The Option Investor Newsletter Tuesday 07-02-2002 Copyright 2002, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 07-02-2002 High Low Volume Advance/Decline DJIA 9007.75 -102.00 9135.82 8960.54 1.71 bln 687/2334 NASDAQ 1357.85 - 46.00 1396.25 1356.03 2.66 bln 887/2630 S&P 100 470.11 - 8.85 479.59 468.24 Totals 1564/4964 S&P 500 948.09 - 20.56 968.65 945.54 RUS 2000 432.84 - 14.89 447.73 432.53 DJ TRANS 2619.88 - 80.00 2709.01 2617.11 VIX 33.69 + 3.13 34.64 31.33 VXN 59.57 + 2.12 61.93 58.95 TRIN 2.33 PUT/CALL 1.08 ************************************************************* When is a Retest Complete? The intraday reactionary low for the S&P on 9/22 was 944.75. The same low for the Dow was 8062.34. The low on the broadest index of all, the Wilshire 5000, was 8722. Today one of those levels came very close to following the OEX, NDX and COMPX into the record books. The SPX dropped to a low of 945.54 and came within three points of the 944.75 low three times. All eyes were riveted to the index as each sell off attempt failed. Chart of the Nasdaq Chart of the Dow The day started out bad and got worse. Almost every major tech sector was hit with a barrage of downgrades and earnings warnings. Morgan Stanley led the charge with a downgrade of 16 chip equipment stocks. Morgan said chip-sector capital spending will drop more than 20% for the year and forecast an increase of only +20% next year. Both estimates were even worse than previous forecasts. They said the recovery is underway but growth and earnings estimates were unrealistic. This was just the beginning of the bad news for the morning. Prudential cut estimates of KLAC saying growth estimates were overly optimistic. Salomon Smith Barney cut NSM saying the PC market was weaker than previously thought and the mobile phone business may soften. They also said NSM was seeing a slow down in flat panel components. They said the buildup of inventory was troubling and any increase in orders would go towards reducing the buildup and not new production. They also cut RTEC to a hold citing competition concerns and uncertainty. All in all this is the deathblow for semiconductors. According to First Call the consensus revenue forecasts for chip equipment makers for 2003 will grow by +40%. According to analysts this is highly unrealistic when measured by the capital spending plans of chip makers and the IT sector. With growth prospects now at +20% and dropping these 2003 estimates will soon be dropping like a rock. This makes the already overvalued chip companies even more pricey. Morgan Stanley said it was increasingly doubtful that the chip makers would actually spend the money budgeted for capital improvements. The SOX lost -5% and closed at 1998 lows. To further complicate matters Merrill slashed estimates on PC makers and estimates for PC demand. Merrill said its growth prospects for PC demand were cut to +2.5% this year from 10.5%. They cited weakness in state government spending, lack of corporate spending and increasing signs of decreased consumer spending. They only cut estimates on Dell by -4% claiming it had a strong competitive position. Worries continue however for IBM, HPQ, GTW and companies that depend on them for sales. Intel closed at 16.56 and a low not seen since April 1998. Communication chip companies were caught in the downdraft as well with QCOM, MOT and NOK fighting for market share of a market that could be shrinking instead of growing. These companies have been making chips and phones as fast as possible and inventory levels are suddenly spiking as demand slows. Looks like a common thread across all the tech sectors! SSB also cut estimates for CSCO and EXTR. The analyst said it appeared the summer doldrums came a month early to the sector citing flat sales. They cut growth estimates for CSCO to +1% for the July quarter and slashed revenue estimates by -$600 million. He warned that if Cisco was unable to build an order backlog in July then the October visibility would be seriously diminished. According to the analyst this backlog was not happening. Due to seasonal trends June is when orders accelerate for the sector and those gains did not appear. The software sector was not spared with group downgrades by JPM. RATL and ADVS both warned and that triggered another wave of selling. SYMC, CHKP, MVSN, PSFT and SEBL were among those downgraded. The $GSO closed at 101.54 and an all time low. MSFT was not mentioned in the downgrades but finished at $51.44, down -1.22. The company did not warn and is at the lower end of its current trading range. We added it as a call play tonight on the rationale that any rally on Monday would see money going into bigcap techs because of their high liquidity. Enter it on any weakness on Friday but be aware of the weekend event risk. The storage sector took it on the chin after Lazard Freres started coverage on BRCD at "sell". Calling the expectations unreasonable and valuations unjustifiable they set a price target at $12. BRCD lost nearly $2 to close at 14.29. ELX closed at 19.77, down only -.76 cents but the old EMLX has lost over -20% since moving to the NYSE on June-24th. The scandals just keep coming. The big news today was that troubled Vivendi may have tried to pull some accounting tricks and the stock dropped -20% to close at 17.76. This does not surprise market watchers as more and more analysts are saying the bubble gains fueled unrealistic expectations and the crash has caused many to try and cover up those problems with bogus accounting. First Call, the keeper of earnings estimates, said that they foresee more scandals ahead as the SEC takes a more detailed interest in company financials. The warning flag is out and those with problems know their days are numbered. They can either come clean on their own or be found out by the scores of independent researchers currently ripping financials apart. Either way the next quarter will be full of surprises. Despite the unknown there are plenty of problems. Chuck Hill of First Call said the current second half earnings estimates are unrealistic and could come down at an alarming rate. Already the 3Q has seen estimates drop from 22% to 17% and should fall much further. He feels analysts are behind the curve and will race to catch up as the 2Q earnings are announced. Chuck sees the second half as choppy at best with no real growth until 2003. What a cheerful outlook! According to First Call the warning ratio is 1.2:1, warnings to affirmations. Earnings begin next week and unfortunately many of them may have lowered guidance. This is not a positive environment for a rally over terrorist fears. Speaking of terrorist fears the government went on record again with another global warning for the coming weekend. They caution about attending crowded events both here and abroad. This is the number one weight on the market today. The fear of the unknown. The S&P closed only four points away from the 9/11 reaction lows and there were several attempts to rally from that level. They all failed. The market appears determined to move lower on the earnings, accounting and terror problems but this selling urge should dissipate some on Monday. It may not be gone but the normal ebb and flow of the markets should return. With the Nasdaq at a five year low and the continuing flood or warnings and downgrades it will not be the Nasdaq that races to the rescue. It is already below the 9/11 lows and still dropping. 25% of the Nasdaq 100 are at 52-week lows or lower. The event risk will be the predominate mover of the markets on Wednesday. There is no way to factor into already severely oversold markets another attack with massive deaths. The declining volume tells the tale. On the NYSE the down volume was 1.5 billion and the up volume only 182 million shares. Nearly a 10:1 ratio. If you subtract the 820 million shares of WCOME traded on the Nasdaq you are left with 1.6 billion down volume and 229 million shares of up volume. I have not heard the word capitulation as much this week since the sell offs have been gradual and orderly but the better than 7:1 down volume should be a clue. Advances were severely beaten by declines 1564 to 4964 on a combined basis. Where am I going with this? You can't factor in the terrorist problem but you can factor in the severely oversold conditions. What I expect is a very extreme move on Monday. Up or down we should move very fast. Several readers have asked about a straddle or strangle. We know there will be a multiple hundred point Dow move in at least one direction. Using the DJX because they are cheap options you could do a July-90 straddle for $4.50 net debit. (2.35 call and 2.15 put) However this would require a significant move to break even. The 88/92 strangle would make more sense at a net debit of $2.85. You would have less invested but still need a significant move. Using the OEX options the numbers get even more out of line with the 470 straddle costing over $26.00. The best vehicle in my opinion is the QQQ with narrow strikes and cheap options. The 24.00 straddle is only $2.40 and the 23/25 strangle is only $1.50. It is highly likely that the QQQ could see a 2.5 point move in either direction which would make this strategy profitable. However, regardless of those options above the best strategy would be to just wait. Without any tragic event over the weekend the markets are likely to rally back to resistance again. The odds are better than 50/50 that once the relief rally is over the markets will fall victim to the earnings problem and roll right back over again giving us a great entry point for another directional put play. Should we be attacked again the markets will crash and push us into another reaction low like we saw in September. This would provide another opportunity for a long directional play on the rebound. Both of these scenarios require ready cash to play. If your risk capital is tied up in a straddle or strangle and you find yourself trying to wish/hope the markets back to a breakeven position then you can miss out on the best play of all. To me the event risk is not being in cash with an open mind and ready to capitalize on whatever the markets give us on Monday. Do you really want to spend your holiday worrying that a Monday relief rally will not occur? Do you want to spend the weekend hoping for an attack where innocent people die? I doubt you will answer either question with a yes. Take the weekend off and relax with your family. You never know if the next attack will hit somebody YOU know. Leigh Stevens worked at Cantor Fitzgerald and lost dozens of friends in the WTC attack. For millions of us the attack was a news event. For thousands it was very personal. Let's just pray the weekend is peaceful and wait to worry about the markets until Monday. Enter Very Passively, Exit Aggressively! Jim Brown Editor There will be no newsletter on Thursday July 4th. ******************** INDEX TRADER SUMMARY ******************** BUYER'S HOLIDAY TRADING ACTIVITY AND OUTLOOK - Potential equities buyers must be in the holiday mood already as they get ready for a slightly apprehensive 4th. Or, maybe they want to go home, to the shore, country, mountainside or beach for a long weekend and not have any stocks to think about - like what the heck will it (the MARKET!) do on Monday, particularly if someone or group gets blown up and all that perspective horror show that has been brought to our homeland - no security quite yet. Maybe we can take it more in stride when we get used to living with a certain amount of such man-made chaos, like they have done in Europe. You may remember visiting most any decade to such global outposts where the guards had machine guns at the ready and looked like they knew how to use them. The lack of buying interest is really noticeable - in period of uncertainty, investors don't short stock, they stop buying. As Art Cashin says, they "keep their wallets in their pockets". Art has toiled for many years at PaineWebber and he deserves all the attention he gets cause he is a real market pro - you can catch him only during market hours on CNBC however. S&P 500 (SPX) & 100 (OEX) Indexes - Daily charts: We are at a key "test" in the S&P 500 Index, as it closed right above its September low at 945. A weaker opening on more news and bearish revelations like streaming out of WorldCom will tip SPX to under this prior low. That one (Sept.) was a "panic" type sell off - the current decline is the other aspect of bear markets - the drip or erosion method. That is, everyday, every week, your stocks lose more in value. I tend to think that with stocks at such oversold extremes and the VIX (CBOE Volatility) index at a new closing high above 33, that - this is the contrarian in me - that with everyone rushing for the exits, the "seeds" of the opposite are being planted. We're due for a rally, but at what level? Stay tuned. The hourly charts will give us a better picture of possible downside targets - what has been "working" is those darn channel lines in terms of defining interim lows - you know those ones that set up next rally for shorting. Looks like 937 is a quite possible objective in SPX assuming 945 gives way (the prior low was 944.75 to be exact) and I don't assume the BEST on a close on a close-on-the-low kind of day. Resistance is likely on a move back up to 953, then to the 970- 971 area. For the adventuresome among us, buy the dips into the 937-935, risking to 934. From this area (937-935) the risk to reward is bad on new shorts, possibly decent on new longs. Or, just take some profits on puts, and rest for the battles next week. Friday is a half-day session, so don't expect any big contest then. In the OEX, the 465 area looks a possible next downside target, assuming that the index will once again, reliably move to the low end of the channel and form another swing bottom. The upswings are somehow less fun to play as you hold your breath while it feels like you are pushing the ball up hill. The downswings are like the thrill of sledding downhill - whereas the rallies are like pulling the sled back up to the top. OEX resistance (sell pressure) looks like it will come into play again on a move up to 480, then 488. Like the SPX, buying the low end of the channel, if reached - in the case of OEX, in the 465 area - may shape up as a place to buy, even if only to cover some puts. If stabilization develops in this area, I'll suggest buying in this area, but want to SEE it first. Hopefully we could have as long to buy it has the few hours that you had to short/buy puts at the recent top - when it built a nice little "flat top" on the hourly charts. Dow Index (1/100: $DJX.X) - Daily/Hourly charts: Intel (-5.5%) was the most influential tech Dow stock that got slammed again today. Telephone (AT&T) was down more on a percentage basis but pointwise, it was off only 63 cents. The Dow is a price-weighted index so larger priced stock moves are influential beyond what is the case with price and capitalization indexes like the S&P. Money was fast coming out of Home Depot (-5%), Merck (-3.7%), Hewlett Packard (-3.1%), Citigroup (-2.7%), Microsoft (-2.3%) and Alcoa (off 2.2%). Money was going IN to Coke, IBM (overdone on the downside yesterday), Phillip Morris and Johnson & Johnson. A mixed bag. The only constant is that stocks with steady earnings and earnings growth (e.g., KO) are holding their own or rising a bit even in such a bearish climate as today. The downside price channel intersects in the 87.7 area currently. I think the pattern I'm seeing on the hourly chart suggests that DJX can get to or near this target. I would be looking to buy in the 87.7-88.00 area in DJX, if reached. Resistance is at 90.8-91.0. 89.3, at the prior low has not been "tested" (as support) - but, stay tuned! A little push under Dow 9,000 and look out below. My major downside target on DJX, based on the Head & Shoulder's top on the daily chart remains at 88.6. Hey, were almost there! Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: Looks lower to me! The last consolidation on the QQQ hourly chart has the appearance of a bear flag, ahead of a next downswing. Where could that next swing low be? 23.3 is target that I have and it's not far away. We have already slipped under the 5% lower envelope line - some more "give" to that line would not be a stretch to the bear brain here. Lets call 23-23.30 as an area to be alert to a turning point and a possible upside reversal initially fueled by short- covering. There is some buying interest around current levels in enough Nasdaq 100 stocks to get a decent trading bounce IF the key Nas stocks like INTC, CSCO and MSFT stop declining. MSFT still has this bottoming pattern intact - barely. Besides Microsoft however, at least one of the other "big-3" tech stocks needs to participate. Resistance looks like 24.4-24.6, then 24.8 - 25.2, with emphasis on the later number - 25.2 was the recent "breakdown" point and should offer significant resistance on a rally back up to this area. Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ **************** MARKET SENTIMENT **************** How Low Can It Go? By Eric Utley I bet that question is on the minds of a lot of investors these days. Let’s take a look at some of the numbers being run through the minds of investors tonight. The Nasdaq-100 (NDX.X) in triple digits at 964, the first time it’s closed in triple digits since January of 1998. The S&P 500 (SPX.X), of course, is in triple digits, too. But the level that concerns technical analysts most is 940, which is near where the index closed Tuesday. The 940 level is being watched by most chartists on the Street for its implications of a break of the long-term head and shoulders that is so obvious on the weekly chart. IBM (NYSE:IBM) last traded at $68 and change; Intel (NASDAQ:INTC) was going for $16.50; a share of Lucent (NYSE:LU) costs you a buck or two; a share of WorldCom (NASDAQ:WCOME) sells for a dime these days. It’s simply amazing to think from where we’ve come in the last two and a half years. Yet for one reason or another, the public keeps hope alive. The public refuses to throw in the towel. And until the public quits, until all hope is lost for stocks, until stocks is a four-letter word, the market is going to go lower. We’ve talked about the need for capitulation in this column. Indeed, the signs have been in the numbers, but each time they’ve proven premature. The readings in the ARMS Index (INDEX:TRIN) are once again in extreme overbought territory, but this indicator has a lot of credence this year in my opinion. The bullish percent figures are dropping to near historic lows, with the Nasdaq-100 bullish percent ($BPNDX) a stock away from single digits. The advancing versus declining volume was horrendous Tuesday. Some 90 percent of Tuesday’s volume was down volume. And forget about the new high/new low index. All signs point to the inevitable washout, but each time the market stares into the abyss, it’s brought back by that lingering hope of a rally. I’m not smart enough to predict if or when a capitulation will come, so thereafter the market can begin the healing process. It seems we’re getting closer with each passing day. But I’m starting to question whether or not we get a capitulation in this bear market. John Bollinger, one of the few CNBC guests that I pay attention, held an interview last week in which he suggested that this bear market would not end with a big washout event. I’m starting to agree with him. A slow bleed lower seems like the course ahead. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 9008 Moving Averages: (Simple) 10-dma: 9241 50-dma: 9791 200-dma: 9811 S&P 500 ($SPX) 52-week High: 1316 52-week Low : 945 Current : 948 Moving Averages: (Simple) 10-dma: 986 50-dma: 1049 200-dma: 1099 Nasdaq-100 ($NDX) 52-week High: 2071 52-week Low : 1089 Current : 964 Moving Averages: (Simple) 10-dma: 1034 50-dma: 1185 200-dma: 1397 Bank ($BKX) The BKX was the best performing sector on my list today. It lost 1.37 percent for the day. Pretty sad state of affairs. The BKX was propped up by J.P. Morgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Banc of America (NYSE:BAC). 52-week High: 924 52-week Low : 691 Current : 804 Moving Averages: (Simple) 10-dma: 825 50-dma: 865 200-dma: 844 Gold ($XAU) The XAU was the worst performing sector during Tuesday’s slide in stocks. Not even the once defensive gold stocks could muster a bid. They got slammed for 6.55 percent! Leading downside movers included Gold Fields (NYSE:GFI), Agnico Eagle Mines (NYSE:AEM), Anglogold (NYSE:AU), Harmony Gold (NASDAQ:HGMCY), and Placer Dome (NYSE:PDG). 52-week High: 89 52-week Low : 49 Current : 70 Moving Averages: (Simple) 10-dma: 76 50-dma: 79 200-dma: 64 ----------------------------------------------------------------- Market Volatility The VIX finished much higher relative to the VXN Tuesday. The VIX gained more than 10 percent, while the pop in the VXN was good for just under 4 percent. The key here is if the two can take out their relative highs hit last week. CBOE Market Volatility Index (VIX) - 33.64 +3.08 Nasdaq-100 Volatility Index (VXN) - 59.59 +2.14 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.08 561,563 606,082 Equity Only 0.92 418,184 382,308 OEX 1.64 26,742 44,034 QQQ 0.86 55,355 47,345 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 47 - 2 Bull Correction NASDAQ-100 10 - 3 Bear Confirmed DOW 30 + 0 Bull Alert S&P 500 36 - 2 Bear Confirmed S&P 100 33 - 2 Bear Confirmed 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 1.67 10-Day Arms Index 1.76 21-Day Arms Index 1.49 55-Day Arms Index 1.39 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 804 2468 NASDAQ 881 2598 New Highs New Lows NYSE 50 220 NASDAQ 33 304 Volume (in millions) NYSE 1,805 NASDAQ 2,718 ----------------------------------------------------------------- Commitments Of Traders Report: 06/18/02 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 Get this, S&P commercials grew less bearish by a wide margin last week. They brought in their net short position by about 18,000 contracts. Not by surprise, small traders grew less bullish by about 12,000 contracts. Commercials Long Short Net % Of OI 06/04/02 369,298 440,027 (70,729) (8.6%) 06/11/02 388,751 457,018 (68,267) (8.1%) 06/18/02 437,530 487,956 (50,426) (5.4%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 06/04/02 167,713 58,885 108,828 48.0% 06/11/02 174,357 69,464 104,893 43.0% 06/18/02 181,178 88,517 92,661 34.3% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 114,510 - 3/26/02 NASDAQ-100 Nasdaq commercials eased off of their recent bullishness by adding back a few more shorts. Small traders went in the opposite direction by adding a few more longs than shorts. Commercials Long Short Net % of OI 06/04/02 47,875 39,100 8,775 9.3% 06/11/02 45,946 36,878 9,068 10.9% 06/18/02 54,816 49,169 5,647 5.4% Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/04/02 12,162 21,420 (9,258) 27.2% 06/11/02 14,561 25,330 (10,769) 27.0% 06/18/02 20,883 29,153 (8,270) 16.5% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Dow commercials bought into the weakness last week to the tune of more than 3,000 contracts added to their net bullish position. Small traders made the money. They added to their net short position by more than 4,000 contracts. Commercials Long Short Net % of OI 06/04/02 20,564 16,169 4,395 11.0% 06/11/02 20,369 17,172 3,197 8.5% 06/18/02 25,995 19,115 6,880 15.1% 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 06/04/02 7,114 9,639 (2,525) (14.7%) 06/11/02 7,500 9,925 (2,425) (13.9%) 06/18/02 5,379 11,813 (6,434) (37.2%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *********************** INDEX TRADER GAME PLANS *********************** THE SECTOR BEAT - 7/2 by Leigh Stevens Well, nothing could escape today and there is no "green" showing on my sector-board! We could say what is off the least, which I will do as a matter of possible interest. "A" for Airlines and you have a sinking "ship". The free fall in the Airlines sector (XAL) is hardly noticed any longer, but XAL is fast approaching its Sept. low at 58.8 which is noteworthy, versus the close today of 62.5. This surprised me, as somehow I thought it was under that post-9/11 panic low already. The Amex Composite, along with the other small and mid cap "champions", the S&P 600 Small Cap and the Russell 2000, was off today, but (also typically) less than most other sectors. The Biotech stocks were off again, with the Biotech Index sinking a substantial further 4% today - it sank to a new intraday and closing low in both the index (BTK) and the HOLDR's (BBH) - stopping me out I might add, of the HOLDR'S, which was an attempt to play an oversold bounce. The bounce was not a RE-bound like a ball, but only a thud like a "dead cat" bounce. The Defense Index ($DFI.X) was not the biggest loser but the index is now accelerating to the downside, fulfilling the expectation of the Head & Shoulder's Top pattern, I've been pointing out for a while now. The Home Construction sector was not immune today - this index looks like it is topping out to me, but is above support so the jury is out on this group. Healthcare (HMO) also retreated further - has now given back 50% of its March-June strong advance. The Health Providers Index ($RXH.X) is outpacing the fall of the HMO health "Payors" substantially - falling nearly 5% in two days, versus 3.5% for HMO over the first two days of the week - good thing it’s a short week! XAU, the index of Gold & Silver mining and production companies fell below its recent trading range - looks like another downswing is ahead per my target of a further move to the 64 area, from around 70 today. The recent rally was a bust and selling opportunity - you heard it here first folks! Natural gas, oil and oil services took it on the chin too. Natural gas didn't hold its line of prior support and oil services, which I have been bearish on, fell to under its 200-day moving average. Retail stocks ($RLX.X) continued to fall, but in the context of having had a good early year run up - sector has now retraced more than 50 percent, but less than 62. The Semiconductors (SOX) Index fell to a new low at 348.5 - the prior Sept. low at 344 is not far away now. Earnings downgrades are to blame - cut the earnings (expectations), whack the stocks down some more to get them in line. Good thing that Analysts are "infallible"! OFF LESS THAN 1% ON THE DAY ON Tuesday - Now this is new one - I've usually been able to show some "green" in this section of "UP on the day" - not today. Fear & loathing (of stocks) reigns instead - meanwhile, investors are saying "forgetaboutit!" to stocks and turning their attention to July 4th barbecues. DOWN ON THE DAY on Tuesday - In case you were wondering why the Goldman Precious metals index is off so little relative to the XAU - the former index represents the price of the metals held in a variety of ways (e.g., futures, bullion, etc.) whereas XAU, is an index comprising the stocks of the companies involved in production and sales of the metals. XAU reflects a built in expectation for the future rise and value of precious metals - if that built-in expectation for the gold stocks has projected earnings that assumes a rise in prices equal to Q1 when gold rose strongly, but instead gold prices level and then start falling off as has happened lately, the XAU stocks can fall even further than the metal prices. Nothing comes down faster than a stock that gets knocked down several rungs on reduced earnings projections. SECTOR TRADE RECOMMENDATIONS & REVIEW - NEW TRADE RECOMMENDATION(S) - NONE OPEN TRADE REC(S) - Short OIH at 64.00 or more; Stop at 67.2 (Oil Service HOLDR stock) NOTE: The Oil Service sector keeps slipping further away from my suggested entry - 7/2 close: 58.64 CANCEL ORDER - PRICE IS OUT OF RANGE OPEN POSITIONS - NONE TRADE LIQUIDATIONS - Sold BBH 75.15 on Stop-loss versus 79.10 entry (Biotech HOLDR's Trust stock) Sold HHH at 21.70 Stop-loss, versus 22.80 entry (Internet HOLDR stock) SECTOR HIGHLIGHT(S) - Defense Index; Amex ($DFI.X) STOCKS: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC SOME PRIOR COMMENTS: 660-661 level is the key "line" of technical resistance - reversal there signals further weakness ahead. The closing downside penetration of 620 "confirms" a Head & Shoulder Top pattern, with an objective down to the 565 area. TODAY: Now you would think with the build up of defense under Bush, that the defense stocks would continue to forge ahead and not be topping out, at least for now - WRONG! Stocks get ahead of themselves (ahead of their "fundamentals") and price all the good news in - now we find, with the tax cut and other social and homeland security obligations, etc., there are limits to how much defense spending can grow. UPDATE: 7/02 Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** 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 Tuesday 07-02-2002 Copyright 2002, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** AGN $62.10 -2.15 (-4.65) Since we added it, AGN has been a big disappointment. The breakout over the $65 level has now been reversed and the strong selling volume is not encouraging. Despite the strength the stock had been showing, it just can't buck the bearish action in either the BTK or DRG indices and the bears have now clearly reasserted their control. And to make matters worse, our stop was violated at the close on Tuesday. Use any sort of oversold rebound in the morning to exit at a more favorable level. DHI $25.48 -1.00 (-0.55) Another failed rally in the Home Construction sector ($DJUSHB) makes it clear that this isn't the place to be looking for tradable bullish moves. The DJUSHB rolled over at the $383 resistance level early in the day on Tuesday, and the effects were felt in shares of DHI, which gave up nearly 4% to end near the $25.50 level. While well off the intraday lows, our motivation for dropping the play is the sector weakness and the fact that DHI has been unable to make any upward progress since we began coverage. We're dropping coverage tonight, so use any continuation of the rebound to close open positions. QCOM $24.80 –1.63 (-2.71) The enthusiasm over QCOM’s raised guidance proved short lived after the last two day’s of downside movement in shares. We can thank WR Hambrecht for today’s weakness. The brokerage firm downgraded shares of QCOM from a buy rating to a market perform outlook based on their view that next year’s consensus estimates for earnings are too high. The news caused QCOM to fall back to its relative lows, which was the third retest of that support. The chances are good for a breakdown, so we don’t want to hang around to find out if support is going to hold again. Use any short term relief rally in the next two sessions to exit plays. PUTS: ***** ZLC $38.24 –0.26 (+1.99) On no news, ZLC exploded higher in yesterday’s session. The stock broke back above its resistance zone between the converged 10-dma and 200-dma. The breakout came on a slight increase in advancing volume, but the trading activity was abnormally high. What comes of ZLC’s reversal yesterday remains to be seen. We’re dropping coverage on the play because of the big reversal yesterday. Set a stop at Monday’s high at $38.90 or look to exit plays on weakness into tomorrow’s session. MXIM $35.68 -0.50 (-2.65) The Semiconductor sector (SOX.X) has been a favored target of the bears in recent weeks and that pattern continued today, with the SOX ending a mere 4 points above the September lows. That could be setting us up for a pretty strong rebound in the sector. Combine that with the fact that MXIM seems to be finding support at the $35 level has us leaning to the side of caution tonight. The fact that the stock hasn't broken down with so many of its other chip brethren leads us to conclude it could see some significant buying on a SOX rebound. So take advantage of the current weakness to lock in gains and focus on the next high-odds play. *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue DHI 25.48 0.45 -1.00 Dropped, losing technical position QCOM 24.80 -1.06 -1.63 Dropped, downgrade ended the run BA 44.54 -0.40 -0.06 Holding its own despite Dow selling ESST 16.01 -0.93 -0.60 Back to support on very low volume AGN 62.10 -2.50 -2.15 Dropped, drug sector weakness SNPS 52.23 -1.76 -0.82 Found support near 200-dma, entry? MSFT 51.44 -2.02 -1.22 New, big cap tech near support PUTS IBM 68.58 -4.40 0.98 Another breakdown around corner??? ZLC 38.24 2.25 -0.26 Dropped, unexplained rally, no news TDS 58.53 -0.65 -1.37 Moving steadily lower, new low next EMMS 18.91 -1.61 -0.67 Rolled over at 10-dma, $18 next??? KMI 37.60 0.28 -0.70 XNG.X broke down below its support EXPE 52.00 -1.88 -5.41 Closed on its 200-dma, big break??? LXK 50.37 -3.50 -0.53 Hardware woes help put holders!! MXIM 35.68 -2.15 -0.50 Dropped, showing signs of strength QLGC 34.43 -2.21 -1.46 Break down below long-term support XL 81.61 -1.67 -1.42 Broke down to new relative lows!! ACS 43.48 -1.83 -2.17 Outsourcing firms in the dog house LLY 52.12 -2.64 -1.64 Heavy selling hitting drug makers CAM 47.70 1.15 -1.87 New, breakdown in oil service group ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** PLAY UPDATES - CALLS ******************** ESST $16.01 –0.60 (-1.53) If you were looking for a better entry point into ESST, you certainly got it so far this week. The stock has been pulled lower by the weakness in the broader market in the first two days of this holiday shortened trading week. But we would note that the selling in ESST in the last two days has lacked conviction in the form of trading volume. Trading is measurably lower in the last two days from the recent norm that we’ve observed in ESST. The stock only traded 1 million shares during today’s session versus the close to 3 million average daily volume over the last month. The lack of volume to accompany the downside movement in the stock tells us that the weakness has been market related, and that ESST could snap back as soon as the market turns around. Look for a bounce in tomorrow’s session from above the $15 to $15.75 support area. Use a tight stop just below your entry to protect against any further downside caused by the market. BA $44.54 -0.06 (-0.46) What's the meaning of relative strength? Look at this for a comparison. The DJIA is down 235 points (2.5%) so far this week, while BA has shed a mere 46-cents (1.0%). Not only that, but even when the selling was at its worst on Tuesday, the bears couldn't push the stock significantly below the $44 support level and it came bouncing back in the afternoon session, closing down a mere 6-cents on the day. With all the easy pickings in other areas of the market, the bears are content to let BA rise on its own improving fundamentals, rather than fight the emerging bullish trend. Before we get carried away, we have to remember that the bulls still have to contend with resistance at $46 before they can think about challenging the $48 and then $50 levels. But without a doubt, intraday rebounds from the $43-44 area still look attractive for new positions. The wild card is the 4th of July weekend, and prudent investors will want to wait for an uneventful conclusion to the weekend before initiating new positions. Keep stops set at $41.50. SNPS $52.23 -0.82 (-2.58) Semiconductor stocks have been under heavy selling pressure again this week and negative analyst comments targeted at select chip companies this morning certainly didn't help with the bulls' indigestion. By the time the closing bell rang on Tuesday, the Semiconductor index (SOX.X) was sitting at $348, a mere 4 points above the September lows. If this is going to be a successful double-bottom for the SOX, we want to concentrate our bullish efforts on chip stocks that are exhibiting relative strength. And it is hard to find a better candidate than SNPS, which continues to find support near the $51 level, which happens to be the 38% retracement of the stock's rally off of the September lows. The key to SNPS staging a meaningful advance will be renewed life in the SOX, but a decent rebound off the lows could inject some excitement into shares of SNPS. Continue to use bounces from the $51-52 area to establish new positions, but keep stops tight at $50.50. The first proof that the bulls are gaining strength will be when SNPS scales the $56 resistance level, and that move could be used to establish new momentum-based positions. With the light volume which is expected between now and the close of trading on Friday, the prudent course of action may be to wait until Monday to establish new positions. ************** NEW CALL PLAYS ************** MSFT – Microsoft $51.44 -1.22 (-3.26 this week) Although best known for its ubiquitous Windows PC operating system, MSFT develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. The company's software products include scalable operating systems for servers, PCs and intelligent devices, server applications for client/server environments and software development tools. The MSFT's online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity. The issue of retesting the September lows is now a moot point, especially in the Technology arena, with the NASDAQ-100 now fully 125 points below its September lows. And numerous narrow sectors like the Biotechs (BTK.X) and Software (GSO.X) are well below those September lows. In contrast to this persistent weakness, MSFT (the king of all Software stocks) is holding up remarkably well. While it came down to test its September lows near $48 in early May, since then the stock has been posting a series of higher lows, as the bulls chip away at resistance in the vicinity of $56. In an environment of rampant rumors that this company or that company is going to miss earnings estimates or warn about not achieving earnings, MSFT has been experiencing slightly different rumors. In MSFT's case, the talk is that the company might surprise to the upside due to "coming clean" with 'extra earnings' the company has been saving up for a rainy day. These rumors are simply that and remain unconfirmed for the time being. But there is no arguing with the stock's relative strength. Sure, Tuesday's session was not particularly encouraging with the 2.3% decline, but if there is going to be a rally in Tech-land, MSFT is going to be one of the primary leaders. Dips into the $50-51 area look attractive for new positions, but we need to wait for the bounce before playing. Nobody wants to catch a falling knife! A volume-backed rally through the $53 level can be used for new entries as well, although the upside will continue to be limited by the $56 resistance level until a real rally breaks out. With the light volume expected through the remainder of this week, the prudent course of action may be to wait until next week before plunging into an uncertain market. Initial stops are in place at $48, just below the May lows. BUY CALL JUL-50*MSQ-GJ OI=30600 at $3.40 SL=1.75 BUY CALL JUL-55 MSQ-GK OI=47255 at $1.05 SL=0.50 BUY CALL AUG-50 MSQ-HJ OI= 1139 at $4.40 SL=2.75 BUY CALL AUG-55 MSQ-HK OI= 7742 at $2.05 SL=1.00 Average Daily Volume = 35.9 mln ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees • Easy screens for spreads, collars, or covered calls! • Contingent, Stop Loss, Trailing stop, or OCO • 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************* PLAY UPDATES - PUTS ******************* IBM $68.58 +0.98 (-3.42) After just managing to keep IBM below our $72.50 stop at the close last Friday, the bears were rewarded by a huge drop in the stock on Monday due to renewed fears about an earnings warning. With Big Blue coming to rest just above critical support in the $67 area yesterday, UBS Warburg threw the bulls a lifeline this morning, defending the stock and stating that its books are clean. The firm reiterated its $120 price target and although intraday trade was volatile, IBM ended the session with a gain of almost a dollar. Bearish traders are likely viewing the bounce with renewed hunger, figuring it for yet another opportunity to get short. We considered closing the play tonight, but given the possibility of a warning from the company, we're going to give it a couple more days. Use a failure of the current rebound near the $69-70 level to initiate new positions, but lower stops to $70.50, just above yesterday's intraday resistance. In the absence of a warning between now and then, we'll drop coverage over the weekend. LLY $52.12 -1.64 (-4.28) When we initiated coverage of LLY over the weekend, that $56 support level looked like it was in danger of being broken, but we had no idea that it would come so quickly and with such force. Heavy selling volume has been the theme for the past 3 days, and that $56 level failed first thing on Monday and the bears haven't looked back since. While the stock managed to find some support this afternoon near the $52 level, the Pharmaceutical index (DRG.X) appears to have given up all vestiges of support. Speaking of support, LLY doesn't appear to have any of consequence until the $50 level and today's downgrade from Bernstein certainly didn't help. An oversold rebound to the $54 level would provide for a solid entry point, although a real rally in the group could raise LLY to heavy resistance at $56.50 making for a great entry on the rollover. We are lowering our stop tonight to $57. Of course, a breakdown below the $52 support level on continued heavy trade would be just what momentum traders are looking for in order to add new positions. Just be sure to play with caution through the remainder of this week due to the expected light volume. LXK $50.37 -0.53 (-4.03) After adding our bearish play on LXK last week, we couldn't have asked for a better entry point. Monday's early rally attempt lifted the stock right to the $55 resistance level before the bulls ran out of conviction and the bears attacked with a vengeance. By the end of the first day of this holiday-shortened week, LXK was resting at its lowest closing level since late February and it didn't end there, with the stock falling further on Tuesday, finally finding some weak support at the psychologically important $50 level. Whether this level holds over the near-term likely depends on the action of the broad market, but judging by the PnF chart, there is still substantial downside to come. The PnF price target is currently $38. Now that the $55 level has been solidly broken, we can look for oversold rebounds to find solid resistance near there. Target new entries on a failed rally either at $52 or in the $54 area. Remember that our stop is currently resting at $54.50, limiting our upside risk. Momentum traders can consider new entries on a drop under the $50 level, but will want to make sure the breakdown is accompanied by heavy volume. That is unlikely to occur during the remainder of this week, as volume is expected to be light until traders return en masse on Monday. QLGC $34.43 -1.46 (-3.67) Offering proof of just how weak the Technology sector is right now, shares of QLGC barely paused from their decline yesterday to acknowledge the positive comments from Thomas Weisel. The firm said that QLGC offers the most potential for upside relative to June estimates and that channel checks suggest SAN implementations are up sequentially. The market just yawned and after the opening blip, it was all downhill into the close. Tuesday's session wasn't much better, with a gap down that filled in the middle of the day before the stock closed down by 4%. That makes for a nice day week for a hungry bear and those that have already harvested some gains would likely do well to take the rest of the week off (due to the expected light volume) and enjoy a few extra days off. But if you must play, look for a rollover in the vicinity of strengthening resistance at $36, with the possibility of a better entry near $37-38. As deeply oversold as the market has become, entries on a further breakdown need to be carefully monitored and followed with a tight stop. Lower stops to $38.25. TDS $58.53 –1.37 (-2.02) TDS has been a picture perfect put play so far. The stock continues to creep lower along with the broader telecommunications and technology sectors. It has displayed a pattern of rallying for one or two days to work of its short term oversold condition, only to be followed by another leg lower in the three month long downward trend that is in place. Given the current position of the stock, we would expect another leg lower in the coming days possibly to a new relative low in the trend. There may be a quick scalp trade over the coming sessions down to the next relative low. Of course we would take a big smash down move lower, but if the stock continues along its pattern, it could stage another rebound back to a more favorable entry point. If the stock does continue lower in the coming sessions, then look for a possible near term exit point near the $55 level, which could act as support. EMMS $18.91 –0.67 (-2.28) EMMS followed through by a small amount during last Friday’s session which brought an end to the short covering rally which helped to remove some of the oversold condition in the stock. Funny enough, and not by coincidence, the stock rolled over once again from its 10-dma in Friday’s session and again in yesterday’s session, which saw the stock’s intraday high reach the 10-dma. From there, it’s been another two days of heavy selling coming into EMMS which we suspect will continue into the short term and carry the stock ever lower towards its September lows. If you didn’t take an entry on the rollover from the 10-dma during yesterday’s session, continue to watch for short covering rallies to fail near that downward sloping short term moving average, which finished today’s session at the $21.28 level. It should fall further in tomorrow’s session after the last two days of weakness. Those looking for a momentum entry point into weakness can watch for a breakdown on a pick up in intraday trading volume below the $18 level during tomorrow’s session. From there we would expect a retest of the relative low reached during last week’s big sell-off down around the $16.75 level. You can use that level as a short term exit point, or wait for a break and confirmation below that level that the stock is heading lower. KMI $37.60 –0.70 (-0.42) The slow, steady movement lower in KMI continued over the last two sessions as the stock fell back below the $38 level which was broken late during last week’s trading. The stock is again approaching its low hit earlier this year in late February at the $36.81 level. The shorts might be targeting that level as an exit point. As such, a rebound from that level is possible if it’s reached in the next several sessions. We’ll take it as we see as KMI approaches that level. But until we get further confirmation of trend and weakness, and until KMI reaches that level, we favor taking new entries on a short covering rally that stops near short term resistance. That could mean a rollover from the downward sloping 10-dma which is coming down, now at the $39.37 level. There’s some congestion just below that level to $39 which may prevent KMI from reaching its 10-dma and offer a favorable rollover entry point into new put plays. Make sure to keep an eye on the Natural Gas Index (XNG.X) as well. The XNG.X finally broke down below the 155 level during today’s session, which we hope opens the way for further selling in KMI. Confirm the breakdown in the XNG.X tomorrow with a break below the 154 level. EXPE $52.00 –5.41 (-7.29) And like that, EXPE is more than $7 lower this week! The news flow from EXPE has been quiet so far this week, other than the announcement this morning that the company would replace its auditor at the request of USA Interactive. Never mind the news, the stock fell back down to retest the lows traced last week. Perhaps more importantly, EXPE fell to test its 200-dma for the first time in eight months. The test could lead the way to further downside movement in the stock if institutional investors decide to pull the plug on this one. Look for confirmation of a breakdown below the 200-dma with a decline below the $51 level in the coming days. Such a breakdown should be accompanied with heavy declining volume, which itself would help to confirm the breakdown. The stock may try to bounce from the $50 level for its psychological significance, but that much remains to be seen. If the $50 level does not hold over the near term, then it’s very possible that EXPE could trade down to its next support level down near the $42 to $43 range. We’ll target that support zone for an exit point if the 200-dma is broken in the coming days. XL $81.61 –1.42 (-3.09) XL continued lower into today’s session after attempting a feeble rally attempt during last Friday’s session. The subsequent inside day that was traced during Friday’s session set up a most favorable entry point upon the breakdown in today’s session. The stock fell below its short-term support levels and in doing so hit a new relative low in its three month long descending trend. From here, the stock is poised to fall further as the bids seem to be drying up at an increasing rate. The stock has very little in the way of support below current levels because of its sharp rise last fall from the $65 level to up above the $85 level. The lack of support may help to accelerate the downside in XL over the coming sessions given its breakdown below support in today’s. The only meaningful technical level that we can find as support is the 200-WEEK moving average which is coming up at the $70 level. That’s still more than $10 away from current levels, and we’ll obviously take that downside from here! Traders can try entering new put plays into further weakness in tomorrow’s session, but as we’ve seen in the recent past, XL has the propensity to sell off for two or three days to a new relative low, then rebound for one or two days back up near declining resistance. With that said, we’d prefer to take entries following a short term relief rally, which would help to remove some of the stock’s short term oversold condition. ACS $43.48 –2.17 (-4.00) It has been a wild last couple of sessions for ACS. Fellow outsourcing firm EDS has been in the spotlight for various reasons, which has translated into measurable weakness in ACS in the last two days. The stock’s rollover from its 10-dma in yesterday’s session was followed by a steep sell off that carried over into today’s session. The selling didn’t subside until ACS broke down below the $42 level in today’s session. The stock did rebound, but not before a lot of technical damage had already been done. Given the breakdown below the congestion zone traced earlier this year in February, we suspect that ACS will head lower into the coming weeks. The short covering that came into the stock in the latter part of today’s session should subside in the coming days, depending on the action in the broader market. We actually wouldn’t mind if the stock continued slightly higher to offer a better entry point into new put plays. A rollover near today’s high just below the $46 level would offer a good entry point into new plays. As reference to support, we’ll use today’s intraday low to the $41.13 level for either exit points for open positions or a breakdown entry point play, depending on you individual style and risk tolerance. ************* NEW PUT PLAYS ************* CAM – Cooper Cameron $47.70 –1.87 (-0.72 this week) Cooper Cameron Corporation is an international manufacturer of oil and gas pressure control equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systems for oil and gas drilling, production and transmission used in onshore, offshore and subsea applications. Cooper Cameron is also a manufacturer of centrifugal air compressors, integral and separable gas compressors and turbochargers. The Company's operations are organized into four separate business segments, Cameron, Cooper Cameron Valves, Cooper Energy Services and Cooper Turbocompressor, each of which conducts business as a division of the Company. Even the once strong are falling in this market environment. The Oil Service Index (OSX.X) had been one of the lone bright spots of the market this year. But its shine ended about a month ago when the sector began its most recent slide lower, which gave back the final gains that it had built up for the year through late April. The OSX.X itself fell to its 200-dma in today’s session, which stands at the $88.50 level. A breakdown below $88 in the OSX.X should open the way for further downside from a sector perspective. Surprisingly, the price of crude oil has not yet pulled back like the oil stocks have already done. But more often than not, the stocks will lead the commodity. So in this case, we may see a move lower in the price of crude over the coming months, which would be used as confirmation for the bearish play that we’re initiating on CAM. The stock hovered above the $48 level late last week and during yesterday’s session, but that level was lost during today’s session. The $48 level had acted as strong support during March and April, and with that level now broken, CAM doesn’t have much support immediately below current levels until its 200-dma, which is coming up near the $44.50 level. Below there, the stock could see the other side of $40 if the trend continues at its current rate. Traders can take new entries into put plays on further weakness below today’s intraday low at the $47.36 level. Confirmation of a breakdown would come on a decline below the $47 level. Target the 200-dma to the downside for a short term exit point. If the stock does stage a relief rally along with the same in the OSX.X, the wait for the selling to subside, and watch for CAM to rollover near its resistance overhead around the $50 level where the 10-dma is moving down. Our stop is initially in place just above that short term resistance at the $51 level. BUY PUT JUL-50*CAM-SJ OI=28 at $3.40 SL=1.75 BUY PUT JUL-45 CAM-SI OI= 0 at $1.05 SL=0.50 Average Daily Volume = 843 K ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 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 Tuesday 07-02-2002 Copyright 2002, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. ********************* PLAY OF THE DAY - PUT ********************* EXPE - Expedia $52.00 –5.41 (-7.29 this week) Expedia, Inc. is a provider of travel-planning services. The Company's global travel marketplace includes direct-to-consumer Websites offering travel-planning services located at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it. The Company also provides travel-planning services through Voyages-sncf.com, as part of a joint venture with the state-owned railway group in France. In addition, the Company provides travel-planning services through its telephone call centers and through private label travel Websites through its WWTE business. WWTE is a division of Travelscape, Inc., one of the Company's wholly owned subsidiaries. In February 2002, a controlling stake in the Company was acquired by USA Networks, Inc. Most Recent Update And like that, EXPE is more than $7 lower this week! The news flow from EXPE has been quiet so far this week, other than the announcement this morning that the company would replace its auditor at the request of USA Interactive. Never mind the news, the stock fell back down to retest the lows traced last week. Perhaps more importantly, EXPE fell to test its 200-dma for the first time in eight months. The test could lead the way to further downside movement in the stock if institutional investors decide to pull the plug on this one. Look for confirmation of a breakdown below the 200-dma with a decline below the $51 level in the coming days. Such a breakdown should be accompanied with heavy declining volume, which itself would help to confirm the breakdown. The stock may try to bounce from the $50 level for its psychological significance, but that much remains to be seen. If the $50 level does not hold over the near term, then it’s very possible that EXPE could trade down to its next support level down near the $42 to $43 range. We’ll target that support zone for an exit point if the 200-dma is broken in the coming days. Comments With losing more than $7 already this week, EXPE could be in for much more downside if its 200-dma is broken tomorrow. The stock closed right on its long-term moving average today, which set up a favorable entry opportunity tomorrow upon a breakdown. Watch for a decline early tomorrow morning below the $51 level and confirm with a breakdown below $50. Make sure to monitor volume in such a scenario, as declining volume should increase on program selling below the 200-dma. Confirm weakness in the Nasdaq. BUY PUT JUL-55*UED-SK OI=2803 at $5.60 SL=3.50 BUY PUT JUL-50 UED-SJ OI=1857 at $3.10 SL=1.50 Average Daily Volume = 1.92 mln ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************ MARKET WATCH ************ Bullish candidates come oh so close. Meanwhile, bearish candidates are working like crazy! To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/070202.asp ************** MARKET POSTURE ************** Several sectors and market averages are on the brink of another breakdown below support. But what’s new about that? To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/070202.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
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "email@example.com"
Option Investor Inc