideas even when there is no substantial evidence to support the base theory. We ignore evidence that would lead to other conclusions in hopes that it will eventually go away. This type of behavior in the market is exhibited in the excessive optimism that investors display just before a significant correction occurs. It is also seen in the negative outlook that becomes widespread as the bottom of a bear market approaches. Many of these biases occur because of the way people process information. Investors tend to base decisions on data that is insufficient and drawn from a sample that is far too small. We also tend to focus on issues that are outperforming the market and assume the current trend will continue far beyond the point that probability suggests is practical. These beliefs are reinforced when others interpret information in the same manner, thus market confirmations and agreement often create a vicious, self-fulfilling cycle. Traders who understand these biases and successfully identify the opinions of the majority can use this knowledge to position their portfolio with the opposite outlook. The most common contrarian indicators are the equity put/call ratios and the bullish-bearish sentiment indices compiled by market research services such as Investors Intelligence. The (equity-only) put/call ratio is computed daily by dividing the put volume of all stock options by the call volume of all stock options. When option traders are bullish on the stock market, call volume increases relative to put volume. When traders are bearish, put volume increases relative to call volume. This ratio is an excellent contrary sentiment indicator and when the relationship between put volume and call volume becomes extreme, a market reversal is likely. Investors Intelligence was one of the first services to exploit the fact that when too many people are bullish on the market, a correction may be looming on the horizon. The company produces the well-known Market Sentiment Index, which reflects the number of investment newsletters that are bullish or bearish on stocks. In August 1987, the bulls rose to over 60% while the bears were only 19% and that psychological climate prevailed even though a technical market top was forming. Those attitudes continued until the "Black Monday" sell-off in October; strong evidence that optimism usually doesn't accompany the start of a new bull market. Contrary opinion indicators are valuable tools when used properly but one thing to be aware of is that any technique you subscribe to should always be used to confirm other signals from different types of analysis. When these indicators provide well defined signals that agree with your other gauges, be sure to listen to the message. Trade Wisely! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield BSML 5.37 5.05 MAY 5.00 0.90 *$ 0.53 7.4% WGRD 5.89 5.98 MAY 5.00 1.20 *$ 0.31 7.2% NFLD 8.19 7.50 MAY 7.50 1.30 $ 0.61 6.4% PDLI 17.37 17.12 MAY 15.00 3.20 *$ 0.83 5.1% ZIXI 6.08 4.95 MAY 5.00 1.35 $ 0.22 5.1% PLUG 10.26 11.10 MAY 10.00 0.80 *$ 0.54 5.0% PWAV 14.24 12.87 MAY 12.50 2.40 *$ 0.66 4.8% QUIK 5.03 4.94 MAY 5.00 0.30 $ 0.21 4.8% AMLN 10.71 9.98 MAY 10.00 1.15 $ 0.42 4.8% CCK 8.85 11.02 MAY 7.50 1.80 *$ 0.45 4.6% EMKR 9.10 8.21 MAY 7.50 2.05 *$ 0.45 4.6% IDCC 10.99 11.01 MAY 10.00 1.45 *$ 0.46 4.2% NPRO 8.85 7.17 MAY 7.50 1.90 $ 0.22 2.8% SAPE 5.40 4.64 MAY 5.00 0.65 $ -0.11 0.0% IMCO 15.99 13.90 MAY 15.00 1.75 $ -0.34 0.0% ACRT 19.90 16.45 MAY 17.50 3.10 $ -0.35 0.0% TUNE 15.21 11.37 MAY 12.50 3.40 $ -0.44 0.0% CYGN 5.79 4.27 MAY 5.00 1.05 $ -0.47 0.0% PRCS 5.39 3.87 MAY 5.00 0.80 $ -0.72 0.0% *$ = Stock price is above the sold striking price. Comments: Yes, winter is showing some signs of ending (up here in Alaska) and the bears are on the prowl. With the breakdown in the NASDAQ and the S&P-500 on the edge of a cliff, sitting on the sidelines (again) may be the most prudent move. Many of the issues above are correcting and are testing their support areas, as well as our discipline. Unless they have a crystal ball, most everyone will see the "bottom" in the major averages only in hindsight. In the current environment, protection of investing capital becomes paramount. Next week, we will show Cygnus (NASDAQ:CYGN), Praecis Pharma (NASDAQ:PRCS), and Microtune (NASDAQ:TUNE) closed. Investors with a longer-term outlook may consider adjusting their positions by rolling forward as practical. Several other issues may need to be closed on further weakness or on violations of technical support. Remember, while writing covered-calls offers downside protection for stock ownership, the strategy is not a panacea for a protracted bearish market. NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield ADPT 15.13 MAY 15.00 APQ EC 0.90 351 14.23 21 7.8% AVGN 10.56 MAY 10.00 GKU EB 1.15 69 9.41 21 9.1% GRP 15.30 MAY 15.00 GRP EC 0.85 347 14.45 21 5.5% MOT 15.00 MAY 15.00 MOT EC 0.60 7664 14.40 21 6.0% MOVI 18.78 MAY 17.50 QLV EW 1.90 832 16.88 21 5.3% PDG 12.79 MAY 12.50 PDG EV 0.65 6285 12.14 21 4.3% TDY 17.82 MAY 17.50 TDY EW 0.90 9 16.92 21 5.0% Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield AVGN 10.56 MAY 10.00 GKU EB 1.15 69 9.41 21 9.1% ADPT 15.13 MAY 15.00 APQ EC 0.90 351 14.23 21 7.8% MOT 15.00 MAY 15.00 MOT EC 0.60 7664 14.40 21 6.0% GRP 15.30 MAY 15.00 GRP EC 0.85 347 14.45 21 5.5% MOVI 18.78 MAY 17.50 QLV EW 1.90 832 16.88 21 5.3% TDY 17.82 MAY 17.50 TDY EW 0.90 9 16.92 21 5.0% PDG 12.79 MAY 12.50 PDG EV 0.65 6285 12.14 21 4.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ADPT - Adaptec $15.13 *** Up On A Downgrade! *** Adaptec (NASDAQ:ADPT) provides storage access solutions that reliably move, manage and protect critical data and digital content. The company's storage solutions are found in high performance networks, servers, workstations and desktops from the leading manufacturers, and are sold through OEM and other distribution channels to Internet service providers, large enterprises, medium and small businesses and consumers. The company currently operates in three primary segments: Storage Solutions, Desktop Solutions and Storage Networking. Adaptec reported earnings this week, in line with expectations, due to strength in the U.S. and Asia, as well as new products. The company experienced a 3% sequential revenue increase as their business conditions continued to improve. The stock rallied above the mid-April high even in the face of a downgrade on Friday. This position offers favorable speculation on a rebounding stock. MAY 15.00 APQ EC LB=0.90 OI=351 CB=14.23 DE=21 TY=7.8% ***** AVGN - Avigen $10.56 *** The Trend Is Your Friend *** Avigen (NASDAQ:AVGN) is engaged in the development of gene therapy products for the treatment of inherited and acquired diseases. The company is developing its proprietary adeno-associated virus vector technology, known as AAV vectors, to deliver DNA to patients that are suffering from genetic and various non-genetic diseases. Avigen believes the AAV vectors can be used to deliver genes for many inherited genetic diseases, including hemophilia and certain metabolic diseases such as Gaucher disease, as well as for many acquired diseases, including Parkinson's disease, and certain types of cardiovascular disease. The company recently received 3 new patents, strengthening its expansive intellectual property portfolio in adeno-associated virus (AAV) vector tech- nology. This week Avigen reported favorable results in a pre- clinical study for its adeno-associated virus (AAV) vector for the treatment of hemophilia A, and said it expects to file an investigational new drug (IND) application in 2003. We simply favor the chart with technicals that suggest the current tight trading range near $10 will continue. MAY 10.00 GKU EB LB=1.15 OI=69 CB=9.41 DE=21 TY=9.1% ***** GRP - Grant Prideco $15.30 *** Oil Sector Hedge *** Grant Prideco (NYSE:GRP) manufactures and supplies oilfield drill pipe and other drill stem products, as well as engineered connect- ions, and tubing and casing. The company's drill stem products are used to drill oil and gas wells. The drilling products seg- ment manufactures and sells a full range of proprietary and API brand drill pipe, drill collars, heavyweight drill pipe and drill accessories. The engineered connections segment designs, manu- factures and sells a complete line of engineered connections and associated tubular products and accessories. Investors have been acquiring Grant Prideco after the company reported earnings in February showing record revenues in 2001 and a 4th-quarter net income of $0.17 per share. With the price of oil increasing and continued unrest in the middle east, investors desiring to add an oil driller to their portfolio may consider this position for a low risk entry point. The company is due to report earnings on May 2. MAY 15.00 GRP EC LB=0.85 OI=347 CB=14.45 DE=21 TY=5.5% ***** MOT - Motorola $15.00 *** Bottom-Fishing For Blue Chips? *** Motorola (NYSE:MOT) is a global provider of integrated communicat- ions solutions and embedded electronic solutions. The company's Intelligence Everywhere solutions include: software-enhanced wire- less telephone and messaging, two-way radio products and systems, as well as networking and Internet-access products, for consumers, network operators and commercial, government and industrial customers; end-to-end systems for the delivery of interactive digital video, voice and high-speed data solutions for broadband operators; embedded semiconductor solutions for customers in wire- less communications, networking and transportation markets; inte- grated electronic systems for automotive, telematics, industrial, telecommunications, computing and portable energy systems markets. Yes, Motorola reported its 5th straight loss but managed to beat estimates by $0.04 per share. The "surprise" incited a $2.50 rally as the company said it is on track to reach profitability by the second half of 2002. The stock has now pulled back to technical support and this position offers a fair entry point for those who believe Motorola is on the road to recovery. MAY 15.00 MOT EC LB=0.60 OI=7664 CB=14.40 DE=21 TY=6.0% ***** MOVI - Movie Gallery $18.78 *** Next Leg Up? *** Movie Gallery (NASDAQ:MOVI) owns and operates a total of 1,467 specialty stores that rent and sell videocassettes, DVDs and video games located in 41 states and five Canadian provinces. The company is the leading home video specialty retailer pri- marily focused on rural and secondary markets. Movie Gallery rallied on Friday after the company announced same-store revenues for the 1st-quarter, ended April 7, 2002, increased by 0.3% as opposed to expectations of flat to slightly negative same-store revenues. The company also increased its targeted range for pro forma earnings per diluted share by almost 10 cents. Movie Gallery is due to report earnings on May 10. The bullish technicals suggest higher prices ahead and this position offers a reasonable entry point from which to speculate on the company's future. MAY 17.50 QLV EW LB=1.90 OI=832 CB=16.88 DE=21 TY=5.3% ***** PDG - Placer Dome $12.79 *** Gold Sector Hedge *** Placer Dome (NYSE:PDG) principally is engaged in the exploration for, and the acquisition, development and operation of gold mineral properties. The company's major mining operations are located in Canada, the U.S., Australia, Papua New Guinea, South Africa and Chile. Exploration work is carried out in the above- mentioned countries and elsewhere throughout the world. Placer Dome's principal product is gold, although significant quantities of silver and copper also are produced. This week, Placer Dome posted stronger 1st-quarter earnings on Tuesday, saying higher prices and lower cash costs offset a drop in gold production. As political tensions and economic uncertainty increased, the price of gold has continued to stage a bull-rally. Investors looking to add a "gold" stock to their long-term portfolios may consider this relatively low risk entry point. MAY 12.50 PDG EV LB=0.65 OI=6285 CB=12.14 DE=21 TY=4.3% ***** TDY - Teledyne Technologies $17.82 *** Bracing For A Rally *** Teledyne Technologies (NYSE:TDY) is a provider of sophisticated electronic components, instruments and communications products, including data acquisition and communications equipment for air- lines and business aircraft, monitoring and control instruments for industrial and environmental applications and components, and subsystems for wireless and satellite communications. The company also provides systems engineering solutions and inform- ation technology (IT) services for space, defense and industrial applications, and manufactures general aviation and missile engines and components, as well as onsite gas and power gener- ation systems. Teledyne operates 4 business segments: Electron- ics and Communications, Systems Engineering Solutions, Aerospace Engines and Components and Energy Systems. Teledyne reported solid 1st-quarter results this week with sales of 183.3 million and a net income of $0.16 per diluted share. The company expects modest revenue growth in 2002, primarily driven by demand for defense electronics products. We simply favor the bullish momentum as the stock looks to break above resistance on in- creasing volume. A favorable cost basis from which to spec- ulate on the company's future. MAY 17.50 TDY EW LB=0.90 OI=9 CB=16.92 DE=21 TY=5.0% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield GIVN 13.33 MAY 12.50 QPG EV 1.50 326 11.83 21 8.2% SMMX 20.41 MAY 20.00 OFU ED 1.45 0 18.96 21 7.9% OVER 33.77 MAY 30.00 GUO EF 5.20 2707 28.57 21 7.2% PHSY 28.30 MAY 25.00 HYQ EE 4.40 3714 23.90 21 6.7% NSIT 25.16 MAY 25.00 QNT EE 1.20 196 23.96 21 6.3% U 5.47 JUN 5.00 U FA 0.95 899 4.52 56 5.8% ORB 5.50 JUN 5.00 ORB FA 0.95 405 4.55 56 5.4% WBSN 27.14 MAY 25.00 DQH EE 3.00 46 24.14 21 5.2% AFFX 25.85 MAY 22.50 FIQ EX 4.00 383 21.85 21 4.3% MACR 22.01 MAY 20.00 MRQ EY 2.55 885 19.46 21 4.0% ***************** NAKED PUT SECTION ***************** Market Mentality: Time To Review The Emotional Cycle of Investing By Ray Cummins The recent bearish activity in stocks has brought to light the difficulty of purchasing stocks in unfavorable market environment. Indeed, it is hard to be optimistic when everyone seems to be selling but history suggests that now may be good time to become a buyer. Successful investing requires observation, comprehension and action. Experienced traders learn to understand the facts and reasons behind market-moving events, observe the trends, and identify the early stages of a rally or decline. But, it is not enough to merely observe the activity and discern the movements. You must also develop a sense of market emotion and learn to put a range of indicators together in context, including the ability to perceive when a trend is approaching an extreme. Of course, all that aptitude will be worthless if you take no useful action. Acting upon your observations is without doubt the most difficult skill to master, and when the market is overwhelmed by rampant selling pressure, the task can be all the more daunting. Unless you are a seasoned investor, it is difficult to evaluate the market's unusual behavior for lack of past experience. However, there is one condition that is easy to observe: the opinion of the masses. For example, when the majority of participants are in agreement on the current outlook, there is a high probability that a move in the opposite direction is forthcoming. In simple terms, stocks will rally when every seller has been accommodated. In contrast, when everyone who wants to buy is fully invested, there is little potential for further upside activity. You have probably heard the phrase, "In the stock market, the public is right during the trends but wrong at both ends," and that saying was never more correct than in a bearish environment. When the market is in a bullish trend, the emotion of the moment generally dictates the issue, causing the majority of typical traders to enter new positions near the top, when the stock is finishing its rally. At that point, everybody who is bullish on the issue already has it and there is no one left to support the price. The professionals are the first to exit, quietly closing out their positions while the public is overwhelmed by glowing earnings reports and bullish forecasts. As the stock struggles to hold its gains, trading volume drifts lower and the primary groups trading the issue; the technicians, the fundamentalists and the general public compete to determine the next trend. When the historical pattern exhibits the first signs of failure, the technical traders begin to sell in earnest. Analysts raise the company's targets to support the inflated share value, but when the issue no longer responds to good news, the outcome is clear. Soon the public becomes nervous and as the correction takes shape, closing orders increase in number. The fundamentalist is the last to go, generally after a full-scale downtrend is in effect. With this type of psychological analysis, it obvious how human nature determines our actions in the stock market. Hope leads to fear, and then to panic, and the few that remain through it all (the amateurs), eventually unload their positions for significant losses. In fact, you can almost see the anxiety and hysteria in the heart-pounding selling climax of these issues over the past few days: Dynegy (NYSE:DYN), General Mills (NYSE:GIS), Verisign (NASDAQ:VRSN), Tyco (NYSE:TYC), Cabot Micro (NASDAQ:CCMP), and Cell Therapeutics (NASDAQ:CTIC). After the market has endured a substantial decline, it's hard to overcome the public's fear and loathing, as well as the widespread disbelief that any recovery is forthcoming. The general panic propagated by dour doomsayers and the media's sensationalistic coverage of every negative event often creates an apparently insurmountable obstacle. The act of buying into weakness, in opposition of the crowd, will always feel uncomfortable and when the time comes to make the trade, its unlikely you'll have all the necessary information. With that in mind, it's easy to see why anticipating a change in the direction of the market is more an art than a science. In addition, those who hear your opposing views and witness your contra-intuitive behavior will likely voice their opinions, and they may eventually convince you to abandon your independent line of thinking, at precisely the wrong time. That's why it is so important to always consider the contrarian viewpoint, even when the perspective leaves you alone in your outlook, without confirmation from the masses. Remember, the stock market moves quickly from one extreme to the next and success in the long run requires that you act as an individual during those times when being part of the crowd simply contributes to the current market behavior. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS CANDIDATES ***** Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield VIRL 17.81 17.50 MAY 15.00 0.50 *$ 0.50 11.3% WFR 8.60 7.75 MAY 7.50 0.30 *$ 0.30 9.9% OATS 10.63 10.92 MAY 10.00 0.45 *$ 0.45 9.6% TTWO 26.53 22.93 MAY 22.50 0.55 *$ 0.55 8.4% ADPT 14.57 15.13 MAY 12.50 0.40 *$ 0.40 8.4% IMCO 14.22 13.90 MAY 12.50 0.50 *$ 0.50 8.1% PHSY 26.01 28.30 MAY 20.00 0.40 *$ 0.40 7.8% ENER 24.24 22.83 MAY 22.50 0.75 *$ 0.75 7.5% EAGL 17.00 16.97 MAY 15.00 0.45 *$ 0.45 7.4% IDTI 32.00 26.92 MAY 25.00 0.40 *$ 0.40 6.4% RMCI 25.45 25.10 MAY 20.00 0.40 *$ 0.40 6.3% TOL 27.58 28.55 MAY 25.00 0.65 *$ 0.65 6.2% ISLE 20.50 20.19 MAY 17.50 0.30 *$ 0.30 5.9% MARY 21.50 23.45 MAY 17.50 0.40 *$ 0.40 5.8% LNCR 31.28 31.11 MAY 30.00 0.80 *$ 0.80 5.8% AEIS 36.71 33.75 MAY 30.00 0.40 *$ 0.40 5.2% CTLM 13.86 12.15 MAY 12.50 0.45 $ 0.10 2.3% SNDK 20.37 16.21 MAY 17.50 0.65 $ -0.64 0.0% JDAS 35.29 28.70 MAY 30.00 0.45 $ -0.85 0.0% *$ = Stock price is above the sold striking price. Comments: The market headed south this week amid a slew of unfavorable earnings reports, and concerns over the flagging economy and the conflict in the middle east. The effect on corporate share values was far more pronounced in technology issues and the composite index now appears headed for lows not seen since last September. With that sobering thought in mind, traders should consider closing positions with anything less than outstanding technical indications in order to preserve portfolio capital. As noted in last week's commentary, Veeco (NASDAQ:VECO) was a prime exit prospect and the downward trend has continued almost unabated in recent sessions. Sandisk (NASDAQ:SNDK) is also a candidate for early exit and JDA Software (NASDAQ:JDAS) became a member of that category Tuesday, despite the fact they beat consensus earnings estimates in their quarterly report. There is, however, a chance the issue will rebound in the next few sessions, now that a $250 million shelf registration has been cancelled. Issues on the watch-list include: Energy Conversion Devices (NASDAQ:ENER), Take-Two (NASDAQ:TTWO), Memc Electronic (NYSE:WFR), Integrated Device Technologies (NASDAQ:IDTI), and Advanced Energy (NASDAQ:AEIS). Positions Closed: Veeco Instruments (NASDAQ:VECO) NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield AMZN 16.91 MAY 15.00 ZQN QC 0.30 5570 14.70 21 8.4% DO 32.10 MAY 30.00 DO QF 0.40 3495 29.60 21 5.2% EAGL 16.97 MAY 15.00 UQV QC 0.50 6 14.50 21 13.6% GSF 35.33 MAY 32.50 GSF QZ 0.40 1281 32.10 21 5.0% MACR 22.01 MAY 20.00 MRQ QY 0.50 216 19.50 21 9.9% OVER 33.77 MAY 25.00 GUO QE 0.45 3572 24.55 21 9.0% PHSY 28.30 MAY 20.00 HYQ QD 0.30 983 19.70 21 7.3% PLNR 24.73 MAY 22.50 PNQ QX 0.45 5 22.05 21 8.0% Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield EAGL 16.97 MAY 15.00 UQV QC 0.50 6 14.50 21 13.6% MACR 22.01 MAY 20.00 MRQ QY 0.50 216 19.50 21 9.9% OVER 33.77 MAY 25.00 GUO QE 0.45 3572 24.55 21 9.0% AMZN 16.91 MAY 15.00 ZQN QC 0.30 5570 14.70 21 8.4% PLNR 24.73 MAY 22.50 PNQ QX 0.45 5 22.05 21 8.0% PHSY 28.30 MAY 20.00 HYQ QD 0.30 983 19.70 21 7.3% DO 32.10 MAY 30.00 DO QF 0.40 3495 29.60 21 5.2% GSF 35.33 MAY 32.50 GSF QZ 0.40 1281 32.10 21 5.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** AMZN - Amazon.com $16.91 *** Optimistic Outlook! *** Amazon.com (NASDAQ:AMZN) is a Website where customers can find and discover anything they may want to buy online. The company lists millions of unique items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera/photo items, software, computer and video games, tools and hardware, lawn & patio items, kitchen products, and wireless products. Through its Marketplace, Auctions and zShops services, any business or individual can sell virtually anything to the company's 30 million customers, and with Amazon.com Payments, sellers can accept credit card transactions. In addition to its U.S.-based Website, the company operates four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. The company also operates the Internet Movie Database (www.imdb.com), a source of information on movies and entertainment titles, and cast and crewmembers. Shares of Amazon.com surged last week as Wall Street applauded the online retailer's second-straight blowout quarter. A number of analysts published optimistic research reports suggesting that the company will not only survive but thrive. Amazon appears to be in a new bullish trend and investors can speculate on its near-term share value with this position. MAY 15.00 ZQN QC LB=0.30 OI=5570 CB=14.70 DE=21 TY=8.4% ***** DO - Diamond Offshore $32.10 *** Hot Sector! *** Diamond Offshore Drilling (NYSE:DO) is principally engaged in the contract drilling of offshore oil and gas wells. The company is active in deep water drilling with a fleet of approximately 45 offshore rigs that consisted of 30 semi-submersibles, 14 jack-ups and one drill-ship. The company's large, diverse fleet enables it to offer a broad range of services worldwide in various markets, including the deepwater market, the harsh environment market, the conventional semi-submersible market and the jack-up market. The company's first-quarter earnings per share came in a penny ahead of Wall Street's consensus estimate despite weakness in the Gulf of Mexico and now the issue is moving higher amid optimism for a recovery in the second-half of the year. Investors who wouldn't mind having a popular oil-driller in their portfolio can establish a low risk cost basis in the issue with this position. MAY 30.00 DO QF LB=0.40 OI=3495 CB=29.60 DE=21 TY=5.2% ***** EAGL - EGL Inc. $16.97 *** Improving Fundamentals! *** EGL, Inc. (NASDAQ:EAGL) is a global transportation, supply chain management and information services company dedicated to providing flexible logistics solutions on a price competitive basis. The company's services include airfreight and ocean freight forwarding, customs brokerage, pick-up and delivery service, materials management, warehousing, trade facilitation, procurement and integrated logistics and supply chain management services. The company provides value-added services in addition to those generally provided by traditional airfreight forwarders, ocean freight forwarders and customs brokers. These services are designed to provide global logistics solutions for customers in order to streamline their supply chain, reduce their inventories, improve their logistics information and provide them with more efficient and effective domestic and international distribution strategies in order to enhance their profitability. CSFB raised its rating on airfreight services provider EGL Inc. to a "buy" recently due to cost-cutting efforts and improving fundamentals. Our outlook for the issue is also bullish and investors can establish a low risk entry point in the stock with this position. MAY 15.00 UQV QC LB=0.50 OI=6 CB=14.50 DE=21 TY=13.6% ***** GSF - GlobalSantaFe $35.33 *** More Drillers! *** GlobalSantaFe (NYSE:GSF) is a holding company that conducts its operations through Global Marine Drilling Company (GMDC), Global Marine International Drilling Corporation (GMIDC), Challenger Minerals Inc. (CMI), Applied Drilling Technology Inc. (ADTI) and Global Marine Integrated Services (Europe) (GMIS), a division of one of the company's foreign subsidiaries. The company's three lines of business consist of contract drilling, drilling management services and oil and gas. The contract drilling business provides manned, mobile offshore drilling rigs to oil and gas operators on a daily rate basis, which is also referred to as day-rate drilling; drilling management services business or turnkey drilling, designs, develops and executes specific offshore drilling programs and also delivers a loggable hole to an agreed depth for a guaranteed price; the oil and gas business participates in exploration and production activities. GlobalSantaFe is another popular issue among the "oil drillers" and the company was recently upgraded by Merrill Lynch and Deutsche Securities after a favorable quarterly earnings report. The technical indications in the issue also suggest further upside activity in the near future. MAY 32.50 GSF QZ LB=0.40 OI=1281 CB=32.10 DE=21 TY=5.0% ***** MACR - Macromedia $22.01 *** Recovery Underway! *** Macromedia (NASDAQ:MACR) develops, markets, and supports software products, technologies, and services that enable people to define what the Web can be. The company's customers, from developers to enterprises, use Macromedia solutions to help build compelling and effective Websites and eBusiness applications. As a result of the deconsolidation of shockwave.com, the company operates in one major business segment, the Software segment. Shares of web-publishing software company Macromedia soared last week after the company said it expects to return to profitability, on a pro-forma basis, in the June quarter, and remain "in the black" for the rest of the year. Also, revenue showed sequential growth for the first time in a year, and the top line should grow another 10% sequentially in the June quarter, due to a slew of new products that have been released or are scheduled for release in the next couple of months. Investors can establish a conservative basis in the stock with this position. MAY 20.00 MRQ QY LB=0.50 OI=216 CB=19.50 DE=21 TY=9.9% ***** OVER - Overture Services $33.77 *** Yahoo! Contract Renewal *** Overture Services (NASDAQ:OVER) is engaged in the provision of pay-for-performance search services on the Internet. Overture operates an online marketplace that introduces consumers and businesses that search the Internet to advertisers that provide products, services and information. Advertisers participating in the company's marketplace include retail merchants, wholesale and service businesses and manufacturers. Overture facilitates these introductions through its search service, which enables advertisers to bid in an ongoing auction for priority placement in Overture's search results after editorial approval. The company's marketplace offers consumers and businesses quick, easy and relevant search results for products, services and information, while providing advertisers with a cost-effective way to target them. Shares of Overture Services, formerly GoTo.Com, surged Friday on news of the company's strong first-quarter results and a new 3-year deal with Yahoo! Now the issue is back in a comfortable range near $30 and traders who think it will remain there can profit from that outcome with this position. MAY 25.00 GUO QE LB=0.45 OI=3572 CB=24.55 DE=21 TY=9.0% ***** PHSY - PacifiCare Health Systems $28.30 *** Sector Rally! *** PacifiCare Health Systems (NASDAQ:PHSY) is a healthcare services company with operations in managed care products for employer groups and Medicare beneficiaries in the U.S. and Guam, serving approximately four million members. The company operates health maintenance organizations (HMOs) and offers HMO-related products and services. The company's commercial and Medicare programs are designed to deliver quality healthcare and customer service to members, cost effectively. The company also offers a variety of specialty HMO managed care, and HMO-related products and services that employers can purchase to supplement their basic commercial plans or as stand-alone products. The company's other specialty products include pharmacy benefit management, behavioral health services, life/health insurance, and dental and vision services. Insider buying has been increasing among the health insurers and analysts say its a good sign because it means management thinks the industry is recovering. Shares of PHSY certainly reflect that optimism as the company's stock price is up over 50% in the last two weeks. Traders can speculate on the future success of one of the most popular companies in the Healthcare sector with this position. MAY 20.00 HYQ QD LB=0.30 OI=983 CB=19.70 DE=21 TY=7.3% ***** PLNR - Planar Systems $24.73 *** On The Rebound! *** Planar Systems (NASDAQ:PLNR) is a developer, manufacturer and marketer of high-performance electronic display systems. The company's products include its proprietary electro-luminescent flat-panel displays, active matrix liquid crystal displays and passive matrix liquid crystal display products. These products are used in a variety of medical, industrial (process control, instrumentation), transportation, communications and other applications. The company's major customers include Philips, Marconi, Datex Ohmeda, GE Medical, DataScope, Tokheim, Sun Microsystems, Kodak, Allen Bradley and Dell Computer Systems. The share value of Planar Systems has been "on the rebound" since the company reported increasing second-quarter sales and noted that "the economic situation appears to have stabilized" in the display industry. The company also said that "profitability in our custom display systems business remains strong," and "the desktop monitor business continues to outperform targets, both in rapid sales growth and in bottom-line results." Indeed, the outlook appears to be improving and traders who agree with the bullish assessment can profit from future upside activity with this position. MAY 22.50 PNQ QX LB=0.45 OI=5 CB=22.05 DE=21 TY=8.0% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield PCSA 15.38 MAY 12.50 CQO QV 0.30 90 12.20 21 12.2% FHRX 25.10 MAY 22.50 FUF QX 0.65 5 21.85 21 11.6% WBSN 27.14 MAY 22.50 DQH QX 0.45 64 22.05 21 9.8% SHRP 21.98 MAY 20.00 SAU QD 0.45 82 19.55 21 9.0% ABX 20.39 MAY 20.00 ABX QD 0.50 1162 19.50 21 8.8% FNF 30.01 MAY 30.00 FNF QF 0.70 50 29.30 21 8.0% PRX 25.05 MAY 22.50 PRX QX 0.35 435 22.15 21 6.5% DFS 15.69 MAY 15.00 DFS QC 0.25 110 14.75 21 6.2% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ The Market Bears Are On The Prowl! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, April 26 The major equity averages retreated to levels not seen in months as concerns over flagging earnings and the lack of an economic recovery drove investors to unload stocks in almost every sector. Technology issues led the decline with the NASDAQ Composite index ending 49 points lower at 1,663 on weakness in Internet, telecom, semiconductor, and networking shares. The Dow Jones Industrial Average also experienced precipitous losses with the blue-chip gauge down 124 points to 9,910 amid steep declines in its hi-tech components. The broad market was a sea of red with biotechnology, natural gas and retail issues among the big losers while oil and pharmaceutical stocks saw limited buying pressure. Volume was average at 1.4 billion on the NYSE and 1.9 billion on the NASDAQ. Market breadth was bearish with decliners outpacing advancers 3 to 2 on the NYSE and 2 to 1 on the technology exchange. In the treasury market, the 10-year note advanced 9/32 to yield 5.06% while the 30-year government bond soared 15/32 to yield 5.59%. On the fund flow front, Trim Tabs estimated that equity funds had outflows of $6.1 billion during the 5 trading days ending Wednesday, compared with inflows of $6.9 billion in the prior week. Last week's new plays (positions/opening prices/strategy): Cooper (NYSE:CAM) MAY45P/MAY50P $0.60 credit bull-put Microchip (NSDQ:MCHP) MAY35P/MAY40P $0.55 credit bull-put Applied Mat. (NSDQ:AMAT) J03-30C/M30C $2.85 debit calendar Amer. Exp. (NYSE:AXP) J03-45C/M45C $3.20 debit calendar BMC Soft. (NYSE:BMC) MAY15C/MAY15P $2.00 debit straddle Emulex (NSDQ:EMLX) MAY30C/MAY30P $4.80 debit straddle Veritas (NSDQ:VRTS) MAY30C/MAY30P $4.75 debit straddle Andrx (NSDQ:ADRX) MAY50C/MAY35P $0.40 credit synthetic The volatile market activity did little to help the bullish plays in our portfolio but the movement was a boon to our new straddle candidates. Both Emulex and Veritas traded near recent lows and there is excellent potential for further downside activity in the near future. The Veritas straddle is currently profitable but we will need additional declines in both issues to achieve favorable gains. The BMC straddle is not expected to yield a profit until the company's quarterly earnings announcement in early May. One play that offered an acceptable short-term gain was the bullish synthetic position in Andrx. The initial credit was higher than expected, due to the opening slump on Monday and the issue moved higher later in the week, providing a profit of $0.65-0.75. In the credit-spreads category, Cooper Cameron is off to a good start with the bullish activity in the Oil Service sector but Microchip is testing a recent support area and will require monitoring over the next few days. The calendar spreads were a mixed offering with American Express providing a good entry opportunity while Applied Materials slid below a short-term trading-range bottom, suggesting further downside activity. Portfolio Activity: There was little significant activity this week in the Spreads portfolio however the volatility in stock prices did benefit a few of our debit straddles. Celera Genomics (NYSE:CRA) moved to a new 2-year low, providing another profitable trading opportunity in the long-term position. The straddle has now offered a near break-even exit on both sides of the initial strike price and there is over a month until the options expire. CVS Corporation (NYSE:CVS) and Viacom (NYSE:VIA) are also at recent lows and may yet achieve profitability in their respective positions. The most successful straddles for the month of May were Mirant (NYSE:MIR) and Reliant Resources (NYSE:RRI) and the neutral-outlook position in J.P. Morgan Chase (NYSE:JPM) also earned a small profit during the recent rally. Among the older positions, Abercrombie & Fitch (NYSE:ANF) has retreated after achieving a 9-month high and NRG Energy (NYSE:NRG) has traded in a small range since the play was initiated, thus they are both candidates for early exit. Advanta (NASDAQ:ADVNB) is a relatively new play and has over 3 months to become profitable. In the remaining categories, the Pactiv (NYSE:PTV) calendar spread has been an outstanding performer, providing a favorable profit after two months in play and the issue closed the week exactly at the sold strike of $20. A similar position in Dupont (NYSE:DD) also produced a small profit but the issue has recently moved out of a long-term trading range and readers in the spread should consider closing the play to preserve capital. Unfortunately, the "bottom-fishing" play in Edison (NASDAQ:EDSN) was curtailed by a slew of downgrades issued a few days after it was initiated and the spread was closed this week for a small loss as the stock fell below technical support at $12. In the credit-spreads group, the bearish position in Eli Lilly (NYSE:LLY) is comfortably profitable but the bullish play in Applied Materials (NASDAQ:AMAT) is under close scrutiny. In addition, traders who participated in the Oil Service Holders Trust (AMEX:OIH) position were prompted to close (or adjust) the bullish play by Tuesday's rally to a new high and thankfully, they were assisted in that activity on Wednesday by a fortuitous consolidation in oil shares. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** GSF - GlobalSantaFe $35.33 *** Drillers Rally! *** GlobalSantaFe (NYSE:GSF) is a holding company that conducts its operations through Global Marine Drilling Company (GMDC), Global Marine International Drilling Corporation (GMIDC), Challenger Minerals Inc. (CMI), Applied Drilling Technology Inc. (ADTI) and Global Marine Integrated Services (Europe) (GMIS), a division of one of the company's foreign subsidiaries. The company's three primary lines of business consist of contract drilling, drilling management services and oil and gas. The contract drilling business provides manned, mobile offshore drilling rigs to oil and gas operators on a daily rate basis, which is also referred to as day-rate drilling; drilling management services business or turnkey drilling, designs, develops and executes specific offshore drilling programs and also delivers a loggable hole to an agreed depth for a guaranteed price; the oil/gas business participates in exploration and production activities. We found this position in the scan for Covered-Call and Naked-Put candidates and based on the recent (bullish) activity in the Oil Service group, the issue has excellent potential for future upside movement. In addition, GlobalSantaFe was upgraded by analysts at Merrill Lynch and Deutsche Securities after a favorable quarterly earnings report and the technical indications suggest the issue will continue higher in the coming weeks. PLAY (speculative - bullish/synthetic position): BUY CALL JUN-40 GSF-FH OI=198 A=$0.65 SELL PUT JUN-30 GSF-RF OI=22 B=$0.50 INITIAL NET CREDIT TARGET=$0.05-$0.10 TARGET PROFIT=$0.50-$0.75 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $925 per contract. ****************************************************************** BJS - B.J. Services $37.58 *** Oilfield Services *** BJ Services Company (NYSE:BJS) is a provider of pressure pumping and oilfield services serving the petroleum industry worldwide. The company's pressure pumping services consist of cementing and stimulation services used in the completion of oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. The company's oilfield services include product and equipment sales for pressure pumping services, tubular services provided to the oil and natural gas exploration and production industry, commissioning and inspection services, provided to refineries, pipelines, offshore platforms and specialty chemical services. Analysts are optimistic about the prospects for a recovery in the Oil Service sector as supply and demand fundamentals improve and the price of crude stabilizes. Investors are apparently in agreement with that positive outlook as they have pushed BJS to an 11-month high and traders who believe the bullish trend will continue can profit from that outcome with this position. PLAY (conservative - bullish/credit spread): BUY PUT MAY-32.50 BJS-QZ OI=324 A=$0.30 SELL PUT MAY-35.00 BJS-QG OI=332 B=$0.55 INITIAL NET CREDIT TARGET=$0.30-$0.35 PROFIT(max)=14% ****************************************************************** CI - Cigna $107.46 *** Health Insurers - Safety Sector! *** CIGNA Corporation (NYSE:CI) and its various subsidiaries are an investor-owned employee benefits organizations in the United States. Its subsidiaries are major providers of employee benefits offered through the workplace, including health care products and services, group life, accident and disability insurance, retirement products and services and investment management. CIGNA's operating divisions include Employee Health Care, Life and Disability Benefits, CIGNA Group Insurance, Employee Retirement Benefits and Investment Services, and International Life, Health and Employee Benefits. The company's Other Operations include the recognition of deferred gains on the sales of CIGNA's individual life insurance and annuity business and reinsurance business, and the results of CIGNA's retained reinsurance business, corporate life insurance business, settlement annuity business, and non-insurance operations. The majority of the nation's major health insurers have reported favorable earnings this quarter and Cigna is expected to post profits of $1.88 a share, up from $1.76 a share last year, when the company announces earnings in early May. Cigna struggled during the past year with escalating medical costs that reduced the company's profitability but analysts say they have corrected the problem. Traders who agree with that outlook can speculate on the upcoming report with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT MAY-95 CI-QS OI=402 A=$0.40 SELL PUT MAY-100 CI-QT OI=216 B=$0.95 INITIAL NET CREDIT TARGET=$0.60-0.70 PROFIT(max)=14% ****************************************************************** QLGC - Qlogic $43.86 *** Another Earnings Play! *** QLogic Corporation (NASDAQ:QLGC) simplifies the process of networking storage for OEMs, resellers and system integrators with the only end-to-end infrastructure in the industry, consisting of award-winning controller chips, host bus adapters, network switches and management software to move data from the storage device through the fabric to the server. QLogic designs and produces solutions based on all storage network technologies including SCSI, iSCSI, InfiniBand and Fibre Channel. QLogic is a member of the S&P 500 Index and was recently ranked 25th on Forbes' Best 200 Small Companies and 21st among Fortune's 100 Fastest Growing Companies. QLogic plans to announce its fourth quarter and fiscal year-end financial results after the close of the equity markets on May 7 and based on the recent technical indications, investors are not expecting favorable results. On Friday, the issue closed below a recent support area at $45 and QLGC is now at a "key" moment with regard to its technical outlook. A move below the current range would suggest further downside activity and in the unlikely event of a recovery, the first area of resistance, near the sold strike at $50, will provide a reasonable margin of safety (and time) for any exit or adjustment transactions. PLAY (conservative - bearish/credit spread): BUY CALL MAY-55 QLC-EK OI=2577 A=$0.35 SELL CALL MAY-50 QLC-EJ OI=3605 B=$0.90 INITIAL NET CREDIT TARGET=$0.60-$0.70 PROFIT(max)=14% ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** CNXT - Conexant Systems $10.14 *** Reader's Request *** Conexant Systems (NASDAQ:CNXT) provides semiconductor system solutions for communications applications. Conexant Systems' expertise in mixed-signal processing allows it to deliver integrated systems and semiconductor products that facilitate communications worldwide through wire-line voice and data communications networks, cellular telephony systems and emerging cable, satellite and fixed wireless broadband communications networks. Conexant operates in two primary business segments: the Personal Networking business and Mindspeed Technologies, the company's Internet infrastructure business. One of our readers asked for an inexpensive straddle candidate to use as his first attempt with the strategy. CNXT is a low priced stock that meets our criteria for a favorable straddle; cheap option premiums, a history of adequate price movement and the potential for volatility in the stock or its industry. This selection process provides the foremost combination of low risk and potentially high reward but, as with any position, it must be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-10 QXN-EB OI=1154 A=$0.80 BUY PUT MAY-10 QXN-QB OI=439 A=$0.65 INITIAL NET DEBIT TARGET=$1.25-$1.30 TARGET PROFIT=15-25% - or - PLAY (conservative - neutral/debit straddle): BUY CALL JUN-10 QXN-FB OI=31 A=$1.15 BUY PUT JUN-10 QXN-RB OI=86 A=$0.95 INITIAL NET DEBIT TARGET=$2.00 TARGET PROFIT=25-40% ****************************************************************** RIMM - Research In Motion $18.09 *** Reader's Request! *** Research In Motion Limited (NASDAQ:RIMM) designs, manufacturers and markets wireless solutions for the mobile communications market. Through the development and integration of hardware, software and services, RIM provides solutions for seamless access to time-sensitive information including e-mail, messaging, Internet and intranet-based applications. RIM technology also enables an array of third party developers and manufacturers in North America and around the world to enhance their products and services with wireless connectivity. RIM's portfolio of products includes the RIM Wireless Handheld product line, the BlackBerry wireless e-mail solution, embedded radio modems and software development tools. Here is another low-cost candidate for very speculative straddle traders, based on analysis of its historical option pricing and technical background. In addition, the issue has a history of multiple movements through a sufficient range in the required amount of time to justify the overall risk of the position. As always, review the play individually and make your own decision about the future outcome of the position. PLAY (very speculative - neutral/debit straddle): BUY CALL MAY-17.50 RUL-EW OI=79 A=$1.70 BUY PUT MAY-17.50 RUL-QW OI=1060 A=$1.10 INITIAL NET DEBIT TARGET=$2.50-$2.60 TARGET PROFIT=15-25% ****************************************************************** QQQ - Nasdaq-100 Trust Series $31.04 *** Trade The NASDAQ! *** The Nasdaq-100 Trust Series I is a pooled investment designed to provide investment results that generally correspond to the price and yield performance of the Nasdaq-100 Index. With Nasdaq-100 Index Tracking Stock, you can buy or sell shares in the collective performance of the Nasdaq-100 Index and the transaction gives you ownership in the 100 stocks of the Nasdaq-100 Index. When you purchase Nasdaq-100 Index Tracking Stock, you're investing in the Nasdaq-100 Trust, a unit investment trust that holds shares of the companies in the Nasdaq-100 Index. The Trust is designed to track the price and yield performance of the Index, thus you can expect your Nasdaq-100 Index Tracking Stock to move up or down in value when the Index moves up or down. As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific industry group or on the market as a whole. Option premiums are at historic lows on the QQQ and traders who think the volatility in technology stocks will continue this month in the wake of the recent NASDAQ sell-off can attempt to profit from that activity with this neutral-outlook position. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-31 QAV-EE OI=5947 A=$1.20 BUY PUT MAY-31 QAV-QE OI=40362 A=$1.10 INITIAL NET DEBIT TARGET=$2.10-$2.20 TARGET PROFIT=15-20% ****************************************************************** ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * Free Streaming Quotes with 5 or more trades per month * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor015 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************ MARKET WATCH ************ A few recent watch list plays worked real well in our favor. Let’s see if these two keep the winning ways going. To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/042802.asp ************** MARKET POSTURE ************** More movement late last week. Will the volatility return next week? Make sure to tune in your levels! To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/042802_1.asp ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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