The Option Investor Newsletter Sunday 04-20-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Priced to Perfection Futures Market: Where's My Neck Brace? Index Trader Wrap: SOX, glamour queen of tech-land Editor's Plays: Last Time Market Sentiment: An Easter Earnings Passover Ask the Analyst: A SENTIMENTal Journey Weekly Manager Microscope: Kevin Wenck: Polynous Growth Fund A (PAGFX) Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 4-17 WE 4-11 WE 4-04 WE 3-28 DOW 8337.65 +134.24 8203.41 - 73.74 8277.15 +131.38 -375.85 Nasdaq 1425.50 + 66.65 1358.85 - 24.66 1383.51 + 13.99 - 51.65 S&P-100 453.71 + 12.74 440.97 - 5.72 446.69 + 8.75 - 18.43 S&P-500 893.58 + 25.28 868.30 - 10.55 878.85 + 15.37 - 32.41 W5000 8466.85 +239.31 8227.54 - 92.43 8319.97 +134.60 -277.93 RUT 383.70 + 12.40 371.30 - 1.98 373.28 + 4.58 - 7.53 TRAN 2326.19 +131.63 2194.56 + 6.28 2188.67 + 25.47 -100.29 VIX 24.59 - 3.68 28.27 - 4.53 32.80 + 0.62 - 1.44 VXN 35.88 - 3.74 39.62 - 2.83 42.85 - 0.24 - 2.69 TRIN 0.50 0.88 1.00 1.43 Put/Call 0.52 0.79 0.76 1.31 ****************************************************************** Priced to Perfection by Jim Brown Traders were wearing their rose tinted glasses on Friday and despite several bearish economic reports the markets closed up for the week and right at strong resistance. 54% of the companies already announced have warned about their 2Q outlook but those that have announced are mostly beating their lowered estimates. First Call has raised the overall earnings estimates to +10.2% for the 1Q compared to 8.7% just a couple weeks ago. Traders have quickly pushed up stocks to levels that assume the positive earnings continue. Warnings? What warnings? Do you want to borrow my glasses? The economic reports continued to disappoint those looking for a glimmer of recovery on the horizon. The Jobless Claims soared to 442,000 and the second highest number for the year. Claims for the prior week were revised up as well. This was the ninth consecutive week over 400,000. The four-week average rose to an eleven month high at 425,000. Continuing claims rose +76,000 to 3.574 million. The rising trend of higher unemployment is likely to mean an increase in the unemployment number for April to something in the 6.0% range. Also, this is the week that is used to calculate the May Jobs Report numbers for April. The very high jobless claims for the three April weeks so far, -443K, -412K, -442K could indicate a seriously negative nonfarm payroll number in the first week in May. This would be the third month of massive job declines. One qualification, the shortened holiday week could influence the numbers to some extent either way. The Philly Fed Survey fell again for April to -8.8 and makes the second declining month in a row. New orders fell to -11.2 from -4.3 and order backlog fell to -19.0 to -9.5. Employment fell to -12.5 from -8.8 indicating more weakness in jobs. Even shipments fell to -5.7 from 0.9 last month. This survey was taken before April 10th and the completion of the war is not yet priced in. The next month's numbers will be critical to see if the conditions changed. The lower employment discussed above is being felt in various ways. United Health (UNH) warned that enrollment would be down in future quarters. UNH dropped -$5 on Thursday before recovering intraday. Multiply this type of unemployment impact across multiple sectors and it adds up to continued weakness. If unemployed consumers are giving up necessary healthcare you know they are already curtailing things like cars, computers and electronics. Gateway Computer reported a loss of -.62 cents after the bell on Friday and said computer sales had fallen by -30% from the 4Q levels. Gateway has shifted to a higher performance product mix and is no longer trying to compete with the cheap clones but is finding it difficult to find high dollar buyers. This was the ninth quarterly loss in the last ten quarters. SUNW was the latest in the big box makers to report earnings this week and would not give any guidance going forward other than they expect "some" revenue growth. The CFO said they saw sales weaken from mid February and it continued into March. SUNW hit their earnings estimates but fell short on revenue due to the weakness in sales. The consensus is that SUNW will survive but not thrive due to heavy competition and a variety of high performance server choices. The Semiconductor Book-to-Bill report was released on Thursday and the number remained flat at .99 from the original February number. However, the February number was revised down to .98. These are not critical numbers. As long as the levels remain close to 1.0, $1 of new orders for every $1 shipped, there will not be any further declines in the sector. Semis are treading water but not gaining any momentum. Considering some of the warnings in the semi sector this week this number could be seen as bullish except that it reflects March business instead of April. That March business is already reflected in the current earnings and warnings being reported. Confused? I think it is just another confirmation that business is flat. We will see some winners and some losers but no clear trend. After the bell on Thursday there was a flurry of earnings and earnings news. EDS announced it was delaying earnings from April-23rd to May-7th to allow new management to get comfortable with the numbers before releasing them to the market. That could be exciting. LEXR Media, a chip company, reported inline with estimates with inline guidance. ISSX beat the street by a penny and raised guidance. XLNX beat the street and said revenue would rise by +1% to 5% and a little more than analysts estimates. Fairchild Semi (FCS) also beat by a penny but said revenues would be flat for the next quarter. IOM announced a drop in revenue of -40% and said even allowing for a difficult economic environment they were disappointed in the decline of their core products. ATML missed by two cents and warned for Q2. PMCS beat by two cents and did not give any guidance. BRCM soared +18% after saying revenue could rise +12% to +14% in Q2. This mixed bag proves that the technology recovery is random and probably depends on having the right product and the right cost cutting strategies. It is not a broad-brush move and specifically related to companies with niche products. Honeywell missed estimates by two cents and warned that full year revenues would be at the bottom of previous estimates. They said it was a very difficult market and they were being hampered by the freeze in the airline sector. UTX beat the street by two cents despite giving positive guidance just last week at the lower number. They then warned that they expect the business environment to remain difficult through all of 2003 but especially the 2Q. They affirmed their full year estimates but declined from giving any specific estimates for the 2Q due to lack of visibility. UTX dropped -2.27. NOK set the tone for Thursday with better than expected results overnight but the tone was very muted in early going. The bottom line has been "no disaster". The warnings lowered the bar so far due to the impending war that almost everyone should beat estimates. Those that are missing were generally already expected to miss. With the outlook for the future now mixed compared to a previously bad outlook across all sectors we saw investors buying individual stocks on Thursday. Still there is a high degree of disconnect between the strong results and the economic climate. Cutting your estimates from 50 cents to 30 cents in March and then beating the 30 cent estimate by two cents in April is not a strong performance. It just means you over warned. This is what we are seeing and investors in general have a short memory. The "beat" becomes the focus instead of the prior warning that allowed them to beat. It is all in the perception of reality. If many investors feel bullish based on the earnings for the week then the market will go up until those feeling bullish run out of money. Next week will give investors the chance to take another look at the economy and another barrage of earnings. 30% of the S&P have already reported and next week we will see another 30% report. Eight Dow components will announce. The economic calendar starts slow with only Leading Indicators on Monday and Chain Stores on Tuesday. Things pick up on Wednesday with the Beige Book and then Jobless Claims, Durable Goods, Help Wanted on Thursday. Friday has Home Sales, GDP and Michigan Sentiment. Thursday's close contained several critical elements. First the Thursday before Easter has now closed bullish 8 of the last 10 years. That is a pretty strong historical trend. April has also been the best month for the Dow since 1950. The positive ramp into earnings has provided some interesting numbers. The VIX closed at 24.59 and a low not seen since June-3rd 2002. The TRIN closed at .50, bearish for a contrarian because it signifies larger ratio of up volume over down volume. The Put/Call ratio closed at .52, a level not seen on a weekend close for months. Remember, this was also an options expiration week. Volume was nearly 6:1 to the upside across all markets and 4:1 on the Nasdaq. This is very positive but this is also a normally positive Friday. The market is priced to perfection by any yardstick. Earnings are "better" than expected and the war is over. "Party on bulls!" appears to be the sentiment. The challenges to the bullish scenario continuing to play out are many. They are not insurmountable and actually overcoming these challenges would put an even stronger bullish spin on the market. The Dow closed over its 200 SMA at 8332. This was heralded by some traders as a monumental event. The margin at the close was only 5 points. Technically a break but by a very thin margin. I would point to the chart below and suggest the EMA average at 8484 was more relevant. It has held all four times since last May. Dow Chart - Daily More importantly we have been going sideways in a narrow range between 8100 and 8400 since the March rally. The gains this week have put us closer to the top of the range but no closer to a major breakout. Dow Chart - 90 min While the Dow may be trending to the top of its range the Nasdaq closed exactly on it at 1425. This has been very strong resistance for the last two months. If we have a hope of breaking out of our range bound trading it will be with the Nasdaq. This 1425 level is critical but by no means the signal a new bull market has begun. Breaking this level will be one more step in the effort to break the current down trend. The next resistance is 1460 followed by 1500. That is liable to be a tough +75 point gain. Nasdaq Chart - Daily We continue to talk about the eventual danger of the VIX and the closing at a ten month low on Thursday should not be disregarded. It also does not mean a rogue comet will hit Wall Street on Monday. It simply means the risk of an eventual bout of selling is getting ever closer. The VIX could continue to drop to historical levels under 20 before the event but it would require several more days of very strong buying. What it is telling us is that there is little fear in the markets. Everyone thinks the markets are going up, or at least they don't think they will drop soon. The put/call ratio is another measure of lack of fear. At .52 it means the risks are balanced or neutral. The contrarian viewpoint would like to see more puts than calls as a measure of more fear. Something in the 1.0 or higher generally precedes decent rallies. Below .50 generally precedes a spurt of selling. In the final analysis everyone was bullish on Thursday at the close. Whether it was the historical holiday bounce or irrational exuberance over the earnings surprises is not known. The markets rose almost casually despite the lopsided volume. We closed right at critical resistance on the Nasdaq and nearing critical resistance on the Dow. There are another 350 companies (guesstimate) announcing next week and historically the farther we get into the cycle the less impressive the results become. Also, the farther into the cycle the less interested investors become. We are a cynical bunch and bore easily. Oh, XYZ beat lowered estimates by a penny, yawn. Last week's earnings was a welcome respite from the depressing war news and the SARS epidemic. Will it prove the same next week? With many companies already trading at significant gains over where they were a couple weeks ago I would caution against rushing into a buying frenzy. If you like BRCM at $16 when it was $12 a couple weeks ago then be my guest. Numerous blue chips have risen to resistance and getting enough momentum to clear that resistance could be tough. IBM at $85? INTC at $19? Citigroup at $39? CSCO at $14? MSFT $25.50? Without a breakout by these companies and others like them it will be hard to maintain a rally. I would simply remind everyone that we are entering the historical worst six months of the year. Beginning in May many traders hang up their keyboards and turn to the task of family vacations, yard work and barbeques and don't return to trading until the kids return to school in September. The Hirsch Corporation, editors of the Stock Traders Almanac, issued a sell signal last Thursday based on market internals, technical indicators and historical trends. While I and most others I know scoff at the idea of taking a multi-month break there is a historical precedent that many do. While most of the readers of this article probably think this is the height of stupidity we all have to take that trend into account. To do this we should continue to profit from the bounces but be wary of rallies to strong resistance. Think of it as sprints for a runner. Run the race from every dip (8150) but when you reach the finish line (8500) be ready to take a break. No single race lasts forever. The start and finish lines can change at any time so be flexible and pace yourself. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Where's My Neck Brace? By Vlada Raicevic Daily Settlement Numbers 4:15pm ET > DOW Last: 8337.65 Net: +80.04 High: 8347.45 Low: 8235.41 > YM 03M Last: 8302 Net: +74 High: 8325 Low: 8212 > S&P 500 Last: 893.58 Net: +13.67 High: 893.83 Low: 879.20 > ES 03M Last: 891.25 Net: +12.50 High: 893.50 Low: 877.75 > Nas 100 Last: 1083.56 Net: +28.67 High: 1084.81 Low: 1051.36 > NQ 03M Last: 1083 Net: +26.50 High: 1087.50 Low: 1054 DAILY PIVOTS > YM 03M R2: 8400 R1: 8361 Pivot: 8287 S1: 8248 S2: 8174 > ES 03M R2: 904 R1: 899 Pivot: 888 S1: 883 S2: 873 > NQ 03M R2: 1110 R1: 1100 Pivot: 1077 S1: 1066 S2: 1043 It is a good thing that the markets are closed tomorrow, because my head hurts from the repeated banging of my forehead against the desk top. No, I didn't slip and fall. I just continue to lean over and bang it repeatedly, hoping to knock something loose inside, perhaps some repressed memories which can come to the foreground and allow me to understand what, exactly, this market is doing. Short recap: we exploded up on Tuesday, continued to melt up overnight, and then sold off all of those gains on Wednesday. In fact, yesterday you couldn't find a buyer anywhere, and any moves up were tiny 2 point burps. Today, we went straight up again, and you couldn't find a seller anywhere, and any selling barely moved the price more than a couple points down. After opening, the futures tried to move up, were sold, and it looked like yesterday would have some follow through to the downside. Buyers came in before we tested yesterday's late day lows, and from there the buying never stopped. The strongest selling came after ES hit the high of day at 892.50, but the selling stopped at 888, and the futures found another round of buying which exceeded the high by .25 to print 892.75. We then had more selling and what looked like another rollover, but buyers stepped up again and pushed up to yet another high at 893.50. The gnashing teeth and heads bouncing off desks created an interesting rhythm across the trading communities. Everywhere I turned to had both bears and bulls shaking their heads in wonder, and like a chorus to the head-banging rhythm, chanting "What in the name of Wally is going on?". Truly, this market action is not a complete surprise for options expiry week, as they are known for their volatile ways. Unfortunately, we've had more than a month of price swings that make every week seem like options expiry. Let's take a look at the charts and see what conclusions we may come to. Perhaps if we wear our Captain Nembot secret decoder rings while we draw trendlines, we'll be able to figure something out. I know of two camps of thought when it comes to volume. One says that it is necessary to support whatever the market is doing, meaning, if the market is going up, it is only sustainable if there is strong volume to support it. The other camp says, "who cares?", if the market is going up, then it's going up, when it's going down, it's going down. I'm completely neutral on this, since I've seen both sides proven right numerous times. For those who believe that volume needs to support price, then the green weekly stick we just painted gives us yet another puzzler: Yesterday during the selling, the total daily volume was higher than the previous 4 days, but today's volume on the buying was greater yet than yesterday's. If you look at the following chart, you can see how volume has been slowly falling off all week. The bottom panel shows the 13MA of the volume data. Today's total volume is bigger because we didn't have the usual lunchtime doldrums. ES 15 Minute Volume Chart: The ES daily chart shows Stochastics looking perky and moving up, with the fast stochastic breaking above the downtrend line. RSI and Macd are at a dead stop, still in positive territory, but just barely, and I would read them as neutral. ADX shows that D+ is just crossing below its uptrend line, but that sellers are no where to be found, as D- continues to move lower. We did not test either of the two drawn uptrend lines today on the selling, but then we didn't close above yesterday's open or the previous day's close. We are not at resistance or support on this chart. All that can be said is that price is in a mild uptrend, and indicators are still generally positive, but nothing that would cause a person to go out and actually buy the ES for a swing trade. On the other hand, there is nothing bearish about the chart, so if one is long, there is no reason to sell, and there is no reason to sell-short either. ES Daily Chart With Indicators: The following chart contains possibly useful trendlines. As trendlines are broken, new ones are drawn. I used to erase the ones that I thought weren't useful anymore, but have found that they can often come back into play if a breakout/breakdown does not hold, or just plain reverses. Today, price stopped at the original blue downtrend line. The previous two highs have created two additional downtrend lines, but they were not tested today. ES Daily Chart with Trendlines: The ES weekly chart shows that we yet again attempted to pierce and hold above the downtrend line that repelled last week's attempt. That pierce did not work again (and I need to add a new downtrend line to include last week's high). However, price attempted to pierce and close below the uptrend line, but that failed as well, and the close was yet again inside the putative triangle. We did close well above last week's open and close, and produced a strong looking green candle---which could neither break out nor break down. Macd is about to try and break above the centerline, but note that the last two tries managed that, only to fail almost immediately; Caveat 1: this time we are coming up from a much higher low, which could bring more strength with it. Caveat 2: the rise is very flat, carrying almost no momentum with it, which shows a lack of conviction. Net, again, is neutral. Stochastics are on a nice uptrend, but the fast stochastic is starting to run out of juice, and ADX is just showing an ever larger disinterest as both buying and selling continue to drop. ES Weekly Chart: NQ daily chart is looking quite good, with Macd, RSI, and all stochastics curling up and moving above their respective resistance. ADX actually shows a drop in buying, but price continues up because there just are no sellers, with D- continuing its steep descent. Price is against trendline and horizontal resistance, but indicators are saying that there seems to be enough momentum to get through. It has been a very strong return from the abyss, since just a few days ago it looked like the NQ's were about to break and sell off hard. NQ Daily Chart With Indicators: In drawing trendlines on the NQs, you can see how they have been much more predictable than the ES. The NQs have been politely stopping on cue at the downtrend line from the December highs, and 'false' pierces of existing trendlines have been few. Here, like the ES, price is coiling inside a narrowing set of trendlines, and looks like it needs to decide which way to break within the next week. NQ Daily Chart With Trendlines: The NQ weekly chart shows that for five weeks, price has done very little. This week has nearly reversed 3 weeks of price movement, but the charts are barely bullish. Macd continues to crawl up a trendline, and crossed the centerline, and RSI is looking fairly positive, turning up and away from the trendline and moving average. Multi-stochastic is looking positive as well. Fast stochastic is turned over, and is not reacting at all to this week's rise, which is a warning signal, since this indicator should react more quickly to fast price swings. ADX shows that sellers and buyers are both on a decline, and that this weeks large green candle may be unsustainable. Price also stopped at the weekly downtrend line, although it did close near the high of the week. Mixed signals from both sides. NQ Weekly Chart: In conclusion, our secret decoder rings did nothing to clear up the fog swirling among us. Many charts are close to neutral, but a positive week has pushed things into a more bullish tilt. This bullish feeling that the charts give us must be tempered by the fact that indices are nosing around resistance, and the ADX tells us that it not necessarily a high degree of buying that is producing all these green candles, rather, it is a lack of selling, allowing what buyers there are to do as they please. Next week, we hope against hope, that there is some resolution to this standoff. Will the sellers return and overwhelm the lower volume bulls? Will the bulls look charts over this weekend and decide that things are starting to look good and return with sufficient vigor to overcome overhead resistance? Tune in next week. ******************** INDEX TRADER SUMMARY ******************** SOX, glamour queen of tech-land By Leigh Stevens lstevens@OptionInvestor.com This past week brought earnings back into the forefront now that Iraq as a military foe and danger has receded - of course, we still have to win the "peace" and this may be the toughest challenge. The market rally was lead by the tech heavy Nasdaq which was in turn led by the key Semiconductor Index (SOX) - see chart below. Earnings figures released by key tech leaders Intel (INTC) and Microsoft (MSFT), among others, were well received. The Nasdaq (Composite - COMPX) was up nearly 5 percent for the week to 1425 - a substantial gain and even more so when you look at it versus the S&P 500 (SPX) advance of 3% and the Dow's 1.7%. THE BOTTOM LINE – While the Nasdaq Composite (echoed by the Nasdaq 100, NDX) has made a new closing 3-month high, my focus is on COMPX's ability to pierce resistance in the 1450-1460 area, around the mid- January top. The current rally is being led by what was a very oversold Semiconductor index - more on that shortly - which is one very volatile index that that can turn on a dime. The S&P 500 (SPX) is now trading above its 200-day moving average, a bullish plus, but there should continue to be two- sided trading swings. As I've said before, the market appears to be in an overall bottoming process but it can take some months to create a strong recovery "base" in many key stocks. Short-covering in the tech stocks by large hedge funds is a dynamic here and the whole rally looks "technical" rather than led by any big shift in the fundamental outlook for the economy and stock earnings. Moreover, bullish sentiment among traders jumped to an extreme last week and calls into question the staying power of this rally in the short-term. I continue to suggest trading the range and the next best new entry should be into index puts, so take call profits on rallies. THURSDAY'S TRADING ACTIVITY – Led by the spark provided by an upbeat sales forecast from Nokia (NOK) and to general hopes for an economic rebound, traders and investors pulled up the Nasdaq Composite by another 2.2 percent or by 30.78 points, to 1425.50, producing a gain of 4.9% during a holiday-shortened week (nearly 7% for the year). The Dow rose 80 points on the week to 8337.65, which is now virtually unchanged for the year. There is shift in money coming into the greater glamour of tech stocks and out of the conservative Dow-300 type companies. In the "bang for the buck" department, I noticed the Journal quoting these startling gains for the year - Yahoo up 53%, Amazon 32% and eBay by 33%. Gold anyone? I don't think so, when more adventuresome investors see these stats! Both stock and bond markets close Friday for the Good Friday church holiday. Without the U.S. market, don't expect much European and Asian action. Stocks took off in the afternoon after a Federal Reserve survey of manufacturing activity in the Philadelphia region showed only a mild decline, less than feared. Businessmen interviewed for the survey indicated their expectations that the business climate is improving. In spite of the holiday shortened week, trading volume on the NYSE was not much off its daily average of late, as options expiration related activity took up the slack from traders heading out early for a long weekend. Tech stocks were strong from the opening - as mentioned, Nokia, the big cell phone maker, put out a forecast on improving sales, as did chip maker Broadcom (BRCM) - the company said that sales were up during Q1. With 101 million shares exchanged, Sun Microsystems (SUNW) ended the day as the most-active Nasdaq stock, losing 8 cents (2.4 percent) to close at $3.24. SUNW performance disappointed analysts as well as investors - A Merrill Lynch analyst said "Sun's report highlighted the continuing depressed state of the high-end hardware market. The company said IT spending might not be worsening, but that it's sure not getting better". Amen brother! The Dow average lagged after Honeywell announced Q1 earnings that were lower than consensus estimates. However, 27 of 30 stocks in the Dow were higher on Thursday. The S&P 500 managed to tack on 1.5 percent for the day, or 13+ points to wind up the week at 893.58 - a possible test of the psychologically important 900 level is now only a few points away. Weekly unemployment claims for the past week came in higher than expected, remaining above the 400,000 level which seems to be a benchmark figure for what is trouble for the economy or not. OTHER MARKETS - Oil prices rallied on fears that OPEC will cut back on supply with the Iraq war winding down - nearby crude oil futures rose $1.37 to $30.55. Gold prices also rose a bit, reflecting continued nervousness about war and terrorism. However, T-bonds were little changed - the 10-year note was off 5/32, to wind up yielding just under 4 percent. The dollar up higher as the greenback closed FOREX trade in New York at 119.66 Yen, up from 119.47 and the euro slide against the U.S. dollar to $1.0876 from $1.0914. MY INDEX OUTLOOKS – The Semiconductor Index (SOX) daily chart leads my chart parade - This one could also be entitled: "more than a dead cat bounce?" Probably yes. SOX has made a series of higher (down) swing lows as it has climbed up from its bottom way down in the 210 area. Now that the Index has exceeded a 62% retracement of its Oct. - Nov. advance, it seems likely that SOX can continue to work its way back to a test of the prior high at its mid-Jan. peak at 348 although there is also still the matter of a more recent high at 338 to be overcome first. What I will be watching for technically with the Semiconductor Index is whether a new high will be "confirmed" by a similar higher high in the RSI indicator. If a bearish divergence sets up it suggests to me that this sector index, and probably the Nasdaq as well, is a candidate for profit taking on any long calls and a switch to a put play as the next trading opportunity. S&P 500 Index (SPX) – Daily & Hourly charts: SPX is now trading above the important 200-day moving average which is a technical plus as I've been saying before - you can see how this line acted as resistance in recent trading. So, 880 now is looking like the area that the bulls have to defend. Interesting that the see-saw price action has created a situation where the S&P 500 is not yet in any kind of overbought extreme. As with the SOX however, it will be a test of sorts if the Index gets to a new high without a confirming new high in the 14-day RSI or the 21-period hourly stochastic, as per the indicator graphs below - The 10-day TRIN is not at any kind of extreme. The rally can be seen in one way however, as a "continuation" of the rebound predicted by the two prior high readings showing very high selling volume, relative to buying, over the prior 30 days. Last but not least, as I suggested last week, if Monday brought a further rebound from the hourly trendline, such bullish action would suggest further upside, which is exactly what happened. Who would have thunk it! If you have a choice between thinking and believing a trendline like this, believe what you see on the chart. 900-905 looms as the key resistance. I suggest shorting and put buying strategies on signs of a faltering rally in this area. It seems unlikely that SPX is going to sale through there - but, stay tuned! 875, at the trendline - the intersection of which moves higher over the week, is an important technical support line to watch over the week to come. 865 is a must-hold support to keep a bullish chart going for this Index. S&P 100 Index (OEX) – Daily & Hourly charts: 445 and 455 are the near support/resistance levels to watch in the early part of the week. 460 is the key prior top that must be overcome to get this rally kicked into 3rd. gear. A break of 445-440 would suggest downside follow through. The S&P 100 chart looks like a carbon copy of the S&P 500 (SPX) chart - EXCEPT that I do have one indicator showing here that provides my most bearish short-term key indicator, which is related to market or trader "sentiment". Traders got pretty bullish by week's end. Although there was option unwinding due to expiration, my equities call to put daily volume ratio is usually not that thrown off and the extreme is marked with a red arrow on the left daily chart side below - I figure that a downside reversal is coming in the next few sessions. The question in my mind is more on whether 440 gets pierced and prior support at 430 gets tested or not. A couple of hourly closes above 460 - my 450 suggestion last week seems to not be enough leeway - AND the ability to hold this level on subsequent pullbacks, is the only development that would make me wonder if holding puts was getting too risky. I'll bank on the 1-day extreme seen so far in my Call to Put options "sentiment" indicator. Another day or two of CBOE equity call volume running around double daily equities put volume, would make this a surer bet and pull up the 5-day moving average. I use a 5-day average as a sometimes confirming indicator, but a 1-day extreme like the one shown above is usually enough to signal that a countertrend move is coming. After years of watching this, I still find it uncanny that when the majority of option traders gang up on one side so heavily, it so often signals that an unexpected opposite is coming. Nasdaq Composite Index (COMPX) – Daily & Hourly: The back and forth two-sided trading swings had nudged the daily stochastic model into a neutral to slightly oversold area, so no extremes are suggested in terms of this market being overbought EXCEPT on an hourly chart basis. But if the COMPX takes out that prior double top and get up to the 1450-1460, it will be - overbought enough to suggest that the Composite won't go to high for the year, or not for long. 1350 continues to be the area of the expected low end of a 1350-1450 trading range. The Nasdaq has been a good market to trade given the number of back and forth price swings. Remember the "island" bottom (yellow circle on the hourly chart)? - a good chart pattern "signal" then. Now what? Look for a top again such as seen in January and another trading swing to ride down. More is seen on the QQQ chart lag to suggest that this rally probably doesn't have big strong "legs" as they say. QQQ charts - Daily & Hourly: Near support 25.3 and resistance at 27.4 - the Q's are lagging the Composite and the volume is in a downward trend. Someone forgot to tell the Nasdaq 100 followers that there is anything here to get excited about. To suggest a breakout of the triangular consolidation showing on the daily chart will require a close that clears 28-28.25 AND - do I sound like a broken record - the ability to hold above 27.75-28 on subsequent pullbacks. The idea being that resistance once exceeded in a solid rally, should "become" future support on pullbacks. I think we got a weak rally to the top end of a range rather than a change of heart among the legions of investors and money managers who would rather NOT get enticed back into tech stocks. We're seeing an overbought reading on our hourly stochastic models here also. 25.30 is the key trendline support. A break of this area would suggest that QQQ can get back to the 23.5-24 area again. Short the rallies, buy puts and stay tuned. The principle bullish note is provided by that fact of the possibility that the triangle is the stock "coiling" or compressing for another up leg and the fact that the 14-day stochastic is showing upside momentum from the lower end of its range. So let them prove themselves - the key technically for any bullish outlook is an ability for the Q's to penetrate the cluster of prior price peaks - hey, "ppp" may be a catchy new acronym. ************************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 ************************************************************** ************** Editor's Plays ************** Last Time This may be the last time I play the QQQ in this column. (grin) I can't seem to get a break. Last Sunday was the third time I listed a potential QQQ play in the last two months. We started off great on Monday but the rest of the week did not play exactly as I expected. If you entered the suggested play on Monday morning you would have bought the April $26 call for about 20-25 cents where it traded for the first 90 minutes. The May $25 put traded in the 75-80 cent range during that same period. The game plan was to buy the put for an eventual Apr/May sell off from QQQ support at $25.50 where it closed on that Friday. We were buying the call for insurance against a bounce from the IBM/MSFT/INTC earnings. Well, we got the bounce! The plan was to sell the call on Thursday to defray our total cost and then hold on to the put for the next couple weeks. The call traded as high as $1.00 on Thursday but spent the majority of the afternoon in the 90 cent range. If you entered the trade as suggested you should have not paid more than 25/80 cents for a total of $1.05. If you sold the insurance call as planned for 90 cents then you have May $25 puts with a cost basis of 15 cents. Not bad for a busted play. What do we do now? Nothing! We are actually even better positioned tonight than we were last week and we have a very cheap option. The QQQ came to a dead stop at the down trend line from December. Also, unlike the Nasdaq which stopped at 1425 and at the same spot it stopped on each upward attempt the QQQ has made a lower high each time. Nobody can guarantee it will fail here but I would bet 15 cents on this scenario any day of the week. QQQ Chart - Daily This may not have worked out exactly like we planned but we should not have any complaints. If you are not in the current play then the May $25 option would be the vehicle of choice. It closed at 35 cents on Thursday. Good luck! Here is the link to last weeks play explanation: http://members.OptionInvestor.com/editorplays/edply_041303_1.asp ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. ORCL - Put - $12.00 4/6/03 ($11.37 when recommended) Somebody stop this software euphoria. With nearly every software stock warning including Microsoft why is ORCL up? Talk about a rising tide lifting all boats. I am going to set a stop loss on this trade of $12.50. If we touch it we are done. ORCL closed right at very strong resistance on Thursday of $12.00. If it breaks over that level we could see some serious short covering. Prepare to exit gracefully. CY - Cypress Semi Call - $8.49 3/2/03 ($6.41 when recommended) http://members.OptionInvestor.com/editorplays/edply_030203_1.asp EMC Call from Feb-2nd $8.49 ($7.70 when recommended) http://members.OptionInvestor.com/editorplays/edply_020203_1.asp Powerball - From 12/29/02 RFMD and TLAB are still holding this lottery ticket back but we still have nine months until expiration. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 http://members.OptionInvestor.com/editorplays/edply_122902_1.asp ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** An Easter Earnings Passover by James Brown Once again earnings news has taken center stage. Traders took the stream of reports in stride and drove the markets higher into the close before the long holiday weekend. Many of the reports today and after the bell on Wednesday were better than expected or at least not as bad as expected and these "surprises" caught some traders off guard. With so many of the not-so-bad or positive earnings reports coming from tech companies it appears that investors were able to maintain their positive bias and sort of passed over the murky economic news. Setting the stage for today's green candles in the U.S. markets were positive sessions for Europe's major exchanges. The London FTSE 100 gained 34 points or +0.89%. France's CAC 40 squeaked by with a +3.84 points and the German DAX out-performed the continent with a +2.66% gain. In the Pacific, the two largest markets were mixed. The Japan NIKKEI 225 bounced +53 points off fresh 20-year lows and the Chinese Hang Seng lost 96 points or - 1.11%. The SARS illness is still first and foremost on the minds of citizens and governments alike in the region and it's bringing the economy to a standstill. Have no doubt that this will influence the American markets but to what degree remains unknown. After an up and down day, the U.S. Treasuries ended lower as money appeared to shift back into stocks. The U.S. dollar, which took a nosedive on Wednesday was little changed against the euro and the yen. Investors with an energy focus are sure to note that oil futures rose $1.01 to $28.54 on news that OPEC has declared an emergency meeting for next week. Faced with the prospect of Iraqi oil hitting the markets faster than expected, analysts believe OPEC will cut exports to prevent a glut on the market and a crash in oil prices. At the end of the day only three of the thirty Dow Jones Industrial components failed to close in the green. Market internals were also positive. Advancing issues beat decliners by 3-to-1 on the NYSE and by more than 2-to-1 on the NASDAQ. 52- week highs completely overshadowed news lows 268 to 61. Up volume was huge with the NYSE posting 1.39B versus 237m in down volume. The bullishness was almost as strong on the NASDAQ with up volume of 1.27B versus 307M in down volume. Overall volume was decent considering the Passover and Easter holiday. Believe it or not, I looked at over 1000 charts today and observed a lot more bullishness than I truly expected. My intermediate-term bearish market bias is struggling to find evidence in the numbers. Therein may be the secret. The crowd is normally wrong at the beginning and the end of a trend. When everyone (and everything) starts looking bullish, then it may be time to worry. On the other hand, maybe these languid economic reports are the "wall of worry" that most bull markets need to climb. What concerns me the most are these lows in the volatility indices (VXN & VIX). Anytime investors are this complacent they usually get jarred back to reality with a big painful moves. There is nothing that says the markets can't keep climbing and that the VIX can't keep sliding but it would remain a very dangerous place to trade if your only strategy is to go long. I'll leave you with a question... what are the markets going to trade on after earnings season is over? ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10673 52-week Low : 7197 Current : 8338 Moving Averages: (Simple) 10-dma: 8285 50-dma: 8025 200-dma: 8329 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 768 Current : 894 Moving Averages: (Simple) 10-dma: 879 50-dma: 851 200-dma: 880 Nasdaq-100 ($NDX) 52-week High: 1573 52-week Low : 795 Current : 1084 Moving Averages: (Simple) 10-dma: 1047 50-dma: 1020 200-dma: 990 ----------------------------------------------------------------- These are EXTREMELY low reading on the VXN. The markets only have a couple of years of data on the VXN and this is a new all- time low. Meanwhile the VIX has slid past the previous two relative lows and appears to be heading for its more traditional lower boundary towards 20. Keep in mind it has quite a ways to go before it gets there. Also keep in mind that according to Mark Phillip's recent backtesting on the VIX, we should not see it drop past the 24 mark before reversing. The next few sessions will be very interesting. CBOE Market Volatility Index (VIX) = 24.59 -1.50 Nasdaq-100 Volatility Index (VXN) = 35.88 -1.17 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.52 1,024,424 535,106 Equity Only 0.42 893,692 372,875 OEX 0.88 42,791 37,575 QQQ 0.78 91,525 71,252 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 46.5 + 2 Bull Confirmed NASDAQ-100 59.0 + 1 Bull Alert Dow Indust. 43.3 + 0 Bull Alert S&P 500 48.8 + 1 Bull Confirmed S&P 100 47.0 + 3 Bull Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 0.91 10-Day Arms Index 1.10 21-Day Arms Index 1.31 55-Day Arms Index 1.34 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 they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 2126 717 NASDAQ 2048 936 New Highs New Lows NYSE 102 28 NASDAQ 87 16 Volume (in millions) NYSE 1,661 NASDAQ 1,596 ----------------------------------------------------------------- Commitments Of Traders Report: 04/08/02 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 Commercials added to the long side and reduced short positions for a net long gain of 4,000 contracts. Small traders reduced both sides for a net reduction of 3,000 contracts from the long side. Commercials Long Short Net % Of OI 03/18/03 483,224 490,582 ( 7,358) (0.1%) 03/25/03 424,781 415,258 9,523 1.1% 04/01/03 417,637 409,332 8,305 1.0% 04/08/03 420,084 407,452 12,632 1.5% Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: 12,632 - 4/8/03 Small Traders Long Short Net % of OI 03/18/03 184,907 153,400 31,507 9.3% 03/25/03 143,402 123,178 20,224 7.6% 04/01/03 143,580 126,594 16,986 6.3% 04/08/03 136,173 122,006 14,167 5.5% Most bearish reading of the year: 14,167 - 4/08/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The small trader change in data seems rather extreme from the last report to this one and as a new addition to the newsletter, we will wait to draw conclusions until we have a more reliable data stream. Commercials Long Short Net % Of OI 04/01/03 98,460 321,335 222,875 (53.1%) 04/08/03 114,210 344,961 230,751 (50.3%) Most bearish reading of the year: 230,751 - 04/08/03 Most bullish reading of the year: 222,875 - 04/01/03 Small Traders Long Short Net % of OI 04/01/03 2,296 1,146 1,150 33.4% 04/08/03 319,460 35,629 283,831 79.9% Most bearish reading of the year: 1,150 - 04/01/03 Most bullish reading of the year: 1,150 - 04/01/03 NASDAQ-100 Commercials added 10% to the long contract position while leaving shorts unchanged. Small traders added slightly more contracts to the short position. Commercials Long Short Net % of OI 03/18/03 58,877 64,302 ( 5,425) ( 4.4%) 03/25/03 44,403 36,436 7,967 9.9% 04/01/03 40,493 36,893 3,600 4.7% 04/08/03 44,257 36,711 7,546 9.3% Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 03/18/03 37,097 26,951 10,146 15.8% 03/25/03 10,313 20,080 ( 9,767) (32.1%) 04/01/03 9,771 13,306 ( 3,535) (15.3%) 04/08/03 11,365 17,790 ( 6,425) (22.0%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials left positions relatively unchanged, while small traders did the same. Commercials Long Short Net % of OI 03/18/03 26,880 18,853 8,027 17.6% 03/25/03 19,752 10,212 9,540 31.8% 04/01/03 19,068 12,672 6,396 20.2% 04/08/03 18,566 12,616 5,950 19.1% 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 03/18/03 6,589 8,343 (1,754) (11.7%) 03/25/03 5,076 7,721 (2,645) (20.7%) 04/03/01 5,142 7,459 (2,317) (18.4%) 04/08/03 5,886 7,964 (2,078) (15.0%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************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 ************************************************************** *************** ASK THE ANALYST *************** A SENTIMENTal Journey I read so much bullish sentiment, and I just don't get it. I went to lunch the other day. One of my favorite restaurants; Always busy; It was EMPTY and one of the waitresses had quit because she wasn't making enough tips. They didn't replace her. Talked to a landscaper. Said he'd made one sale out of 60 contacts. Old customers aren't renewing. Said every one told him, "stocks are down." I'm told these are lagging indicators, but if no one is buying, what's being sold??? How does the bullish contingent say it'll be better in 6 months? Help, I just don't get it. I hear you! And I agree, all of the above are considered either "lagging" or "current" indicators, but as we all know, the MARKET is never wrong and its always looking forward. Now, I received this e-mail on Wednesday, and I thought today's comments from several economists that they were "ignoring" today's release of the April Philadelphia Fed report was somewhat surprising. The basic comment was that, it doesn't matter because all that weak data was largely due to "war with Iraq." Now, I'm like, or share the same observations as the subscriber above. In fact... I haven't turned on a stove in over two-years, and I eat out a lot. I love it. For the most part, I can walk into a restaurant these days, not have to wait in line, and I can barely read the first column of the newspaper article before the food is on the table. However, my brother-in-law and sister own a landscape design company in northern Colorado and they are as busy as a bee and usually have to turn down projects when people need them done within the next couple of weeks. Too much backlog! Mind you, my brother-in-law is perfectionist and says it is so tough to find "good help" and find someone that is willing to put in a solid 8-hour day of work, so he does most of the work himself and for bigger projects, and will only hire a temporary worker when he really needs an extra set of hands. It's amazing that with jobless claims so high, it is still tough to find "good help." How does the bullish contingent say things will be better in 6- months? I wonder too, but if I leave home just 10-minutes too late, the traffic on the way to work is terrible! Where are all these supposedly unemployed people going? They can't be going to work can they? In part, I think its general human nature to try and "think positive," and always try to view the glass as being "half full." Do we as traders have a problem with this? We shouldn't. At least not as traders of stocks and options. Perhaps my not having a problem with "thinking positive" is because I offset that BULLISH thought process, with a BEARISH thought process. Then see which scenario the MARKET seems to be agreeing with. For instance, I don't currently own a home here in Denver, CO. Why? Because I think the economy stinks and housing prices will come down. About two years ago, a single family home would be on the market for about 2-weeks and the seller would usually find two or three buyers actually bid the price higher from the asking price as there just weren't enough homes on the market. I'm not sure what the average selling time is today, but a friend of mine finally took his house off the market, finished out the basement for extra room, because they were going to have to bring the price down below what they paid for it a couple of years ago. But here's something interesting that a realtor friend of mine was telling me. Evidently, there have been a couple of builders go "belly up" and there are actually investors that are buying "shell houses" (partially finished, but the builder went bankrupt and couldn't finish the job), and just letting them sit vacant and unfinished until the housing market turns around. Who the heck would buy a house that has no carpet, or cabinets in it and pay $200,000+ to just let it sit there? It makes no sense to me. BUT..... it makes sense to the person that bought it, and there's NOTHING I can say or do about it. You watch... It will probably be one of "those guys" that I eventually buy a house from, and I'll pay $300,000 for it. While I may be missing out on a bottom, my SENTIMENT toward the housing market here in Denver, CO may not be correct, but I guess that's the RISK of OPPORTUNITY I'm willing to take. I also understand where my BEARISH sentiment comes from. It comes from past experience. Just as the subscriber that "can't figure it out" regarding why the market continues to rebound from the March lows, I have NEGATIVE sentiment on the housing market because of past experience. You see, I took a $20,000 bath in a town home I bought in 1983. I bought that town home just before the "oil bust" took place in Denver. About 7-years later, I sold the town home to some "poor" girl that had just gotten a divorce. Humph! Two years ago, that town home sold for 4-times what I sold it for. Still, my SENTIMENT toward buying a house right now has me looking for a pullback in prices as it just doesn't make sense to buy a home right now. I can't figure out why the Dow Jones Home Construction Index (DJUSHB) 354.02 has surged some +21% in the last 6-weeks! Can you? I sure haven't seen a 21% increase in home sales the last 90-days. I'm also glad I'm not short/put this index either! At least not for April expiration. Now, if I were "so smart" guess what? I'd have been long the DJUSHB or the PHLX Housing Index (HGX.X) 235 from 200. But again... my SENTIMENT is negative. SENTIMENT is a wierd thing, and sometime, when it comes to trading and investing, I fell it is HIGHLY overrated as a market indicator. SENTIMENT can be short-lived, and it can last one heck of a lot longer than any of us can imagine. I'm not just talking about BEARISH sentiment either. A couple of years ago, at an OptionInvestor.com seminar, we held a seminar right across the street from a company called ICG Communications. They were either getting ready to go bankrupt or had just gone bankrupt (Fall of 2000). They were one of those "fast growing" CLECs (Common Local Exchange Carriers) that was building out these networks like crazy, putting in place tons of fiber optic cable from Corning (NYSE:GLW) and routers and switches from the likes of Cisco Systems (NASDAQ:CSCO) $13.95, Ciena (NASDAQ:CIEN) $4.53, Nortel (NYSE:NT) $2.41 and Lucent (NYSE:LU) $1.50. While many of these networking equipment companies were trading new 52-week highs and some had begun breaking some longer-term bullish support trends, there was still quite a bit of BULLISH SENTIMENT for these equipment makers, even though some of their customers were going bankrupt. The Spring seminar, there was still BULLISH SENTIMENT toward these equipment makers. It wasn't just investors either. CEO's were saying they just didn't see an "end" to the demand and backlogs for orders were having them build out extra capacity to meet the demand. Can you believe it! The MARKET was selling many of these equipment stocks in late 2000 and early 2001, and many of the CEOs, which were "closest" to the action, had no clue what was coming? I guess what I'm trying to say here, is that SENTIMENT isn't always correct and it isn't always wrong. How long does BULLISH or BEARISH SENTIMENT last? Does SENTIMENT last weeks, months, quarters or years? It depends doesn't it? Yes, bullish and bearish sentiment can be short- lived and it can be long-lived. However the MARKET is NEVER wrong. Oh... it may be wrong for a little while, but as soon as it learns its mistake, it is quick in correcting that mistake. Do I think the economy is any better today (April 17, 2003) at S&P 500 (SPX.X) 893 than it was on that it was on March 11, 2003 at S&P 500 (SPX.X) 800? No, I don't think it is "that" much better, but my SENTIMENT doesn't mean "squat" and perhaps the MARKETS sentiment is just bullish. I'd argue though that the SPX started its rebound BEFORE any type of BULLISH sentiment was present, just as many of the telecom stocks and telecom equipment makers started receiving much BEARISH sentiment despite their stocks breaking down and heading lower. Sometimes, I don't like writing this column, especially when I try and answer the final part of the subscriber's question. ..but if no one is buying, what's being sold??? How does the bullish contingent say it'll be better in 6 months? Help, I just don't get it. Buying what? The stock that has doubled in the last 6-weeks that you and I didn't buy because our SENTIMENT was not inline with the MARKET's. Or is the subscriber asking about the lack of consumer buying of the PRODUCT that the company whose stock just doubled in the last 6-weeks is manufacturing? I'm not being critical of that question at all, but I came to the simple conclusion a long time ago, that sometimes, what the MARKET is doing at a particular time, didn't make a lot of sense at the time. However, I also learned that even though the MARKET doesn't always make sense, it doesn't mean that the "nonsensical" action can't be rewarding from the bullish side, even when the BULLISH SENTIMENT seems too bullish. About all that you and I can really do, is trade what we OBSERVE from the market, using the tools that we have at our disposal. Again... I'm like you. There are some stocks or indexes/sectors that I simply won't trade, when I just don't "believe" what I'm seeing, because my SENTIMENT won't allow me to. I've seen some "missed opportunities" over the years despite the BULLISH chart and my BEARISH SENTIMENT. I've also learned to "call it quits" when a trade goes against me and the technicals are confirming that I'm out of line with what the MARKET is thinking and more importantly DOING! I've told the story about my bearish sentiment and several of my clients bearish sentiment regarding Amazon.com (NASDAQ:AMZN) $24.99 (split adjusted), a couple of years ago. Hmmmm... at just about this identical level. You see, even though SENTIMENT was TOO BULLISH and I/we shorted AMZN, the "bullish triangle" pattern that unfolded had me and all but one client stopping out of the trade as the stock's PRICE action had us doing so. Finally, at about $50.00, the other client took the loss. Good thing too, because despite the OVERLY BULLISH sentiment that we "knew" couldn't last, lasted until the stock hit $100.00. I never owned a share of Amazon.com during that bull run, simply because MY SENTIMENT wasn't as bullish. I "know" and YOU "know" that SENTIMENT is a part of market psychology, and it does impact price action of stocks and broader market indices, which are comprised of stocks. I'd also argue that SENTIMENT also shows up in fundamental forecasts. Here's an e-mail I got from James Brown. On Dec. 16, 1998, CIBC Oppenheimer analyst Henry Blodget predicted that the share price of Amazon.com, then $242.75 despite the company's losses of 90 cents per share in the most recent quarter, would reach $400 within a year. The self- fulfilling prophecy sparks a frenzy in which Amazon jumps $46.25 that day alone and to a split-adjusted price of nearly $600 12 months later. Alas, Blodget, now with Merrill Lynch, maintains his buy rating on Amazon until July 27, 2000, when the stock's split-adjusted price has dwindled to about $180. Apparently attempting to out-Blodget Blodget, on Dec. 29, 1999, PaineWebber analyst Walter Piecyk places a 12-month target price of $1,000 on cell-phone component maker Qualcomm, then trading at $503. The stock reaches an intraday high of $740 the next day. Things, however, don't work out as well for Piecyk: Within 12 months the stock falls 35 percent; it now trades at a split- adjusted $227.50. Not to be outdone, Blodget writes the following in a column for News.com in January 1999: "Unlike with other famous bubbles ... the Internet bubble is riding on rock-solid fundamentals, perhaps stronger than any the market has seen before. Underlying the crazy price increases are the foundations of what could become the early 21st century's leading growth companies.... Just because the Internet stock phenomenon looks like a bubble, it isn't a given that the bubble will burst." Ahhh... a SENTIMENTAL journey. Not a pleasant for me. Remember, I thought SENTIMENT and the stock's price was WAY overdone and was about to come to an end at AMZN $25.00. Where did these bulls and analysts really think the stock was going? And why? I just can't answer the "why" of anything. I can come up with scenarios as to why, and then check those scenarios against the charts we follow to then try and "reason" the whys. Right now, I'd have to say, that the MARKET has discounted, or "thrown out" some things that the subscriber and I see on a daily basis. Why? Probably because the MARKET thinks and has been willing to back it up with money, that things are either changing for the better, or have at least changed for the positive since the March lows. Now, I've also seen e-mail from subscribers wondering why the SENTIMENT is so negative in OI commentary and other commentary that they've read from other sources, and how can such commentary be written when the MARKETs are going higher? I could go into long oration about why the MARKET is going to eventually be wrong. Heck, I could have held my short in AMZN from $25 to $100 and eventually proven I was "right." However, I just try and trade the trend. I don't ALWAYS get it right and sometimes the MARKET disagrees with my trade and I suffer a loss. It's the trades I make that the MARKET agrees with that keeps me trading. Jeff Bailey ************************* WEEKLY MANAGER MICROSCOPE ************************* Kevin Wenck: Polynous Growth Fund A (PAGFX) This small-cap equity fund is up over 24% on a year-to-date basis through April 16, 2003, but should you invest? We'll seek to add some perspective to the fund's strong recent performance and tell you what we think of the fund now as a potential long-term growth investment. Kevin Wenck established Polynous Capital Management, fund advisor to the Polynous Growth Fund, in May 1996. Before forming his own asset management firm, Wenck was employed by G.T. Capital and ran the G.T. America Growth Fund from July 1991 until April 1996. He also managed mid- and small-cap stock portfolios for G.T. Capital Management's private clients. G.T. Capital was renamed LGT Asset Management in 1996. Previously, Mr. Wenck spent three years managing small-cap growth portfolios with Matuschka & Co. Wenck received his undergraduate degree from Marlboro College in 1981 and earned his M.B.A. degree from Dartmouth College, Amos Tuck School of Business in 1985. He earned the right to be called a Chartered Financial Analyst (CFA) in 1986. Investment Style/Strategy The Polynous Growth Fund seeks long-term capital appreciation by investing in the equity securities of U.S. companies with market capitalizations of between $50 million and $5 billion at time of purchase, which are believed to have annual revenue growth rates of between 15% and 30%. Polynous Capital Management performs fundamental research as part of its overall investment process, described as a "Dynamic Value" process. In other words, they invest only in companies that meet their research criteria when they're selling at inexpensive price valuations. The firm's research conclusions are implemented into the various investment portfolios managed by the firm, as well as the Polynous Growth Fund. Since the Polynous Growth Fund is registered as a non-diversified open-end investment management company, Wenck is able to invest a greater portion of the fund's net assets in individual securities such as Optical Cable Corporation, which recently comprised 29.9% of the value of fund net assets. With just 29 stock holdings and 60% of assets held in the fund's top 10 holdings, Polynous Growth Fund is fairly concentrated. The Polynous Growth Fund, Class A (PAGFX) has a $2,500 minimum initial investment for regular accounts; $1,000 to open an IRA account. The Class A shares of the fund have a 4.5% front-end load charge and an annual operating expense ratio of 1.90% per Morningstar. The fund has just $6 million in total net assets. For more information or to download a prospectus, logon to the Polynous Capital Management website at www.polynous.com. Investment Style/Strategy The word "Polynous" in ancient Greek means "many thoughts", and Wenck uses that moniker to describe their disciplined investment process. That means the firm analyzes the economic environment, industry characteristics, and company strengths and weaknesses, as well appropriate valuation assumptions. The goal, to gain a comprehensive understanding of each company under consideration, and then to only invest in those companies meeting their equity research criteria "when" they are selling at inexpensive prices. Wenck's primary objective with the Polynous approach is to only make investments when he can add significant value analytically. However, he believes that his "dynamic value" process gives the firm much more knowledge about their investments than generally is the case (i.e. information advantage). The process seeks to combine the dynamic opportunities of growth stock investing with the strong valuation disciplines of value investing. By having both growth and value screens, Wenck seeks to achieve an optimal balance between risk and return. Equity holdings are continuously monitored, with stocks sold when they no longer satisfy the fund's buy/hold disciplines. The firm seeks to have the proper structure, risk control, and discipline, but it acknowledges that such checks and balances don't guarantee success. At every step of the investment management process, the primary focus is on risk management, their website states, not on stock selection. According to Morningstar's report, the Polynous Growth Fund had a median market capitalization of $268 million as of January 31 for a small-cap bias. Compared to other small-cap funds, the fund's average price valuations were high enough to land in the "growth" style box so it's classified by Morningstar as a small-cap growth fund. Because it buys stocks when they are inexpensive, the fund from time to time will find itself in the small-cap "blend" style box. Investment Performance Earlier we mentioned that the Polynous Growth Fund is up 24.1% on a year-to-date basis as of April 16, 2003. However, that follows a dismal 2002 when Wenck generated a 40.7% negative annual return for investors. So, we raise the question, is this fund right for you? The year before that (i.e. 2001), Wenck produced a positive 24.5% annual return. So, suffice to say, Wenck's performance has been hit or miss. Below is a summary of the fund's annual period returns from 1997 to 2003 including the YTD 2003 period, along with its percentile category ranking in the Morningstar small-cap growth category. Annual Total Returns/Category Rankings: +18.5% in 1997, 49th Percentile -12.3% in 1998, 96th Percentile -18.3% in 1999, 99th Percentile + 0.1% in 2000, 35th Percentile +24.5% in 2001, 2nd Percentile -40.7% in 2002, 91st Percentile +21.3% in 2003, 1st Percentile (YTD) You can see that in the go-go growth years of the late 90s, Wenck actually lost money for investors, not what you would expect from a small-cap growth investment. Quite to the contrary - one would have expected a small-cap growth strategy to perform particularly well in such a favorable market environment for small-cap, growth stocks. The fund's 40.7% calendar loss in 2002 was 12.5% greater than the average small-cap growth fund per Morningstar. So, entering 2003 the fund had ranked in the bottom decile of the small-growth fund category three times in the last five calendar years, versus only one year out of five ranking in the top decile. So, to say Wenck either hits a home run or strikes out may be a fair assessment of his performance, at least over the past five years or so. Wenck's trailing 5-year annualized loss of 10.8% through April 16 was 7.6% a year on average worse than the S&P 500 index, and poor enough to rank the fund in only the 90th percentile of the small- cap growth category, per Morningstar. On the other hand, Wenck's trailing 3-year annualized loss of 0.5% was 11.7% per year better than the S&P 500 index, and strong enough to place it in the 11th percentile of the category. With near 30% of assets invested in one stock, Optical Cable, the fund's investment results can be volatile. Optical Cable's stock is up 107.6% in 2003, contributing to the fund's 24.1 return this year. But as it goes so will the fund. So, Wenck's concentrated portfolio may not be for the faint of heart. Conclusion Over the long-term, Wenck has produced below average returns with above average risk relative to other small-cap growth funds. The fund may be up 24% this year, but only investors with "cast-iron" stomachs need consider it. The fund's 40% loss in 2002 should be enough to scare away most investors. With only $6 million in assets, the fund's expense ratio of 1.90% is more than the average small-cap growth fund (1.70%), lessening its appeal even more. Long-term investors may find better growth managers and funds elsewhere. It's a good story, but performance is likely to continue to be too "hit or miss" for most investors' tastes. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************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. 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The Option Investor Newsletter Sunday 04-20-2003 Sunday 2 of 5 In Section Two: Coming Events: Earnings, Splits, Economic Events Market Watch: So Many To Choose From Daily Results Call Play of the Day: ERTS Put Play of the Day: None Dropped Calls: LXK, MMM Dropped Puts: None ************************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 ************************************************************** ************* COMING EVENTS ************* ========================================== Market Watch for the week of April 21st ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- MMM 3M Company Mon, Apr 21 During the Market 1.40 BSX Bos Scientific Corp Mon, Apr 21 After the Bell 0.29 COF Capital One Financial Mon, Apr 21 After the Bell 1.03 CD Cendant Corporation Mon, Apr 21 After the Bell 0.29 CNF CNF Inc. Mon, Apr 21 After the Bell 0.20 CTSH Cognizant Tech Sol Mon, Apr 21 After the Bell 0.17 DNB D&B Mon, Apr 21 After the Bell 0.51 RE Everest Re Group Mon, Apr 21 After the Bell 1.64 HAS Hasbro, Inc. Mon, Apr 21 Before the Bell -0.06 HE Hawaiian Electric Mon, Apr 21 After the Bell 0.79 IDXX Idexx Laboratories Mon, Apr 21 Before the Bell 0.31 ICBC Independence Com Bank Mon, Apr 21 After the Bell 0.60 LEE Lee Enterprises Mon, Apr 21 Before the Bell 0.33 LXK Lexmark International Mon, Apr 21 Before the Bell 0.72 LRY Liberty Prop Trust Mon, Apr 21 After the Bell 0.81 LNCR Lincare Holdings Mon, Apr 21 After the Bell 0.48 MWV MeadWestvaco Mon, Apr 21 Before the Bell -0.29 MRK Merck & Co., Inc. Mon, Apr 21 Before the Bell 0.76 MEOH Methanex Mon, Apr 21 -----N/A----- 0.60 NBP No Border Partners Mon, Apr 21 After the Bell 0.62 PKG Pack Corp of America Mon, Apr 21 Before the Bell 0.06 PRK Park National Mon, Apr 21 -----N/A----- 1.52 PCL Plum Creek Timber Mon, Apr 21 After the Bell 0.16 PX Praxair Inc Mon, Apr 21 Before the Bell 0.79 RTN Raytheon Mon, Apr 21 After the Bell 0.26 RSLN Roslyn Bancorp, Inc. Mon, Apr 21 Before the Bell 0.47 SANM Sanmina-SCI Corp. Mon, Apr 21 After the Bell -0.01 SLAB Silicon Laboratories Mon, Apr 21 After the Bell 0.20 LUV Southwest Airlines Mon, Apr 21 Before the Bell 0.03 SWBT So We Bank of Texas Mon, Apr 21 After the Bell 0.44 PCS Sprint Corp Mon, Apr 21 After the Bell -0.13 FON Sprint FON Group Mon, Apr 21 After the Bell 0.35 CAKE The Cheesecake Fact Mon, Apr 21 After the Bell 0.26 WHI W Holding Company Mon, Apr 21 -----N/A----- 0.31 WRE Wash Rl Est Inv Trust Mon, Apr 21 After the Bell 0.49 WMO Wausau-Mosinee Paper Mon, Apr 21 After the Bell 0.07 WFSI WFS Financial Mon, Apr 21 -----N/A----- 0.55 WHR Whirlpool Corp Mon, Apr 21 Before the Bell 1.29 ------------------------- TUESDAY ------------------------------ NDN 99 CENTS Only Tue, Apr 22 Before the Bell 0.20 AFCI Advanced Fibre Comm Tue, Apr 22 After the Bell 0.06 ACS Affiliated Comp Serv Tue, Apr 22 Before the Bell 0.56 ATG AGL Resources Tue, Apr 22 -----N/A----- 0.90 ACL Alcon Inc. Tue, Apr 22 After the Bell 0.42 ALEX Alexander & Baldwin Tue, Apr 22 After the Bell 0.36 ALD Allied Capital Corp Tue, Apr 22 Before the Bell 0.56 AMTD Ameritrade Holding Tue, Apr 22 Before the Bell 0.02 AME AMETEK Inc. Tue, Apr 22 After the Bell 0.59 AMGN Amgen Tue, Apr 22 After the Bell 0.39 AOT Apogent Technologies Tue, Apr 22 After the Bell 0.33 ARW Arrow Electronics Tue, Apr 22 -----N/A----- 0.06 ASH Ashland Tue, Apr 22 Before the Bell -0.45 AVY Avery Dennison Corp Tue, Apr 22 During the Market 0.72 BHI Baker Hughes Incorp Tue, Apr 22 Before the Bell 0.14 BPC Banco Com Portugues Tue, Apr 22 After the Bell N/A BSG BISYS GROUP INC Tue, Apr 22 After the Bell 0.27 BBI Blockbuster Inc. Tue, Apr 22 Before the Bell 0.39 BCC Boise Cascade Tue, Apr 22 Before the Bell -0.33 BWA BorgWarner, Inc. Tue, Apr 22 Before the Bell 1.59 BXP Boston Properties Tue, Apr 22 After the Bell 1.00 BNI Brlngtn No Santa Fe Tue, Apr 22 Before the Bell 0.39 CHRW C.H. Rbnsn Worldwide Tue, Apr 22 Before the Bell 0.28 CECO Career Education Tue, Apr 22 After the Bell 0.35 CTX Centex Corporation Tue, Apr 22 After the Bell 2.84 CKFR CheckFree Tue, Apr 22 After the Bell 0.20 CME CHICAGO MERCANTILE Tue, Apr 22 Before the Bell 0.64 CPS ChoicePoint, Inc. Tue, Apr 22 Before the Bell 0.36 COH Coach, Inc. Tue, Apr 22 Before the Bell 0.29 CPO Corn Products Intl Tue, Apr 22 Before the Bell 0.42 GLW Corning Tue, Apr 22 After the Bell -0.03 XRAY DENTSPLY Intl Inc. Tue, Apr 22 After the Bell 0.45 DV DeVry Tue, Apr 22 After the Bell 0.21 DBD Diebold Tue, Apr 22 Before the Bell 0.36 EBAY eBay Tue, Apr 22 After the Bell 0.31 ECL Ecolab Inc. Tue, Apr 22 Before the Bell 0.41 EW Edwards Lifesciences Tue, Apr 22 After the Bell 0.37 ELUX Electrolux Ab Tue, Apr 22 -----N/A----- 0.79 LLY Eli Lilly Tue, Apr 22 Before the Bell 0.58 EQT Equitable Resources Tue, Apr 22 Before the Bell 1.00 ETH Ethan Allen Interiors Tue, Apr 22 Before the Bell 0.52 FISV Fiserv Tue, Apr 22 After the Bell 0.38 FRX Forest Laboratories Tue, Apr 22 Before the Bell 0.49 HET Harrah's Entertain Tue, Apr 22 -----N/A----- 0.67 HCA HCA - The Healthcare Tue, Apr 22 -----N/A----- 0.86 HCP Health Care Property Tue, Apr 22 Before the Bell 0.81 HMA Health Management Ass Tue, Apr 22 Before the Bell 0.31 HNI HON INDUSTRIES, Inc. Tue, Apr 22 Before the Bell 0.28 HUBb Hubbell Incorporated Tue, Apr 22 During the Market 0.42 IMN Imation Corp. Tue, Apr 22 Before the Bell 0.51 INET Instinet Group Incorp Tue, Apr 22 Before the Bell N/A IGT Intl Gaming Tech Tue, Apr 22 Before the Bell 0.98 IPCR IPC Holdings Tue, Apr 22 After the Bell 1.15 KMB Kimberly Clark Tue, Apr 22 -----N/A----- 0.77 LLL L-3 Comm Holdings Tue, Apr 22 -----N/A----- 0.47 LMT Lockheed Martin Tue, Apr 22 -----N/A----- 0.42 MXO Maxtor Tue, Apr 22 After the Bell 0.16 MRX Medicis Tue, Apr 22 After the Bell 0.55 MCO Moody's Corporation Tue, Apr 22 After the Bell 0.50 ORLY O'Reilly Automotive Tue, Apr 22 After the Bell 0.37 OXY Occidental Petroleum Tue, Apr 22 Before the Bell 1.11 OSI Outback Steakhouse Tue, Apr 22 -----N/A----- 0.59 OI Owens Illinois Tue, Apr 22 After the Bell 0.24 PCAR Paccar Tue, Apr 22 -----N/A----- 0.65 PSFT PeopleSoft Tue, Apr 22 After the Bell 0.11 PBG Pepsi Bottling Group Tue, Apr 22 Before the Bell 0.13 PAS PepsiAmericas Tue, Apr 22 Before the Bell 0.05 PFE Pfizer Tue, Apr 22 -----N/A----- 0.44 PPP Pogo Producing Tue, Apr 22 -----N/A----- 1.13 DGX Quest Diagnostics Tue, Apr 22 Before the Bell 0.83 QTRN Quintiles Transnatnl Tue, Apr 22 -----N/A----- 0.14 RSH RadioShack Corp Tue, Apr 22 Before the Bell 0.32 RYN Rayonier Inc. Tue, Apr 22 Before the Bell 0.22 RGC Regal Entertain Group Tue, Apr 22 Before the Bell 0.26 RGS Regis Corporation Tue, Apr 22 Before the Bell 0.45 RNR RenaissanceRe Holding Tue, Apr 22 After the Bell 1.46 RMD ResMed Tue, Apr 22 After the Bell 0.33 ROK Rockwell Automation Tue, Apr 22 Before the Bell 0.25 ROL Rollins, Inc. Tue, Apr 22 After the Bell N/A SGP Schering-Plough Tue, Apr 22 Before the Bell 0.10 SHW Sherwin-Williams Tue, Apr 22 Before the Bell 0.21 SIAL Sigma-Aldrich Corp Tue, Apr 22 After the Bell 0.62 SLG SL Green Realty Tue, Apr 22 After the Bell 0.85 SNA Snap-on Incorporated Tue, Apr 22 Before the Bell 0.38 SPW SPX Tue, Apr 22 Before the Bell 0.54 STK Storage Technology Tue, Apr 22 After the Bell 0.13 TE TECO Energy Inc. Tue, Apr 22 -----N/A----- 0.37 TMX Telefonos de Mexico Tue, Apr 22 After the Bell 0.75 TIN Temple-Inland, Inc. Tue, Apr 22 After the Bell -0.25 JOE The St. Joe Company Tue, Apr 22 Before the Bell 0.09 WPO The Washington Post Tue, Apr 22 -----N/A----- 3.77 TMA Thornburg Mortgage Tue, Apr 22 After the Bell N/A TDW Tidewater Tue, Apr 22 Before the Bell 0.38 TMK Torchmark Tue, Apr 22 Before the Bell 0.93 TRI Triad Hospitals, Inc Tue, Apr 22 After the Bell 0.62 UPS UNITED PARCEL SERVICE Tue, Apr 22 Before the Bell 0.51 UST UST Inc. Tue, Apr 22 Before the Bell 0.64 VLO Valero Energy Corp. Tue, Apr 22 Before the Bell 1.31 VRC Varco International Tue, Apr 22 Before the Bell 0.23 VZ Verizon Tue, Apr 22 Before the Bell 0.63 VFC VF Tue, Apr 22 -----N/A----- 0.74 WCN Waste Connections Tue, Apr 22 After the Bell 0.48 WAT Waters Corporation Tue, Apr 22 Before the Bell 0.29 WSTC West Corporation Tue, Apr 22 After the Bell 0.26 WWY Wm. Wrigley Jr. Co. Tue, Apr 22 -----N/A----- 0.43 XTO XTO Energy Inc. Tue, Apr 22 Before the Bell 0.39 ----------------------- WEDNESDAY ----------------------------- ABY Advanced Medical Opt Wed, Apr 23 Before the Bell -0.02 AET Agnico-Eagle Mns Lmtd Wed, Apr 23 After the Bell 0.04 AG Albemarle Corporation Wed, Apr 23 Before the Bell 0.39 APD Altiris, Inc Wed, Apr 23 After the Bell 0.09 ACV American Medical Sys Wed, Apr 23 After the Bell 0.15 AED Anchor BanCorp Wisc Wed, Apr 23 -----N/A----- 0.50 AT AOL Time Warner Wed, Apr 23 Before the Bell 0.11 AMZN Applied Biosystems Wed, Apr 23 Before the Bell 0.19 AXP Apria Healthcare Grp Wed, Apr 23 Before the Bell 0.49 AIG ARC International Wed, Apr 23 Before the Bell N/A ABC Arena Pharmaceuticals Wed, Apr 23 After the Bell N/A APA ArthroCare Wed, Apr 23 After the Bell 0.04 AMCC ArvinMeritor, Inc. Wed, Apr 23 Before the Bell 0.34 ANZ AXFOOD AB Wed, Apr 23 -----N/A----- N/A ALV Aztar Wed, Apr 23 After the Bell 0.38 AVT BellSouth Corporation Wed, Apr 23 Before the Bell 0.45 BLL Belo Wed, Apr 23 Before the Bell 0.13 BRL Berkshire Hills Banc Wed, Apr 23 After the Bell 0.25 BOL BioCryst Pharm Wed, Apr 23 Before the Bell N/A BDK BJ SVCS CO Wed, Apr 23 Before the Bell 0.25 BMC Brinker International Wed, Apr 23 Before the Bell 0.47 BC Buderus AG Wed, Apr 23 Before the Bell N/A BPL Canadian Natl Railway Wed, Apr 23 -----N/A----- 0.67 BR Cardinal Health, Inc. Wed, Apr 23 Before the Bell 0.86 CAI CDI Corp. Wed, Apr 23 Before the Bell 0.28 CP Cholestech Wed, Apr 23 Before the Bell 0.08 CELG Cleveland-Cliffs Wed, Apr 23 After the Bell -0.35 CNP CNET Networks Wed, Apr 23 After the Bell -0.11 CEY Coca-Cola Ent Inc. Wed, Apr 23 Before the Bell 0.04 CSB Cohu Wed, Apr 23 After the Bell -0.09 CIN Columbia Bancorp Wed, Apr 23 Before the Bell 0.29 CIT Columbia Banking Sys Wed, Apr 23 Before the Bell 0.32 COLT Convergys Corporation Wed, Apr 23 Before the Bell 0.26 COLM Corillian Corporation Wed, Apr 23 After the Bell -0.04 CFB Corp Exe Board Co Wed, Apr 23 After the Bell 0.21 CNX Cytyc Corporation Wed, Apr 23 After the Bell 0.15 CBE Diagnostic Products Wed, Apr 23 -----N/A----- 0.44 DCX Dofasco, Inc Wed, Apr 23 During the Market 0.64 DCN Dreyer's Ice Cream Wed, Apr 23 Before the Bell 0.08 DASTY drugstore.com Wed, Apr 23 -----N/A----- -0.08 EMN Exactech Wed, Apr 23 After the Bell 0.13 ELX First Indl Relty Trst Wed, Apr 23 After the Bell 0.87 EEP First Merchants Corp. Wed, Apr 23 -----N/A----- 0.46 ENDP First Midwest Bancorp Wed, Apr 23 Before the Bell 0.47 ELAB Fl East Coast Ind Wed, Apr 23 Before the Bell N/A EFX Flowserve Corporation Wed, Apr 23 Before the Bell 0.24 ERIE Foundry Networks Wed, Apr 23 After the Bell 0.09 GYI Getty Images Wed, Apr 23 -----N/A----- 0.18 GILD Gilead Sciences Wed, Apr 23 -----N/A----- 0.15 GSF GlobalSantaFe Corp. Wed, Apr 23 Before the Bell 0.05 GG Goldcorp Wed, Apr 23 After the Bell 0.11 GXP Great Plains Energy Wed, Apr 23 After the Bell 0.12 HHS Harte-Hanks Wed, Apr 23 Before the Bell 0.18 HLT Hilton Hotels Corp Wed, Apr 23 Before the Bell 0.02 IMO Imperial Oil Limited Wed, Apr 23 -----N/A----- N/A INMRY Instrumentarium Wed, Apr 23 -----N/A----- N/A ISIL Intersil Corporation Wed, Apr 23 After the Bell 0.13 ITT ITT Industries Wed, Apr 23 Before the Bell 0.81 KLAC KLA-Tencor Wed, Apr 23 After the Bell 0.12 LF LeapFrog Enterprises Wed, Apr 23 After the Bell -0.13 LOGI Logitech Intl Wed, Apr 23 Before the Bell 0.49 LSI LSI Logic Wed, Apr 23 After the Bell -0.19 LU Lucent Technologies Wed, Apr 23 Before the Bell -0.10 MRBK Mercantile Bankshares Wed, Apr 23 Before the Bell 0.70 MCHP Microchip Technology Wed, Apr 23 After the Bell 0.16 NBG National Bank Greece Wed, Apr 23 Before the Bell N/A NBTY NBTY Inc. Wed, Apr 23 After the Bell 0.38 NSCN NetScreen Tech Wed, Apr 23 After the Bell 0.13 NXTL Nextel Communications Wed, Apr 23 Before the Bell 0.16 NE Noble Corporation Wed, Apr 23 -----N/A----- 0.31 NRD NORANDA INC Wed, Apr 23 -----N/A----- N/A NSC Norfolk Southern Corp Wed, Apr 23 Before the Bell 0.21 NCX NOVA Chemicals Wed, Apr 23 Before the Bell -0.39 PFCB P.F. Chang's China Bi Wed, Apr 23 Before the Bell 0.25 PTV Pactiv Wed, Apr 23 After the Bell 0.27 PRX Pharmaceutical Res Wed, Apr 23 -----N/A----- 0.60 PMI PMI Group Wed, Apr 23 Before the Bell 0.98 POT Potash Corp of Saska Wed, Apr 23 -----N/A----- 0.16 PGN Progress Energy Wed, Apr 23 Before the Bell 0.74 PLD ProLogis Trust Wed, Apr 23 After the Bell 0.55 PSD Puget Energy Wed, Apr 23 After the Bell 0.49 RCL Royal Carib Cruises Wed, Apr 23 Before the Bell 0.21 R Ryder System, Inc. Wed, Apr 23 Before the Bell 0.29 RYL Ryland Group Wed, Apr 23 After the Bell 1.25 SEE Sealed Air Wed, Apr 23 -----N/A----- 0.53 SEPR Sepracor Wed, Apr 23 Before the Bell -0.66 SEBL Siebel Systems Wed, Apr 23 After the Bell 0.01 STM STMicroelect N.V. Wed, Apr 23 -----N/A----- 0.10 SDS SunGard Data Systems Wed, Apr 23 After the Bell 0.29 SYMC Symantec Wed, Apr 23 After the Bell 0.46 TLTOB Tele2 AB Wed, Apr 23 Before the Bell N/A TDS Telephone Data Wed, Apr 23 Before the Bell 0.46 BA The Boeing Company Wed, Apr 23 Before the Bell 0.33 FAF The First Am Corp Wed, Apr 23 Before the Bell 0.87 REY Reynolds & Reynolds Wed, Apr 23 -----N/A----- 0.41 TMO Thermo Electron Corp Wed, Apr 23 After the Bell 0.23 USM U.S. Cellular Wed, Apr 23 Before the Bell 0.31 UPM UPM-Kymmene Group Wed, Apr 23 Before the Bell 0.16 VAR Varian Medical Sys Wed, Apr 23 After the Bell 0.46 VSEA Varian Semi Equip Ass Wed, Apr 23 After the Bell 0.15 VARI Varian, Inc. Wed, Apr 23 After the Bell 0.40 VVC Vectren Corporation Wed, Apr 23 After the Bell 0.70 VRTS VERITAS Software Corp Wed, Apr 23 After the Bell 0.14 WLP WellPoint Hlth Ntwrks Wed, Apr 23 After the Bell 1.20 WEN Wendy's International Wed, Apr 23 -----N/A----- 0.38 WSH Willis Grp Hold Lmtd Wed, Apr 23 After the Bell 0.64 WIN Winn-Dixie Stores Wed, Apr 23 After the Bell 0.36 WYE WYETH Wed, Apr 23 Before the Bell 0.52 XRX Xerox Corporation Wed, Apr 23 Before the Bell 0.08 YCC Yankee Candle Wed, Apr 23 Before the Bell 0.16 YUM Yum! Brands, Inc. Wed, Apr 23 After the Bell 0.38 ZMH Zimmer Inc. Wed, Apr 23 After the Bell 0.38 ------------------------- THURSDAY ----------------------------- ABY Abitibi-Consolidated Thu, Apr 24 -----N/A----- -0.10 AET Aetna Inc. Thu, Apr 24 Before the Bell 0.86 AG AGCO Thu, Apr 24 Before the Bell 0.23 APD Air Products & Chem Thu, Apr 24 Before the Bell 0.53 ACV Alberto-Culver Co. Thu, Apr 24 During the Market 0.62 AED Allied Domecq PLC Thu, Apr 24 02:00 am ET N/A AT ALLTEL Corp. Thu, Apr 24 Before the Bell 0.79 AMZN Amazon.com, Inc. Thu, Apr 24 After the Bell 0.04 AXP American Express Co Thu, Apr 24 -----N/A----- 0.52 AIG American Intl Grp Thu, Apr 24 Before the Bell 0.89 ABC AmeriSourceBergen Thu, Apr 24 Before the Bell 1.04 APA Apache Corporation Thu, Apr 24 Before the Bell 2.03 AMCC App Micro Circuits Thu, Apr 24 After the Bell -0.05 ANZ Aus New Zlnd Banking Thu, Apr 24 -----N/A----- N/A ALV Autoliv Thu, Apr 24 Before the Bell N/A AVT Avnet Thu, Apr 24 After the Bell 0.07 BLL Ball Corporation Thu, Apr 24 Before the Bell 0.49 BRL Barr Laboratories Thu, Apr 24 Before the Bell 0.67 BOL Bausch & Lomb Thu, Apr 24 Before the Bell 0.29 BDK Black & Decker Corp Thu, Apr 24 -----N/A----- 0.43 BMC BMC Software Thu, Apr 24 Before the Bell 0.16 BC Brunswick Corporation Thu, Apr 24 Before the Bell 0.21 BPL Buckeye Partners Thu, Apr 24 -----N/A----- 0.62 BR Burlington Resources Thu, Apr 24 Before the Bell 1.51 CAI CACI International Thu, Apr 24 Before the Bell 0.38 CP Canadian Pac Railway Thu, Apr 24 After the Bell 0.15 CELG Celgene Corp. Thu, Apr 24 Before the Bell -0.02 CNP CenterPoint Energy Thu, Apr 24 Before the Bell 0.19 CEY Certegy Thu, Apr 24 Before the Bell 0.25 CSB Ciba Spec Chem Hold Thu, Apr 24 -----N/A----- 0.52 CIN Cinergy Corp. Thu, Apr 24 Before the Bell 0.68 CIT CIT Group Thu, Apr 24 Before the Bell 0.63 COLT COLT Telecom Group Thu, Apr 24 Before the Bell N/A COLM Columbia Sportswear Thu, Apr 24 -----N/A----- 0.26 CFB Commercial Federal Thu, Apr 24 Before the Bell 0.60 CNX CONSOL Energy Thu, Apr 24 Before the Bell 0.02 CBE Cooper Industries Ltd Thu, Apr 24 Before the Bell 0.61 DCX DaimlerChrysler Thu, Apr 24 Before the Bell 0.88 DCN Dana Thu, Apr 24 -----N/A----- 0.21 DASTY Dassault Systemes SA Thu, Apr 24 -----N/A----- 0.21 EMN Eastman Chemical Co Thu, Apr 24 After the Bell -0.08 ELX Emulex Thu, Apr 24 -----N/A----- 0.21 EEP Enbridge nrg Partners Thu, Apr 24 After the Bell 0.52 ENDP Endo Pharmaceuticals Thu, Apr 24 Before the Bell 0.23 ELAB Eon Labs Thu, Apr 24 Before the Bell 0.30 EFX Equifax Inc. Thu, Apr 24 Before the Bell 0.33 ERIE Erie Indemnity Thu, Apr 24 -----N/A----- 0.68 FLEX Flextronics Thu, Apr 24 After the Bell 0.06 FPL FPL GROUP INC Thu, Apr 24 -----N/A----- 0.83 BEN Franklin Resources Thu, Apr 24 -----N/A----- 0.44 FCN FTI Consulting Thu, Apr 24 -----N/A----- 0.57 GLK Great Lakes Chemical Thu, Apr 24 After the Bell 0.12 HSC Harsco Corporation Thu, Apr 24 Before the Bell 0.22 HR Healthcare Rlty Trust Thu, Apr 24 After the Bell 0.68 HP Helmerich & Payne Thu, Apr 24 Before the Bell 0.05 HIW Highwoods Properties Thu, Apr 24 After the Bell 0.75 IKN Ikon Office Solutions Thu, Apr 24 Before the Bell 0.24 IGL IMC Global Thu, Apr 24 Before the Bell -0.17 ICST Integrated Circ Sys Thu, Apr 24 -----N/A----- 0.22 IP International Paper Thu, Apr 24 Before the Bell 0.12 IRF Intl Rectifier Thu, Apr 24 After the Bell 0.18 IVGN Invitrogen Corp Thu, Apr 24 After the Bell 0.48 SFI iStar Financial Thu, Apr 24 Before the Bell N/A JBLU JetBlue Airways Thu, Apr 24 Before the Bell 0.22 K Kellogg Co. Thu, Apr 24 Before the Bell 0.39 LVLT Level 3 Comm Thu, Apr 24 -----N/A----- -0.67 LZ Lubrizol Thu, Apr 24 Before the Bell 0.58 LYO Lyondell Petrochem Thu, Apr 24 Before the Bell -0.63 MFC Manulife Financial Co Thu, Apr 24 -----N/A----- 0.49 MRO Marathon Oil Corp Thu, Apr 24 Before the Bell 0.89 MAR Marriott Intl Thu, Apr 24 Before the Bell 0.36 MEDI MedImmune Thu, Apr 24 Before the Bell 0.42 MGM Metro-Goldwyn-Mayer Thu, Apr 24 Before the Bell -0.20 MTD Mettler-Toledo Intl Thu, Apr 24 After the Bell 0.37 NFG National Fuel Gas Co Thu, Apr 24 After the Bell 0.78 NCR NCR Corporation Thu, Apr 24 Before the Bell -0.29 NFX Newfield Exploration Thu, Apr 24 Before the Bell 1.08 NT Nortel Networks Thu, Apr 24 Before the Bell -0.03 NUE Nucor Thu, Apr 24 -----N/A----- 0.24 ONB Old National Bancorp Thu, Apr 24 Before the Bell 0.41 ORI Old Republic Intl Thu, Apr 24 -----N/A----- 0.83 OLN Olin Thu, Apr 24 After the Bell 0.12 OSK Oshkosh Truck Thu, Apr 24 Before the Bell 0.80 PKI PerkinElmer Thu, Apr 24 Before the Bell 0.09 PDE Pride International Thu, Apr 24 After the Bell 0.04 PVN Providian Financial Thu, Apr 24 After the Bell 0.02 PHM Pulte Homes Inc. Thu, Apr 24 Before the Bell 1.23 IQW Quebecor World Thu, Apr 24 -----N/A----- 0.14 RBK Reebok Thu, Apr 24 Before the Bell 0.63 RGA Reinsurance Grp Am Thu, Apr 24 After the Bell 0.73 RESP Respironics, Inc. Thu, Apr 24 Before the Bell 0.46 SNY Sanofi Synthelabo Thu, Apr 24 Before the Bell N/A SLE Sara Lee Thu, Apr 24 Before the Bell 0.34 SBC SBC Communications Thu, Apr 24 Before the Bell 0.34 SRA Serono S.A. Thu, Apr 24 Before the Bell 0.15 SCRI SICOR Thu, Apr 24 -----N/A----- 0.21 SI Siemens AG Thu, Apr 24 Before the Bell N/A SSCC Smurfit-Stone Cont Thu, Apr 24 Before the Bell -0.09 SNE Sony Corporation Thu, Apr 24 Before the Bell N/A SFG StanCorp Finl Grp Inc Thu, Apr 24 Before the Bell 1.11 SBUX Starbucks Thu, Apr 24 After the Bell 0.13 STE Steris Thu, Apr 24 Before the Bell 0.37 SU Suncor Energy Thu, Apr 24 -----N/A----- 0.42 TGN Texas Genco Holdings Thu, Apr 24 Before the Bell N/A DOW The Dow Chemical Co Thu, Apr 24 Before the Bell -0.09 SMG The Scotts Company Thu, Apr 24 Before the Bell 1.83 SVM The ServiceMaster Co Thu, Apr 24 Before the Bell 0.08 TAC TRANSALTA CORP Thu, Apr 24 -----N/A----- N/A TRH Transatlantic Hldngs Thu, Apr 24 -----N/A----- 1.24 UNP Union Pacific Thu, Apr 24 Before the Bell 0.60 UDI United Defense Ind Thu, Apr 24 Before the Bell 0.45 UCL Unocal Thu, Apr 24 Before the Bell 0.80 VRSN VeriSign, Inc. Thu, Apr 24 After the Bell 0.14 VVI VIAD CORP Thu, Apr 24 Before the Bell 0.33 WDR Waddell & Reed Finl Thu, Apr 24 Before the Bell 0.27 WC WellChoice, Inc. Thu, Apr 24 After the Bell 0.56 WDC Western Digital Corp. Thu, Apr 24 After the Bell 0.21 WPS WPS Resources Thu, Apr 24 After the Bell 0.96 ------------------------- FRIDAY ------------------------------- ALE Allete Fri, Apr 25 Before the Bell 0.49 APC Anadarko Petroleum Fri, Apr 25 Before the Bell 1.43 AVP Avon Products Inc. Fri, Apr 25 Before the Bell 0.41 BEC Beckman Coulter Fri, Apr 25 Before the Bell 0.43 BDX Becton, Dickinson Co Fri, Apr 25 Before the Bell 0.53 BPO Brookfield Properties Fri, Apr 25 -----N/A----- 0.51 EAS Energy East Corp Fri, Apr 25 -----N/A----- 0.91 HCR MANOR CARE INC NEW Fri, Apr 25 Before the Bell 0.34 NOI National Oilwell Fri, Apr 25 Before the Bell 0.25 IX Orix Corporation Fri, Apr 25 Before the Bell N/A PGL Peoples Energy Corp. Fri, Apr 25 Before the Bell 1.54 PIO Pioneer Corporation Fri, Apr 25 -----N/A----- N/A PAA Plains All Am Pipelne Fri, Apr 25 During the Market 0.35 RJR R.J. Reynolds Tob Fri, Apr 25 Before the Bell 0.78 RDA READERS DIGEST ASSN Fri, Apr 25 Before the Bell 0.03 SANYY Sanyo Electric Fri, Apr 25 Before the Bell N/A SCG SCANA Fri, Apr 25 Before the Bell 0.77 SWMAY Swedish Match Fri, Apr 25 -----N/A----- N/A TROW T. Rowe Price Fri, Apr 25 Before the Bell 0.29 TP TPG NV Fri, Apr 25 -----N/A----- 0.32 TRP TransCanada Pipelines Fri, Apr 25 -----N/A----- N/A WY Weyerhaeuser Co. Fri, Apr 25 Before the Bell 0.18 WPPGY WPP Group PLC Fri, Apr 25 -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable WSB Washington Savings 3:2 Apr. 23rd Apr. 24th SFNCA Simmons First Nat'l Corp 2:1 May 1st May 2nd -------------------------- Economic Reports This Week -------------------------- Ah...another rapid-fire week of earnings announcements. The Q1 earnings flood is here and if last week is any indicator it could be a positive week for the markets. Look for the Fed Beige book, Durable Orders, Sentiment and Home sales numbers this week. ============================================================== -For- Monday, 04/21/02 ---------------- Leading Indicators (DM) Mar Forecast: -0.1% Previous: -0.4% Tuesday, 04/22/02 ----------------- None Wednesday, 04/23/02 ------------------- Fed's Beige Book (DM) Thursday, 04/24/02 ------------------ Initial Claims (BB) 04/19 Forecast: N/A Previous: 442K Durable Orders (BB) Mar Forecast: -1.0% Previous: -1.6% Help-Wanted Index (DM) Mar Forecast: 40 Previous: 40 Friday, 04/25/02 ---------------- GDP-Adv. (BB) Q1 Forecast: 1.9% Previous: 1.4% Chain Deflator-Adv. (BB) Q1 Forecast: 1.8% Previous: 1.8% Mich Sentiment-Rev. (DM)Apr Forecast: 84.0 Previous: 83.2 Existing Home Sales (DM)Mar Forecast: 5.70M Previous: 5.84M New Home Sales (DM) Mar Forecast: 900K Previous: 854K Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************ MARKET WATCH ************ So Many To Choose From EchoStar - DISH - close: 28.73 change: +0.53 We've had our eye on DISH for a while merely due to its relative strength over the past five months. Buying dips to the 50-dma have been profitable for the bulls. Currently the stock is consolidating on its 50-dma and this smells like an entry point. What concerns us is the $30 level, which is long-time resistance. Fortunately, the technicals look bullish with the MACD slowing down as it approaches the zero line and the Stochastics (5,3,3) are curling higher from oversold. Aggressive traders could go long here with a tight stop. Earnings are expected on May 1st. --- Black Box - BBOX - close: 31.56 change: +0.89 Playing the gap can be profitable and BBOX has a very big gap to fill. Shares were hammered in mid-March on an earnings warning and the stock has been consolidating sideways ever since. A breakout above $32 could be the beginning of an attempt to fill the gap. We would expect resistance at $35, but shorts on the run could power the stock through this level. Earnings are expected on May 7th. --- Cognos Inc. - COGN - close: 26.95 change: +0.80 The software sector is trying very hard to make a bullish break for it (see today's market posture). COGN is doing its part to push the group higher. Earnings were April 2nd and shares gapped up on the news. The new breakout above significant resistance at $26.00 looks very attractive and the point-and-figure chart also looks tempting. We would target a move to the $30 level. --- Iron Mountain - IRM - close: 39.08 change: +0.28 Here's one you may not have looked at in a while. Shares of IRM have almost doubled since their October 2002 lows. Currently, it's battling with overhead resistance at $39.50 (essentially $40). Shares tend to consolidate sideways and it's been doing so again for the last four weeks. Earnings are expected on April 30th. --- Fair Isaac Inc - FIC - close: 51.50 change: +1.25 This business services company was recently added to the S&P 400 midcap index in late March. You'll notice the spike in volume on the announcement. Despite this positive development, shares were already in bullish form from their October lows at $30. After failing twice at the $50 level, shares broke through and are now consolidating (still in bullish form) for another leg higher. Aggressive players might target the $55 area. --- eBay Inc - EBAY - close: 90.20 change: +1.79 For some, watching EBAY is sheer amazement. For others it brings back memories of the pre-bubble bursting tech rallies. Shares of EBAY have almost been unstoppable since its October 2002 lows. You constantly hear talk about EBAY's excessive multiples then the company follows up with incredible earnings growth. The consolidation under $90 has been interesting to watch but now shares appear ready for an attack on $100. Yet, traders beware, earnings are expected on April 22nd (that's next Tuesday). If the results aren't anything but wonderful, this stock could see some profit taking. RADAR SCREEN --------------------------------------------------------------- Stock's on the RADAR screen have piqued are curiosity and we plan to watch them for further developments and/or entry points. --------------------------------------------------------------- CTXS - $15.64 - This software stock looks pretty strong and we like the breakout to new 52-week highs. Earnings are April 23rd. BOBJ - $20.75 - Another software stock, this one has broken out above the $20 level but true resistance is $20.75. AMGN - $60.13 - Finally, after all this time of waiting for a breakout over $60 we get one...just in time for earnings on Tuesday, April 22nd. FRX - $53.30 - We like the bounce a few days ago. It appears to be ignoring the $55 mark and setting new relative highs. Will it make another run? Earnings are April 22nd. KSS - $59.92 - Shares of this retailer have been consolidating under the $60 level of resistance for weeks. Now it's fighting with its simple 200-dma. A breakout from here could have the shorts on the run. PGR - $65.20 - Sooner or later this rocket is going to run out of fuel. Its MACD looks ready to crack. I'm sure this has been painful for the shorts. MSTR - $29.38 - This software stock might be worth watching for a pull back. Now that it's at $30 it could be soon. PAYX - $30.19 - We've been waiting for a move over $30, but to really convince us, let's see a move above $30.51. That's a nice bullish engulfing candlestick. *********************************************************** DAILY RESULTS *********************************************************** For Best Alignment view in Courier Ten Font ******************************************* CALLS Mon Tue Wed Thu Week AZO 76.99 1.16 1.30 -2.69 1.89 Rebound BBBY 39.52 1.15 0.58 -1.14 1.32 New Highs ERTS 59.99 1.05 New, trigger happy LXK 69.19 0.71 0.77 -0.61 0.36 DROP IMDC 35.00 0.99 New, entry point MEDI 33.42 0.33 0.74 -0.94 0.76 Longer-term no update MMM 129.98 0.32 0.40 -4.64 0.98 DROP, broke $130 MXIM 39.62 1.09 New, Aggressive Call OMC 61.43 1.83 1.02 -0.40 1.31 Looking good WFMI 57.94 1.33 0.87 -1.57 0.61 Higher lows PUTS NOC 83.80 0.92 0.39 -0.08 1.86 Need some "failing" ************************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 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* Electronic Arts - ERTS - close: 63.71 change: +4.61 stop: 57.00 See details in play list Put Play of the Day: ******************** No PUT Play of the Day for this Weekend! ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Lexmark Intl. - LXK - close: 69.19 change: +0.36 stop: 66.00 While our LXK play performed about like we expected by dipping back to support and rebounding higher, it took too long to do it and the bounce lacked the necessary strength to generate any gains. Traders that entered on the rebound from $67 earlier in the week managed a small gain by Thursday's close, but overall we have to list this one as a disappointment. LXK is set to announce earnings on Monday morning and since we don't want to assume the event risk of holding over the announcement, we're dropping the play this weekend, as noted in the market monitor. Picked on April 10th at $69.02 Change since picked: +0.17 Earnings Date 04/21/03 (confirmed) Average Daily Volume = 1.50 mln --- 3M Company - MMM - close: 129.00 change: -4.64 stop: 129.75 After two weeks of chopping sideways with a floor near $131.50 and a ceiling at $135, we decided on Tuesday to tighten our stop on the play to $131.50 to protect against a sudden, adverse move. As it turns out, that was a prescient decision, as the stock plunged sharply on Wednesday following a downgrade from JP Morgan. The initial drop took out our new higher stop right at the open and then MMM proceeded down to take out our original stop at $129.75. By the time it all ended, MMM managed a feeble rebound to close right at $129. While the play came to an end yesterday, we neglected to include the drop writeup in last night's newsletter, but wanted to keep things current. Note that the prices listed are as of Wednesday's close. In addition to the busted stop, MMM is set to release its quarterly earnings report on Monday, so even if not stopped out, we would have closed this play this weekend. Picked on March 27th at $131.66 Change since picked: -2.66 Earnings Date 04/21/03 (confirmed) Average Daily Volume = 2.44 mln PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* 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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-20-2003 Sunday 3 of 5 In Section Three: New Calls: ERTS, IMDC, MXIM Current Calls: AZO, BBBY, OMC, WFMI New Puts: None ************************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 ************************************************************** ************** NEW CALL PLAYS ************** Electronic Arts - ERTS - close: 63.71 change: +4.61 stop: 57.00 Company Description: ERTS creates, markets and distributes interactive entertainment software for a variety of hardware platforms, including Sony's PlayStation 2, the PC, Nintendo GameCube and the recently launched Xbox. The company's EA.com business segment is engaged in the creation, marketing and distribution of entertainment software which can be played or sold online, as well as the ongoing management of subscriptions of online games and Website advertising. Why we like it: Reports last year that the video gaming industry was in the early stages of an 8-10 year boom cycle drove stocks like ERTS to new all-time highs near $72. But the spectre of a weak economy and a consumer with less willingness to part with discretionary dollars finally put the bite on the stock, driving it all the way back down to major support near $48 by the middle of January. After basing in that area for the better part of 2 months, ERTS started gradually climbing higher. The bullish rebound really got moving once the stock clawed its way back over the $55 level, but ran into dual resistance at the descending trendline from the October 2002 highs as well as the 200-dma, both near $60 in mid-March. A big part of the stock's ability to hang tough has to do with the fact that revenue and earnings continue to grow at a healthy clip, as demonstrated by the blowout results announced at the end of January. The company produced its best quarter ever, both in terms of revenue and earnings and while Q1 is always the strongest quarter for the industry, investors are likely looking forward to continued strong performance. The breakout over $55 generated a powerful Buy signal on the PnF chart, and that was good enough to lead ERTS up to the $60 level. But that was the location of the bearish resistance line, and is so often the case, the first test of bearish resistance proved painful for the bears. But rather than show any weakness, the stock has consolidated its gains, finding consistent support near the $57 level and appears to be showing bullish signs again, riding an aggressive ascending trendline from the February lows. Thursday's rally began above the broken descending trendline, and then took ERTS back through the 200-dma, and right up to the $60 level again. While it looks like the stock wants to break out, we don't want to get sucked into the play right at the top of the recent range, if the bulls can't show the conviction necessary for a clean breakout. So we're going to set a trigger of $61.25 on the play. This is just slightly above the high on April 2nd, and a rally through that level would likely be a precursor to a run at the next serious level of resistance near $65. That initial breakout can be used for an aggressive entry into the play, while more conservative traders will want to wait for a subsequent pullback to confirm newfound support near $59.50- 60.00. With daily Stochastics already looking a bit toppy, we want to give the play some room to move, so our initial stop is set at $57, just below the lowest closing level on the most recent pullback. Suggested Options: Shorter Term: The May 60 Call will offer short-term traders the best return on an immediate move, with manageable risk. Traders who desire a bit more insulation from time decay, while still reaping the benefits of using an ITM option will want to use the June 60 Call. Longer Term: Traders looking to capitalize on a sustained breakout move over the $61 level will want to look to the May 65 Call or even the June 65 Call. These options are currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL MAY-60 EZQ-EL OI=2368 at $2.40 SL=1.25 BUY CALL MAY-65 EZQ-EM OI=3507 at $0.70 SL=0.35 BUY CALL JUN-60 EZQ-HH OI=4382 at $3.70 SL=2.00 BUY CALL JUN-65 EZQ-HH OI=7991 at $1.65 SL=0.75 Annotated Chart of ERTS: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/ERTS041703.gif Picked on April 20th at $60.04 Change since picked: +0.00 Earnings Date 05/08/03 (unconfirmed) Average Daily Volume = 3.36 mln --- Inamed Corp - IMDC - close: 35.00 change: +0.99 stop: 32.86 Company Description: Inamed is a global healthcare company with over 25 years of experience developing, manufacturing, and marketing innovative, high-quality, science-based products. Current products include breast implants for aesthetic augmentation and for reconstructive surgery; a range of dermal products to treat facial wrinkles; and minimally invasive devices for obesity intervention, including the LAP-BAND. System for morbid obesity. (source: company press release) Why We Like It: "It doesn't seem to matter whether the economy's good or bad. The vanity business just keeps chugging right along." This quote comes from an interesting article written in Investor's Business Daily in mid-March about IMDC. Considering the weak economic environment, we agree with the article's tone that's just plain surprising. IMDC receives a large chunk of its revenues from breast implants, which from the stock's rise, does not appear to be bad business. Actually, the company's latest Q4 results showed double-digit growth in all three of its businesses (source:IBD). Total sales were up 21% for the quarter over the prior year. We really like the stock's rising trend and this appears to be a decent entry point to catch the next leg up. We're going to use a stop at Tuesday's low of 32.86. Stochastics look good as they are still turning up from being oversold. Our four-week target is $40 but we do expect possible resistance at $37.50. Suggested Options: While the trend looks strong for IMDC we would not call this one a "fast" mover. We're going to post one short-term call (May), a couple of July's (recommended) and one October for traders who really want some time. BUY CALL MAY 35 UZI-EG OI= 41 at $2.10 SL=0.90 BUY CALL JUL 35*UZI-GG OI=611 at $3.00 SL=1.50 BUY CALL JUL 40 UZI-GH OI= 11 at $1.10 SL=0.00 BUY CALL OCT 40 UZI-JH OI=103 at $1.75 SL=0.75 Annotated Chart of IMDC http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/IMDC041703.gif Picked on April 17th at $35.00 Change since picked: +0.00 Earnings Date 02/25/03 (confirmed) Average Daily Volume = 215 K Chart link: --- Maxim Integrated - MXIM - close: 39.62 change: +1.09 stop: *see note* Company Description: Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing. (source: company press release) Why We Like It: All right, all you chip-stock bears settle down. We're suggesting MXIM only as a very short-term, high-risk play on the chances that the SOX can follow through on its recent rally and actually breakout. There's been plenty of analysis over the last few months about chip stock valuations getting out of hand. We even saw one about MXIM's growth rate not worth investing in as the reporter suggested that analysts would be lowering their earnings forecast for MXIM lower as the next two years come and go. Yup, we're ignoring it all on the short-term basis that investors are in a happy mood. Traders are focusing more on those companies that ARE beating estimates or offering positive guidance than those companies that are not. Here's the plan to play MXIM. If and only if MXIM trades at or above $40.51, we'll go long. Our short-term goal is $45.00. Real nimble traders willing to scalp a couple of points can aim to exit at $44 and beat the crowd. Should we get triggered we'll start the play with a stop at $37.99. We would prefer to stick the stop under the ascending trendline but the risk-reward ratio wouldn't make it worthwhile. We are encouraged by the stock's MACD, which just produced a bullish crossover and the stock's stochastics are shooting higher. Should the stock trade $41, it will print a new double-top breakout on its point-and-figure chart. An alternative strategy to play MXIM would be on the pull back. This is assuming we don't get triggered on Monday above 40.51. MXIM could pull back to its rising trendline and bulls can jump in on a bounce near the $36 level (see chart). This is merely an alternative should the chip sector stall. Keep an eye on the SOX and watch it for a move over 340-350. Just maybe, MXIM will see a pre-earnings run up ahead of its announcement on Tuesday, April 29th after the close. Suggested Options: This is a short-term play. We don't expect to hold it more than seven or eight session. We're listing two short-term options (May) and one longer-term option for those who just have to have more time. BUY CALL MAY 40*XIQ-EH OI=5506 at $2.35 SL=1.00 BUY CALL MAY 45 XIQ-EL OI=4335 at $0.65 SL=0.00*very risky* BUY CALL AUG 40 XIQ-HH OI=2826 at $4.90 SL=2.25 Annotated Chart of MXIM: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/MXIM041703.gif Picked on April XXth at $xx.xx Change since picked: +0.00 Earnings Date 04/29/03 (confirmed) Average Daily Volume = 8.30 mil ************************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 ************************************************************** ****************** CURRENT CALL PLAYS ****************** AutoZone, Inc. - AZO - close: 76.99 change: +1.89 stop: 74.00 Company Description: AutoZone is a retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of its more than 2900 stores in 42 states and Mexico carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items and accessories. Approximately half of its domestic stores also have a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations. Why we like it: It doesn't take a rocket scientist to see that we're still in the midst of a volatile and indecisive market. Tuesday's impressive breakout in our AZO play was followed by a dismal selloff on Wednesday, most of which was regained on Thursday to round out the week with a nice gain. Did we forget to remind everyone to pack their Dramamine? Tuesday's breakout looked convincing enough to us that we raised our stop to $74 (the site of the prior week's closing low), and by late in the day on Wednesday, it looked like that was a bad move. But Thursday's session dawned with renewed optimism, driving AZO higher to the tune of 2.5% and leaving us a bit more breathing room as we head into the long weekend. Looking at the daily chart, there is in fact a nice pattern of higher lows building, with the latest dip finding strong buying support at $74.50. The big issue that is really causing us concern is that there isn't very strong volume supporting this recent move. A nice 1.5 million share day on rising price would go a long way towards convincing us that AZO can not only achieve our initial target of $80, but also push into the $80-85 zone of congestion from last fall. Intraday dips that find support above $74.50 can still be used for entries into the play, but conservative traders will want to watch for more conviction in the form of stronger buying volume. Suggested Options: Shorter Term: The May 75 Call will offer short-term traders the best return on an immediate move, with manageable risk. Longer Term: Traders looking to capitalize on a sustained breakout move over the next few weeks will want to look to the May 80 Call or even the June 80 Call. These options are currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL MAY-75 AZO-EO OI=395 at $3.90 SL=2.50 BUY CALL MAY-80 AZO-EP OI=860 at $1.45 SL=0.75 BUY CALL JUN-80 AZO-FP OI=520 at $2.85 SL=1.50 Annotated Chart of AZO: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/AZO041703.gif Picked on April 13th at $75.24 Change since picked: +1.75 Earnings Date 06/03/03 (unconfirmed) Average Daily Volume = 1.32 mln --- Bed Bath & Beyond - BBBY cls: 39.52 change: +1.32 stop: 37.00*new* Company Description: Bed Bath & Beyond is an operator of stores selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores. As of May, 2002, the company had stores in 44 states. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic housewares and general home furnishings. Why we like it: It took a bit of patience to wait for the breakout over $38 in our BBBY play, but it looks like the wait was worth it. After blasting through that level last Monday on increasing volume, the stock actually managed to exceed $39 before pulling back. Just as we had hoped, that pullback came right down to the $38 breakout level before reversing strongly higher on Thursday, ending the week just off its high of the day and at a new all- time high. As mentioned through the week, we're looking at a trade at $40 as a good opportunity to harvest some partial gains and then look for re-entry at a lower level. There's nothing magical about that level, except that it is likely to be psychological resistance. The Retail index (RLX.X) is just testing the lower edge of the $295-305 resistance zone, and unless the bulls can push through it with gusto, BBBY will likely have a hard time clearing the $40 level. This stock looks like it could work its way substantially higher, so we still want to give it some room to breathe. Our stop moves up to $37 this weekend, which is below both the ascending trendline and the 10- dma ($37.64). Another dip to the $38 level that finds willing buyers can certainly be used for new entries, especially if the RLX is able to hold above $290. Suggested Options: Shorter Term: The May 37 Call will offer short-term traders the best return on an immediate move, with manageable risk. Longer Term: Traders looking to capitalize on a sustained breakout move over the next few weeks will want to look to the May 40 Call or even the August 40 Call. These options are currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL MAY-37 BHQ-EU OI=5297 at $3.00 SL=1.50 BUY CALL MAY-40 BHQ-EH OI=3894 at $1.40 SL=0.75 BUY CALL AUG-40 BHQ-HH OI=3501 at $3.00 SL=1.50 BUY CALL AUG-42 BHQ-HH OI= 470 at $1.90 SL=1.00 Annotated Chart of BBBY: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/BBBY041703a.gif Picked on April 8th at $37.18 Change since picked: +2.34 Earnings Date 07/02/03 (unconfirmed) Average Daily Volume = 3.22 mln --- Omnicom Group - OMC - close: 61.43 change: +1.31 stop: 56.99 Company Description: Omnicom Group Inc. (NYSE-OMC) is a leading global marketing and corporate communications company. Omnicom's branded networks and numerous specialty firms provide advertising, strategic media planning and buying, direct and promotional marketing, public relations and other specialty communications services to over 5,000 clients in more than 100 countries. (source: company press release) Why We Like It: We don't have a lot of new material to comment on for OMC. We picked this stock as a call play on Tuesday and Wednesday's session provided a pull back to the $60 level for eager bulls to buy the dip. Shares rebounded another two percent by the close on Thursday and put it squarely back above the $60 level, which might act as new support. Our original write up highlighted a few points that could be driving the rise in advertising stocks. First and foremost is the end of the war in Iraq. During the height of the conflict, many TV channels reduced and or eliminated commercials to bring their viewers full 24-hour coverage. Now that the war is over, advertising space and thus ad spending can return. A secondary but probably a stronger element is the consumer. Prior to and during the war in Iraq, analysts were very concerned that consumer would hole up in their homes and not spend money over concerns about the war, the "high" risk of terrorist attacks, and the "CNN" effect (although some might start calling it the "FOX" effect). The most recent retail sales numbers put these concerns to rest as the consumer is alive and well. OMC's Point-and-Figure chart is showing a bullish ascending triple-top breakout. Meanwhile the daily chart looks attractive as well. There could be some resistance at $65 but our target is the $68 to $69 level. Our initial stop is at $56.99. More conservative traders might be able to get away with a stop just under $58. Currently, OMC's simple 200-dma is at 58.56. We did note that since Tuesday, the open interest in the May 60 calls has more than doubled. Suggested Options: Short-term traders may want to consider the May 60 or 65 calls. This would give OMC essentially four weeks to make a run at our target. Those traders would prefer more time can try the July 65s or the October 65 calls. BUY CALL MAY 60 OMC-EL OI=1787 at $3.70 SL=1.50 BUY CALL JUL 60 OMC-GL OI=1329 at $5.70 SL=3.00 BUY CALL JUL 65*OMC-GM OI= 854 at $3.20 SL=1.50 BUY CALL OCT 65 OMC-JM OI= 572 at $5.20 SL=2.75 Annotated Chart of OMC: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/OMC041703.gif Picked on April 15th at $61.30 Change since picked: +0.13 Earnings Date 02/25/03 (confirmed) Average Daily Volume = 2.18 mil --- Whole Foods - WFMI - close: 57.94 change: +0.61 stop: 56.00 Company Description: Whole Foods Market, Inc. owns and operates a chain of natural and organic foods supermarkets in the United States. As of September 2002, the company operated 135 stores in 25 states plus the District of Columbia and Canada. The company offers a broad product selection with a heavy emphasis on perishable foods designed to appeal to both natural foods and gourmet shoppers. Its product categories include produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), whole body (nutritional supplements, vitamins and body care), pet products and household products. Why we like it: Believe it or not, we actually considered pulling the plug on our WFMI play a week ago, when the stock ended the week on a down note. But we've been watching the way it keeps holding above the 20-dma and ascending trendline and decided to give it one more chance to make good. It's a good thing we did, because Tuesday's rally saw the stock shooting to a new all-time high, finally closing over $59. Our patience was tested again on Wednesday, as WFMI got caught in the market-wide downdraft, giving back all of Tuesday's gains by the closing bell. Despite such a sharp pullback, support held once again and the stock rebounded on Thursday to end the week with a respectable gain. This is a perfect example of a play that is best pursued by buying the dips to support, rather than chasing it higher by buying the breakouts. Since that process has been working, we're going to stick with it, targeting new entries on rebounds from support, now at $57, just above both the trendline and the 20-dma. The PnF chart still looks strong with a bullish price target up in the ozone at $85, but for now we'll target harvesting partial gains at $60, with an eye towards re-entry on the next pullback to support. Maintain stops at $56. Suggested Options: Shorter Term: The May 55 Call will offer short-term traders the best return on an immediate move, with manageable risk. Longer Term: Traders looking to capitalize on a move towards the $60 level may want to use the May 60 Call or even the AUG 60 Call. These options are currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL MAY-55 FMQ-EK OI=3929 at $4.10 SL=2.50 BUY CALL MAY-60 FMQ-EL OI= 671 at $1.20 SL=0.75 BUY CALL AUG-60 FMQ-HL OI=1189 at $3.20 SL=1.50 Annotated Chart of WFMI: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/WFMI041703.gif Picked on April 1st at $56.42 Change since picked: +1.52 Earnings Date 05/08/03 (unconfirmed) Average Daily Volume = 907 K ************* NEW PUT PLAYS ************* None ************************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. 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The Option Investor Newsletter Sunday 04-20-2003 Sunday 4 of 5 In Section Four: Current Put Plays: NOC Leaps: Round One Goes To The Bulls Traders Corner: The Quickies – Were They Good For You? Traders Corner: Putting it all together: OIN Mailbag(2) Traders Corner: Do You Need An Attitude Adjustment? Options 101: Foreign Currency Trading Basics ************************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 ************************************************************** ***************** CURRENT PUT PLAYS ***************** Northrop Grumman - NOC - close: 83.80 change: +1.86 stop: 85.26 Company Description: Northrop Grumman Corporation is a $25 billion global defense company, headquartered in Los Angeles, Calif. Northrop Grumman provides technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. With approximately 120,000 employees and operations in all 50 states and 25 countries, Northrop Grumman serves U.S. and international military, government and commercial customers. (source: company release) Why We Like It: Let's face it...it's tough to play puts in a rising market. The Industrials, the Nasdaq Composite and the S&P 500 all gained ground on this shortened holiday week. The defense sectors followed suit and NOC was not left behind. Still, the stock and the industry remain relatively weak when compared to the market as a whole. In Tuesday's update we suggested that traders looking for new entries may be better off to wait for a failed rally at the $84.00 area. That's exactly what we got today. NOC traded up to $84.38 at its high. Now, all bears need to do is look for a bit of "failing". It may be prudent to look for shares of NOC to trade below the 83.50 mark or even the 83.00 mark before initiating any new put positions. Should shares open up or quickly trade higher on Monday we would not want to go short. The stock could fail at its descending trendline (see chart below) but it's a risky game and entry point is everything when you're using options. On Tuesday we elaborated a bit on why we were listing NOC as a put play. In addition to its relative weakness, one train of thought is that now the Middle East region is more secure with Saddam out of the picture. A more secure Middle East means less security forces and that means less security equipment. Of course the Iraq conflict was beneficial for companies like NOC as they can receive orders to replace damaged or destroyed military equipment in addition to selling upgrades and following through on new products debuted in the war. Part of the relative weakness in the sector may be due to the quickness of the Iraq war, which many had expected to last significantly longer. At any rate, traders need to be careful when choosing their entry and we're going to be very strict with our stop at $85.26. Suggested Options: Stocks tend to go down faster than they go up. Therefore we'd probably suggest the short-term May options to play NOC. Traders who prefer more time might consider the August puts. BUY PUT MAY 85 NOC-QQ OI=1667 at $3.20 SL=1.40 BUY PUT MAY 80 NOC-QP OI=1820 at $1.20 SL=0.50 BUY PUT AUG 80 NOC-TP OI= 351 at $4.00 SL=1.85 Annotated Chart of NOC: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-04-17/NOC041703.gif Picked on April 6th at $83.26 Change since picked: -0.54 Earnings Date 04/29/03 (unconfirmed) Average Daily Volume = 1.57 mil ************************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 ************************************************************** ***** LEAPS ***** Round One Goes To The Bulls By Mark Phillips mphillips@OptionInvestor.com I don't care what your market view is, you've got to admit that the first full week of the April earnings cycle went decidedly in favor of the bulls. Oh, there's no question it was a bumpy ride, with lots of volatility. But in the end, all the major indices ended the week in the green, despite what I think were questionable earnings results from the Trifecta of Technology -- IBM, MSFT and INTC. Forget whether the earnings results were better or worse than expectations, because that is really meaningless. Which of those companies forecast renewed growth that will fuel the second-half recovery? That's right, none! From where I sit, we'll round out the last of the "good six months" with the best spin the corporate chieftains can put on fairly weak numbers. What comes next? The "bad six months", summer doldrums, and an inability to blame the weakness of the next earnings cycle on the uncertainty associated with the Iraq war. In perusing my weekly charts in preparation for writing tonight, I found that in all cases the short-term (5,3,3) Stochastics are already starting to roll bearish, while the longer-term (10,5,3) oscillator is still rising, but nearing overbought. With the bullish percents still rising, I think we need to give greater weight to the longer-term oscillators right now and that tells me we may have another 2-3 weeks to go in this bullish move. Hmmm...won't that take us just about through the end of the main part of this earnings season? Here's another way to look at it. I extended the rate of ascent of the SPX out into the future, and it looks to me like price action will impact the upper boundary of the long-term descending channel and the descending trendline from the August 2002 highs, near the 915-925 area in early May. That would certainly give the bullish percents room to advance closer to overbought territory and set up the next downward move. That would be an amazing parallel to what transpired a year ago, don't you think? There's just one major fly in the ointment to my little bearish party. My thanks to Kathy for pointing it out in an email today, as I think it very clearly frames the dilemma many very astute traders must deal with right now. "Mark, I've been following ALL of your articles concerning the VIX, OEX, and the bullish percent What I do not understand is the increased long positions of the COT. Supposedly, that is the "smart money" and they are long this market. Thanks for any assistance in clarifying my confusion between the indicators and the COT." I've followed the action of the Commercials for many years, going back to the mid-1990s when I used the data for position trading in the commodity markets. The one incontrovertible fact I came to accept was that these big boys are almost never wrong, but they also do a horrible job of timing. The reason for the poor timing has to do with scale. The magnitude of the positions they take are such that they can't just enter or exit in a day or even a week. They look to scale into positions over a period of weeks or even months in agreement with their view of the direction of that particular market for that particular time frame. So they will accumulate most of the way up and distribute most of the way down. But spotting the point of inflection where the Commercials are at their most bullish (or bearish) and the small speculators are at an opposite extreme (measured over the preceding 12 months) is about the best we can do. It isn't an exact science (actually it is more art) and over the years I've come to the conclusion that the best we can do in using this data is nail down the timing within about a 4-6 week window. We just don't get enough data frequently enough to nail it down any better than that. So while on the surface, those elevated levels of bullishness as demonstrated by the COT net positions seems to be in conflict with the other indicators that are warning of a near term top in the markets, I think what the COT data is telling us is to not be in a rush to jump "whole hog" into the bearish camp. After yesterday's article on the VIX, I'm not going to duplicate that discussion here tonight. The only point I'll make is that the VIX drilled still deeper into that floor that I defined (the lower edge now calculates to 24.32), even breaking down out of the wedge on the relative strength chart from last night's article. By all measures I use, fear is continuing to drain out of this market at an alarming rate, without any appreciable improvement in the actual levels of the market. A day of reckoning is coming, and I fear for the bulls that have bought into the mindless view that the bear market is over, because I feel they are headed to slaughter like on so many other occasions in the past 3 years. There's nothing wrong with playing the upside as long as it lasts. That's what we're trying to do with our current Portfolio plays. Just don't fall for the siren song of a "New Bull Market", because it is patently false. As I said on Monday, be your own guru! Now off we go to examine those plays and I must say it was a pretty decent week. Portfolio: ADBE - Well, it looks like our patience is being rewarded, with ADBE finally tagging the $35 level again on Thursday. Bullishness in the Software sector (GSO.X) certainly isn't hurting, with a 3.4% advance on Thursday. If the bulls continue to drive the GSO higher, then it seems likely that ADBE (one of the strongest stocks in the sector) will continue to surge higher. We're currently sitting on an 85% gain in the '04 LEAP, and I would recommend that conservative traders look to at least harvest partial gains if the 100% level is reached next week. There hasn't quite been enough upward movement to justify raising the stop above the $31.50 level where it currently resides, but hopefully we'll get that opportunity next week. EMC - Wow! Now that was a bullish week for our EMC play. Not only did it break and close above the $8.00 level in response to the company's upbeat earnings report and upwardly revised Q2 forecast, but Thursday's bullish session had the stock closing right on the next level of resistance at $8.50. Weekly Stochastics are stretching into overbought territory, but I really think the stock has further to run on this cycle. For now, we're still keeping a pretty conservative stop set at $6.50, although we have finally raised it above that $5.50 level we started with. Conservative traders may want to raise their stops to breakeven on the play, or take a targeted profit on a rally to the $9.00-9.50 area. But I'm holding out for an eventual move into the $11-12 area. Watch List: NEM - Another missed entry, and here we sit watching NEM rise without us. Am I frustrated? You bet I am, because we just missed a decent entry a couple of times in the past few weeks and the stock is rallying with the equity markets, even though the price of gold is stagnating. But positions in mining stocks are not the sort of animal to chase. It either comes to you and you ride it up for a targeted gain or leave it alone. I think a big part of NEM's price strength lately has come from the company's outstanding earnings report in late March. Keep the entry target fixed at $24.50-25.00 and we still ought to get a viable entry in the weeks ahead. QQQ - Despite the positive price action in the QQQ again last week, I'm losing my enthusiasm for this play. Taking a step back from the day-to-day gyrations, the QQQ has bounced in quite volatile fashion between $25-27 for over a month now, and quite honestly, I'll be surprised to see a breakout to the upside that can stick. During the past month, while price has churned sideways, the weekly Stochastics have topped out and started to roll bearish. At the same time, the NASDAQ-100 bullish percent has risen from the low 30s to 59%. That internal strengthening hasn't been able to produce a breakout in price, which seems bearish to me. The other factor that causes me concern is the NASDAQ-100 Volatility index (VXN.X), which at Friday's close (35.88) is at an all-time (27-month) low. Extreme low readings in volatility tend to be followed by price declines, not price advances. I seriously considered pulling the plug on this play this weekend, but due to the difficulty I'm having in reading the market, I decided to monitor it for one more week first. I would recommend caution on bullish positions here, as I think there is greater downside risk than potential reward at current levels. Only a sharp decline and bounce from our current target range looks viable to me at this time. GD - Ok, now that just wasn't nice! If you think I'm getting tired of Watch List plays turning and going in our direction without letting us in, you're right. GD rebounded from $52.20 a week ago, just fractionally above my entry zone of $50-52. To say last week was bullish would be an understatement, as the stock vaulted higher to the tune of 10% in just four days, with the bullish move further fueled by the company's impressive earnings report on Wednesday morning. GD reported $1.11 per share, beating consensus by 9 cents on better than expected revenues. Needless to say, the stock shot higher on very strong volume on that news and is rubbing up against $60 resistance. Now the question is whether we're going to get another pullback or if we missed our opportunity? I'm leaning towards the pullback and entry over the next couple weeks, but we're not going to chase it. I'm raising the entry to $54-55, but that's as far as I'm prepared to go. That makes position management difficult enough, and any higher would make placing a reasonable stop all but impossible. AMZN - Well, we were looking for weakness in AMZN when we added it to the Watch List last week, and that's certainly what transpired. The problem is, we never got a decent chance to get on board. The stock has now fallen from the top of its long-term ascending channel right to the mid-line near $24 and found support. Now we just need to see a rebound up to our $27-28 target entry zone, which ought to be followed by a drop down to the bottom of the channel. Since we don't yet have a live position in AMZN, we can comfortably watch from the sidelines when the company releases and then spins its quarterly earnings report next Thursday. Nothing would make me happier than to see a bullish response, which should then see weakness drive the stock down to at least the bottom of the channel. I'm not going to harp on my bearish intermediate and long-term view of the market again this week. I've repeated it enough times that most of you can probably repeat it from memory. Basically, the economy isn't showing anywhere near the strength to justify an extended bullish move, and with volatility reaching very low levels, I continue to think this bear market rally's days are numbered. Accordingly, we're adding another bearish Watch List play this weekend. As I mentioned at the end of Wednesday's article, I'll be taking some time out for some R&R through next Wednesday. Since I won't be around to play in the markets with the rest of you, do your best to keep it under control while I'm gone, alright? In the meantime, manage your open positions aggressively! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: ADBE 02/28/03 '04 $ 30 LAE-AF $ 4.70 $ 8.70 +85.11% $31.50 '05 $ 30 ZAE-AF $ 7.50 $11.80 +57.33% $31.50 EMC 03/12/03 '04 $ 7 LUE-AU $ 1.40 $ 2.10 +50.00% $6.50 '05 $ 7 ZUE-AU $ 2.15 $ 3.10 +44.19% $6.50 Puts: None LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 03/09/03 $24.50-25.00 JAN-2004 $ 25 LIE-AE CC JAN-2004 $ 20 LIE-AD JAN-2005 $ 25 ZIE-AE CC JAN-2005 $ 20 ZIE-AD QQQ 03/16/03 $24.50-25.00 JAN-2004 $ 26 KLF-AZ CC JAN-2004 $ 22 LKF-AU JAN-2005 $ 26 ZWQ-AZ CC JAN-2005 $ 22 ZWQ-AU GD 03/23/03 $54-55 JAN-2004 $ 60 KJD-AL CC JAN-2004 $ 50 KJD-AJ JAN-2005 $ 60 ZZJ-AL CC JAN-2005 $ 50 ZZJ-AJ PUTS: AMZN 04/13/03 $27.50-28.00 JAN-2004 $ 25 LOH-ME JAN-2005 $ 25 ZWE-ME AIG 04/20/03 $56-57 JAN-2004 $ 55 LAJ-MK JAN-2005 $ 55 ZAF-MK New Portfolio Plays None New Watchlist Plays AIG - American International Group $53.64 **Put Play** AIG is no stranger to our LEAPS Watch List, as it has been here before and will likely be here again. There are few stocks that have put together such an established downtrend in the past few years, while still having room to fall. Insurance stocks as a group have not done well in the wake of first 9/11 and then the admission that the bulk of their investments (what these companies use to pay earn cash for paying out claims) have not performed up to par. This is no great surprise after 3 years of a bear market, and we can view this phenomenon as an extension of the problems that are plaguing most corporate pension funds. Reality is not living up to the pollyannish expectations. Beginning in October of 2001, AIG began riding down along the underside of a descending trendline that began in late 2000. Each test of this trendline throughout 2002 met with bearish rollovers, at least up until late October. Then we saw AIG break through this trendline and really try to break the trend of lower highs. Alas, it wasn't to be, with the 200-dma stepping in to really put a cap on the stock in November and then again in January. The January plunge took AIG back under its descending trendline and all the way down to $43 before the mid-March rebound got underway. Since then, the stock has been working its way higher in a bearish ascending wedge, which ought to produce a break down sometime in the next few weeks. I think the long-term descending trendline has become less relevant and the real key that we need to watch is the 200-dma (currently $58.27). It currently lines up quite nicely with the bearish resistance line on the PnF chart at $58. That first test of bearish resistance should prove painful for the bulls and I expect will put an end to the series of higher lows. AIG is set to release its quarterly earnings next Thursday, and I see no reason why we want to be in this play prior to that announcement. If we're lucky, the initial response to the report could set us up for a better entry into the play up near $58. But I've gotten caught flat-footed too often lately, waiting for an entry point that never comes. So I'm setting our initial entry target just a bit lower at $56-57, with an initial stop set at $60.50, just above the top of the late-January gap. If you're wondering just where I expect AIG to go on its next down-leg, you'll really need to look to the weekly chart for the proper perspective. For starters, I'm looking for a retest of the March lows, and actually a slight break below to test the $38-40 level. BUY LEAP JAN-2004 $55 LAJ-MK BUY LEAP JAN-2005 $55 ZAF-MK Drops None ************** TRADERS CORNER ************** The Quickies – Were They Good For You? By Mike Parnos, Investing With Attitude Too many traders go through life living out the words to the Animals' "I Can't Get No Satisfaction." Why? It can usually be blamed on poor techniques. Enter the Couch Potato Trading Institute (CPTI) -- an institution of higher learning. That's because our profits are high – and so are the students from time to time. _____________________________________________________________ The Quickies In our Sunday column, I proposed some hypothetical expiration week Quickie trades. Let's see how they fared based on 10 contract positions. 1. RMBS Short Straddle. We sold the $15 calls and $15 puts and took in $1.35. The closer it finishes to $15, the more we make. RMBS finished at $14.60. So we bought back the $15 put for $.45 -- resulting in a profit of $900. Not bad for four days. 2. MO Short Strangle. On Monday, selling the MO April $30 puts and the April $32.50 calls would have yielded $1.20. The objective was for MO to finish at expiration between $30 and $32.50. What a coincidence!! MO closed at $32.19. The options expire worthless and we just made $1,200. 3. ADRX Short. This one is a little trickier. If one was alert and shorted ADRX on Monday morning at $14.65, he would have had an opportunity to pick up $.50-$.55 as ADRX traded down to $14.05 shortly thereafter. But, if you weren't quick, you would have been stopped out when the stock reversed and traded at $14.95 resulting in a $250 loss. If you can win two out of three and make a profit of $1850 in just four days, I'd say we did pretty damn well. I'd say you should call all of the traders you know and tell them about OptionInvestor and how you paid for your subscription for the next five years – IN FOUR DAYS!! These trades were so satisfying that, even if you don't smoke, you wanted a cigarette after expiration. CPTI students are finding that trading is like eating Chinese food. You enjoy the hell out of it and the next month you want to do it again. I suppose you can say that about a lot of things – and I hope you can say it often. It's in the technique. ____________________________________________________________ Sunday Preview If the "Quickies" didn't get you excited, wait until you read about the results of our April positions – and the new CPTI positions for the May option cycle. This Sunday's column is going to be fun to write. BTW – Have a great holiday weekend!! _____________________________________________________________ Where Did The QQQ Go? Mike, Why did you give up on the 2005 QQQ ITM strangle? It should earn 50% a year if held to expiration. Doesn't a strategy like this take TIME to recoup the "risk" part of the position and then the rest is 'gravy'? So, after several months, one has a free position? I just put this trade on. Is it still a sound strategy? What have we learned from doing it? Please give me your input. Thanks. Response: It's still a good long-term trade (for experienced traders), but the return may not be as high as you think. If you put this trade on today, with the QQQs trading at $26.03 using the $22 calls and $29 puts, you would have an initial risk of about $6.10. If you sold the June $23 puts and $28 calls, you would have taken in $1.15. Your new risk would be $4.95. Here are the reasons I closed the trade. 1. Readers were writing that they had small trading accounts and that this position was tying up too much of their trading capital. 2. You're right about the "time" factor. Most readers do not have sufficient patience to stay in the trade to realize the profits. 3. In order to make it profitable, we would have to start selling the near term options closer and closer to where the QQQs were trading. That would require readers to be nimble enough to close out one end and roll out to other strike prices. For some readers, that's no problem. For others, it's overwhelming. Plus, I'm only able to provide suggestions on Thursday and Sundays in my column. If the rollouts, or other adjustments, need to be dealt with at other times of the week, hundreds of readers who put on the trade will without guidance. Granted, these trades are supposedly just for study purposes, but many readers put them on. Some have the knowledge to make the right moves, while others do not. 4. And last, but not least, I may have an excellent knowledge base, but, if I was that good a trader, I'd be lying on a beach in Hawaii, being fed grapes by half-clad native girls, sipping on drinks with little umbrellas instead of sitting on my old couch in my underwear in Detroit drinking Diet Pepsi and wearing out the batteries on my remote control. Let's take this opportunity to take a closer look at the profit potential of the Long Term In The Money Strangle. In the above example, we reduced the "risk" portion of this trade to $4.95 after the sale of the June options. At June expiration, we will have 17 months remaining to the January 2005 expiration of our long options. In the similar CPTI position that we recently closed, we were able to sell near term options twice. We took in $.95 each time. Each time we had to sell near term strikes $1 closer than the strikes of the long-term options. We did this to generate more premium. Both times we were lucky and the QQQs remained within the range of the near term short options. So, let's make a ridiculous assumption – that the QQQs will forever remain in the trading range of $22 - $29. That will happen when pigs fly, when chickens have lips, and when Monica Lewinsky's kneepads go on display at the Smithsonian. We sell near term options two months out. That translates to 8 1/2 opportunities to sell during the life of the 2005 long options. If we take in an average of $.95 on every two-month sale, over the next 17 months we'll bring in about $8.00. It will take about 10 months to cover our risk ($4.95). The next seven months will generate only $3.00. Now, a $3.00 return on a $4.95 risk is a 60% return. The question you have to ask is if a 60% return over 17 months is an acceptable return. Another consideration is that the long 2005 LEAPS puts and calls will tie up a lot of money for a long time. This money is not generating any income. More money can be generated, but near term short options will have to be sold closer to where the QQQs are trading. That translates into more premiums, but also more adjustment skills. All these things must be considered before entering the trade. ______________________________________________________________ CPTI Portfolio Update: Position #1 – OEX Iron Condor – closed Thursday at $453.71. We created an Iron Condor with a 70-point range of 420 to 490 for April. The objective is for the OEX, at April expiration, to finish anywhere within the spread. The total credit for the Iron Condor position is $2.35. Profit: $2,350. Position #2 – BRCM Short Straddle – Closed at $16.00. This month we sold 10 contracts of BRCM April $15 calls and sold 10 contracts of BRCM April $15 puts for a total credit of $2.60. Our safety range is from $12.40 to $17.60. A week ago Monday, we were presented with an opportunity. The market spiked up. BRCM traded as high as $13.90. To buy back the $15 put would have cost $1.60. There is heavy resistance at about $14. We decided that, if BRCM reversed, we would close out our position. When BRCM moved down to $13.80, we bought back the $15 put for $1.65. We had taken in $2.60. Our profit is $950. Position #3 – MMM Iron Condor – $129.98. We created an Iron Condor with a 15-point range $115 to $130 for April. We were able to take in $1,550 for our 10-contract position. The objective is for the underlying, to finish anywhere within the spread. The market has gone up too far and much to fast. Did calmer heads prevail and return MMM, to a more reasonable level? Did Fibonacci come through for us? Ongoing Position #1 -- QQQ ITM Strangle – $26.82. This is a long-term position we created four months ago. We own the January 2005 $21 LEAPS calls and the January 2005 $29 LEAPS puts. We sold 10 contracts of the QQQ April $28 the QQQ April $22. Our cost basis for the position was $5.30. We closed this four-month position with a $400 profit. (See discussion above) Ongoing Position #2 – OIH - Diagonal Calendar Spread – $55.63. We felt there was a great deal of uncertainty built into the price of a barrel of oil. When, and if, the war is resolved, the price of oil should work its way down. We bought 10 contracts of the July OIH $55 puts and sold 10 contracts of the March OIH $50 put at a debit of $3.85. According to plan, the March $50 put expired worthless. We then sold the April $50 put for $.70 to bring our cost basis down to $3.15. What did we do? You'll read about it on Sunday. Happy trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Instructor ************** TRADERS CORNER ************** Putting it all together: OIN Mailbag(2) By Leigh Stevens lstevens@OptionInvestor.com Still more viewer e-mail allows a look at further real-life market examples that demonstrate technical analysis, at least by the methods I favor. So, I pull out some questions of general interest and answer them again in my weekly Trader's Corner - that's here folks! As with our other OIN contributors, I can't provide specific stock, index, futures, etc. suggestions and comments to an individual subscriber by e-mail, BUT - when the question is of possible general interest, it allows me to analyze a specific chart pattern, indicators, etc. in this column. (I also suggest viewers make use of the OIN Market Monitor, where specific stock and index ideas can be given to all in response to e-mail queries.) QUESTION/COMMENTS - "As a follower of your articles, I would appreciate if you could read the following charts: Chart 1 - full month's chart Chart 2 - chart for tail end of April 2003 CHART 1 - Singapore Stock Exchange Index (MSCI) futures - SYMEX CHART 2 - QUESTION 1 - Can I say there is a high probability that: a: the price will go a bit higher to meet its upper trend line at 1623 level and from there continue to fall and when it breaks out at 1582 (or 1558), it continues its downward trend? b: The Index falls from here to break the lower trend line 1582 (1558) as in (a)? A down side target to about 1469 level, before a reversal upwards. QUESTION 2 - That the price will continue it up move from here to break out the upper trendline at 1623 level and continue its northward (upward) march?" ANSWER/COMMENTS: Well, all of the above is a lot of supposing. What I can say about this chart pattern is this - The Index is consolidating most recently in a "symmetrical triangle" after making 3 (up) swing highs that make up a well- defined down trendline on the daily chart. Highest volume spikes are seen at these 3 peaks, confirming that the dominant trend is down. A triangle has no certain predictive value as to WHICH direction a breakout move, if any, will be in. It does suggest that a price move above the upper or lower trendline should travel a next distance that is about equal to the left hand side of the triangle (distance between low and high there) as measured from the "breakout point" at the trendline. For example, if there is a break below 1550, subtract 180 (1650 high minus 1470 low) for a downside target of 1370. OR, if there is a breakout move above 1625, ADD 180 for a "minimum" upside objective of 1805 - call it 1800, as there is often greater than average selling (or buying) in the even 100 areas of an Index or stock. I think that the way you drew the trendline in Chart 1 above is good and it does give somewhat more weight to expecting a breakout move to the UPside. Triangles can form as reversal patterns - they are not always (just usually) consolidations before the dominant trend continues or has another "leg" in the same direction as the trend that has gone before. QUESTION/COMMENTS - "1) If getting conflicting signals from your Call/Put and 10-day TRIN, which do you favor? 2)Do you day trade at all? If so, what system would you recommend for the S&P E-mini's for intraday? (my main focus) I ask because I'm very confused over the many approaches I see and would value your insights--is there a "KISS" approach to intrday trading the E-mini's (as opposed to wave analysis, band trading, pivot analysis, etc.)?" ANSWER/COMMENTS: 1.) RE call/put versus 10day TRIN - It's hard for me to say which indicator I "favor" as a general rule - My Call/Put ratio is the most reliable as marking tradable reversals. This is where of course, the daily call volume is double or more the daily put volume suggesting a possible downside reversal ahead; or, where daily put volume is equal to (or more than) daily call volume suggesting an upside reversal ahead. The 10-day TRIN figure is a good indicator also, but only gives "signals" rarely in a contrary sense; for example, when the 10- day TRIN is 1.5 or above (heavy selling), suggesting an upcoming bottom. However, the lead-time before the market reverses can be up to 4 weeks with such a TRIN extreme. An extreme in my Call/Put equities daily volume ratio often precedes a reversal by 1-5 days with 1-2 days being quite common. Of course, these "signals" or extremes don't come along but only every so often. Moreover, as with all indicators, its what ELSE you see too - for example, are prices also at resistance or support implied by an up or down trendline, is there an overbought or oversold oscillator extreme reading, etc. 2.) RE day trading & use of E-mini contract I don't start out day trading, but if I get a sharp quick move within the same day, I may take profits and close out my contracts by the end of the day. I would suggest the futures for intraday or day-trading given the very big advantage they have in NOT carrying an excess of time premium normally. Whenever, there is a big move, the option market makers lay off risk by jacking up the premiums. This is why I pretty much only like to buy into support areas - when nobody yet wants em - and sell into resistance. This as opposed to buying or selling "breakout" moves when the premiums expand faster than you can think about getting an order in - hey its not for nothing that those guys stay in business and make money - they make it from YOU. Anyway, some people might be able to consistently profit by trading on breakouts, but I am not one of them. There is no "KISS" method that I can suggest. However, my version of KISS is to try to only trade when I see a clear chart pattern(s) with predictive value, an oversold or overbought condition and/or indicator divergences - these 3 things are enough to trade off from; e.g., you see a double bottom low on the 15 30 and/or 60-min charts, when the hourly oscillator is oversold; or maybe such a bottom is made and the RSI or Stochastic is already in an uptrend - pull the trigger! The problem with many if not most short-term traders is that they don't wait for the right set of predictors to line up. My masterful trading mentor was mostly a day trader but he almost never had a losing trade if you can believe it - and, it was not the case that he was in trades only once a week or infrequently. But he was very skilled at waiting for the right moment during the day or every couple of days if he had to. Then, of course, there is the matter of how heavy or light you trade. A so-so setup for a trade suggests trading lightly, versus a powerful set of circumstances shaping up which suggests going in with a bigger position. Like a good baseball player, this masterful option/futures index trader had a great eye to only take "pitches" he could swing away at. Better to trade 2-3 times a week than every day if things are not setting up right. QUESTION/COMMENT - "The 21 day moving average has a great support and resistance look on the DOW, OEX, QQQ's." 1.) - Did you know that there has only been 14 x-overs in the last 15 months on the DOW? Check it out. 2.) - Do you have any favorite stocks regarding the 21-day moving average? 3.) In other words, stocks that stay one side or the other for a period of days? Not flip-flopping back and forth." ANSWER/COMMENTS: Re your count (1.) on the infrequent number of crossovers in the Dow in the prior 14-months, it's of course a good observation - however, the there are some flip flops that occur; i.e., a close below or above the average is a 1-day affair, such as seen in the chart below where those conditions are outlined in the yellow circle in the TradeStation "ShowMe" study I created - So, the first thing I would note is just that this moving average study can cause whipsaws if used as a "mechanical system". However, your point is I believe about how infrequently these crossovers occur - most traders are going to want to go in and out of the market more often that that, even if the erosion of option time premiums was not a consideration such as by being long or short QQQ. I use the 21-day moving average more in relation to the envelope lines where I am looking at buying puts on moves to the lower envelope line and calls on approaches to the upper line IF other technical considerations also are favorable for that trade. This to guard against (again) simple mechanical use of this indicator as you see plenty of instances where prices just continue to move up or down, hugging the upper or lower bands. Question # 2 and # 3- re trading stocks using the 21-day moving average indicator: When I discovered how often simple 21-day crossovers in the Dow, S&P and Nasdaq indices signaled trend changes, I naturally looked to see if individual stocks performed the same way. On balance, they don't. Even the Dow (30) average is composed of 30 stocks, but they are rarely all in a similar trend. It seems that the 21-day average, with upper and lower envelope lines of 4-6-9 percent, is a moving average length that works well on a "composite" - an index or average composed of many stocks. Now, this is not to say that you couldn't find the particular moving average that worked the best over time to suggest very significant resistance or support on that stock. But that is a BIG undertaking - and, I always traded the indexes more. With trading software like TradeStation you could set up a hypothetical trading "system" that bought or sold on a 21-day moving average crossover and START with a 21-day length. It would then be necessary to Optimize for the length moving average that would produce the greatest or most consistent profits. This might be a 15-day length on Intel (INTC) and a 23-day length on IBM. I don't know the "optimal" moving average length for these stocks, but this is an example of the differences that exist. And, if you wanted to work with stop-loss orders, both on entry and trailing, you have to design for that too and test for what type of stocks added the most to the overall profitability of such a method. The point is that this work would have to be done for each stock - if you did only the biggest stocks of the OEX (S&P 100), this would be a lengthily work and study. And, there are limitations in "optimization" as it works only with PAST results. QUESTION/COMMENTS - "What is the minimum number of bars (periods) that should build before you consider divergence valid on the daily and 60-minute charts (sometimes you see it with just a few bars between cycles and I would assume this is less valid then say maybe 5-10? periods?" ANSWER/COMMENTS: Good question - I don't have an exact rule of thumb on what is a valid length in terms of the number of bars. A divergence is usually considered valid within the time frame of the "length" of the indicator, so the longer the indicator length the more likely it is that a divergence will be seen. If you are looking at an hourly stochastic, it is more likely that you will see signs of a bullish or bearish divergence within a longer length like 21 (21-hours here) rather than in a short length like 5 or 10. But this is not always the case as you'll see from the chart below. In the example below, the price/oscillator divergences show up on both the 5 AND 21-period setting on the hourly stochastic but outside of the 5-hour setting of the 5-period Stochastic. The divergences here are prices going to a new high, unconfirmed by a similar new high in the oscillator type indicator like RSI, Stochastic or MACD. I like to see divergences showing up on different length settings and in different oscillators, although I consider an RSI divergence ALONE to be a better "signal" of divergence than the stochastic alone. But it's also true that you see sometimes a divergence showing up in just one or the other. If other aspects of the price pattern, volume and still other indicators (e.g., stop at a moving average) support a upcoming trend reversal by the divergence, I take the trade. In EXAMPLE 1 above - A clear cut divergence was only seen in the RSI - the stochastic just goes to an extreme multiple times, which is the tendency of for the way its constructed. This was a very good signal by the way, although there was a long lead-time before the reversal occurred. I mean, at what point do you take the signal? - prices kept going up and the RSI kept not "confirming" a new high. One solution is to wait for a break of the trendline or the first time a prior (down)swing low was pierced, although there was one "false" break like this. It's not always so easy to use divergences to sell or buy puts right at the top, but you can be ready such as when that last top was made up the upper end of the (uptrend) channel. In EXAMPLE 2 above - The divergence was NOT seen on the RSI (see the yellow circle), only on the 2 stochastic models, at the 5 and 21-period "length" settings. What you do have in this example of a MAJOR help if the double top that set up on the hourly chart. Coupled with the divergence, example 2 provided a solid sell or put buying indicator for an impending downside reversal - here you KNOW the time frame to adopt a bearish strategy; i.e., at the prior top, with stop protection just over it. Here it would be warranted to trade with a bigger position - within the context of not trading all your account or within what would be good risk management. Lastly, I would note that the RSI (in example 2) was at a major extreme for the range it normally trades in and this was another type of confirming technical reading on the probability of a likely reversal. In EXAMPLE 3 above - Minor divergences were seen on both the RSI and stochastic models and these were fairly apparent on the 5-hour stochastic (most) and on the 13-period RSI. Help in seeing at least a short-term top here was the fact that the divergence occurred at overbought readings on the oscillators. ************** TRADERS CORNER ************** Do You Need An Attitude Adjustment? How many of you work hard at being the best trader you can possibly be? How many of you study the markets for hours and know more about technical indicators than you know about your spouse? But how many of you just can’t seem to break through that glass ceiling where the consistent profits seem to lay in wait. Even the most astute, highly motivated, well grounded traders can be crippled by emotional thinking which almost always leads to poor decisions and trading errors. It doesn’t matter if you trade with fundamentals, with technicals or a combination of both; your biggest hurdle is what goes on between your ears. Ninety five percent of trading errors will be caused by your attitudes about being wrong, losing money, missing out or leaving money on the table. These are the four primary trading fears. Is there a trader reading this who has not felt any of these fears? I doubt it. As long as you make the errors from rationalizing, justifying, hesitating, hoping, jumping the gun, you will fortify the mistrust you have in your own judgment. Trying to do something as simple as placing an order according to indicators becomes the most exasperating thing you will ever do when it doesn’t turn out. The irony is that with the “right” attitude trading is easy and simple because you remain confident in the face of uncertainty. This is called the trader’s mind-set. Most traders instead of learning to think like a trader believe to make it in this business you have to learn more about the markets. It is almost impossible to not fall into this trap because of how are brains are wired. We have a psychology that makes it easy to assume that it’s what you don’t know about the markets that is causing your losses, your lack of confidence, your pain. Unfortunately this is just not the case. Trading consistency comes from learning a trading psychology, not from studying the markets. Let’s take an example. You have to choose between two traders to trade your account. In this account is all the money you have in the world. One trader has a simple, even a mediocre, system but has a mind-set that never rationalizes, never second guesses, never hopes, never jumps the gun. He (or this could be a she) just takes the trades as they are presented to him. He knows before he puts a on trade when he will get out, how much he will risk and sticks to his plan. He does not second guess once the trade has been executed because he has confidence in his simple system. He is not fearful because he is emotionally detached from the trade. The second trader is a phenomenal analyst. He knows everything there is to know about technical indicators and charting analysis, heck he may have even written a book on the subject but he operates out of fear. He hesitates when putting on a trade, he second-guesses each and every trade, and he closes trades well before or, even worse, after he plans to. Which one would you pick? The trader you pick is the trader you should be. A trader attitude will always produce superior results over analysis and technique. Of course to have both is the ultimate but if you had to choose between one and the other, the attitude will always win out. Now you may be thinking how can I “learn” this trader psychology? How can I think about trading in such a way that I’m no longer afraid, no longer susceptible to the mental processes that causes me consistent losses and not consistent profits? How can I become emotionally detached? The answer is – drumroll please – learn to accept risk. There isn’t anything about trading that is more central to your success and also more misunderstood than the concept of accepting risk. What this means is accepting the consequences of your trades without emotional discomfort or fear. Let me repeat this, what this means is accepting the consequences of your trades without emotional discomfort or fear. You must learn to think about trading in such a way that the possibility of being wrong, losing, missing out, or leaving money on the table doesn’t cause your mental defenses to kick-in. Because once these defenses kick-in all rational thought is kicked out and your fears will act on your perception of information and your behavior in a way that will cause you to create the very experience you fear the most, the one you are trying to avoid. It isn’t fair but unfortunately very very true. Think about the last time you were in a losing trade and the market was consistently going against you. You refuse to acknowledge the loss but focus all your attention on the tics that go in your favor. Each tic in your favor reinforces the thought patterns that say the market has turned and in going in my direction but in reality only one out of four tics are in your favor. At some point the dollar value gets so large that you can’t ignore it any longer and you get out. The first reaction that traders universally have when looking back at such a trade is, “Why didn’t I just take my loss and reverse?” The opportunities to put on a trade in the opposite direction are now easily recognized once there was nothing at stake. But we were blinded to all these opportunities because the information indicating it was an opportunity was defined as painful, so we blocked it from our awareness. I know there is not a trader reading this that has not gone through this scenario. It seems that you must go through the pain and the anguish in order to become a good trader. Unfortunately many never make it past the pain and anguish and just leave the profession. I wish I would have taken this lesson to heart when I first started trading, I could have avoided so much pain, so many tears, so much money lost. But I truly know this is the Holy Grail to trading. Many say the money management is the Holy Grail but if you don’t have the right trader attitude, I don’t care how good a money management plan you have you will still lose. If you are just starting out trading or have been trading for some time but not making consistent profits, I beg you to please take a look at how you “feel” when you put on a trade. Do you have a plan, and if so do you stick to it? Do you get a knot in your stomach if the trade goes against you? Do you get mad at the market? Do you hear yourself saying things like “this is tough market to trade”, “I am so frustrated with this market”? If so, then take a look at your trader attitude. Break the glass ceiling and become truly detached from your trades, I cannot tell you how liberating it is. Have a plan, a system and never, never deviate from it. If you lose, look at it as a business expense, if you win then look at it as a business profit. Nothing more, nothing less. Then you will no longer feel that knot in my stomach, the sweat on the brow or the euphoria that comes with trading. At that point then trading can become the money tree in your backyard that you can pick from when you need to. And you can also once you develop the right trader psychology. Jane Fox *********** OPTIONS 101 *********** Foreign Currency Trading Basics Buzz Lynn buzz@OptionInvestor.com Two weeks ago, we did a column on how a preponderance of small traders (most of us) could trade foreign currencies right here in their own USA bank account. Tonight we're going to add some detail and dive deeper into the universal basics of foreign exchange as it really happens in the entire world. For those that missed that last article, "Currency Trading Simplified, you can find it here. http://members.OptionInvestor.com/options101/opt_040303_1.asp Before you tune out thinking, "This can't apply to me. I'm a small-fry", realize this stuff is really simple, and is all about profiting, or at least preserving the value of some hard-earned dollars through currency swapping. Think currency swapping is all about smoke, lights, mirrors, derivatives, and other forms of higher math that obfuscate white- collar criminal behavior? Not so. Think of it as going to a grocery store and swapping dollars for coffee, bread, cotton swabs, plant food. . .whatever. Only instead of all those things, you are going to swap dollars for another countries currency. Pick what you like off the shelf and the rest happens at the checkout counter! First off, let me extend full credit and a huge amount of gratitude for what I'm about to plagiarize, err, write. The following comes from OzForex, "a leading Australian foreign exchange provider". http://www.ozforex.com/ In short, I'm going to use their words (mostly), and very few of mine. However, by no means is this a recommendation or endorsement of their services. It's just that their information was well-written and simple to understand. So here goes! As noted above, foreign exchange is essentially about exchanging one currency for another. The complexity arises from three factors. First, what is the foreign exchange exposure? Second, what will be the rate of exchange? Third, when does the actual exchange occur? Identification of Foreign Exchange Exposures Foreign exchange exposures arise from many different activities. A traveler going to visit another country has the risk that if that country's currency appreciates against their own their trip will be more expensive. An exporter who sells its product in foreign currency has the risk that if the value of that foreign currency falls, then the revenues in the exporter's home currency will be lower. An importer who buys goods priced in foreign currency has the risk that the foreign currency will appreciate thereby making the local currency cost greater than expected. Fund Managers and companies who own foreign assets are exposed to falls in the currencies where they own the assets. This is because if they were to sell (repatriate) those assets their exchange rate would have a negative effect on the home currency value. Other foreign exchange exposures are less obvious and relate to the exporting and importing in one's local currency, but where exchange rate movements are affecting the negotiated price. Generally the aim of foreign exchange risk management is to stabilize the cash flows and reduce uncertainty from financial forecasts. Fortunately there are hedging instruments that achieve exactly that. Spot and Forward Foreign Exchange Contracts The most basics tools of FX risk management are 'spot' and 'forward' contracts. These are contracts between end users and financial institutions that specify the terms of an exchange of two currencies. In any FX contract there are a number of variables that need to be agreed upon and they are: 1. The currencies to be bought and sold - in every contract there are two currencies, the one that is bought and the one that is sold. 2. The amount of currency to be bought or sold. 3. The date at which the contract matures. 4. The rate at which the exchange of currencies will occur. It is point three that requires further explanation. Whenever you see exchange rates advertised either in the newspapers or on the various information services, the rates of exchange assume a deal with a maturity of two business days ahead. A deal done on this basis is called a spot deal. In a spot transaction the currency that is bought will be receivable in two days whilst the currency that is sold will be payable in two days. This applies to all major currencies with the exception of the Canadian Dollar. However most market participants want to exchange the currencies at a time other than two days in advance but would like to know the rate of exchange now. For example if Australian firm, ABC Ltd. had contracted to purchase a machine for the price of $1 million (USD 1 mil) payable in 6 months time, but wanted to be sure that the USD would not become too strong in the interim, ABC Ltd could agree now to buy the USD for delivery in 6 months time. In other words ABC Ltd. could negotiate a rate at which it could buy USD at some time in the future, setting the amount of USD needed, the date needed etc. and hence be sure of the Australian Dollar purchasing price now. In determining the rate of exchange in six months time there are two components: 1) The current spot rate 2) The forward rate adjustment The spot rate is simply the current market rate as determined by supply and demand. The forward rate adjustment is a slightly more complicated calculation that involves the interest rates of the currencies involved. Let us make a few assumptions about the markets: AUD/USD spot rate: .6600 AUD 3-month interest rates is 6 % USD 3-month interest rates 6.5 % Now what is the forward adjustment that is made and why? The forward rate can be calculated as follows: Forward rate = (.6600+(.6600*.065*90/360)) / (1+(1*.06*90/365)) = .66095 This equation may look a little complex at first. But in practice your financial institution will calculate it for you. If you defer the value date of a spot transaction, each party will have the funds that they would have paid to invest. The person who sold Australian Dollars has those Dollars to invest for 90 days which assuming it was A$100 would equal A$ 101.4795. The person who sold US Dollars has those Dollars to invest for 90 days, which assuming it was USD 66 would equal USD 67.0725 at the interest rates above. The forward rate is calculated simply by dividing 67.0725 by 101.4795 equaling .660947. If the forward rate was not calculated as such, one party would be receiving an unfair advantage by deferring the exchange of currencies. Purchasing Foreign Currency The actual purchase of foreign currency is a simple procedure. If ABC Ltd knows that it will need USD 1 million in three months time and believes that the best time to buy the USD is now, all that is required is that ABC Ltd telephone or fax their foreign exchange service provider and a forward deal can be entered into. There are two components to the price in forward transaction and they are the spot price and the forward rate adjustment. For example: The current market rate is 0.6600. The forward point adjustment for 3 months is +.00095. Therefore the forward rate would be .6600+0.00095= 0.66095. The deals are totally flexible as to the maturity date, the size of the transaction and as to currency involved. Also it just takes another phone call to change the payment date if there is some delay in receiving the goods. Once the deal is done, then the rate is fixed and ABC Ltd knows the Australian Dollar cost of purchasing those materials. When it comes time for payment, the foreign exchange contract is delivered. This means that the foreign currency amount is sent to the raw materials supplier. At the same time ABC Ltd's bank sends a debit note to ABC Ltd for an Australian Dollar amount, which represents the cost of the raw materials. That's the mechanics of the whole thing. It's really pretty simple. But, what about the market risks and daily fluctuation of various currencies? How are exchange rates actually determined? For that, Clearview Capital Management offers the answer. "The potentials of Forex Market are phenomenal and best realized when one understands what causes it to move. The foreign exchange market is dominated by economic conditions and political situations; these conditions and situations often result in very clear and sound fundamental economic policies. The important thing to realize is that these economic policies are not put in place for a short term (a week or a month). They are often put in place for months on end, even years. These fundamentals cause clear and well-defined trends." "These fundamentals are not a secret - they are known and announced to the world. Because of its size, the FX market is not a subject to insider trading or manipulation. Because of its size and vast global participation, it has been called the fairest market on earth, as well as the largest." "The strength of currencies is affected by political situations and economic factors of that country. When governments make decisions, markets react. Exchange rates rise and fall as traders around the world cast votes of confidence (or lack of it) in currencies - and in effect - countries. Foreign investments will flow into countries with prolonged economic and political stability and out of those that are rapid or uncertain." "Indirectly, we are all passive currency investors. Every asset acquisition, product purchase or financial investment in equity, credit or money markets, places a residual value in a selected currency or group of currencies. If it's a U.S. Dollar- denominated asset, a conscious choice is made not to own assets denominated in Euro, Japanese Yen, British Pounds or Swiss Francs. Our investment choice automatically becomes dependent on the global market value of the selected currency. If we are invested in a mutual fund that invests in foreign stocks, we are already in the currency markets. That's because to buy foreign stocks, we have to use the underlined local currency. The currency is then exchanged back for Dollars when we take profits." "There is a risk to keeping all of our assets in U.S. Dollars. If the Dollar depreciates with respect to other currencies, the value of our investment portfolio, earning capacity and purchasing power also becomes weaker." As a point of reference, in two decades, the Dollar has lost about 75 percent of its value when compared against the Japanese YEN, Swiss Frank, and the EURO, according to CCM, which is not very reassuring. However, we have noted in past articles on gold that competing currency devaluations will likely prevent any one currency from depreciating too far against other major currencies since there is strong desire for products denominated under any specific currency to remain competitive on the open market. Meanwhile, gold remains the only stable currency against which all others are measured. Hence the strong case for gold under competitive devaluation scenarios. But that's a whole 'nother story. But back to currency exchange. . . it is still very possible in a micro-sense to trade one currency for another in a game of arbitrage for profit. In future columns we'll look at the relationships between currencies on the charts to see what opportunities might exist from time to time in which we might garner some profit. Questions are always welcome. That's it for today. Until next time, make a great weekend for yourselves! Buzz ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-20-2003 Sunday 5 of 5 In Section Five: Covered Calls: Covered-Calls On Portfolio Stocks - Part II Naked Puts: Some Guidelines For New Traders Spreads/Straddles/Combos: Good Friday Provides A Much-Needed Holiday! Updated In The Site Tonight: Market Posture: Bullish Developments ************************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 ************************************************************** ************* COVERED CALLS ************* Trading Basics: Covered-Calls On Portfolio Stocks - Part II By Mark Wnetrzak Last week's article concerning covered-calls on long-term holdings generated an interesting question from one of our new readers. Attn: Questions@OptionInvestor.com Subject: Monthly Covered-Calls on Portfolio Stocks I am a new trial subscriber and am very impressed with the content. Can you tell me if I have got this right -- or where have I gone wrong! In you covered calls section, an average return of 5-6% per month is possible on various covered calls. It is possible to double this with margin. If we ignore margin, a quick math exercise on a $30 stock shows that after about 16 months at 6% your stock would be free and every month your base cost would go down by 6% . So, the base cost in month 1 will be $28.20, month 2 $26.50, etc. If the stock price does fall a lot, you can still, after continuing to write ATM calls, eventually have a base cost of NIL. Then any further premium income is all profit. So after 16 months, it is positive cash-flow no matter what the price of stock. Have I got this right? Regards, AP Hello, The strategy we use in selecting newsletter candidates is based on a conservative covered-write using the "total return" concept that Lawrence McMillan adeptly describes in his original book, "Options: As a Strategic Investment." With this approach, an investor considers the covered write as a single entity and is not interested so much in stock ownership or bullish movement, but in obtaining a consistent (monthly) return on investment. In other words, there is no intended stock ownership with the OIN covered-call candidates - we would expect (and desire) the shares to be called away each month. Remember, we can't really forecast what a stock will do in the future, we simply want candidates that have a reasonable expectation for success in the short-term. Yet, it is good advice not to enter a position on an issue you wouldn't mind owning, as there is always that possibility. And that is why, as with all recommendations, it remains your responsibility to perform due diligence and thoroughly research any issue you are interested in. It is very rare that stocks will offer over-valued premiums every month unless some sort of explosive move up or down is expected (buy-out, clinical trial results, bankruptcy, etc.). A large move either way could be quite annoying for a long-term investor who sold covered-calls and doesn't want to lose the underlying stock: the pain of lost profits on a large move up or worse, the pain of excessive capital loss on a large decline in the underlying. Remember, the OIN candidates are ITM covered-writes; if the stock doesn't move or even drops slightly, the stock will be called away. It is a conservative trading approach that offers less risk than outright stock ownership, but also a limited reward potential. As with any trading strategy, it still requires a disciplined approach and sound money management techniques, as there is risk of loss in all trading. "McMillan On Options" is also an excellent resource, covering all aspects of the "covered write" strategy, and it should be available at your local library or in the OIN bookstore. For investors who prefer stock ownership, McMillan covers in detail the strategy of selling calls on long-term portfolio holdings and all the potential adjustment strategies. Regardless of which approach you favor, it is important to completely understand any strategy you intend to use before you begin trading with hard-earned cash. Trade Wisely, Mark W. OIN Editors note: Margin is not used in our calculations, however the use of margin could potentially double the listed yields. SUMMARY OF PREVIOUS CANDIDATES ***** 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 our subscribers, 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 editor of this section does not take actual positions in any published plays and the summary comments are 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 in any way replace your duty to diligently monitor and manage the positions in your portfolio. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield EP 5.20 7.17 APR 5.00 0.70 0.50* 9.7% VRTS 17.93 19.66 APR 17.50 1.20 0.77* 6.7% CPN 2.93 4.09 APR 2.50 0.60 0.17* 6.3% ADLR 13.75 13.20 APR 12.50 1.60 0.35* 6.3% MSCC 10.93 11.78 APR 10.00 1.30 0.37* 5.6% MRVL 21.91 23.15 APR 20.00 2.65 0.74* 5.6% DCLK 7.69 8.25 APR 7.50 0.55 0.36* 5.5% OAKT 3.23 4.05 APR 2.50 0.90 0.17* 5.3% IDCC 19.99 20.25 APR 17.50 3.30 0.81* 5.3% FEIC 16.23 16.57 APR 15.00 1.75 0.52* 5.2% WYNN 15.04 16.01 APR 15.00 0.55 0.51* 5.1% VECO 15.91 15.70 APR 15.00 1.70 0.79* 4.8% SOHU 11.73 14.04 APR 10.00 2.05 0.32* 4.8% PEGS 10.90 11.90 APR 10.00 1.40 0.50* 4.6% ILXO 8.40 9.60 APR 7.50 1.20 0.30* 4.5% BCGI 16.14 18.90 APR 15.00 1.70 0.56* 4.2% ELBO 18.21 17.44 APR 17.50 1.10 0.33 4.2% TELK 13.37 12.69 APR 12.50 1.20 0.33* 3.9% ALTR 13.84 15.78 APR 12.50 1.80 0.46* 3.3% IMMU 2.95 3.35 MAY 2.50 0.65 0.20* 7.6% CAL 5.68 7.49 MAY 5.00 1.00 0.32* 5.9% SEAC 7.80 8.13 MAY 7.50 0.75 0.45* 5.5% NEOL 13.50 12.51 MAY 12.50 1.80 0.80* 5.0% CTLM 5.18 4.99 MAY 5.00 0.45 0.26 4.8% UNTD 19.23 20.46 MAY 17.50 2.80 1.07* 4.7% RINO 13.29 13.75 MAY 12.50 1.40 0.61* 4.5% COMS 5.17 5.36 MAY 5.00 0.45 0.28* 4.3% PLCE 13.34 14.36 MAY 12.50 1.40 0.56* 4.1% UNTD 19.67 20.46 MAY 17.50 2.95 0.78* 4.1% NEOL 13.60 12.51 MAY 12.50 1.65 0.55* 4.0% MSCC 11.77 11.78 MAY 10.00 2.25 0.48* 3.7% * Stock price is above the sold striking price. Comments: Well, the major averages appear to be mounting a challenge of the March high. Is it the start of a new "Bull" market? Time will tell, but building a base seems more likely (and desired?). In any case, the bullish week was an excellent tonic for the covered-call portfolio as even several of the closed positions (listed below) rebounded above the recommended sold strike. As for May, Neopharm (NASDAQ:NEOL) will be on the "early-exit" watch list as the stock consolidates its recent run-up. A test towards support and the 150-dma around $12 is probable and the issue should be monitored closely. Hopefully we will get some bullish follow through next week...but don't count on it! Positions Previously Closed: Manugistics (NASDAQ: MANU), RSA Security (NASDAQ:RSAS), Sandisk (NASDAQ:SNDK), S1 (NASDAQ:SONE), and Nautilus Group (NYSE:NLS). NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield XICO 5.09 MAY 5.00 UOB EA 0.45 27 4.64 28 8.4% ASML 7.59 MAY 7.50 MFQ EU 0.55 118 7.04 28 7.1% ALTR 15.78 MAY 15.00 LTQ EC 1.45 1314 14.33 28 5.1% CCRD 11.05 MAY 10.00 UCD EB 1.50 45 9.55 28 5.1% IFX 8.17 MAY 7.50 IFX EU 1.00 29 7.17 28 5.0% AAII 11.43 MAY 10.00 IUQ EB 1.80 418 9.63 28 4.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** XICO - Xicor $5.09 *** Cheap Speculation! *** Xicor (NASDAQ:XICO) designs, develops and markets high-performance analog mixed-signal integrated circuits used in communications, computing, networking and industrial applications. The company has two major product areas, core analog mixed-signal products and legacy memory products. The company's mixed-signal products include data conversion products, power management integrated circuits, application-specific standard products and interface devices. The company's memory products are electrically erasable programmable read-only memories (EEPROMs). EEPROM products are divided into two categories, parallel EEPROMs and serial EEPROMs. Xicor reported earnings this week and said revenues were $9.6 million, up slightly sequentially and mixed-signal sales were up 5%. The company also reported strong OEM bookings and an increase in gross margins. The stock appears to be on the mend and this position offers investors a good method to speculate on the company's future share value. MAY-5.00 UOB EA LB=0.45 OI=27 CB=4.64 DE=28 TY=8.4% ***** ASML - ASML Holding $7.59 *** Waiting On The Recovery *** ASML Holding (NASDAQ:ASML) provides advanced technology systems for the semiconductor industry. The company primarily designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of ICs. The company offers a portfolio of lithography systems mainly for manufacturing complex ICs. ASML supplies systems to IC manufacturers throughout the United States, Asia and Western Europe, as well as provides a full range of support from advanced process and product applications knowledge to complete round-the-clock service support. ASML's photolithography equipment includes Step & Scan systems, which combine stepper technology with a photo-scanning method. ASML reported a first-quarter loss this week but also said that key operations have returned to generating cash. With the current outlook still rather bleak, this position provides a method for investors to profit from the current lateral trend as the stock forges a Stage I base. MAY-7.50 MFQ EU LB=0.55 OI=118 CB=7.04 DE=28 TY=7.1% ***** ALTR - Altera $15.78 *** Bracing For A Rally? *** Altera (NASDAQ:ALTR) designs, manufactures and sells a range of high-performance, high-density programmable logic devices; pre- defined design building blocks, known as intellectual property cores, and associated development tools. Altera's PLDs, which consist of field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs) are semiconductor ICs that are manufactured as standard chips that customers program to perform desired logic functions within their electronic systems. Altera's customers can license IP cores for implementation of standard functions in their PLD designs. Altera has been consolidating since October and recently moved higher on heavy volume, through near-term resistance at $15, suggesting further upside potential. With the current technical outlook improving, this play offers excellent reward potential at the risk of owning this issue at a favorable cost basis. Earnings are due April 28. MAY-15.00 LTQ EC LB=1.45 OI=1314 CB=14.33 DE=28 TY=5.1% ***** CCRD - Concord $11.05 *** Earnings Rally! *** Concord Communications (NASDAQ:CCRD) develops, markets and supports a scalable fault and performance management software solution, the eHealth Suite family of products. The company's products ensure availability of the IT infrastructure by providing an end-to-end view across the components of this infrastructure: the network, the systems and the applications. The eHealth Suite of products enables its customers to reduce down time, optimize the usage of current resources and limit the need for incremental IT personnel as their business IT infrastructures expand. Concord reported earnings this week beating expectations while showing continued revenue and profit growth. Investors cheered the news and have rallied the stock above $10 on heavy volume. Traders who believe the upside activity will continue can profit from that outcome with this conservative position. MAY-10.00 UCD EB LB=1.50 OI=45 CB=9.55 DE=28 TY=5.1% ***** IFX - Infineon $8.17 *** Stage I Speculation *** Infineon Technologies (NYSE:IFX) designs, develops, manufactures and markets a broad range of semiconductors and complete systems solutions used in a wide variety of microelectronic applications, including computer systems, telecommunications systems, consumer goods, automotive products, industrial automation and control systems, as well as chip card applications. Infineon's products include standard commodity components, full-custom devices, semi- custom devices and application-specific components for memory, analog, digital and mixed-signal applications. Infineon is organized into five business groups, four of which are application focused, including Wireline Communications, Wireless Solutions, Security and Chip Card ICs and Automotive and Industrial, and of which is product focused, Memory Products. With earnings due on April 29, investors who wouldn't mind owning Infineon can use this position to gain a relatively low-risk entry point in the issue. MAY-7.50 IFX EU LB=1.00 OI=29 CB=7.17 DE=28 TY=5.0% ***** AAII - AaiPharma $11.43 *** What's Up? *** AaiPharma (NASDAQ:AAII) is a science-based specialty pharmaceutical company that focuses on targeted therapeutic areas, to which the company markets a growing portfolio of established branded products and applies its technologies to increase the commercial potential of these products. At the same time, AaiPharma's R&D organization is developing a pipeline of products to position the company for near-term and long-term growth in its targeted therapeutic areas. In addition to developing and marketing its own line of proprietary pharmaceutical products, AaiPharma continues to provide contract pharmaceutical development services through its AAI International division. Did AaiPharma rally this week because the company said on Wednesday it had acquired exclusive rights to a parenterally administered methadone product, formerly branded as Dolophine Hydrochloride Injection, from Roxane Laboratories? Possibly, but it could be anticipation of Monday's earning's report. This position simply offers investors who retain a bullish outlook on AAII a method to establish a reasonable cost basis in the issue. MAY-10.00 IUQ EB LB=1.80 OI=418 CB=9.63 DE=28 TY=4.2% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield ACLS 5.28 MAY 5.00 ULS EA 0.55 92 4.73 28 6.2% BOBJ 20.75 MAY 20.00 BBQ ED 1.80 194 18.95 28 6.0% AMD 8.03 MAY 7.50 AMD ER 0.90 12834 7.13 28 5.6% MVSN 13.33 MAY 12.50 MVU EV 1.40 16 11.93 28 5.2% QLTI 10.65 MAY 10.00 QTL EB 1.10 106 9.55 28 5.1% TSG 18.10 MAY 17.50 TSG EW 1.35 1047 16.75 28 4.9% MYK 8.19 MAY 7.50 MYK EU 1.00 24 7.19 28 4.7% LSS 22.90 MAY 22.50 LSS EX 1.30 7 21.60 28 4.5% BCGI 18.90 MAY 17.50 QGB EW 2.10 82 16.80 28 4.5% CTXS 15.64 MAY 15.00 XSQ EC 1.20 1158 14.44 28 4.2% SMTC 16.29 MAY 15.00 QTU EC 1.80 618 14.49 28 3.8% BRCM 16.60 MAY 15.00 RCQ EC 2.10 15765 14.50 28 3.7% ***************** NAKED PUT SECTION ***************** Options 101: Some Guidelines For New Traders By Ray Cummins A few simple rules, combined with a proven strategy and a system for money management, can help any trader earn consistent profits. The first rule is: Know the market, its condition and the future economic outlook, then use that knowledge to identify appropriate strategies and initiate trades that conform with the direction reflected by the current fundamental and technical indications. History suggests that the equity market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. Experienced traders understand that there is an economic reality to which the market will inevitably converge and it is far easier to profit from positions that are in harmony with that trend. With that idea in mind, it is also important to stay in touch with the "tone" of the public and anticipate changes in investor sentiment. News and major events are primary catalysts for market moves and they should evoke the proper response. For example, a strong market will shrug off bearish developments and respond vigorously to favorable conditions. When a specific group of stocks (sector or industry) encounters adverse circumstances, but does not decline in reaction to the occurrence, then it will likely outperform the majority of issues in that segment of the market. In addition, when reviewing specific companies, remember that fundamental analysis is the principle activity of brokerages and public investors and that is the most common manner in which the outlook for share values is reflected in financial reports and future performance forecasts. Another important axiom is: Trade the primary trend and concentrate on issues or sectors that are the best performers in the current environment. There are many ways of expressing this idea but the simplest approach is: "Buy rising markets and sell falling markets." This theory seems paradoxical, because common sense would suggest that the way to make money is to buy low and sell at higher prices. Of course, this is true from an abstract viewpoint, however it has nothing to do with "trend" or "momentum" trading. In fact, buying a market that is in a downtrend is often the quickest way to lose money. While the issue may appear to be a bargain at the reduced levels, chances are it will become even cheaper in the future. A well known adage among floor traders is, "The best time to pick up a falling knife is after it has hit the floor!" For those who are new to technical analysis, one of the easiest ways to determine the primary direction of the market is to use a moving average or trend-line. Trend-lines are self-explanatory: you simply plot a line connecting any two lows or highs on a given chart. A significant trend occurs when the line is touched three times or more. A violation of this line generally signals a change in the trend's near-term direction. In addition, a move below an advancing trend-line is negative, while a break above a declining trend-line is bullish. Moving averages are a bit more complex but although there are numerous types of indicators in this category, all of them are basically equivalent. Traders who analyze moving averages fall into two basic groups, those who monitor crossovers and those who concentrate on the direction of the moving average, or the slope of its ascent or descent. After the major bias is established, relative-strength can be used to identify the groups or sectors that are leading the movement. The relative-strength comparison helps determine which individual issues or industries are outperforming the broader market. The basic premise of this approach is that you should buy only the strongest stocks in the top performing groups and liberate your portfolio of the laggards. The most important guidance that new traders should adhere to is the need to outline an entry-exit strategy, before initiating any position, to eliminate emotional decisions. Using predetermined targets for profit and loss addresses a number of points. First, it eliminates the need for judgment under fire. Second, it keeps you from selling too soon, depriving yourself of potential upside profits. Also, an exit strategy will help you hold on to previous gains rather than exposing a position to unnecessary losses. Most techniques for limiting losses (and taking profits) are based on a prearranged goal, such as a percentage gain, or a trailing stop, which is moved up as the issue advances. For example, directional option strategies work well with a percentage stop-order, such as 25% or 50%. Traders that have the ability to place an order based on the movement of the underlying issue can use a "trailing" stop. In most cases, the trailing stop is placed a fixed distance below the highest price attained by the underlying since the position was initiated. As the instrument moves higher, the stop (or stop-based order) is adjusted upwards to "lock-in" profits. Wise traders know it is necessary to include a stop-loss system (mental or mechanical) with any new position and those who comply with this principle are certain to improve their success in this vicious game that is the Stock Market. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** 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 our subscribers, 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 editor of this section does not take actual positions in any published plays and the summary comments are 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 in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield NFLX 21.06 21.96 APR 17.50 0.40 0.40* 3.4% 11.0% CREE 20.54 20.05 APR 17.50 0.50 0.50* 3.2% 9.6% MOGN 10.96 12.98 APR 10.00 0.50 0.50* 3.8% 9.2% XLNX 25.38 26.07 APR 22.50 0.75 0.75* 3.0% 8.1% MVK 18.71 18.57 APR 17.50 0.35 0.35* 3.0% 7.7% IDCC 22.69 20.25 APR 17.50 0.25 0.25* 2.1% 7.6% AMZN 24.71 24.99 APR 22.50 0.65 0.65* 2.6% 6.8% NVLS 30.87 28.46 APR 25.00 0.40 0.40* 1.8% 6.3% ADTN 37.10 40.40 APR 30.00 0.35 0.35* 1.7% 6.3% AMZN 27.93 24.99 APR 22.50 0.35 0.35* 1.7% 6.2% MATK 25.32 31.69 APR 22.50 0.55 0.55* 2.2% 6.1% CYBX 19.15 21.50 APR 17.50 0.45 0.45* 2.3% 6.1% CVC 20.30 20.15 APR 17.50 0.30 0.30* 1.9% 5.8% CYBX 21.26 21.50 APR 20.00 0.30 0.30* 2.2% 5.8% OVTI 21.18 25.29 APR 15.00 0.30 0.30* 1.8% 5.7% CMCSA 30.80 30.47 APR 27.50 0.50 0.50* 2.0% 5.7% LLTC 32.58 34.73 APR 27.50 0.55 0.55* 1.8% 5.6% YHOO 23.97 25.09 APR 20.00 0.30 0.30* 1.7% 5.5% EXPE 37.14 55.43 APR 30.00 0.50 0.50* 1.5% 5.3% JCOM 27.54 34.41 APR 22.50 0.30 0.30* 1.5% 5.2% PSUN 19.73 22.08 APR 17.50 0.35 0.35* 1.8% 5.1% JCOM 30.05 34.41 APR 25.00 0.25 0.25* 1.5% 5.0% MEDI 30.68 33.42 APR 27.50 0.65 0.65* 1.8% 4.8% RMBS 15.75 14.60 MAY 12.50 0.55 0.55* 3.3% 10.8% NFLX 19.55 21.96 MAY 15.00 0.60 0.60* 3.0% 9.6% FTS 10.06 10.02 MAY 7.50 0.25 0.25* 3.0% 9.6% WYNN 16.22 16.01 MAY 12.50 0.40 0.40* 2.9% 9.5% AVID 25.54 25.78 MAY 22.50 0.80 0.80* 3.2% 8.7% EYE 11.96 12.40 MAY 10.00 0.35 0.35* 2.6% 8.0% JCOM 32.12 34.41 MAY 25.00 0.75 0.75* 2.2% 7.6% SEPR 15.77 16.78 MAY 12.50 0.30 0.30* 2.1% 7.5% GTRC 21.10 22.45 MAY 20.00 0.65 0.65* 2.9% 7.1% SEPR 16.35 16.78 MAY 12.50 0.35 0.35* 2.1% 7.0% RIMM 14.88 14.74 MAY 12.50 0.35 0.35* 2.1% 6.5% JCOM 31.96 34.41 MAY 22.50 0.50 0.50* 2.0% 6.3% NFLX 20.77 21.96 MAY 15.00 0.30 0.30* 1.8% 5.9% BOBJ 18.31 20.75 MAY 15.00 0.35 0.35* 1.7% 5.8% ADRX 14.71 15.03 MAY 12.50 0.25 0.25* 1.8% 5.5% CMCSK 28.44 29.01 MAY 25.00 0.60 0.60* 1.8% 5.1% * Stock price is above the sold striking price. Comments: The holiday-shortened week closed with an upside bias as traders shunned a glut of murky economic data and chose instead to focus on a minority of improved profit reports. Indeed, the market is often fickle but regardless of the reason, we are happy it chose expiration Friday to make a bullish move. All of the positions in the portfolio ended profitably (another great month!) and there are no issues on the "early exit" watch-list. Previously Closed Positions: International Rectifier (NYSE:IRF) and ImClone (NASDAQ:IMCLE), both of which finished the April expiration period positive. WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield LSCC 8.54 MAY 7.50 LQT QU 0.25 0 7.25 28 3.7% 10.3% BOBJ 20.75 MAY 17.50 BBQ QW 0.40 797 17.10 28 2.5% 8.0% OVTI 25.29 MAY 20.00 UCM QD 0.40 197 19.60 28 2.2% 8.0% BCGI 18.90 MAY 15.00 QGB QC 0.25 1010 14.75 28 1.8% 6.7% MRVL 23.15 MAY 20.00 UVM QD 0.35 1359 19.65 28 1.9% 5.9% INTC 18.66 MAY 17.50 NQ QW 0.35 14862 17.15 28 2.2% 5.7% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** LSCC - Lattice Semiconductor $8.54 *** Earnings Speculation! *** Lattice Semiconductor (NASDAQ:LSCC) designs, develops and markets high performance programmable logic devices and related software. Programmable logic devices are semiconductor components that can be configured by end customers as specific logic circuits, thus enabling shorter design cycle times and reduced development costs. The company's end customers are primarily OEMs (original equipment manufacturers) in communications, computing, industrial, military and consumer end markets. Earnings are due for LSCC on April 22 and the bullish report from Xylinx (NASDAQ:XLNX) has investors looking for favorable news from the firm. Traders can speculate on the outcome of the quarterly report with this position. MAY-7.50 LQT QU LB=0.25 OI=0 CB=7.25 DE=28 TY=3.7% MY=10.3% ***** BOBJ - Business Objects $20.75 *** New 6-Month High! *** Business Objects S.A. (NASDAQ:BOBJ) develops, sells and supports business intelligence software for client/server environments, intranets, extranets and the Internet. The three main markets for BI are enterprise, extranet and analytic applications. For enterprise, Business Objects products provide employees with information to make better business decisions. Deployments can range from small workgroups to enterprise deployments exceeding 50,000 users. For extranet, products allow organizations to build stronger relationships by linking customers, partners and suppliers via the world-wide web, and for analytic applications, products offer packaged practice analytics, alerts driven by business rules and workflow for specific business users, such as sales managers or supply chain managers. Business intelligence stocks soared recently after an upbeat earnings report by Cognos (NASDAQ:COGN) and an upgrade of Business Objects S.A., which was raised to "outperform" by CS First Boston. RBC Capital Markets also upped its ratings on BOBJ and traders who agree with that outlook can establish a conservative basis in the issue with this position. MAY-17.50 BBQ QW LB=0.40 OI=797 CB=17.10 DE=28 TY=2.5% MY=8.0% ***** OVTI - OmniVision $25.29 *** New 2-Year High! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. Last Quarter, OmniVision exceeded consensus quarterly earnings estimates and revenue projections, aided by exceptionally strong demand from makers of digital still cameras and cameras for cell phones. Traders are optimistic about this quarter and the stock has moved to a new 2-year high during the recent NASDAQ rally. Investors can use this position to speculate conservatively on the company's future share value. MAY-20.00 UCM QD LB=0.40 OI=197 CB=19.60 DE=28 TY=2.2% MY=8.0% ***** BCGI - Boston Communications $18.90 *** Premium Selling! *** Boston Communications Group (NASDAQ:BCGI) provides real-time subscriber management services to the wireless industry. The company's real-time subscriber management products include the following: proprietary software applications, which include extensive software suite to manage subscribers; hosting environment, which is a real-time, large scale, micro-payment transaction processing platform; Intelligent Voice Services Network, which includes edge-of-network voice services and Signaling System 7 call control; and Distribution Technology Partnership Program, which is a national payment network for cash collection. Boston Communications shares rallied Friday after the firm reported it earned a profit in the first quarter as legal costs fell and its customers added new subscribers. The stock has been volatile over the past few weeks, thus the option prices are inflated. Traders can attempt to profit from the recent activity with this low-risk "premium-selling" play. MAY-15.00 QGB QC LB=0.25 OI=1010 CB=14.75 DE=28 TY=1.8% MY=6.7% ***** MRVL - Marvell Technology $23.15 *** Rally Mode! *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. In February, Marvell posted a sharply narrower 4th-quarter net loss and said revenue jumped 82%. Investors were pleased with this news and they are hoping for more of the same when the company reports again in May. This position offers a low risk entry point for traders who wouldn't mind having MRVL shares in their technology portfolio. MAY-20.00 UVM QD LB=0.35 OI=1359 CB=19.65 DE=28 TY=1.9% MY=5.9% ***** INTC - Intel $18.66 *** Blue-Chip Portfolio Position *** Intel Corporation (NASDAQ:INTC) is a semiconductor manufacturer supplying technology solutions for computing and communications. The company's major products include microprocessors; chipsets; boards; flash memory; application processors used in cellular handsets and hand-held computing devices; cellular chipsets; networking and communications, such as ethernet connectivity products, optical components and network processing components, and embedded control chips. Intel's Architecture business offers advanced technologies to support desktop, mobile and enterprise systems. The Wireless Communications and Computing Group focuses on component-level products and solutions for wireless, hand-held communications. Intel Communications focuses solely on wired and wireless connectivity products and provides key components for networking and communications infrastructure devices. This stock is a good candidate for a long-term portfolio holding and traders can use this position to establish a low-risk cost basis in the issue. MAY-17.50 NQ QW LB=0.35 OI=14862 CB=17.15 DE=28 TY=2.2% MY=5.7% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield SOHU 14.04 MAY 12.50 UZK QV 0.75 40 11.75 28 6.9% 16.9% LRCX 13.41 MAY 12.50 LKR QV 0.50 629 12.00 28 4.5% 11.0% IDCC 20.25 MAY 17.50 DAQ QW 0.55 474 16.95 28 3.5% 10.1% MANH 22.76 MAY 20.00 MQR QD 0.55 494 19.45 28 3.1% 8.7% MVL 15.80 MAY 15.00 MVL QC 0.45 49 14.55 28 3.4% 8.2% NSM 18.92 MAY 17.50 NSM QW 0.50 479 17.00 28 3.2% 8.2% ELX 23.04 MAY 20.00 ELX QD 0.50 1235 19.50 28 2.8% 8.1% CKFR 23.78 MAY 20.00 FCQ QD 0.35 2658 19.65 28 1.9% 6.3% XLNX 26.07 MAY 22.50 XLQ QX 0.40 2506 22.10 28 2.0% 6.0% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Good Friday Provides A Much-Needed Holiday! By Ray Cummins The major equity averages moved higher Thursday as some optimistic earnings reports and hopeful economic data spurred investors into a "bargain-hunting" buying spree. Technology companies led the rally with semiconductor and wireless telecom shares boosting the NASDAQ 30 points higher to 1,425. The Dow Industrial Average added 80 points to close at 8,337 as retail, homebuilding, transportation and beverage components enjoyed upside activity. The broader Standard & Poor's 500 Index gained 13 points to 893 with healthcare, oil & gas, lodging, casino and paper stocks among the best performers. Breadth was overwhelmingly positive as advancing issues beat declining shares by almost 3 to 1 on the NYSE and by more than 2 to 1 on the NASDAQ. Trading was average on the Big Board, where 1.38 billion shares changed hands, while moderate volume of 1.6 billion shares occurred on the technology exchange. Bond traders took their cue from the rally in stocks, choosing to sell treasuries ahead of the long holiday week-end. The benchmark 10-year note fell 4/32 in price for a yield of 3.96%, up from 3.94% the prior session. ***************** PORTFOLIO SUMMARY ***************** 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 our subscribers, 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 editor of this section does not take actual positions in any published plays and the summary comments are 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 in any way replace your duty to diligently monitor and manage the positions in your portfolio. PUT CREDIT SPREADS ****************** Symbol Pick Last Month LP SP Credit CB G/L Status AMGN 55.70 60.13 APR 47 50 0.25 49.75 $0.25 Closed EXPE 35.19 55.43 APR 27 30 0.30 29.70 $0.30 Closed APOL 47.44 53.75 APR 40 45 0.50 44.50 $0.50 Closed MMM 125.55 129.98 APR 110 115 0.50 114.50 $0.50 Closed FLR 32.11 35.60 APR 25 30 0.50 29.50 $0.50 Closed OEX 424.07 453.71 APR 375 380 0.45 379.55 $0.45 Closed CAT 52.55 51.98 APR 45 47 0.30 47.20 $0.30 Closed GILD 41.53 44.04 APR 35 37 0.35 37.15 $0.35 Closed BJS 35.08 35.55 APR 30 32 0.25 32.25 $0.25 Closed IBM 80.85 84.26 APR 70 75 0.60 74.40 $0.60 Closed AZO 76.38 76.99 MAY 65 70 0.55 69.45 $0.55 Open BSTE 42.33 40.39 MAY 30 35 0.50 34.50 $0.50 Open GILD 44.15 44.04 MAY 37 40 0.30 39.70 $0.30 Open OIH 54.58 55.63 MAY 45 50 0.55 49.45 $0.55 Open MDT 46.90 47.06 MAY 43 45 0.35 44.65 $0.35 Open NBR 41.11 41.66 MAY 35 37 0.30 37.20 $0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Previously closed positions in Expeditors Intl. (NASDAQ:EXPD) and Advanced Neuromo Systems (NASDAQ:ANSI) ended the expiration period profitably. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status TOT 65.30 67.50 APR 75 70 0.60 70.60 $0.60 Closed XAU 67.44 67.01 APR 80 75 0.50 75.50 $0.50 Closed ACS 44.26 44.80 APR 55 50 0.55 50.55 $0.55 Closed NOC 82.35 83.80 APR 95 90 0.60 90.60 $0.60 Closed SII 34.10 37.19 APR 40 37 0.25 37.75 $0.25 Closed FNM 66.70 72.67 APR 75 70 0.50 70.50 ($1.25) Closed * QLGC 38.22 41.54 APR 45 42 0.25 42.75 $0.25 Closed SYMC 40.25 41.96 APR 50 45 0.30 45.30 $0.30 Closed CAM 49.39 47.46 MAY 60 55 0.45 55.45 $0.45 Open DRYR 67.40 60.90 MAY 75 70 1.10 71.10 $1.10 Open HCA 37.70 28.90 MAY 45 42 0.25 42.75 $0.25 Open VAR 49.04 52.41 MAY 60 55 0.60 55.60 $0.60 Open OIH 54.58 55.63 MAY 65 60 0.50 60.50 $0.50 Open BAC 71.34 72.88 MAY 80 75 0.60 75.60 $0.60 Open GSK 38.09 38.84 MAY 42 40 0.30 40.30 $0.30 Open LLL 36.24 39.19 MAY 45 40 0.55 40.55 $0.55 Open OEX 440.97 453.71 MAY 480 475 0.55 475.55 $0.55 Open WLP 76.80 74.86 MAY 90 85 0.50 85.50 $0.50 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Previously closed positions include: International Paper (NYSE:IP) and Chiron (NASDAQ:CHIR), both of which finished the expiration period profitably, and United Health (NYSE:UNH), which lost $1.30 at Friday's close. As noted last week, Federal National Mortgage (NYSE:FNM) should have been exited when the issue moved through a recent resistance area (and the sold strike at $70) during Monday's session. The summary reflect the loss as of the close of trading on 4/14/03. Issues currently on the watch-list are GlaxoSmithKline (NYSE:GSK) and L-3 Communications (NYSE:LLL). CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status STN 19.40 21.88 APR 17 20 1.60 19.10 0.90 Closed EBAY 83.91 90.20 APR 70 75 4.50 74.50 0.50 Closed PPD 18.16 19.50 APR 15 17 1.75 16.75 0.75 Closed LXK 67.80 69.19 APR 60 65 4.40 64.40 0.60 Closed BGEN 35.67 35.84 MAY 30 32 2.20 32.20 0.30 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss The big winners in the month of April were Pre-Paid Legal Services (NYSE:PPD) and Station Casinos (NYSE:STN). PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status QLGC 39.98 41.54 APR 47 45 2.30 45.20 0.20 Closed WMT 52.98 55.41 MAY 60 55 4.30 55.70 0.29 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss Wal-Mart (NYSE:WMT) rebounded this week in conjunction with the broader markets, however the resistance area near $55 (and again at $57) has the potential to end the rally. We will monitor the position closely in the coming sessions. The bearish spread in Federal Express (NYSE:FDX) has previously been closed to limit losses. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status MEDI 32.65 33.42 APR 35 30 0.10 0.70 Closed ADTN 38.14 40.40 APR 45 30 0.10 0.60 Closed OVRL 15.99 16.71 MAY 17 15 0.10 0.40 Open Overland Storage (NASDAQ:OVRL) finally offered a reasonable entry opportunity when the issue pulled-back during Tuesday's session. Both Medimmune (NASDAQ:MEDI) and Adtran (NASDAQ:ADTN) achieved the target exit profit. The speculative position in Multimedia Games (NASDAQ:MGAM), which is trading above the sold (put) strike at $20, has been previously closed to limit potential losses. SYNTHETIC (BEARISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Put Call Credit Value Status QQQ 25.51 26.93 MAY 24 27 0.10 0.00 Open? This was not a good week to bet against the technology group and traders who initiated the bearish position in the NASDAQ-100 Trust (AMEX:QQQ) should consider an early exit if the instrument closes above recent resistance near $27 in the coming sessions. CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max Play Symbol Price Price Option Option Debit Value Status BMET 28.52 30.00 JUL-30C APR-30C 0.80 1.40 Open OTEX 29.29 31.23 MAY-25C APR-30C 3.60 5.00 Closed ESI 29.11 27.09 OCT-30C APR-30C 2.40 2.60 Open OCR 27.07 25.48 JUN-27C APR-27C 0.90 0.80 Open MO 32.13 32.19 JUN-27P APR-27P 1.25 1.60 Open Biomet (NASDAQ:BMET) finished the expiration period at maximum profit; traders can now transition to May in the short option for a credit near $1.00, making the position risk-free. The position in Open Text (NASDAQ:OTEX) ended at maximum profit. Altria Group (NYSE:MO) and Omnicare (NYSE:OCR) were not available at the target entry prices, however we are tracking the positions at the higher initial debits. Integrated Circuit Systems (NASDAQ:ICST) has been previously closed to limit losses. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status MYG 20.28 19.29 APR 20 20 1.75 0.00 No Play LNC 29.88 30.43 MAY 30 30 3.00 2.80 Open It's unfortunate we were unable to initiate the Maytag (NYSE:MYG) straddle as the issue traded in a $3 range during the past week. The stock encountered volatility after issuing mediocre earnings. CREDIT STRANGLES **************** No Open Positions Questions & comments on spreads/combos to Contact Support ************** READER'S WRITE ************** Attn: Questions@OptionInvestor.com Subject: Exchange Trading Systems Greetings, I had a chance to take the New York Stock Exchange tour and I was surprised to see the number of people involved in trading on the floor. I expected there to be far less human involvement with all the technology used in online trading and the Internet. It was amazing to watch the number of people involved in buying and selling stocks and after seeing the basic arrangement (my first time at an exchange), I wondered how much different the option exchanges are? Do the trades take place electronically or with a floor broker? Also, the trade routing explanation was a bit confusing (something like: brokerage booth, floor trader, trading post, specialist?) and I never knew it was that complex. Is it the same with options or better or worse? What about the floor traders - are they working for you or for the exchange? Finally, does it help to have a personal broker (are they on the floor?) or can you trade profitably with a discount online firm? Thanks for any light you can shed on this subject as I am really trying to learn the whole system before I commit serious money to options. TR Regarding Options Exchanges and Trading Systems: The open outcry process at many U.S.-based exchanges continues to be a popular feature of the financial markets, providing the public with the colorful image of traders competing for the best price. In the classic method, an order to buy or sell an option contract is phoned from the broker's office to a representative at the exchange. A message is then delivered to the appropriate area on the exchange floor where a trader, through the use of hand signals, offers the position to other participants in the pit. When a transaction occurs, the details of the trade are posted on an order slip and confirmed with the parties involved. In addition, every trade is entered into the price/time database by an official clerk, allowing the exchanges to supplement the pit-outcry method with an electronic screen-based trading system. The mechanics of the individual floor trading methods are slightly different, depending on the specific rules of the institution to which your trade is routed. Options are traded on four exchanges: the American Exchange (AMEX), Chicago Board of Options Exchange (CBOE), Philadelphia Exchange (PHLX) and Pacific Exchange (PCX). A new "off-floor" electronic trading facility, the International Securities Exchange (ISE) has also begun to trade listed options however for the purposes of comparison, most traders refer to the oldest and largest exchange in America, the Chicago Board Option Exchange, or CBOE. Most option classes listed at the CBOE are traded in an open outcry market. Traders called "market-makers" are the nucleus of the CBOE system, providing liquidity in option trading by risking their own capital for personal accounts. They take the opposite side of public orders which are presented by floor brokers, who act as agents for the various member accounts. This differs from the trading environment on many other exchanges where "specialists" are allowed to accept orders from the public, to manage the public order book and to deal for their own accounts in the same securities. Competition is the essence of the system that allows market-makers, floor brokers and order book officials (CBOE employees who maintain the public customer limit order book and have no personal financial interest in any trades that occur) to facilitate the execution of customer orders. The CBOE has also recently introduced a modified trading system in all equity option classes combining the strengths of the market-maker with those of the specialist in one entity, the designated primary market-maker, or DPM. The DPM is an exchange appointed organization, obligated to provide the highest degree of accountability to public traders by functioning as both market-maker (liquidity provider) and floor broker in these assignments while also operating the public limit order book. Despite the highly evolved systems used by option exchanges in the United States, the efficient execution of orders continues to be a problem for public traders. Orders from retail participants are often routed to a specific exchange that may not necessarily offer the best price for a particular trade. In addition, any brokerage that is a principal in the issue being traded may choose to take the opposing side in a position, effectively competing against the public customer. There are a number of reasons a brokerage would execute a trade as a principal, rather than going into the open market to "fill" it but on most occasions, it is because they are carrying excess inventory in the issue or acting as a market-maker. For most traders, it is best to use an independent agent; a broker who doesn't carry inventory and can route orders to any exchange. Unlike the discount broker, an independent agent is paid to search for the best exchange prices and provide quality customer service in all facets of the trading process. In most cases, traders are looking for simple and efficient order execution and with the many advances in direct order-entry technology, there is no reason to accept inferior services from brokerages who use a "middleman" to complete their transactions. Readers often ask which brokers are favored among OIN writers and in my opinion, there are few firms who can compete with the price and service combination offered by Preferred Capital Markets. As many of you know, the company's stock and equity-option segment; Preferred Trade, is a self-clearing firm with ample experience in electronic trading and a dedicated group of professionals that offers education and assistance to traders at a reasonable price. The company is a leader in automated options executions and they have achieved remarkable advances in order-entry software through their extensive experience with clearing for floor traders. Using the basic trading platform, option orders can be routed directly to any exchange and the program can automatically search for the best price. In addition, Preferred offers trading stops based on the stock or option price and also order-canceling and contingency orders. Experienced professionals, not clerks or assistants are available before, during, and after market hours and the company's proven electronic order software is supported by floor brokers to guarantee the best executions. (Novice traders mistakenly believe they will save money with discount brokerages without knowledge of the allowances they sacrifice on execution.) Preferred's unique software delivers accurate confirmations and their professional staff helps you deal with the complexities of derivatives trading, all at a cost comparable to the so-called "bargain" brokers. For traders who want the exclusive service afforded by a personal agent, the company offers Preferred Trade Plus; a program designed by retail option specialists. Based in Chicago, this combination of a real-time trading execution platform and assistance rendered by experienced option principals can provide both advanced and novice market players with the tools needed to succeed. Traders can work one-on-one with licensed option principals to develop a personal strategy, establish portfolio objectives, and identify specific goals based on account size, market experience, and risk tolerance. These option experts use their knowledge to customize a program of education and implementation of specific strategies and they teach proper (stop and limit) order placement and money management to help prevent expensive mistakes. They also analyze and interpret market news and information from the trading floor to ensure the best possible guidance concerning a specific trade or portfolio position. The combination of a disciplined trading plan, superior order-entry and execution technology, and experts instruction can help anyone succeed in today's difficult markets and with unequaled levels of service at very competitive prices, Preferred Trade may be the consummate online brokerage. Good Luck! ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** BBBY - Bed Bath & Beyond $39.52 *** Bullish Retailer! *** Bed Bath & Beyond (NASDAQ:BBBY) is an operator of stores selling predominantly better quality domestics merchandise and other home furnishings typically found in better department stores. The company operates over 400 Bed Bath & Beyond stores in 44 states and one territory. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic house-wares and general home furnishings. BBBY - Bed Bath & Beyond $39.52 PLAY (conservative - bullish/credit spread): BUY PUT MAY-35.00 BHQ-QG OI=2557 A=$0.35 SELL PUT MAY-37.50 BHQ-QU OI=1670 B=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$37.20 ***** PFCB - P.F. Chang's China Bistro $42.47 *** All-Time High! *** P.F. Chang's China Bistro (NASDAQ:PFCB) owns and operates various full-service restaurants that feature a blend of traditional Chinese cuisine and American hospitality in a contemporary bistro setting. The firm's restaurants offer distinct culinary creations prepared from fresh ingredients, including a range of herbs and spices imported directly from China. The restaurants' menu is focused on select dishes created to capture the distinct flavors and styles of the five major culinary regions of China: Canton, Hunan, Mongolia, Shanghai and Szechwan. The company's quarterly earnings report is due 4/23/03. PFCB - P.F. Chang's China Bistro $42.47 PLAY (conservative - bullish/credit spread): BUY PUT MAY-35.00 HUO-QG OI=863 A=$0.35 SELL PUT MAY-40.00 HUO-QH OI=131 B=$0.90 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$39.45 ***** SYK - Stryker $66.35 *** Premium-Selling Only! *** Stryker Corporation (NYSE:SYK) and its subsidiaries develop, manufacture and market specialty surgical and medical products, including orthopaedic reconstructive implants. The company operates in two reportable segments: Orthopaedic Implants, which sells orthopaedic reconstructive, trauma and spinal implants, bone cement and the bone growth factor osteogenic protein-1, and the MedSurg Equipment segment, which sells powered surgical instruments, endoscopic systems, medical video imaging equipment, craniomaxillofacial implants, image-guided surgical systems and hospital beds and stretchers. The firm's Other segment includes Physical Therapy Services and corporate administration. SYK - Stryker $66.35 PLAY (conservative - bearish/credit spread): BUY CALL MAY-75.00 SYK-EO OI=45 A=$0.15 SELL CALL MAY-70.00 SYK-EN OI=265 B=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=12% B/E=$70.55 ***** IGT - International Game Technology $79.55 *** Sector Slump! *** International Game Technology (NYSE:IGT) is engaged in the development and production of computerized gaming products. The company operates in three lines of business: product sales, proprietary gaming and lottery systems. Product sales encompass the development, manufacturing, marketing, distribution and sales of computerized gaming products and systems. Proprietary gaming is comprised of IGT's wholly owned gaming operations, including activities that the company performs on behalf of its strategic marketing alliances, as well as its unconsolidated joint venture activities. The lottery systems segment consists of development, manufacturing, operation and sale of equipment for online lottery and pari-mutuel systems. The company's quarterly earnings report is due 4/22/03. IGT - International Game Technology $79.55 PLAY (conservative - bearish/credit spread): BUY CALL MAY-90.00 IGT-ER OI=752 A=$0.20 SELL CALL MAY-85.00 IGT-EQ OI=1192 B=$0.75 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$85.55 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** GILD - Gilead Sciences $44.04 *** All-Time High! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $44.04 PLAY (conservative - bullish/debit spread): BUY CALL MAY-37.50 GDQ-EU OI=296 A=$7.30 SELL CALL MAY-40.00 GDQ-EH OI=3492 B=$5.00 INITIAL NET-DEBIT TARGET=$2.20-$2.25 POTENTIAL PROFIT(max)=11% B/E=$39.75 ***** SLM - SLM Corporation $115.05 *** Favorable Revenues! *** SLM Corporation (NYSE:SLM), known as Sally Mae, is a private source of funding, delivery and servicing support for higher education loans for students and their parents in the United States. SLM provides a range of financial services, processing capabilities and information technology to meet the needs of educational institutions, lenders, students and guarantee agencies. The company's managed portfolio of student loans, including loans owned and loans securitized, totals over $70 billion, of which the majority is federally insured. The firm also has commitments to buy billions of dollars of additional student loans. Primarily a provider of education credit, the company serves a diverse range of clients, including over 6,000 educational and financial institutions and guarantee agencies. The company serves in excess of seven million borrowers through its ownership or management of student loans. SLM - SLM Corporation $115.05 PLAY (conservative - bullish/debit spread): BUY CALL MAY-105.00 SLM-EA OI=26 A=$10.70 SELL CALL MAY-110.00 SLM-EB OI=104 B=$6.20 INITIAL NET-DEBIT TARGET=$4.45-$4.50 POTENTIAL PROFIT(max)=11% B/E=$109.50 ***** BSX - Boston Scientific $42.19 *** Consolidation In Progress! *** Boston Scientific (NYSE:BSX) is a global developer, manufacturer and marketer of less-invasive medical devices. The firm's unique products are offered by two major business groups, Cardiovascular and Endosurgery. The Cardiovascular segment focuses on products and technologies for use in the firm's interventional cardiology, interventional radiology, peripheral vascular and neurovascular procedures. The Endosurgery organization focuses on products and technologies for use in oncology, vascular surgery, endoscopy, urology and gynecology procedures. BSX - Boston Scientific $42.19 PLAY (less conservative - bearish/debit spread): BUY PUT MAY-47.50 BSX-QW OI=126 A=$5.70 SELL PUT MAY-45.00 BSX-QI OI=637 B=$3.60 INITIAL NET-DEBIT TARGET=$2.05-$2.10 POTENTIAL PROFIT(max)=19% B/E=$45.40 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** DCTM - Documentum $16.09 *** Excellent Earnings! *** Documentum (NASDAQ:DCTM) provides enterprise content management software solutions that bring intelligence and automation to the creation, management, personalization and distribution of vast quantities and types of content, including documents, Web pages, XML files and rich media, in one common content platform and repository. Documentum's platform makes it possible for companies to distribute content globally across all internal and external systems, applications and user communities. The firm's products include site delivery services, content personalization services and document control managers, among others. DCTM - Documentum $16.09 PLAY (speculative - bullish/synthetic position): BUY CALL MAY-17.50 QDC-EW OI=11 A=$0.75 SELL PUT MAY-15.00 QDC-QC OI=5 B=$0.70 INITIAL NET CREDIT TARGET=$0.05-$0.10 INITIAL TARGET PROFIT=$0.35-$0.70 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $600 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($15). ***** SMH - Semiconductor Holdrs Trust $26.43 *** Strong Sector! *** The Semiconductor Holdrs Trust (AMEX:SMH) is a unique instrument that represents an investor’s ownership in the stock of specified companies in the semiconductor sector. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient. Each HOLDR is a fixed basket of 20 stocks (except the Telebras HOLDR, which holds 12 companies). They work operate much like ADRs; American Depositary Receipts, which allow U.S. investors to purchase foreign-owned companies on the U.S. exchanges in dollar denominated amounts. In just the same way, the investor actually owns the shares of each underlying company, receives dividends, proxies, and annual reports from each. The HOLDRs are not managed, and once the companies and amounts have been determined they are fixed, no companies will be substituted. In this way, the HOLDRs differ somewhat from Spiders (SPDRs), or Standard & Poor Depositary Receipts and other exchange traded funds, which will add and delete stocks on a regular basis, usually in conjunction with an index that they are tracking. A complete explanation of this issue, including the companies that make up each HOLDRS' particular industry, sector or group can be found here: http://www.holdrs.com/holdrs/main/index.asp?Action=Definition SMH - Semiconductor Holdrs Trust $26.43 PLAY (speculative - bullish/synthetic position): BUY CALL AUG-30.00 SMH-HF OI=2507 A=$1.35 SELL PUT AUG-22.50 SMH-TX OI=15584 B=$1.05 INITIAL NET DEBIT TARGET=$0.10-$0.15 INITIAL TARGET PROFIT=$0.65-$0.90 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $780 per contract. However, do not open this position if you can not afford to purchase the tracking stock (SMH) at the sold put strike price ($22.50). ***** ************************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 ************************************************************** ************** MARKET POSTURE ************** Bullish Developments To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/MP_041703.asp ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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