The Option Investor Newsletter Wednesday 11-27-2002 Copyright 2002, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Still Some Gas in the Tank Futures Wrap: Two Hundred and Fifty Index Trader : The table's set, and the gravy's just about done MUI CONTENT OF THE DAY: Weiss, Peck & Greer (WPG) Funds MUI CONTENT for Thursday: Herbert Ehlers: Heritage Capital Appreciation Trust A (HRCPX) Options 101: Trading on Friday? Updated on the site tonight: Swing Trader Game Plan: Just Couldn't Resist Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 11-25-2002 High Low Volume Advance/Decl DJIA 8931.68 + 255.26 8939.91 8678.96 1930 mln 1205/714 NASDAQ 1487.94 + 43.51 1491.45 1462.62 1906 mln 1378/424 S&P 100 480.36 + 13.28 481.44 467.08 totals 2583/1138 S&P 500 938.87 + 25.56 940.41 913.31 RUS 2000 410.24 + 11.92 410.26 398.32 DJ TRANS 2371.82 + 103.47 2377.31 2268.65 VIX 30.84 + 2.10 30.84 26.91 VIXN 47.42 - 0.57 48.73 45.42 Put/Call Ratio 0.67 ******************************************************************* Still Some Gas in the Tank by Steve Price Talk about a head fake! The Tuesday sell-off flew in the face of history, as Thanksgiving week has traditionally seen the market in the green. Of course, after a 1500-point gain in the Dow since the middle of October, some pullback could be expected. That pullback found support on Tuesday at the bottom of the recent ascending channel and took off like a bat out of a very warm place today. We have now seen the third higher low in the current trend, and although the economic news is not exactly astounding, we are starting to see some improvements that could push us higher. It was certainly a feel good day heading into the holiday, giving investors something to be thankful for. We got several reports this morning that looked bullish than we've seen in a while. They didn't come without cautious linings, but still led to a big rally. The initial jobless claims data for the latest week fell 17,000 to the lowest level in more than a year. The four-week average, which is widely used to smooth out the data, dropped to 385,750, the lowest level in 15 weeks. The only fly in the ointment here is that continuing claims grew by 91,000 to 3.65 million, dwarfing the drop in new claims. This indicates that the time to find new jobs is getting longer. Part of that is due to seasonal volatility, as firms put off hiring until after the New Year, but it is something that could get in the way of spending for the holidays. That brings us to the spending number. Personal spending increased 0.4%, which was slightly higher than expected. This contrasted personal income, which rose only 0.1%, and was slightly less than expected. This is probably good news for retailers, as it indicates a little more willingness to dip into savings and stretch the plastic as we head to the official holiday season. November retail numbers are bound to be low, since we had fewer "official" shopping days due to a late Thanksgiving. However, I expect sales to simply shift to December, since whatever gifts will be purchased will simply be done so a little later. The real effect that the later holiday can have, however, is fewer "full-price" days for retailers to reap profits. Since they can't move Christmas back, prices will be heading down the closer we get and leave fewer days to shop ahead of those price reductions. The other number retail investors need to be looking at is Consumer Sentiment. The index rose from 80.6 in October, to 84.2 in November. The increase was bullish overall, but came in below the preliminary reading of 85.0, which was release a couple of weeks ago. This was below estimates, which were looking for 85.4. The expectations index also came in above October's reading, but below estimates. One of the most bullish signs we saw this morning was the durable goods number. Durable goods orders rose 2.8% in October, which was well above expectations of 1.6%. Within that report was a 65% jump in communications equipment orders. That was the biggest one-month gain in over 5 years. The industry has seen a big drop-off in capital expenditures and this reading may be signaling a turnaround. Next we got the Chicago Purchasing Manager's Index (PMI), which gave a November reading of 54.3, after sinking to 45.9 in October. Expectations were for 48.5, so on a percentage basis, it beat estimates by a mile. More importantly, any reading under 50 shows contraction, while readings over 50 show expansion. The flip to the upside of 50 also foreshadows a more positive reading for the NAPM national purchasing manager's survey. All of this data translated into big gains market wide, sending the Nasdaq soaring along with the Dow. Not only did both indices make up yesterday's drop, but ended the day at new relative highs, as well. The Dow has now been in an ascending channel since it's bounce on October 12, with each pullback followed by extreme bullishness. We have seen three higher lows and now three higher highs during the rally. We are approaching the August high of 9077 and if the industrials continue the pattern of following the techs, then we could be looking at a few hundred upside points to go. The NDX broke the August high at the beginning of the month, pulled back and then took off again. The Nasdaq Composite followed a similar pattern, but didn't actually break the August high until after the pullback. Still, it made it through on the recent rally. The next challenge for the Dow will be the August high, and then the 200-dma above that, sitting at 9188. The Dow has not seen its 200-dma since before Memorial Day, after which it began the slide that we are still attempting to recover from. If we can get back over both of these levels, then a continued rally certainly looks possible. The economic situation in the country will have to improve to support rising equity prices, however, this morning's news was a start. At some point, we'll see an increase in spending, and a gain in durable goods orders, along with a turnaround in manufacturing, could be signaling a change in the tide. Last week's guidance increase from Taiwan Semiconductor, citing an increase in PC demand, could also be an important sign. Chart of the Dow The Nasdaq also made up yesterday's losses and with the August high in the rear view mirror, looks intent on testing the 200- dma. It is getting close now, and after the third higher high in the current run, another 10 points will do the job. That 200- dma is descending and is now just below the 1500 level. A break over both levels would look even more bullish and could put us into new territory there, as well. Chart of the Nasdaq One of the leading tech sectors has been the chip stocks. The Semiconductor Index (SOX) has now put on 78% from its October low of 214 on October 9. The index finished the day at 381.69 and looks intent on testing its 200-dma above 400, as well. After rallying throughout earnings season, in spite of almost daily warnings about the lack of chip demand, it appeared that funds simply felt the news wasn't as bad as expected. However, it is hard to explain an almost doubling of value in a month and a half. Traders should also remember that the index traded as high as 641 in March and had plenty of room to bounce. That still leaves the sector down 40% in 8 months, even after the 167-point rally. Chart of the SOX We are seeing a pattern here, with most of the broader indices approaching these 200-dmas. Certainly the current rally will run out of steam at some point and that level would be a good time to start buying protective puts. The bullish percentages are all very extended, which is bound to happen in such a furious rally, and are telling us that the risk is shifting to the downside. The Nasdaq Composite and SPX are both up against their bearish resistance lines, while the Dow and NDX are floating around in overbought territory over 70%. While the bullish percentages can remain in overbought or oversold territory for quite a while before a turnaround, once the three-box reversals down begin to occur, it is time to be extra cautious and possibly take some profits. The Nasdaq Composite has been turned away from the bearish resistance line on its last three rallies, so the fact that it is right there now should be a red flag to keep an eye on. Chart of the COMPX Bullish Percent I am still leaning bullish, as today's new relative highs indicate more upside in the immediate future. However, once we get to those 200-dmas, I'm going to start picking up puts across the board. Friday is traditionally an up day for the market, but expect extremely low volume on the half-day. Most traders stay home, and the options floor is practically silent. I expect some continuation of the rally, however I find it curious that the Market Volatility Index finished up on such a big rally. Someone is apparently worried about the downside, as that is usually the driver behind a VIX increase. Until we get that rollover, trade the trend, which is still up, but begin to exercise more caution as we put on a few more points. ************ FUTURES WRAP ************ Two Hundred and Fifty By John Seckinger jseckinger@OptionInvestor.com The Dow did finish higher on Wednesday by roughly 250 points; however, I am referring to the 200 DMA and an important 50% retracement level. Tuesday, November 26th at 4:15 P.M. Contract Net Change High Low Volume ES02Z 937.75 +26.25 941.00 912.00 430,465 YM02Z 8926.00 +261.00 8939.00 8665.00 16,263 NQ02Z 1124.50 +36.00 1145.00 1088.50 177,026 ES02Z = E-mini SP500 futures YM02Z = E-mini Dow $5 futures NQ02Z = E-mini NDX 100 futures Note: The 02Z suffix stands for 2002, December, and will change as the exchanges shift the contract month. The contract months are March, June, September, and December. The volume stats are from Q-charts. Fundamental News: At 8:30 a.m., Jobless Claims reportedly fell 17k to 364k and beat expectations of a 383k number. Also, Personal Income came in at +0.1% (in-line), while Personal Spending rose 0.4% and higher than the +0.3% economists were predicting. Near 10:00 a.m., the final Michigan consumer sentiment report showed a reading of 84.2 and below consensus estimates of 85.0. At this time, the Dow was already higher by almost 200 points. Adding to the enthusiasm was durable goods rising by 2.8% (estimates for 2.4%), as well as the Chicago PMI report jumping over 50 (barometer of contraction and expansion) to 54.3 and much better than the consensus estimates of 48.5. This rise should have economists increasing estimates for next Monday’s ISM report. In other news, Eli Lilly (LLY, +7.8% to 69) received FDA approval for Stattera, a treatment of ADD. Technical News: The bond market imploded, falling over 2 full points (64/32) to close at 108’17 during a shortened session. Yesterday’s close certainly did prove critical, and Wednesday’s weakness now gives us an objective of 103. Additionally, the 30- year cash (5.1%) currently has an objective of 5.5%. As the old saying goes, “higher yields (or lower bond prices) usually means higher stock prices.” There is no question in my mind that the move in the bond market was a tremendous help for stocks. Looking elsewhere, the XAU index fell to 61.64 and almost tested a bullish daily trend line (61.30) that needs to hold. A break under this line could be a catalyst for cash to enter the dollar, helping equities. In other news, the Sox index closed up 6.7% at 381.74 and just above its 200 DMA (exponential) of 381.3. ================================================================= With a lot of talk revolving around the 200 Daily Moving Average, I want to preface by saying that I will generally look at the 200 DMA on an exponential basis, but following a Simple MA is important as well since a ton of traders look at this reading. Here are the differences in a few of the main averages: Contract (close) 200 (exp) 200 (simple) Dow Jones (8931) 8947 9188 Nasdaq (1487) 1487 1496 S&P 500 (SPX, 938.87) 965.31 984 Nasdaq 100 (NDX, 1125.69) 1130.52 1123.16 Semiconductor (Sox, 381.73) 381.73 409.04 With two indices closing right on its 200 EMA, there is a good chance this MA will become pivotal as we enter Friday’s shortened session and beyond. The December Mini-sized Dow Contract (YM02Z) So, where is the aforementioned 50% retracement? Looking at a chart of the Dow on a daily basis, a 50% retracement from the lows in October to the highs in March comes in at 8935 and almost matching the intra-day high on Wednesday (8939). The last time the Dow set a relative low and retraced 50% back to the March highs traders were evidently ready to sell en masse. Sure, times were different and the high near 9100 did fall on a descending bearish trend line; nevertheless, this is still something to keep an eye out for. Note: The ADX indicator is sloping downward from above the 40 level; reflecting that the recent upward momentum is losing steam. However, if the +DI crosses above the –DI, bullish sentiment should at least give bulls some ammunition. Chart of Dow Jones, Daily A look at the Mini-Dow contract (10-minute chart) shows prices rising above 8800, 8825, and finally 8875 as bulls enjoyed the historically bullish timeframe (Wednesday to Monday). With the YM contract above 8875, the next solid area of resistance is seen at 9000. If prices do come under pressure, look for the aforementioned levels to provide support. Note: During market hours, I would recommend looking towards the Dow for guidance. Especially for resistance areas. In my opinion, the key will be whether the Dow can move above 9077. If this does happen, then the intermediate picture will change significantly (read: could possibly enter an entirely new bullish phase). Chart of YM02Z, 10-minute YM02Z Support Resistance Pivot 8875 8935 9077 8825 9000 9000 8800 9077 8875 8750 9102 8750 Bold signifies levels within the Dow Jones. The December E-mini Nasdaq 100 Contract (NQ02Z) With the Nasdaq 100 (NDX) closing extremely close to both its 200 DMA’s (exponential and simple), volatility should start to pick up. It is interesting that the contract did not make a new monthly high (1132.80 versus 1133.73) on Wednesday, and this relative weakness will have to be watched. The contract still rose 3.5 percent, and there is still a good chance that 1142 will be tested in the near term. The only troubling sign would be a close below the 1070 level. Note: The top of the regression line currently comes in at 1145. Chart of NDX, Daily A look at the mini-Nasdaq contract (NQ02Z) also shows the contract’s inability to settle above previous session highs. This isn’t necessarily bearish, but to keep the bullish sentiment strong the contract should at least hold the 1110 to 1120 level. The only reason why I didn’t write “bad tick” at the 1145 level was because (1) I did find 2 contracts traded there, even though I bet the exchange reverses the trade or changes the fill, and, more importantly, (2) when there is a bad tick, the market usually goes to that level to see what all the excitement was about. It happened at the CBOT all the time, and could also have been related to stops being placed around that area. Note: There really isn’t much resistance from 1145 to 1200. Chart of NQ02Z, 10-minute NQ02Z Support Resistance Pivot 1120 1130 1142 1110 1135.50 1135.50 1100 1142 1120 1079 1145 1110 1065 1200 1100 Bold signifies levels within the NDX. The December E-mini S&P 500 Contract (ES02Z) Finally. The S&P 500 Index finally settled above the bearish trend line that began in March, and this level (931.50) should hold going forward if bulls are going to continue putting new money to work. Also important was the fact that the rising trend line (green) profiled yesterday was psychologically significant. Prices should not close underneath this line as well. Once the top of the regression channel (950 area) is cleared, look for a move towards 965. It would not be surprising if stops were triggered and prices gravitated upward to the 50% retracement level at 971. Chart of S&P 500 Index, Daily The ES02Z contract barely closed above 937.50, and does portend a move to 950. Risk would be that the contract falls under 931 and 927; starting a round or profit taking that takes the ES towards the bottom of the drawn channel (918.75). I don’t expect much resistance at Wednesday’s high of 941, since that level seemed to be related to movements in other contracts; nevertheless, once above 941, I expect the level to become slight support. Bulls could expect a trade of 950 before 937 if 941 is taken out; however, it will depend on volume due to a potentially light Friday session. Always look for confirmation on an intra-day basis, since gaps, volume spikes, buy programs, etc. can quickly change the scope of things. Chart of ES02Z, 30-minute ES02Z Support Resistance Pivot 931.50 941 937.50 927 950 926.50 923 956 923.50 918.75 965 908.50 Bold signifies levels within the S&P 500. Good Luck. Questions are welcomed, John Seckinger jseckinger@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** The table's set, and the gravy's just about done We could smell that giblet gravy cook'n Monday evening and today's action sure has a bull's table looking decorative with last night's horn of plenty as a centerpiece. The question now is what's for dessert? Will it be pumpkin pie with a scoop of whipped cream to top off the "Thanksgiving rally" or a slice of mincemeat pie with the meat ingredient being that of a male cow? The words "disgusting" and phrases like "I hate giblet gravy" were common words of traders earlier in the week, as childhood memories of such servings at Grandma's Thanksgiving dinner triggered were less than palatable. The same could have been true for those that just weren't convinced that the markets could reverse an earlier session's drubbing because market history tended to be bullish. We could pose the same question as last night in regards to today's economic news and the market's price action. Was today's market response due to better than forecasted economic data, or simply a bullish tone ahead of Thanksgiving? I'd say "a little bit of both," but risk for bulls continues to run high. Maybe I've brainwashed this subscriber as his/her e-mail sounds interesting. Is the trader a bull or a bear? Jeff, The markets have just been given the KISS OF DEATH. BA has just traded a double top breakout (35.14) +4.4% and produced a buy signal. Provided no other Dow component has reversed into a sell signal, the $BPINDU will rise another 3.33%, inching ever closer to that 80% extreme level from earlier this year. Two more and we are there. I liquidated all my longs here at the close and will sit out Friday. I think the next move will be hard down and other than a day or two slip in the timing, is performing exactly per the Elliott wave analysis. I seriously doubt BA can trade over the $36.00 level in that time. With the bullish percents where they are, a bull trap looks very likely. Can you say "SHORT the weakling next week!" Enjoy your Thanksgiving I'd call this trader a "Bullbearo." That's a cross between a bull and a bear that seems to have had the bullish side saying, "Enough is enough and I'm doing nothing for the next four days except stuffing myself with turkey and watching the CU Buff's beat up on Nebraska this Friday" and the trader doesn't want any interruptions for the post-Thanksgiving festivities. However, he might not have been the only one thinking similar thoughts. I can't see everything during a day, but some traders made some excellent observations today. I'm not sure we always immediately understand what we see, or why "things" act/trade a certain way, but like a detective, the questions posed from observations become "clues" that we the detectives must try to understand in order to solve the mystery. What's the trader doing in the above e-mail when talking about the more "overbought" bullish % levels? The trader is looking at the market internals from a "big picture" view. This may be analogous to Sherlock Holmes walking into the house of a crime scene and taking in a broader observations of his surroundings. The observation of Boeing (BA) generating a reversing "buy signal" has the very narrow Dow Industrials Bullish % ($BPINDU) seeing at least 1 stock (3.33%) added to the bullish %. While these may be reiterations of things we've discussed recently, it appears to at least make sense to this trader as Sherlock Holmes whips out his magnifying glass. The BA observation is a subset of the bullish %, but may be that one thread of evidence a trader uses to finally think.... "now I've seen everything." And what's this observation/clue about? Another subscriber wondered why the OEX puts he was trading on a short-term basis (why the subscriber is trading OEX puts instead of SPX puts I don't understand as the SPX has been an out performer when downside action takes hold) were actually rising in value as the OEX moved higher? The first place Sherlock Holmes would look is to the Market Volatility Index (VIX.X) 30.83 +7.27%. What's that! The VIX rising when stocks are rising? That's DIVERGENCE historically as the VIX usually FALLS when stock prices RISE. Talk about looking at a crime scene with a magnifying glass! Again, another thread that may end up solving the puzzle. Now we have some interesting observations and comments from other market participants. Check out this 5-minute chart of the S&P Depository Receipts (AMEX:SPY) $94.28 +2.81%. The reason I want to show the 5-minute chart is that some might have thought I was a little "off my rocker" for thinking that 11:00 AM was a time of day to begin looking for bullishness to build into the close. I'll admit that I didn't get the pullback in the morning that I had hoped for, but look at this chart and see if some of the things we've discussed so far don't show up in the SPY chart. The reason I'm showing the SPY chart is that I can look at volume. S&P Depository Receipts "SPDRS" - 5-minute interval The 5-minute chart of the SPY almost tells a story as today's action unfolded and the MARKET received new economic information. In the end, one would have to conclude that the MARKET was indeed responding bullish (buying) the SPY as the economic data was released. The break above the 200-period (note: 200-PERIOD SMA, not 200-DAY SMA) came on the 10:00 release of the durable goods orders (2.8% versus 1.8% forecast) and the Chicago PMI (54.3 versus 48.5). I find it interesting that after that, the SPY rallied to $94 (near recent relative highs of last week and early this week) and stayed just below that level. Then just before we thought "senior" trader would head out for the weekend, VOLUME picked up for 5-minutes (one interval) which hints of a final round of selling to finish up some institutional sell orders still yet to be filled by a head trader, before things were turned over to the "junior" trader as he/she is left to simply execute some smaller retail orders (you and I) into the Thanksgiving close. However, the observation that the VIX was rising today, despite higher price action in the markets is somewhat SUSPICIOUS as is the pick up in VOLUME into the close. My analysis of the HIGHER VIX combined with increasing volume and slight downward action is that CBOE market makers that were providing liquidity to put buyers of SPX contracts, did some hedging against the put buyers (the market maker selling puts to the buyers of puts becomes OBLIGATED to buy SPX at whatever strike, less premium received, the market maker is selling). It's the combination of the higher VIX and rather tapering off SPY trade into the close, that has me believing there were a lot of put buyers in the SPX today. Now... just because there are a lot of put buyers doesn't mean those put buyers are going to be correct in their trade. However, with the Bullish % at higher levels and SPX trading 938, then thinking becomes that put buyers don't see much upside above SPY $95.29 and or SPX 950 as it relates to our retracement. Today's top 4 volume contracts in the SPX were the Dec. 900 put (SXBXT), Dec. 925 put (SXBXE), Dec. 925 call (SXBLE) and Dec. 975 call (SXBLO), with respective volume of 5.4K, 4.9K, 4.5K and 4.3K. Believe me when I tell you I didn't check this out until after I thought that there was more put buyers in the market than call buyers, but I checked the volume traded just to see if analysis was at least partially right. Let us also make note tonight as a benchmark that the Dec. 900 call (SXBLT) currently has 73,402 open interest and largest open interest (73.4K) for the SPX. Let us also make note that the Dec. 900 put (SXBXT) is the second largest open interest contract (SXBXT) (68.3K). S&P 500 Index Chart - Daily Interval I didn't get the SPX morning pullback near 900 that I wanted for a bullish entry, but did get the "horn of plenty" I was looking for. My "gut feel" is that I'm blowing up a balloon that's getting bigger and bigger and somewhat "afraid" is going to pop. However, with hearing protection on and a tight stop under the $94 level in an SPY trade, or SPX 935 I would have held an SPX trade into Friday to see if that historically bullish day doesn't pan out as well as today did and look to sell some strength near 949, which is $1 shy of 950. For those more daring or able to keep an eye on the bond market, another strong round of selling in Treasuries could see a test of the 08/22/02 relative high. I'm not trying to lead bulls along with a carrot but for traders that may have booked some gains and now hold just partial positions, you've reduced risk in your account, raised some cash and can perhaps sit back and see just how far the SPX can run. I'm not looking at adding any new bullish positions at this point after today's move. Today's action saw the S&P 500 Bullish % ($BPSPX) see a net gain of 5 stocks to new reversing "buy signals" as the bullish % grows 1% to 66%. This compares to the August relative high bullish % of 58% and March's high bullish % reading of 76%. S&P 100 Index Chart - Daily Interval The reason my "gut feel" is that I'm blowing up a balloon that could "pop" any minute is similar to the OEX getting so close to its relative high of August and the bullish % is now "blowing up" to 73% bullish. If you twisted my arm and asked me if the market was found in October, I'd have to say yes. What I want to touch on again tonight is the bullish % readings in the perspective of technical highs and lows. See how the bullish % reading at the recent lows of the OEX were 18% compared to July's 8%? Now we see the OEX Index itself at nearly identical relative highs of 487, yet today's bullish % is 73% compared to 58% in August? I would personally love to see an OEX trade above the August highs of 487.42 as that would be a technical sign from the OEX Index itself that a bottom could be called in this index. A higher relative high and higher relative low is technical strength longer-term. Just remember, even a longer-term bull market will have pullbacks. We can't call a new "longer-term bull market" in the OEX until a relative high is taken out to the upside at this point, but even if it is, I think some type of pullback to at least 448 would be "healthy." NASDAQ-100 Tracking Stock (QQQ) - Daily Chart Today's trade in the QQQ is suspicious to say the least. Chip- equipment maker Novellus (NASDAQ:NVLS) $37.43 +8.5% has the CEO saying at its mid-quarter update that he thinks a bottom in the chip sector is in. NVLS did break above and close above its 200- day SMA of $36.21, but the broader NASDAQ-100 as depicted by the QQQ could confirm. The only two "technical" reasons I can come up with to explain today's inability to break above Monday's high is the 79% bullish % reading and the 200-day SMA, is finding willing sellers (long bulls taking profits and perhaps some bears trying to get a top). Today's action hints that near-term upside becomes very limited to $30 and bulls must assess risk to upward trend and rising 21- day SMA. That's $2 reward for $2 risk right now and not very favorable for new entry and NO WAY I'm holding FULL POSITIONS long at this time. For BEARS, MAX I'd be short or put right now is 1/4 as bulls can still get "carried away" to $30. Plenty of time for the bullish % to reverse lower and even then we'd expect small rallies to be looking for bearish entry points. Dow Industrials Chart - Daily Interval In today's market monitor (15:08:02), I noted Boeing (BA) $35.02 +4% had traded the needed $35.00 to have its point and figure chart generating a reversing point and figure "buy signal" which would have the very narrow Dow Industrials Bullish % ($BPINDU) seeing a net gain of 1 stock (3.33%) toward the bullish %. While it is somewhat bullish to see a laggard stock finally generate a reversing "buy signal" it is usually the laggards that give the later buy signals when the bullish % charts are at or near the more "overbought" levels. Think about it. Shorts have seen an impressive move higher in the indexes and perhaps some handsome gains eroded with the upside move. After a while, those bears eventually understand that the rising tide will surely lift most boats and they cover short positions in those stocks that they still have some handsome gains in that have yet to erode. On the other side of the coin, you've got bulls that have stayed on the sidelines for the better part of a months, watched the bullish % charts reverse from deeply "oversold" level to now "overbought" levels and look to play a little bottom feeder action on the "rising tide lifts all boats" scenario. It can be this type of action and that can then have the bullish % charts and so many stocks then on buy signals that market participants simply say... things are too bullish, too many stocks have given buy signals, and there's just not much upside left. It is at those times that "risk" is perceived as high for the bulls and the market has always been very good at removing risk. Traders should still be viewing the markets as bullish, but with a very cautious eye on things and not be OVER LEVERAGING in new positions. The ONLY BULLS that are comfortable in FULL position calls are bulls that may have established 1/4 position in a trade at $22, then 1/4 position at $24, then 1/4 position at $26 and perhaps another 1/4 position at $28 today. This would have a net cost basis of $24 and room to liquidate net profitable on a break lower at $26. To envision this type of institutional trade, look at the QQQ chart from above. Make the tie of $22, $24, $26 and $28. Who knows, maybe the inability of the QQQ to break above Monday's high is that some 1/4 position longs from $22 were legging out (being sold) at $28 today. Makes sense perhaps with the Bullish % up at 79%, compared to the bullish % at 14% when the QQQ was below $22. I hope everyone has a great Thanksgiving! Try not to chuckle if you sit down at the table and ask the host/hostess what kind of gravy was made as it tastes delicious! The chuckle would take place when they say.... "giblet gravy!" Also... make an observation of what type of pie is served. Pumpkin or mincemeat? If mincemeat, don't you dare ask what type of meat. I must say that sometimes, I think "age" is catching up with me. While I "knew" all day, that today was Wednesday, when the markets closed, I somehow thought it was Friday and started writing my "Ask the Analyst" column instead of this Index Trader Wrap. Now I don't have our weekly tabulation spreadsheet filled out and shown tonight. I will get that in an update on Friday. Maybe for the 01:00 Update so our friends at PremierInvestor.com can maybe make some weekly type observations. Jeff Bailey ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** WEEKLY FUND FAMILY PROFILE ************************** Weiss, Peck & Greer (WPG) Funds Weiss, Peck & Greer of New York City is an investment firm that manages a broad range of equity, fixed income and "alternative" investments, including hedge funds, private equity, and venture capital. Established in 1970, WPG currently manages around $18 billion in assets for a variety of clients including endowments and foundations, private and public pension funds, Taft Hartley plans, corporations, and high net worth individuals. WPG also sponsors a family of mutual funds called the WPG funds, which includes three equity fund products and four fixed income fund products that investors can pick from to meet their growth and income goals. WPG Funds have no front-end or back-end load charges and require just $250 to establish an IRA account. For regular accounts, the minimum initial purchase is $2,500 except for one core bond fund product, which requires $25,000 to invest initially. Five WPG funds show up in Morningstar's database and they'll be our primary focus herein. Further information on Weiss, Peck & Greer and the WPG Funds is available online at www.wpginvest.com. Additional Background Weiss, Peck & Greer was founded in 1970 by a group of seasoned investment professionals to serve the needs of clients. Today, the firm has more than 275 employees, per company sources, with offices in New York, Chicago and San Francisco. WPG's website indicates that the firm's initial focus was asset management and venture capital for institutional and individual investors. Soon thereafter "clearing" services were added as a service for investment managers, broker dealers, hedge funds and banks, the story goes. Weiss, Peck & Greer added "fixed income" investment capabilities in 1974. In 1981, the firm began managing private equity investments in management buyouts, and in 1986 WPG introduced its first hedge fund product. By 1988, WPG had expanded its "municipal" fixed income capabilities. Additional "hedge" funds have since been established in 1997, 1999 and 2000. Not all of WPG's products and strategies are currently offered in the retail marketplace. WPG was acquired by Dutch asset management firm Robeco Group in September 1988 and is now part of the Robeco Group of companies. WPG retained its name and remains largely independent according to the WPG website. Established in 1929 and based in Rotterdam, Netherlands, Robeco Group is one Europe's leading money managers with approximately USD 95 billion in combined assets. Fund Overview The WPG Funds fund family consists of three equity funds, two fixed income funds, and two money market products, as follows: WPG Equity Funds: Tudor Fund (TUDRX) Large Cap Growth Fund (WPGFX) Quantitative Equity Fund (WPGQX) WPG Fixed Income Funds: Core Bond Fund (WPGVX) Intermediate Municipal Bond Fund (WPGMX) WPG Money Market Funds: Government Money Market Fund (N/a) Tax Free Money Market Fund (N/a) WPG Tudor Fund, a small-cap growth fund in Morningstar's system, began operations on March 4, 1969 and since November 1, 2000 has been managed by Walter Prendergast, a senior VP with Weiss, Peck & Greer. The Tudor Fund seeks capital appreciation by investing in common stock of U.S. companies with market capitalizations of less than $2 billion. Dividend and interest income is secondary to the fund's long-term growth objective. WPG Large Cap Growth Fund is true to its name. It seeks capital growth over time by investing in equity securities of U.S. large cap companies, which offer the prospect for greater than average capital appreciation. C. Lennis Koontz II has run the fund only since May 1, 2002. WPG Quantitative Equity Fund seeks investment returns that exceed the returns produced by the S&P 500. As its name implies, this product uses quantitative techniques to select "pools" of stocks and then weight them according to optimal risk and reward characteristics. WPG offers two taxable income products and two tax-free municipal income products for current income investors. WPG Core Bond Fund seeks high current income, and capital preservation, by investing primarily in "high-grade" debt instruments. These include notes, bills, bonds, mortgage-backed securities, asset-backed securities and money market investments. The fund is designed to serve the "core" fixed income investment role. WPG Intermediate Municipal Bond Fund seeks high current income "exempt" from federal income tax, consistent with relative stability of principal. It favors high-grade debt securities with intermediate-term durations like its taxable fund sibling. In terms of investment style/strategy, Weiss, Peck & Greer focus on the importance of compounding long-term capital growth, while also protecting client and mutual fund assets against volatility and risk during adverse markets. WPG says they are committed to investment research, innovative strategies, disciplined approach, and quantitative investment analysis. The firm believes superior long-term investment results can be best achieved through strong, consistent returns. Fund Risk and Performance First, to put fund risk or volatility into perspective, below is each fund's average standard deviation over the past three years, according to Morningstar. Standard deviation is a risk statistic that measures how volatile fund returns have been over a specific time period. It tells you how much share prices have fluctuated. Average Standard Deviations: 3.9% WPG Core Bond Fund 4.1% WPG Intermediate Municipal Bond Fund 15.6% WPG Quantitative Equity Fund 19.4% WPG Large Cap Growth Fund 34.6% WPG Tudor Fund For comparative purposes, Vanguard Total Bond Market Index Fund, which tracks the return performance of the Lehman Aggregate Bond index, had an average 3-year standard deviation of 3.5%, similar to the volatility produced by the two WPG fixed income products. Morningstar grades both funds as having "average" relative risk. Vanguard 500 Index Fund, which mirrors the return performance of the S&P 500 index, had an average standard deviation of 16.7% in the trailing 3-year period. Tudor Fund's volatility is somewhat higher as evidenced by its 34.6% standard deviation, but average relative to its small-cap growth fund peers, using Morningstar's risk rating. The quantitative equity and large cap growth funds both have "below average" risk ratings from Morningstar relative to their category peers. WPG Core Bond Fund sports the best relative returns over the past five years. According to Morningstar, the fund's trailing 5-year annualized return of 7.7% as of November 25, 2002 was 0.2% better than the LB Aggregate Bond index and strong enough to rank in the top 4% of the Morningstar intermediate-term bond category. Since adopting its current strategy in 1998, the core bond fund product has delivered "high" returns relative to its category peers, with just average relative risk. WPG Municipal Bond Fund's trailing 5-year returns rank in the top 14% of its Morningstar category, Municipal National (Intermediate Term). The fund's annualized return of 5.4% during the past five years was 0.5% less than the LB Municipal Bond index, however, so it slightly lagged its benchmark during the period. Among the three WPG equity funds, the Quantitative Equity product sports the best relative return performance over the past 5 years according to Morningstar. For the trailing 5-year period through November 25, 2002, the fund produced a tiny 0.6% annualized total return for investors, slightly lagging both the S&P 500 index and Russell 1000 index. The fund's 5-year total return ranked in the large-cap blend category's 45th percentile near the middle of the pack, with below average relative risk. WPG Large Cap Growth Fund has also experienced below average risk relative to its category peers, producing an annualized return of negative 1.3% over the past five years, lagging the S&P 500 index by 2.3% but producing results on par with the Russell 1000 Growth index. Long-term investors desiring a conservative growth-driven fund have a decent option here, especially when you look at risk- adjusted performance relative to its large-cap growth fund peers. Lastly, WPG Tudor Fund sports a 10-year annualized return through October 31, 2002 of 4.2%, underperforming the S&P 500 by 5.7% per annum but outperforming the Russell 2000 Growth index by 0.7% per year on average. Unfortunately for investors, fund returns could have been better, with the fund ranking in the 89th percentile of the Morningstar small-cap growth category. Note that performance has improved on a relative basis since Walt Prendergast took over the fund in November 2000. Conclusion While Weiss, Peck & Greer doesn't offer many mutual fund choices, the ones available to retail investors have for the most part put up competitive or better returns with average or lower investment risk relative to similar funds. Investors seeking current income from a diversified portfolio of high-grade fixed income securities have a suitable "core" option in the WPG Core Bond Fund. Investors seeking capital growth may find one or more WPG stock funds appropriate for their long-term financial plan. WPG Quantitative Equity Fund looks like it may offer investors the best return/risk tradeoff of the three stock funds. For more information or to download a fund prospectus, go to the Weiss, Peck & Greer website located at www.wpg.invest.com. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************** WEEKLY MANAGER MICROSCOPE ************************** Herbert Ehlers: Heritage Capital Appreciation Trust A (HRCPX) Herbert E. Ehlers is chief investment officer and leader of the Goldman Sachs Asset Management team, which serves as investment subadviser to the Heritage Capital Appreciation Trust, a 5-star rated large-cap growth fund with a solid long-term track record. Working alongside Ehlers is David G. Shell, Steven M. Barry and Gregory Ekizian. The three managing directors of Goldman Sachs share chief investment officer responsibilities with Ehlers and are senior portfolio managers of the Goldman Sachs team running the Heritage Capital Appreciation Trust fund. Heritage Funds' website (www.heritagefunds.com) states that the Goldman Sachs Asset Management team is nationally recognized for their ability to identify businesses that are both strategically poised for long-term growth and reasonably priced. The Goldman Sachs Asset Management group has a reputation for their skilled professionals, strong commitment to service, and products which are based upon sophisticated quantitative models and top-ranked fundamental research. Founded in 1985, Heritage Asset Management currently manages in excess of $7 billion in assets for individual and institutional clients through a diverse family of open-end mutual funds. The Heritage Funds are available through financial advisors and the leading brokerage fund marketplaces. Class A shares have front loads of 4.75%; B shares have deferred loads, higher 12b-1 fees and conversion features; C shares have level loads. Our report uses the Class A shares for comparison and evaluation purposes. For more information on the Heritage Funds and Heritage Capital Appreciation Trust, log on to the www.heritagefunds.com website. Fund Overview Heritage Capital Appreciation Trust A (HRCPX) pursues long-term capital appreciation by normally investing at least 65% of fund assets in securities the subadviser (Ehlers et al) believe have the potential for capital appreciation. These holdings consist primarily of equity securities the Goldman Sachs Asset Management investment team considers to be "undervalued" in relation to the company's long-term growth fundamentals. The Ehlers led team may invest up to 10% of assets in securities of foreign issuers including American depositary receipts (ADRs). As of September 30, 2002, the fund had no foreign stock exposure per Morningstar. Note the fund was also fully invested with its assets invested 99.9% in stocks. Because the Goldman Sachs team will look for value opportunities in growth sectors and securities, the Heritage fund's investment style has fluctuated in recent years between large-cap blend and large-cap growth according to Morningstar's "style box" analysis. With an average market capitalization of $12.5 billion, the fund is classified by Morningstar as "large-cap." The term multi-cap may be a better description, with the fund putting 39% of assets in the mid-cap sector at quarter-end. Accordingly, when evaluating this fund's relative performance is may be helpful to compare it to both the S&P 500 large-cap index and an index that it has a higher correlation to such as Russell 1000 Growth index. In terms of fund comparisons, it may help to evaluate the Heritage against large-blend and large-growth funds. Given its moderate approach to growth equity investing, the fund could serve a "core growth" role in someone's long-term financial plan. With the Heritage fund product, you also receive some of Goldman Sachs' highest conviction stocks. According to Morningstar, the Heritage fund was concentrated in just 31 stocks at September 30, with 55% of assets invested in the fund's top ten holdings. Two stocks constituted over 8% of fund assets at quarter end: Viacom Class B (8.9%) and Harrahs Entertainment (8.8%). The Ehlers led team also had over 5% positions in Freddie Mac, Intuit, Westwood One, and Fannie Mae. At 1.22%, the fund's current expense ratio is below average when compared to the average large-cap growth fund (1.51%) using data from Morningstar. That gives it a slight expense advantage over other large-cap growth funds on the market. Fund Risk and Performance Let me begin by saying that since inception of Heritage Capital Appreciation Trust in December 1985, it has produced an average annual total return of 10.4% (through September 30, 2002) after adjustment for the Class A sales charges. So, over the past 17 years, Ehlers' team has delivered competitive long-term returns for investors staying the course. The fund's trailing 10-year average total return through October 31, 2002 of 12.0% was strong enough to rank in the top 4% of the Morningstar large-cap growth category. It was also 2.1% greater than the average return generated by the S&P 500 large-cap index and 4.5% above the Russell 1000 Growth index, which includes mid and large growth stocks. During the recent 10-year period, Heritage Capital Appreciation Trust had a "below average" risk level relative to its category peers using Morningstar's 10-year risk rating. The combination of "high" returns and "below average" risk over the past decade gives this Goldman Sachs advised fund one of the better records of risk-adjusted performance in the large-cap growth peer group. Heritage Capital Appreciation Trust's 5-year and 3-year returns through November 25 also rank in the category's top decile (10%). The fund's 6.3% average rate of return over the past five years outpaced the S&P 500 index by 5.3% and Russell 1000 Growth index by 8.1%, while ranking in the category's 4th percentile. During the past three years, a volatile period, the Goldman Sachs team held the fund's average loss to 9 percent, 2.9% better than the S&P 500 index and 9.8% better than the Russell 1000 Growth index, ranking in the category's 6th percentile. Suffice to say, Ehlers, Shell, Barry and Ekizian are getting the job done here, generating above-average returns over time versus similar funds while preserving capital better than peers in down markets. On a risk-adjusted basis, performance is strong enough to earn Morningstar's highest 5-star overall rating. Though the fund's 16.6% loss over the past 12 months isn't the greatest on an absolute basis, it still saved you a percentage point relative to the S&P 500 index and curbed 5.9% off of the Russell 1000 Growth index decline. Over the last three months, the S&P 500 and Russell 1000 Growth indices are up 5.1% and 5%, respectively. Heritage Capital Appreciation Fund has a 3-month total return of 4.7%, not far off the market benchmarks. Conclusion Heritage's strategic alliance with Goldman Sachs Asset Management gives investors access to one of the leading investment advisers. Investors seeking a long-term growth objective fund that invests in stocks of companies poised for long-term growth and priced at reasonable valuations have a compelling option here. With its "GARP" style, Heritage Capital Appreciation Fund serves nicely as a "core growth" investment. With the product, you get some of the Goldman Sachs Asset Management team's best ideas for long-term growth in the giant-cap, large-cap and mid-cap sectors. Its multi-cap core (GARP) style should appeal to a lot of equity investors. As the fund's 15-year numbers show, staying the course can raise the prospects of success. Its 10.4% average rate of return over the past 15 years includes the market downturns of 1990-1991 and 2000-2002. The 15-year numbers provide a reasonable expectation of annual return performance. Morningstar says this fund "gives growth investors plenty of reasons to keep the faith". We agree. For more information or a fund prospectus log on to the Heritage Funds website at www.heritagefunds.com. Steve Wagner Editor, Mutual Investor email@example.com *********** OPTIONS 101 *********** Trading on Friday? by Mark Phillips mphillips@OptionInvestor.com Yes that's a question for each and every one of you. Much to the chagrin of many of my regular readers, I'm not going to say one word about any sort of trading strategy today. No charts, no technical studies, no theories about new and exciting entry/exit techniques. No, I'm going to talk about something FAR MORE important. Widely known as one of the lightest trading days of the year, the day after Thanksgiving (November 29th this year) is not what I would call a high odds trading session. I understand that many of you are loathe to miss a minute of live market action, especially on a day that has a historical upward bias. But trading a historical bias is a thin justification for a trade. Most traders I know are wrapping up operations by midday today and not taking a peek at the markets until the opening bell rings on Monday. At least in the U.S., this extended weekend is a gift that we take full advantage of in order to reflect on the many things for which we have to be thankful, not the least of which is a free market that we can use as our own personal printing presses once we learn how it works. Like any other piece of machinery, it requires regular lubrication and maintenance, accomplished during scheduled periods of down time. This extended weekend should be blocked out on your calendar as mandatory downtime, whether you observe the Thanksgiving holiday or not. If you do observe the holiday, then the next few days should be filled with family, friends, food and fun -- anything, so long as it rejuvenates you and isn't related to the markets. And if you don't observe the holiday (for whatever reason), then the next few days should be filled with family, friends, food and fun. Notice the parallel? We all need time away from the markets in order to recharge our batteries. Since the market is closed on Thursday and only open half a day on Friday, this is a perfect opportunity to accomplish that "task". So let me pose the question again -- Are you trading on Friday? Those of you that answered in the negative have clearly learned from the Options 101 article I wrote a few months back in early July entitled "Options, Priorities and Balance", where I gave a real-world personal example of maintaining balance and harmony in life. You don't need to read the rest of this article. The rest of this article is for those of you that are still planning on trading on Friday. You may think I'm being overly dramatic here, but if you do not establish a habit of regularly taking some time away from the market, you'll either burn out or eventually blow up your account. This is a topic that I think gets far too little coverage in our industry, so I'm endeavoring to make my contribution to correcting that oversight. If you're planning on trading on Friday, then in my opinion you fall into one of two categories: 1. You have no open positions, but are hoping the day provides a profitable trading opportunity. 2. You have open positions, which are either underwater or profitable. There, that's pretty simple, isn't it? Let's deal with the first group, as it is the easiest. We've already covered that the session is likely to have light volume, which usually leads to a lack of directional moves, and hence a dearth of profitable trades. If in light of that information, you still want to sit in front of your computer in search of profitable trades, then I would submit that it is entirely possible you have an addiction problem with respect to the market. If you can't step away, even when the odds are not in your favor, that smacks of a gambler's mentality and I would strongly suggest you need to re-evaluate your priorities. The market has provided solid trading opportunities since long before each of us became involved in this business, and will continue to do so long after we are gone. Is one day going to make a measurable difference in your profits this year? Would one day of leisure make a difference to your 6 year-old daughter, spouse or your parents? Only you can answer those questions, but I think you know the answer. If not, why don't you ask your daughter, spouse or parents how they would prefer you spend the day. Alright, now lets talk about the group that has open positions that they feel the need to watch on Friday. First up, the positions that are currently profitable. The solution here is simple. Either close the trades for a profit or set a stop that fits with your own risk profile. Isn't that easy? Let the process take care of itself so that you can enjoy a bit of down time. Holding unprofitable trades is a bit more complex, because we need to examine why they are unprofitable and by how much. Have you allowed a loss to grow so large as to be uncomfortable? If so, then I'll hazard a guess that you haven't developed (and followed) a business plan like Jeff Bailey has been advocating for quite a while now. If that's the case, then PLEASE go immediately to his recent Ask the Analyst columns (the past 2 weeks) where he has done some excellent coverage of how to plan your trading and then follow that plan. If the pain level on open trades is greater than what you are comfortable with, then you are either over-leveraged on those trades or you neglected to implement a stop-loss strategy, or both. Getting your house in order with respect to proper account management would be a MUCH BETTER use of your time on Friday than baby-sitting a losing trade. Keep in mind that it is never too late (until an option goes 'no bid') to implement damage control. If you bought an option for $2.00 and it is now only worth $0.50, either sell it to take the loss, or place a stop loss just below the current level to prevent that loss from growing. If you initially placed the trade with 100% risk capital using proper account management as Jeff advocates, then there is no need to watch it. Put in a sell order in case the play achieves your desired profit level and then review what happened next week. If you haven't let any of your open trades get away from you, then the solution for Friday is simple -- place a stop order at the appropriate level according to your business plan. The system will automatically take you out of the trade at your pre-determined pain level and the damage is limited. Either that, or the stop will not be triggered, leaving the position open and ready to be handled on Monday. All the while, you are away from the market, focusing on other activities that will (among other things) recharge your batteries. My intent here is not to beat up on anyone that has perhaps gotten a bit out of balance in his/her trading business. It is my sincere hope that nobody actually read this far in the article, meaning that you all have your life in the appropriate balance and are already planning on enjoying the long weekend. If any of the above scenarios apply to you, then please take corrective action to get the balance back in your trading life. If this article helps just one of you to refocus your efforts and get back on track, then I consider it a screaming success. Here's one last parting thought for those of you that took the trouble to read the entire article. Nobody ever lay on their deathbed and wished they had spent more time at the office. Make sure to set your priorities correctly and the effort will pay dividends for the rest of your life, and probably beyond. Have a wonderful (and hopefully long) weekend! Mark ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *********************** SWING TRADER GAME PLANS *********************** Just Couldn't Resist We finished the day on what looked like a breakdown yesterday, but I held back from piling on short since we hadn't yet broken the rising channel and we were still in no man's land as far as support/resistance. We got a bounce from the bottom trendline of that channel today, and what a bounce it was. To read the rest of the Swing Trader Game Plan Click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp ************************Advertisement************************* _If you haven_t traded options online _ you haven_t really traded options,_ claims author Larry Spears in his new compact guide book: _7 Steps to Success _ Trading Options Online_. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* 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 Wednesday 11-27-2002 Copyright 2002, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: SLM Dropped Calls: None Dropped Puts: None Play of the Day: CALL - QCOM SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS: Stocks Rally As Bull Stampede Continues! Updated on the site tonight: Market Watch Market Posture ************************Advertisement************************* 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 ************************************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *********************************************************** Stop-Loss Adjustments *********************************************************** SLM - put Adjust from $103 down to $101.50 *********************************************************** DROPS *********************************************************** calls ^^^^^ none puts ^^^^ none ************************Advertisement************************* _If you haven_t traded options online _ you haven_t really traded options,_ claims author Larry Spears in his new compact guide book: _7 Steps to Success _ Trading Options Online_. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** QCOM – Qualcomm, Inc. $40.45 -1.45 (-0.23 this week) Company Summary: Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Why We Like It: While it is now common knowledge that Technology stocks have been leading the recent market rally, many investors have missed the fact that the Wireless Telecom index (YLS.X) was the first sub-sector to rise above its 200-dma (currently $51). Since that breakout, the YLS rose through the $60 level, led in part by strong stocks like QCOM. Showing strength relative even to the YLS index, QCOM broke out above its 200-dma in mid-October, and once the sector caught up, it helped to propel QCOM through resistance at $37, and then again at $40. That initial surge off the October lows generated a strong Buy signal on the PnF chart, with a corresponding bullish price target of $60. Combining fundamentals with technicals, QCOM has been propelled higher by positive news in recent weeks, capped off by last Wednesday's news that Samsung will be using QCOM chips in its new wireless phone. Since its breakout, we've been looking for a pullback to allow us to initiate a bullish play on this strong stock, and with today's bout of profit taking, it looks like our opportunity has arrived. While the YLS index slid by 4.5% on profit taking, QCOM only gave up 3.5% and held above the important $40 support level. This is particularly impressive when you consider the Legg Mason downgrade this morning from Buy to Hold due to valuation. While a rebound from the $40 level might make for a favorable entry point into the play, the severity of the broad market weakness on Tuesday has us thinking that a dip and rebound from the $39 support level is more likely. We want to give this play some room to move due to its sometimes volatile nature, so we're initially setting a fairly wide stop at $36.75, just below last week's lows. Any volume-backed rebound from above that level can be used for initiating new positions, provided the YLS index is also showing positive price action. If momentum trading is your strategy, then you'll want to wait for QCOM to rally through the $42 level before playing. Why This Is Our Play of the Day: After the consolidation over $40, QCOM never got the dip back below that level that looked likely after Tuesday's broad market sell-off. Today's action saw the stock up $1.19 on the day, with a high of $41.98. The high on Monday was $42.00, which gives us a good gauge on entry for a momentum play. We like a move over $42.00 on a continuation of today's rally. Look for a breakout over that level, and some signs of support there, as well. Ideally we will get a break above $42 and then a re-test of that level as support intraday, which traders can use for entry. If we get a pullback, look to enter on support at $40. BUY CALL DEC-37 AAW-LU OI=15135 at $5.10 SL=2.50 BUY CALL DEC-40*AAW-LH OI=11254 at $3.20 SL=1.60 BUY CALL DEC-42 AAO-LV OI= 5194 at $1.75 SL=0.75 BUY CALL JAN-40 AAW-AH OI=18779 at $4.50 SL=2.25 BUY CALL JAN-42 AAO-AV OI= 5689 at $3.00 SL=1.50 Average Daily Volume = 16.5 mln ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** MARKET POSTURE ************** Bouncing High To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_112002.asp ************ MARKET WATCH ************ Powering Ahead To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/wl_112702.asp ******************* 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 SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS *************** Stocks Rally As Bull Stampede Continues! By Ray Cummins The major equity averages roared higher today on news of favorable economic data. A slew of reports suggested that consumer sentiment is improving and personal incomes and spending are increasing at better-than-expected rates. Unemployment claims have also fallen recently and manufacturers' durable goods orders have climbed more than previously anticipated. The Dow Jones Industrials gained 256 points to 8,932 led by bellwethers General Motors (NYSE:GM) and Citigroup (NYSE:C). The NASDAQ Composite jumped 44 points to 1,488 on strength in computer hardware, networking, and Internet shares. The broader-market S&P 500 index rose 25 points to 938 as investors returned to retail, airline and financial stocks. Trading volume was light at 817 million shares on the NYSE and at 1.1 billion on the NASDAQ. Winners ousted losers 3 to 1 on the NYSE and 5 to 2 on the technology exchange. In the bond market, treasury yields fell amid the bullish activity in stocks. The 10-year note slumped 15/32 to yield 4.12% while the 30-year bond slid 21/32 to yield 4.98%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 11/26/02 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of actual traders, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The play commentary (when provided) is simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it replace your duty to diligently monitor and manage the positions in your portfolio. Naked Puts Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mo. Yield CCMP DEC 40 38.80 58.27 $1.20 7.04% CDWC DEC 40 39.15 49.48 $0.85 5.10% FRX DEC 85 83.05 106.12 $1.95 5.14% GILD DEC 32 31.85 36.77 $0.65 4.41% KLAC DEC 30 29.25 42.77 $0.75 6.06% NBIX DEC 35 34.30 46.23 $0.70 4.64% AZO DEC 75 73.05 80.10 $1.95 6.05% COCO DEC 30 29.40 38.20 $0.60 5.89% GILD DEC 30 29.40 36.77 $0.60 5.36% IGEN DEC 30 29.15 37.68 $0.85 8.01% MSFT DEC 50 49.00 56.90 $1.00 4.62% NBIX DEC 35 33.85 46.23 $1.15 9.08% SNPS DEC 35 34.50 50.12 $0.50 4.31% CYMI DEC 25 24.70 36.52 $0.30 4.33% IR DEC 35 34.50 44.50 $0.50 4.97% LLTC DEC 25 24.75 32.36 $0.25 3.84% MERQ DEC 25 24.65 31.96 $0.35 5.33% QCOM DEC 33 32.10 40.33 $0.40 4.31% QLGC DEC 30 29.60 42.26 $0.40 4.67% SYK DEC 60 59.15 61.45 $0.85 4.15% TTWO DEC 22 22.20 29.97 $0.30 4.91% Stryker (NYSE:SYK) offered a great "target-shooting" entry but now the issue has turned south and it may quickly become an early-exit candidate. Naked Calls Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield ABK DEC 65 65.90 59.82 $0.90 4.88% ATK DEC 65 66.05 57.65 $1.05 5.24% EXPE DEC 80 81.05 74.88 $1.05 5.16% Put-Credit Spreads Stock Gain Symbol Pick Last Month L/P S/P Credit C/B (Loss) Status FCN 41.18 38.25 DEC 30 35 0.55 34.45 $0.55 Open MSFT 57.03 56.90 DEC 48 50 0.30 49.70 $0.30 Open SNPS 47.35 50.12 DEC 35 40 0.60 39.40 $0.60 Open COLM 40.85 43.71 DEC 30 35 0.60 34.40 $0.60 Open CCMP 53.80 58.27 DEC 40 45 0.50 44.50 $0.50 Open ROOM 68.94 70.11 DEC 55 60 0.50 59.50 $0.50 Open WFMI 50.55 51.00 DEC 40 45 0.30 44.70 $0.30 Open XL 80.15 79.50 DEC 70 75 0.50 74.50 $0.50 Open Call-Credit Spreads Stock Gain Symbol Pick Last Month L/C S/C Credit C/B (Loss) Status CAH 70.01 61.04 DEC 85 80 0.55 80.55 $0.55 Open FNM 68.21 62.00 DEC 80 75 0.75 75.75 $0.75 Open APA 50.00 51.82 DEC 60 55 0.60 55.60 $0.60 Open LLL 44.49 44.51 DEC 55 50 0.50 50.50 $0.50 Open TOT 67.37 65.66 DEC 80 75 0.45 75.45 $0.45 Open BRL 58.13 64.92 DEC 70 65 0.65 65.65 $0.65 Closed CAH 75.70 61.04 DEC 75 70 0.80 70.80 $0.80 Open NVS 38.40 37.89 DEC 45 40 0.50 40.50 $0.50 Open Barr Laboratories (NYSE:BRL) has completely reversed its recent trend and the bullish activity suggests the position should be closed to protect gains and/or limit losses. Credit Strangles Stock Strike Strike Cost Current Gain Potential Symbol Month &Price Basis Price (Loss) Mon. Yield KBH DEC 50C 52.00 43.55 $2.00 7.68% KBH DEC 40P 38.75 43.55 $1.25 6.67% THO DEC 40C 40.50 39.73 $0.50 4.34% * THO DEC 30P 29.50 39.73 $0.50 4.46% Conservative traders should have closed the Thor Industries (NYSE:THO) position when the issue moved up and out of the recent trading-range top (near $37) on heavy volume. Synthetic Positions: No Open Positions Questions & comments on spreads/combos to Contact Support *************** NEW POSITIONS The editor of this section is enjoying the Thanksgiving holiday with his family, thus there will be no new positions this week. There will be an abbreviated selection of spread and combination plays in Saturday's edition of the Option Investor Newsletter. Happy Thanksgiving! *************** ********** 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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