The Option Investor Newsletter Tuesday 07-08-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Better Than Monday Futures Markets: Higher highs Index Trader Wrap: The "Sleeper"! Market Sentiment: Surprising strength, puzzling options Weekly Fund Screen: Bankerage Accounts Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 07-08-2003 High Low Volume Advance/Decline DJIA 9223.09 + 6.30 9236.39 9162.94 1.91 bln 1807/1412 NASDAQ 1746.46 + 25.80 1747.44 1713.76 2.02 bln 2106/1144 S&P 100 506.34 + 0.84 507.06 502.52 Totals 3913/2556 S&P 500 1007.84 + 3.42 1008.92 998.73 W5000 9687.14 + 47.10 9697.35 9592.61 RUS 2000 473.97 + 8.26 474.13 465.13 DJ TRANS 2565.12 +107.00 2569.67 2466.08 VIX 21.40 - 0.65 22.31 21.11 VXN 33.49 - 0.02 34.79 32.91 Total Volume 4,170M Total UpVol 2,807M Total DnVol 1,282M 52wk Highs 975 52wk Lows 22 TRIN 1.01 PUT/CALL 0.63 ************************************************************ Better Than Monday No, we did not put more points on the board but we did exceed Monday's volume by a fair amount. Is this a good thing for a day where the Dow barely broke even? That $64 billion question will be answered on Wednesday when the market will have to meet a much higher standard just to break even. Dow Chart - Daily Nasdaq Chart - Daily Economically the day was a pass with no material economic reports and profit taking from Monday a much bigger concern. The leading report Tuesday morning was Weekly Retail Sales which rose +0.7% to a new high for this cycle. The sales were boosted by the July 4th promotions but traders could have cared less. This is not a real market mover under normal circumstances and today was no different. This weekly snapshot will take a backseat to the real monthly numbers on Thursday. We will get to see if the high inventories have burned off from the heavy discounting and what stores are looking at for the balance of the summer. With consumers getting a chunk of extra cash on their paychecks from the recent tax cut, retailers will be slashing prices and running big ads to get their share. Those same consumers ran up their debt over the month of May with a bounce in consumer credit to $7.3 billion from the consensus estimates of $5.2 billion. However April was revised down to $7.8B from the previously reported $10.7B. The biggest jump was in auto debt which was prompted by continuing big incentives from the major manufacturers. These gains were despite a refinance index that is 400% higher than it was this time last year. Some consumers are paying off debt at a record pace while others are going deeper in debt due to unemployment. The most positive report for the day was the Richmond Fed Survey which came in positive, only +1 but we can't complain. This was the first gain in five months and the first time the shipments index has been positive since January. Unfortunately new orders were flat and backlogs were severely negative at -15. The ISM showed a minor contraction in June and this survey is only showing a very minor improvement in the Richmond Fed region. The good news is that we are not seeing an increase in the contraction but signs, however slight, of continued improvement. Traders are unsure if the minor improvements will be enough to maintain earnings through the 3Q until the second half recovery begins. The big story was the multiple merger/takeovers announced today. The biggest impact to the market averages came from the Yellow Roadway acquisition. The +$16 bounce in ROAD sent the Dow Transportation index soaring +107 points and probably had a lot to do with the positive mood on the Dow. While the indexes are not directly related they are intertwined on a sentiment basis. The Dow normally has trouble when the Transports fail to move in the same direction. Traders seeing the large numbers on the TRAN today could have gotten that warm fuzzy feeling about the market in general. If so they did not get it until after 3:PM. You wonder how many earnings warnings were ignored due to the three takeovers and the positive press they received? If EMC thinks LGTO is a bargain then are all techs a bargain? While I doubt it that was the sentiment running rampant on Tuesday. The Nasdaq roared to another +25 point gain and a high near 1750. Yes, 1750. It is amazing that just a couple weeks ago we were agonizing over a 1685 top and the potential for a drop below 1600 as a critical event. Just yesterday FILE, SGP, WEN, RITA, SMG, SYBN and BMC Software warned on earnings and this morning they were joined by BMS and SCHL but the warning pace slowed dramatically as we move into the earning cycle. The first Dow component announced tonight and Alcoa beat the street by +3 cents. This is not likely to cause a runaway market on Wednesday but traders hope it could become contagious. The hopes are for better than average comparisons due to the very weak Q2 in 2002. With over 55% of the S&P already warning for the 2Q it is clear the load will have to be carried by a very few stocks. Earnings for the rest of the week include DNA and YHOO Wednesday, ABT, JNPR, MTCH, MTIC, PEP, PWAV, PLUM, PTNX, SONS and SNUS on Thursday. Friday we will get the big gun, GE, and traders are not afraid they will miss but afraid they will say something negative in their guidance. Economic reports are still slim until Friday when we get the PPI. Next week we will get a strong pickup in both earnings and economic reports and the market will have plenty to mull over. Microsoft made news at the bell by announcing they would no longer give employee stock options as incentives. They are going to establish a plan to award actual stock which will vest over a set period of time. While the incentive to employees is approximately the same the impact to MSFT books is substantial. The stock grants will be expensed on MSFT financials in a dramatic departure from the current practices of major companies. MSFT said the new plan would take effect in September and be shown on the June-2004 end of year financials. They said they would also expense the value of previously granted stock options and restate past results to show the impact of those changes. They also said employees with options priced over the current stock price could now sell those options to JP Morgan which effectively ends the current option program for everyone. By taking this step MSFT is waging war on the other major tech companies who have refused to expense options in the past. Many of these companies would have never reported a profit if the cost of their options had been included. It has been rumored that Cisco earnings would be reduced by more than half if their options were expensed. All the big techs will be under fire including CSCO, DELL, INTC, AMZN, EBAY, YHOO and ORCL if their earnings suddenly take a 50% dive. With the standards board already coming up with an expensing rule this is a preemptive step by MSFT to blunt the damage. MSFT said expensing options in the 1Q would have cost $656 million and reduced earnings from 25 cents to 20 cents. MSFT has an advantage because they are so profitable. All the other companies have earnings that are a fraction the size of MSFT but the options expenses are still very high. This will be very interesting to see how it plays out. Did PE values just double or will stock prices adjust? I think investors will rationally consider the earnings in light of the expensing but those PE numbers are going to be a constant eyesore for years to come. There were several news events impacting sentiment today. The July-7th survey of newsletter writers showed that the number bearish was at a 12 year low. The ratio of bulls to bears had improved only slightly from the week before where conditions were at the worst level seen since October 1987 and the week before the crash. This is despite the PE on the S&P hitting 32 in recent weeks. That is the same level it was in March of 2000 when the bubble began to burst. Merrill Lynch said today that this was the weakest recovery period on record. Makes you wonder what the earnings are going to look like next week. Despite all the negative news bond yields continue to rise. On June 16th the yield on the ten year note was 3.08%. Today it traded at 3.75% despite a 25 basis point Fed cut in the middle. The Fed wanted to keep rates down and bragged constantly about all the tools at their disposal to do this. Did they lose the toolbox? The almost panic reversal in bonds has puzzled many traders. Despite the gains on Monday the bond money has not been finding its way into equities. Some yes, but only a fraction of the money being raised. Where is it going and why? Traders are now worried that the sell off will take a life of its own and the Fed will not be able to slow the rate increase. While the short-term inflow of some bond cash is positive for the markets the long term impact of rising rates will be very detrimental. We have had the equivalent of three 25-point rate hikes in the last two weeks and the market is still climbing. Or is it? The volume on Monday was anemic considering the magnitude of the market bounce. In reality the bounce was mostly short covering produced by a giant bounce in the Asian markets and no terrorist attack over the weekend. Retirement cash inflows supposedly made up the rest. If you look at the chart below you can see the Dow peaked at 10:25 in the morning at 9261 and has been down trending ever since. Volume today was strong but that volume came on a flat day for the Dow. Actually the Dow did not turn positive until 3:30 this afternoon. That means the high volume was on a down day. The Nasdaq was the exception. Despite tech earnings warnings and the impending potential for negative earnings surprises techs just continue to gain. The Nasdaq is up nearly +150 points since July 1st. Does anybody think that is excessive? Volume on the Nasdaq was over 2B shares. Today was a market full of divergences that ended well. Tomorrow is the key to the week. Dow Chart - 10 min We begin to see real earnings accelerate and a slight pickup in economic reports. These are real potential problems for stocks. We are also likely to see the recent highs on the Dow and S&P retested and that retest will be at the end of a multiple month advance. It will also come at the same time as the typical July peak. Nobody knows if the retest will fail or be successful but the danger is real. In trading all the stars are aligned for a major event. Not necessarily a crash but a consolidation period of several weeks once the excitement of the current rally runs its course. The S&P is up +27% from the March lows of 789. +27% in a little over three months. That kind of gain is similar to the gains in the S&P in 1998 which was not a recession year. You can see what happened in 1998. The upward spike into the July earnings is very similar. SPX Chart - Daily We are rapidly careening into the July earnings event and the outcome is very uncertain. Even if earnings are good will they be good enough to satisfy the huge gains since March? Will the 2Q retirement cash flow indefinitely? Will the bond market slow the current crash or will the rapid escalation of interest rates produce stock market uncertainty? Will the Fed appear any day now and wave their magic wand to knock rates back into the cellar. Do they know which wand to use since the last one had the reverse effect. Somebody call Harry Potter because there is a good chance we are going to need some real magic soon. Either way be sure you have the right spell in place as we approach the end of the week to protect yourself against any unplanned retracements. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** Higher highs Jonathan Levinson It was a listless session punctuated by some abrupt moves in both directions, until an end of day frenzy drove the indices to new highs. The Nasdaq futures were the strongest among the equity contracts, followed by the S&P and the Dow. Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 1016 1012 1004 1000 993 YM03U 9265 9237 9188 9160 9111 NQ03U 1320 1309 1291 1281 1263 10 minute chart of the US Dollar Index The US Dollar Index set another relative high today, taking down gold in the process but leaving the commodities index (CRB) fractionally higher, led by natural gas futures. Daily chart of August gold Gold got clocked again today, but managed to hold the 343 support level again. The precious metals indices were lower as well, with HUI dropping 2.30 to 151.66, and XAU down 1.54 to 77.30. Daily chart of the ten year note yield Treasuries got sold again, with the ten year note yield pulling back intraday from Fibonacci resistance as shown above. The five year yield finished higher by 3.8 basis points to 2.594%, the ten up 2.7 bps to 3.733% and the thirty down 0.2 bps to 4.726%. Perhaps coincident with the selling in treasuries, equities managed to rally at the end of the day. Although it hasn't been evident during weeks past, during the past few sessions we've been seeing equities rally on treasury weakness. While it's too early to tell, we could be witnessing a trend change in this intermarket relationship, favoring the "asset allocation" theory discussed here in past articles. Daily NQ candles Another beautiful day for the Nasdaq futures, closing within a hair of their high of the day. A higher low, higher high, closing on a bullish hammer, a new year high on an intraday and closing basis, with the oscillators on confirmed buy signals. Even the Nasdaq and NDX volatility indices closed negative after staying stubbornly green for most of the session. 30 minute 20 day chart of the NQ It's pretty difficult to find any weakness on the 30 minute candle chart of NQ. The best I can do is the lower high on the stochastic, caused by the light pullback just before the session closed. Note that the Macd is in a bullish kiss well above the zero line. These are very bullish charts. A pullback tomorrow is implied by the stochastics, but given that its last downphase was truncated above the 60 line, I could just as easily see the move continue higher as the oscillators begin to trend in overbought territory. Daily ES candles ES had a higher high and higher low, but did not come close to challenging its year highs, significantly lagging the NQ contract. It too is on a stochastic buy signal, but the Macd has yet to confirm. GE spent the day getting sold off on higher than average volume, closing lower by 1.61% despite all the bullishness on the indices. 20 day 30 minute chart of the ES Same cyclical story on the ES as on the NQ. A lower high is seen on the stochastic, and a pullback looks more likely here than on the NQ, particularly given the relative weakness of this contract. Daily YM candles The Dow futures were so weak that they actually printed an inside day. 20 day 30 minute chart of the YM While the weakness in GE was a key factor in the weakness of the Dow relative to the S&P, and in their combined weakness relative to the Nasdaq, I believe that the relationship between the different contracts is telling. The charts of the NQ, ES and YM have tended to be similar in the past, but the NQ is now completely unique from its "bluer" chip peers. I believe we are seeing a speculative race for performance, with the smaller Nasdaq issues being traded for more for the short term technical characteristics of their stocks than for their merits as investments. I find it difficult to believe any rally during which GE is getting trashed for more than a percent during the entirety of the session. However, as we saw during the spring of 2000, the market can remain irrational for irrational lengths of time. Whether this is a genuine tech-led recovery, which I seriously, doubt, or whether it's beta-chasing by desperate fund managers using other people's money, or short squeezes, the rules remain the same. We must assume that the fun can continue "too" long, and that fundamentals will not matter in the short term. However, with earning's season in the process of kicking off, that last statement may well come back to haunt me. Trade safe, respect your stops, and see you at the bell. ******************** INDEX TRADER SUMMARY ******************** The "Sleeper"! No, I'm not talking about the movie that starred Woody Allen, I'm talking about Verne Gagne's wrestling hold he labeled "the sleeper," which when properly applied with both arms round his opponents head and neck would render the opposition defenseless and vulnerable as he was put to sleep. While my mind will sometimes wander during the day, especially during a rather steady or sideways type of session, as an SPX put holder that sees it slowly creeping back to the recent highs, I feel like Verne Gagne himself has whipped me against the ropes, and I've bounce right back into "the sleeper" hold as by bearish energy is slooooowly be drained from my starting to weaken knees and arms. What was the savior for one of Verne's opponents that had the physically debilitating hold slapped around his neck? German wrestler "Baron Von Raschke," a rather large man and evil counterpart to Verne Gagne could sometimes reach the ropes, where Verne's sleeper hold would have to be broken. One match I attended, Von Raschke had hidden is doubles partner "Mad Dog Vachon" under the ring apron, and during a critical juncture of the match, with Verne's sleeper hold firmly around the neck of the Baron, Vachon came into the ring with referee not looking and clawed the back of Verne Gagne with his razor sharp fingernails, allowing Von Raschke time to catch his wits and apply his equally debilitating "Claw" hold to Verne's forehead and temples to win the match. As a kid, I would leave the pro wrestling matches physically and emotionally drained. For the most part, the "good guys" won, but there was always a match or two where the "bad guy" would pull off the upset with some hidden surprise that would change the course of the match to allow for an upset. After watching today's trade, it would appear to me that bulls have slapped "the sleeper" around a bear's neck, and there just wasn't much fight to be found. And right now, it would appear, to keep the SPX, OEX or INDU from reaching their recent highs as the NDX/QQQ moves further above its June's highs for a second straight session, it would have to be some surprise of "bad news" to change the course of a bullish outcome. There were some "surprises" today, which did have impact on the markets. A bid by Yellow Corp. (NYSE:YELL) $23.35 -5.06% to buy competitor Roadway (NASDAQ:ROAD) $46.10 +53.56% for $48 per share in a stock/cash deal (a 59% premium to yesterday's close) sent trucking stocks into high gear. While it would be a stretch to say that every trucking stock is a takeover candidate at such a handsome premium to current levels of trade, only a bear holding shares of ROAD short could give proper color for caution. My younger sister might also be able to give some insight as to the effect "the sleeper" or the "claw" could have on a 10-year old, when applied with youthful enthusiasm from her 14-year old brother. I'll attest to the pain from my mother's hairbrush striking my backside after such wrestling holds were placed on "mom's little girl." Aside from ROAD, three other 4-lettered trucking stocks in the truckers held top spots for session gains as ABFS +17%, USFC +12.18% and ODFL +10.57% helped keep the NASDAQ Composite (COMPX) 1,746 +1.49% in positive territory for the better part of the session. While a NASDAQ-100 Index (NDX.X) 1,298 +1.28% or Tracking Stock (AMEX:QQQ) $32.28 +1.22% bull is pleased by today's gains, I don't see any trucking stocks helping comprise the NASDAQ-100. Bears that may have been looking for their own "Mad Dog Vachon" under the ring mat with an earnings report from aluminum producer Alcoa (NYSE:AA) $25.81 +0.38% didn't find a bearish surprise as the Dow component reported Q2 (June) earnings of $0.27 per share, which was 2 cents better than consensus. The company said revenues rose 5.9% year-over-year to $5.46 billion, which was also above consensus estimates of $5.34 billion. In after-hours trade, AA jumped 3.1% to $26.62 and sets off the earnings season with a bullish tone. Still, despite the upside earnings and slight growth in revenue, the company said it doesn't see anything at this point in its markets to signal an upturn in the economy. AA is component of INDU, SPX and OEX. Market Internals While today's major index action looked somewhat anemic if not uneventful, some of the shift back toward bullish leadership continued to build to the upside today. So bullish in fact, that the NASDAQ set a bull cycle high reading of 445 stocks trading new 52-week highs and surpassed the 439 new highs from June 6th. This has the 10-day ratio for NASDAQ NH/NL trending positive for a second straight session. For as "little" move as there seemed to be today, volume levels were higher at both the NYSE and NASDAQ and continues to show a high level of interest among market participants. Eye-catching to me is the 1.96 billion found at NASDAQ. On Wednesday of last week (July 2) I profiled the bearish trade in the SPX for partial positions from 980 and it is my current observation that the NH/NL for the NYSE was tabulated at the completion of that days trade, there's been a shift back toward bullish leadership in the 10-day average and in part is what I think has INDU, SPX and OEX bulls eyeballing the June highs, if not higher by today's close. And while the NH/NL categories are beginning to trend back higher and indicate bullish leadership, today's action in the bullish % charts shows more stocks beginning to once again generate new buy signals where demand is outstripping previous supply resistance. The NASDAQ-100 Bullish % ($BPNDX) saw a net gain of 2 stocks to point and figure buy signals and now reads "bull correction" at 79%, but just one buy signal short of "bull confirmed" and 80%. The also rather narrow S&P 100 Bullish % ($BPOEX) saw a net gain of 1 stock to a point and figure buy signal and now moves to a bull session high reading of 83%. The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 8 stocks to PnF buy signal, which is double that of yesterdays net loss of 4 stocks to sell signals. This has the bullish % back up to 78.8% like that found from June 25-27. The very narrow Dow Industrials Bullish % ($BPINDU) was unchanged at 86.67%. Both of the very broad NYSE Bullish % ($BPNYA) and NASDAQ Composite Bullish % ($BPCOMPQ) reached new bullish cycle high readings with more stocks giving new point and figure buy signals. While a rough estimate based on 3,000 stocks, the NYSE would have added 18 new buy signals with bullish % rising to 72.62%, and the NASDAQ adding roughly 24 new PnF chart buy signals with its bullish % growing to 71.78%. One stock listed on the NYSE that I profiled as bullish today was Autozone (NYSE:AZO) $79.26 +3.18%, but wanted to see the stock trade $79 and generate a new PnF buy signal. AZO is a component of the S&P 500 (SPX.X) S&P Depository Receipts (SPY) - $1 and $2 box I'm still working off the SPX's bullish vertical count of $108 as a potentially longer-term type of bullish objective for the S&P 500 Index (SPX.X) 1,007.84 +0.34% to 1,080. My (Jeff Bailey) biggest struggle with a bullish trade is the risk/reward, using a bullish target of $108/1,080, with risk to a stop of $96/9,060 at this point. However, I'm also showing this chart to solidify my belief at this point that a trader may want to honor a stop in a bearish trade at $104 or SPX 1,020 as previously profiled in the bearish trade. While I don't like the risk/reward in a bullish trade, the internals have me leaning in that direction. In my own account, I'm adding bullish trades like AZO in attempt to hedge, if not add a stock that I feel would outperform the SPX to the upside, and "underperform" some type of unraveling in the SPX at this point. Still, I'm looking under he ring mat, and see no sign of a "Mad Dog" Vachon. S&P 100 Index (OEX.X) Chart - 3-point box It's been awhile since we looked at the unconventional 3-point box scale of the OEX. After trading a bulls "finite stop" of 489 and falling to 486 intra-day on July 1st, it has been a move higher since. If bears are going to defend the high, and any bulls that didn't like what they saw at 489 and 486 sell into the rally, then I'd look for that to take place below 513, or 515 on the conventional 5-point box, which would have the PnF chart showing demand back in control. Bears are going to be hesitant to short with little reason other than a higher risk (bullish %) and good risk/reward trade with a tight stop just above the highs. Internals are strong and bears aren't going to be overly aggressive. Bulls might look to press the OEX to new highs with leadership being found in the NDX/QQQ and broader NASDAQ Composite making new highs. There leverage point may well be the psychological 500 level with the OEX having shown support today at WEEKLY R1 of 503.36. I've made note on the OEX chart that a bear looking for a entry point on weakness may well be served to wait for a 3-box reversal back lower on the above chart, which at this point would be 498. NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval The Q's moved right into a "zone of resistance from $32.14 to $32.40. In after-hours trade right here (as I type) the Q's tick by at $32.14 after heavyweight Microsoft (NASDAQ:MSFT) $27.70 +1.02% (slipping back at $27.51 in after-hours trade) said it was doing away with employee options and will expense stock to its employees from here on out. This will have MSFT writing down some past earnings and did see some selling into the stock. The only trade I feel "comfortable" with here is from a bulls perspective that is holding long, to snug a stop at $32.10 (give some room under $32.14) and see if the Nikkei-225 can't surge another 300-point before tomorrow's open. Then get ready to reload for a potential bullish entry back near $30.30 and see if DAILY Stochastics won't move back to "oversold" levels there. I monitored several 4-lettered stock, especially a bullish trade I was holding in non-NASDAQ-100 component Frontier Airlines (FRNT) $13.02 +13.41%. Not unlike the QQQ, FRNT opened lower, and once that bugger ticked green, you could really see the shorts come in and cover and this is on top of yesterday's 18.2% rise in the stock. It's this kind of action which has me very hesitant to profile a bearish trade in the NDX/QQQ as a bear really has little resistance to leverage off of, other than the MONTHLY pivot. I'd rather take my bearish chances where at least a recent high might keep some other bears interested and cast some resemblance of doubt to bulls. A stock on my list for some potential "squeeze" action to the upside tomorrow is Micron Technology (NYSE:MU) $14.00 +1.74%. Right at the close, the stock traded $14.00 and that was enough to generate a triple top buy signal and break the longer-term bearish resistance trend on the PnF chart. I looked at the NASDAQ site for short interest and find May 15 short interest was 45.98 million shares, and by June 13 that had built to 63.07 million. It's my best guess that bears may have been, or trying to leverage off the $14.00 level. I'm also thinking there might be some "techy-bears" that have seen the QQQ do a little dance higher the past couple of sessions that may look for the door tomorrow morning. I'd be looking to help them to the door with a trade at $14.07 and stop just under yesterday's gap higher open of $13.50. In tomorrow morning's 09:00 Update, I'd also keep an eye on Taiwan's Taiwan Weighted to see how it traded. Many chip foundries are in that part of the world and may give hint to tomorrow trade in MU. Dow Industrials (INDU) Chart - Daily Interval Please note! In last night's wrap, I had marked the WEEKLY R1 of 8,189.5 correctly, but I hadn't moved my horizontal red line up to this level. I couldn't figure out why this morning I was getting a downside alert in the INDU at WEEKLY R1 when it wasn't at my support level yet. I figure it out eventually. Sometimes I do believe I think too much, and when I do, things don't make a whole lot of sense on a near-term basis. After I wrote last night's wrap, I cut out to grab a late dinner. Wouldn't you know that I drive by a mall parking lot and what grabs my attention? One end of the mall's parking lot (corner of University Blvd. and C-470) here in Denver is full of brand new GMC pickups and sport utility vehicles. Is a car dealer repaving there parking lot, or is inventory overflowing? Now wonder GM couldn't get above it 200-day and 50-day SMA I begin thinking. Then, wouldn't you know it, GM trades higher today after it announces it updated July incentive policy (discounts, 0% financing, etc.) and then the Dow trades with even breadth for the bulk of the session, with GM +1.9% and HD +2.3% doing the bulk of any bullish gains, while KO -1.62% slices below its 50- day SMA to sit right on its 200-day SMA at the close. As I look at the Dow's bar chart, Stochastics have me thinking pullback to 9,030-9,063 with MACD not showing much sign by the close of crossing above Signal. While I personally "weight" MACD 20% and Stochastics 10% for any type of trade determination, I'd need to see a move above today's high in the Dow to then think MACD has a shot at crossing above signal. While AA has moved off its March lows like most technology stocks, they're making money in what still sounds like a difficult cyclical environment, one that is deeply rooted to the economy. Using AA earnings as a potential catalyst for an upside move (hey, maybe other stocks with earnings will have a few cents per share upside) you could push me toward the bullish side, but I'd also like to see SELLING in Treasuries on such a move above today's highs in the Dow. While the major indexes (excluding Russell-2000, NDX/QQQ) struggled to show gains today, it wasn't until the bond market's close (after seeing selling today) that the major indexes did move higher to the close to finish positive. When the Oscillator have me somewhat "neutral" going into a session, I tend to look for other types of signs to push me one way or the other. Pivot Analysis Matrix There are quite a few "early levels of support" correlation that were traded through today, with most finding the associated index closing above by today's close. The $100 level in the SPY shows up across the DAILY/WEEKLY/MONTHLY tomorrow and this isn't a stretch as today's trade in the SPY was rather narrow, and most likely ties to SPX 1,000. Jeff Bailey ************************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 $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************** MARKET SENTIMENT **************** Surprising strength, puzzling options Jonathan Levinson Today's session felt like the usual post flagpole rally rangebound drift, where the buyers run out of either courage or money, and the bears, emboldened by a return to relative normalcy, begin to press. Except that the Nasdaq drifted higher throughout the day, punctuating its move with an end of day ramp, while the SPX and Dow were relatively weaker, the Dow held back by GE in particular, which closed lower by 1.61%. It was nevertheless a green day for all the indices following yesterday's impressive gains. The put to call ratio stuck to the middle of its neutral range for most of the session, while the volatility indices were positive until the last half hour for the NDX and COMPX. The VIX was negative throughout. This action is puzzling, as the stronger indices should have shown negative volatility, while the weaker should have been higher. Instead, we saw the reverse. The only explanation I can propose is that the moves higher on the NDX and COMPX were accompanied by relatively higher levels of option buying, and the moves higher in the SPX and INDU were less so. Is it because some of the Nasdaq bullish speculation was being executed with long option plays at an institutional level? Or were institutions buying in their short contracts, willing to pay extra for them? We'll find out in tomorrow's session. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9353 52-week Low : 7197 Current : 9223 Moving Averages: (Simple) 10-dma: 9087 50-dma: 8866 200-dma: 8400 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 1007 Moving Averages: (Simple) 10-dma: 983 50-dma: 958 200-dma: 894 Nasdaq-100 ($NDX) 52-week High: 1299 52-week Low : 795 Current : 1299 Moving Averages: (Simple) 10-dma: 1227 50-dma: 1183 200-dma: 1051 ----------------------------------------------------------------- More of the same. The VIX remains in its horizontal range of investor complacency. The VXN has actually continued its bounce from the 30 level but may be setting a lower high. CBOE Market Volatility Index (VIX) = 21.37 -0.68 Nasdaq-100 Volatility Index (VXN) = 33.49 -0.02 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.63 655,944 414,796 Equity Only 0.48 561,053 268,383 OEX 1.18 15,133 17,860 QQQ 2.35 14,588 34,349 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.6 + 1 Bull Confirmed NASDAQ-100 79.0 + 3 Bull Correction Dow Indust. 86.6 + 3 Bull Confirmed S&P 500 78.8 + 1 Bull Confirmed S&P 100 83.0 + 2 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.02 10-Day Arms Index 0.98 21-Day Arms Index 1.07 55-Day Arms Index 1.10 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 -NYSE- -NASDAQ- Advancers 1672 2004 Decliners 1164 1056 New Highs 334 438 New Lows 10 11 Up Volume 1086M 1555M Down Vol. 751M 426M Total Vol. 1873M 1996M M = millions ----------------------------------------------------------------- ***NEW COT DATA and COMMENTARY*** Commitments Of Traders Report: 07/01/03 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 There doesn't appear to be much change in the commercial or small traders positioning since the previous week's big move. Big money remains net short while retail traders remain heavily net long. Commercials Long Short Net % Of OI 06/10/03 456,967 455,024 1,943 0.2% 06/17/03 519,887 501,401 18,486 1.8% 06/24/03 405,382 447,526 (42,144) (4.9%) 07/01/03 415,976 453,005 (37,029) (4.3%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 06/10/03 199,356 185,403 13,953 3.6% 06/17/03 202,040 184,028 18,012 4.6% 06/24/03 159,405 85,182 74,223 30.3% 07/01/03 150,232 75,937 74,295 32.8% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Sometimes it is amazing how the relationship between commercial traders and small traders continue to play out. Traditionally, institutional traders (commercials) are historically on the right side of the trend week in and week out. Despite this success the small trader is generally on the opposite side. This time big money is showing their most bullish reading in quite some time while the small traders is the complete opposite and marking their most bearish reading in many a month. Commercials Long Short Net % Of OI 06/10/03 270,359 543,221 (272,862) (33.5%) 06/17/03 306,279 661,114 (354,835) (36.6%) 06/24/03 150,208 201,724 (51,516) (14.6%) 07/01/03 175,893 216,993 (41,100) (10.5%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: (41,100) - 07/01/03 Small Traders Long Short Net % of OI 06/10/03 498,999 49,689 449,310 81.9% 06/17/03 466,837 70,609 396,228 73.7% 06/24/03 84,081 44,347 39,734 30.9% 07/01/03 57,639 67,449 9,810 7.8% Most bearish reading of the year: 9,810 - 07/01/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 It looks like the commercials have been caught off guard. They are growing increasingly bearish on the NDX, which is hitting new 52-week highs. Either institutions are expecting a reversal soon or this has been a painful bout of denial as tech stocks continue to rally higher. Commercials Long Short Net % of OI 06/10/03 42,877 45,793 (2,916) (3.3%) 06/17/03 60,964 65,561 (4,597) (3.6%) 06/24/03 28,780 47,425 (18,645) (24.4%) 07/01/03 28,662 48,265 (19,603) (25.5%) Most bearish reading of the year: (19,603) - 07/01/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/10/03 14,759 7,761 6,998 31.1% 06/17/03 29,400 23,232 6,168 11.7% 06/24/03 24,519 7,064 17,455 55.3% 07/01/03 26,777 8,498 18,279 51.8% 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 The action in the INDU futures remains somewhat dull after watching the big moves in the e-minis above. As expected small traders are fading the commercials who are net long. Commercials Long Short Net % of OI 06/10/03 17,368 15,263 2,105 6.5% 06/17/03 20,625 18,593 2,032 5.1% 06/24/03 19,373 11,565 7,808 25.2% 07/01/03 20,504 11,871 8,633 26.7% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 06/10/03 7,968 8,316 ( 348) ( 2.1%) 06/17/03 9,092 9,398 ( 306) ( 1.6%) 06/24/03 5,950 7,442 (1,492) (11.1%) 07/01/03 5,799 6,822 (1,023) ( 8.1%) 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 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 ************************************************************** ****************** WEEKLY FUND SCREEN ****************** Bankerage Accounts Conservative investors seeking a higher yield than is currently offered by prime-retail money market funds may want to consider the higher current yields offered by Internet banks. With some of these online banks, you can earn significantly more in yield on your accounts than the national average. Take, for instance, the NetBank NetVantage Money Market Account (www.netbank.com), which currently sports an annual percentage yield of 2.00%, more than twice the 0.97% national average, per Bankrate.com (July 1). In addition to higher yields, some online checking accounts and money market accounts have low to no fees. Using NetBank again as an example, individuals can choose between a no-fee interest- bearing checking account and a higher-yielding low-fee checking account. There is no minimum balance required to earn interest and the bank offers free and unlimited online bill-pay services. You can apply for a free ATM card and a VISA check (debit) card as well. NetBank, like other Internet banks, offers "24/7" account access via wireless or World Wide Web, as well as access to hundreds of ATM machines globally, many of which also accept deposits. Best of all, the bank is a member of the FDIC, which means your money is protected up to $100,000 per depositor. You are well advised, however, to read and understand all terms, conditions, risks and fees involved before investing. Screening/Evaluation Process Since we're moving out of the mutual fund universe into the land of Internet bank deposits there is no Morningstar or Lipper fund screener to help us narrow the list of potential bank candidates. The July 2003 issue of Kiplingers Personal Finance rated various "bankerages" on such things as synergy, bank fees, ATMs, CDs and interest accounts. In addition, Kiplingers rated each bankerage on an overall basis, putting all things together. In its survey, Kiplingers gave NetBank a 5-star (highest) rating for interest checking account. Below is a summary of the online bankerages that are currently rated 5 stars (highest) or 4 stars (above average) by Kiplinger for checking-account interest. 5 Stars, NetBank (www.netbank.com) 888-256-6932 4 Stars, Wells Fargo (www.wellsfargo.com) 800-869-3557 4 Stars, E*Trade (www.etrade.com) 800-387-2331 Only three of 11 funds surveyed received 4 stars or 5 stars for interest. In addition to receiving the top rating for interest on checking accounts, NetBank also scored well in terms of its commissions, sweeps, and bill-pay services. However, NetBank sports only an average 3-star overall rating by Kiplingers, taking into consideration 1-star ratings for synergy, research, and cost basis information. Wells Fargo is also three- star rated by Kiplingers, while E*Trade is rated 2 stars overall. Wells Fargo is rated better than NetBank in the terms of synergy, cost basis information and mutual fund costs. If these are more important to you than having the highest yield, you may find the Wells Fargo interest checking accounts to be more suitable money market fund alternative. Our Favorite Bankerage While Wells Fargo and E*Trade offer more in synergy than NetBank does, NetBank's annual percentage yields are the highest that we know of. NetBank offers three types of interest accounts, which vary in their rate (yield) and fees. The no-fee NetBank NetValue Checking Account currently offers an annual percentage yield (APR) of 1.40% compared to 0.29% for the Bankrate.com national average. It may be the best value of the three accounts since there are no fees for online statements, no fees for bill-pay services, and no charge for ATM and VISA cards. The low-fee NetBank SuperValue Checking Account currently sports an APR of 1.80% (versus 0.29% for the Bankrate national average). There is a monthly service charge of $4.50 for checking accounts that have an average daily balance of $100 or more. The monthly charge is $9.00 on checking accounts with average daily balances under $100. The high-yield NetBank NetVantage Money Market Account sports an annual percentage yield of 2.00% today compared to 0.97% for the Bankrate national average. NetBank's website indicates that you can also use this NetVantage account as overdraft protection for your NetBank checking account. They are also quick to point out that the money market account is FDIC-insured up to $100,000 per depositor. Note that NetBank is currently offering a promotion that says if you open and fund a money market and checking account, you'll be eligible for a $75 bonus, first-time NetBank customers only. To receive this bonus, one has to maintain an average daily balance of at least $1,500 in their checking account for a minimum of 30 days and average daily balance of at least $5,000 in their money market account for a minimum of 30 days. If you can comfortably meet these requirements, a NetVantage Money Market Account might be worth considering. Conclusion According to the NetBank website, the bank takes the monies saved by being "branchless" and passes them on to individuals and small businesses in the form of better rates, lower fees and more value overall. A Kiplinger 5-star highest rating for interest accounts supports that notion. Investors seeking an alternative to the low yields of money funds may want to look at NetBank's NetVantage Money Market Account and its 2.00% annual percentage yield. For complete information, log on to the NetBank website at www.netbank.com. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. 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The Option Investor Newsletter Tuesday 07-08-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: MRK Dropped Puts: ICOS Call Play Updates: ABC, AGN, AMGN, DGX, EBAY, GS, HAR, PGR, PHM New Calls Plays: PCAR Put Play Updates: INTU, SIVB, WFMI New Put Plays: BLL **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** Merck & Company - MRK - close: 61.66 change: -0.23 stop: 59.75 In a strong bullish market, the rising tide often floats all the boats. But that dynamic certainly doesn't appear to be at work in our MRK play. The stock has gotten more volatile in recent sessions, but really hasn't been able to make any upward progress with the $62 level providing stubborn resistance. Of course, the breakout from this consolidation could be just around the corner, but we've lost patience with the stock, especially with all the other better opportunities out there. Rather than wait and hope, we're pulling the plug tonight to focus on stronger plays. Traders remaining in the play should maintain stops just below $60 at our featured stop of $59.75. Picked on June 17th at $62.37 Change since picked: -0.71 Earnings Date 07/21/03 (unconfirmed) Average Daily Volume = 6.10 mln Chart link: PUTS: ***** ICOS Corp - ICOS - close: 41.21 change: +2.11 stop: 40.01 We've been extra cautious on this play ever since ICOS and LLY announced their latest Cialis application to the FDA on July 2nd. It looked like shares might failed again as it spent two days consolidating under the $40.00 level of resistance but the breakout today was too much. We were stopped out at $40.01. To be honest, we're a little surprised at the big move for ICOS today after its partner LLY was downgraded by Bernstein Research this morning. Bears need to be careful as ICOS and LLY will probably rally strongly on the expected FDA approval of their Cialis drug, which is expected anytime in the second half of 2003. Picked on June 29th at $37.62 Change since picked: +3.59 Earnings Date 08/05/03 (unconfirmed) Average Daily Volume = 2.63 million Chart link: ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************** PLAY UPDATES - CALLS ******************** AmerisourceBergen - ABC - cls: 72.19 change:-1.11 stop: 69.95 After vaulting to a new high above $73 during Monday's runaway bullish session, our ABC play was due for a bit of profit taking, especially after closing well above its upper Bollinger band. So even though the broad market managed to edge just a bit higher, ABC pulled back to find support near $72 by the end of Tuesday's consolidation session. The trend still looks quite bullish, but a bit more weakness would not be out of the question before the stock once again resumes its climb towards our $74-75 target. A rebound from $72 tomorrow might make for a decent entry, although we wouldn't be surprised to see the $71 level tested as support before the bulls regain control. After serving as strong resistance for several weeks, $70 should now be strong support, backed up by the 10-dma, now at $70.36. Keep stops set at $69.95 for now. Picked on June 26th at $70.00 Change since picked: +2.19 Earnings Date 07/24/03 (confirmed) Average Daily Volume = 1.46 mln Chart link: --- Allergan, Inc. - AGN - close: 81.51 change: +0.30 stop: 78.50*new* Following the lead of the broad markets, AGN broke from its recent consolidation with gusto on Monday vaulting over the $81 level and closing at a new 52-week high. While today's fractional gain paled by comparison, we certainly won't complain about a new high today. The stock looks like it could break out again later this week, brining the $84-85 into play as the next upside target, as that was the site of some significant congestion in early 2001. Aggressive traders can take advantage of a break over $81.60 (today's intraday high) to enter new momentum-based positions. The early rebound from $80 on Tuesday looked pretty convincing, and traders looking for an entry on a pullback should look for a rebound from above that level. We're raising our stop again tonight, this time to $78.50, which is just below Monday's opening level. Picked on June 26th at $78.74 Change since picked: +2.77 Earnings Date 07/23/03 (confirmed) Average Daily Volume = 1.10 mln Chart link: --- Amgen, Inc. - AMGN - close: 69.99 change: +1.08 stop: 67.50*new* Nailing our initial upside target of $70 perfectly on Tuesday, AMGN provided the perfect opportunity for conservative traders to harvest profits Tuesday afternoon. That was the advice provided in Monday's Play of the Day writeup, as we've seen time and again how the stock tends to run to a new high, consolidate at higher support and then continue higher from there. Recall that our final target for the play is $72, which is also the bullish price target from the PnF chart. From Tuesday's close at $70, that leaves just over $2 of upside potential to the point where we want to exit any open positions. So while the 50-dma ($63.73) is probably still the point to look for strong support, it doesn't seem wise to leave that much risk in the play, with such a small amount of additional expected profit potential. The $67.50 resistance was soundly broken on Monday's strong rally and we're now going to set our stop there. Even aggressive traders shouldn't be taking more risk than that to achieve the $72 price target. AMGN is looking extended here and we expect a pullback before additional gains are tacked on, so we aren't advocating new positions, except perhaps on a pullback and rebound from the $68.50 area. Regardless of entry point, we're recommending sticking with the tighter stop at $67.50. Picked on June 24th at $65.05 Change since picked: +4.94 Earnings Date 07/22/03 (confirmed) Average Daily Volume = 10.1 mln Chart link: --- Quest Diagnostics - DGX - cls: 67.95 chng: +0.12 stop: 64.50*new* Coming to rest just below important support near $66 last Thursday, DGX looked like it was primed for a strong breakout from its long-term bullish triangle pattern and did it ever! Starting with a solid gap up on the broad market strength yesterday, the stock vaulted to just below $68 by the close. That strength carried through to Tuesday's session, and the stock managed an intraday high of $68.80 before gravity took hold and pulled DGX back to earth. That pullback should come as no surprise to technicians, as today's high had the stock extended nearly $1.50 above its upper Bollinger band. Showing the bullish undertones in the stock, DGX still managed to close well above that band on Tuesday and is looking strong. Traders that passed on the early entry on Monday's breakout would be wise to exercise caution in chasing the stock higher at this point, as a mild pullback seems in order to allow the technicals to catch up. The best site for new entries at this point would be on a pullback to the $65.50-66.00 area, as that level needs to be confirmed as new-found support. Note that we've raised our stop to $64.50, which is below what should be strong support and the 10-dma (currently $64.71). Picked on July 1st at $65.78 Change since picked: +2.17 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 905 K Chart link: --- eBay Inc - EBAY - close: 113.80 change: -0.11 stop: 109.00 The bullish stampede on Wall Street has been led by the Internet stocks and leading the net stocks is EBAY. Shares have moved up almost non-stop from their breakout above the $104 level last week. That was until today. Tuesday's session actually saw EBAY pause to digest some of its recent gains. Goldman Sachs put out a research note this afternoon wherein the broker expects strong results from the Internet sector in the second quarter and throughout the second half of 2003. The last several days we've been suggesting that traders with profitable positions take some money off the table. That's still a valid concern. Meanwhile, aggressive traders still looking for an entry point into any remaining earnings momentum before EBAY's announcement might want to look for a bounce from the $110.00 level. At this point, the play has moved from aggressive to high-risk and should be entered cautiously. Yesterday we raised our stop loss to $109.00 but specifically stated that this may be too wide for many investors and suggested tighter stops to protect profits. Picked on June 27th at $104.05 Change since picked: +9.75 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 6.76 million Chart link: ---- Goldman Sachs Grp. - GS - cls: 88.06 chng: +0.32 stop: 84.50*new* While much of the broad market was mired in a tight-range consolidation session on Tuesday, the same can't be said of the Brokerage sector (XBD.X), which vaulted higher by 2.90% and closing at its high of the day, its best level since early 2001. Now that's a breakout! While it can't compare to that strength, our GS play has had a solid week too. The stock broke from its recent consolidation yesterday morning with a strong gap and run session that took it to just below $88 and the bulls followed through today, managing a close just above that level. The question now is whether GS will be able to build on its recent gains, taking advantage of the sector strength, and challenging its June highs in the $91-92 area. A pullback into the $86.50- 87.00 area looks good for new entries, while momentum traders may want to consider new positions on a breakout over $88.75 (resistance in early June). We're still maintaining a fairly wide stop at $84.50, which is just below the bottom of Monday's gap. Picked on July 1st at $85.85 Change since picked: +2.21 Earnings Date 09/24/03 (unconfirmed) Average Daily Volume = 4.38 mln Chart link: --- Harman Intl - HAR - close: 81.65 change: -0.75 stop: 77.75*new* While news has been a bit quiet on HAR it hasn't stopped bullish traders from pushing the stock higher. Monday's big market rally lifted HAR with a strong gap open near 81.40 and the intraday buying appeared steady all day long. Shares ended Monday at $82.40. This latest push sent HAR up towards the top of its current channel. Now there's nothing in the books that says it can't pierce through the top of its channel and keep climbing but the stronger bet would be to look for a pull back. A dip and bounce above $80.00 is probably the best entry for short-term bulls. More patient traders can still hope for a pull back to the 21-dma, which has been more intermediate support and offers the best risk-reward. Meanwhile, we're raising our stop near the simple 21-dma to $77.75. Picked on July 6th at $80.26 Change since picked: +1.39 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 321 thousand Chart link: --- Progressive Corp. - PGR - cls: 74.98 chng: +0.03 stop: 73.25*new* After rebounding from the bottom of its longer-term ascending channel near $72.50 last week, shares of PGR have managed to advance a bit more this week, but the stock is definitely lagging the action in the broader market. The early surge yesterday morning found resistance just below $76 and PGR quickly fell back to the $75 area where it consolidated right into the closing bell today. One significant factor that is likely keeping the stock from advancing significantly could be the lack of upside conviction from the Insurance index (IUX.X), which is still struggling beneath the $274-275 resistance zone. A breakout of the IUX over $276 might provide just the catalyst for PGR to finally break free of its own resistance near $76.40 and advance towards round number resistance at $80. Another dip and rebound from above the $74 level still looks good for new entries, as PGR continues to hold near its all-time highs. Those looking for momentum entries will want to wait for both PGR to clear $76.40 and the IUX to crest $276. Raise stops to $73.25 tonight, which is essentially break-even and just below the lower channel line. Picked on June 15th a $73.27 Change since picked: +1.71 Earnings Date 07/16/03 (confirmed) Average Daily Volume = 912 K Chart link: --- Pulte Homes - PHM - close: 64.95 change: +0.48 stop: 60.50 We remain encouraged by the rebound in shares of PHM but it appears Pulte is lagging sector leaders like Lennar (LEN), Beazer (BZH) and Ryland (RYL). There's been a lot of discussion about the housing market and how the group will weather the second half of the year considering its already strong performance for 2003. Many proponents of the group continue to highlight the how much the sector is undervalued on a P/E basis compared to the S&P 500. With so much room for P/E expansion (a.k.a. share price appreciation) investors should continue to push money into these stocks. The real test will be the Q2 earnings reports and management's guidance going forward. Meanwhile, competitor Beazer Homes announced on Monday that preliminary orders for the quarter ending in June were up 12%. Focusing on PHM we like how the stock has been hugging its 50-dma and using it as short-term support. Its MACD is about to produce a bullish buy signal (it will probably take another couple of days). More conservative traders may want to see a strong move over $65 or $66 before evaluating an entry. Yesterday we raised our stop loss on the stock to $60.50, which is just below the recent intraday low on the 1st of July. Picked on July 01 at $63.52 Change since picked: +1.43 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 767 thousand Chart = ************** NEW CALL PLAYS ************** PACCAR Inc. - PCAR - close: 73.49 change: +0.84 stop: 69.00 Company Description: PACCAR is a global technology leader in the design, manufacture and customer support of high-quality, light-, medium- and heavy- duty trucks under the Kenworth, Peterbilt, DAF and Foden nameplates. It also provides financial services and distributes truck parts related to its principal business. In addition, the Bellevue, Washington-based company manufactures winches under the Braden, Gearmatic and Carco nameplates. (source: company press release) Why We Like It: Auto-related stocks are en vogue this week, bolstered by the Dana Corp - ArvinMeritor news today. We're not suggesting PCAR is any sort of takeover candidate or acquirer but it's one stock we've been wanting to play. The relative strength in this equity has been nothing short of phenomenal. The breakout over $50.00 in March this year was the beginning of a very powerful new up trend. After peaking just above $72 around June 12th, shares of PCAR slowly consolidated back to its rising 30-dma before rebounding strongly back over the $70 mark last Thursday. The recent strength above the previous high should have shorts running scared. Dividend paying stocks are also drawing investors and PCAR announced another quarterly dividend today. The shareholder record date is August 18 with a payable date of September 5th. The only challenge here is the dividend is just 22 cents a share, which doesn't equate to much of a yield on a $73 stock. However, we also suspect that momentum traders may be hoping for a stock split announcement with PCAR's July 24th earnings report. The stock last split 3-for-2 on May 29th, 2002 in the $70 range. Currently, PCAR has 116.2 million shares outstanding and management is authorized to issue 200 million. That's more than enough for another 3-for-2 split. We're suggesting new short-term long positions at current levels with an eye on $80.00 as our short-term target. However, if given the opportunity a dip (and bounce) back near the $70.00 area would be the preferred entry point for bullish positions. Our initial stop loss will be $69.00, which might be about $1 too tight for more aggressive types. Currently we do not plan to hold over the July 24th earnings announcement but we'll reconsider this position as it approaches. Suggested Options: Given our two-week time frame our choice of options would be August strikes. Those wishing for more time should look to the November calls. The 70 and 75 strikes are probably the easiest to play. The $80 strikes are new and should have bid/ask prices soon. BUY CALL AUG 70 PAQ-HN OI= 284 at $5.40 SL=3.00 BUY CALL AUG 75 PAQ-HO OI= 277 at $2.60 SL=1.40 BUY CALL AUG 80 PAQ-HP OI= 0 at $ -- SL= -- new option BUY CALL NOV 70 PAQ-KN OI=2046 at $7.90 SL=5.25 BUY CALL NOV 75 PAQ-KO OI= 88 at $5.10 SL=3.00 BUY CALL NOV 80 PAQ-KP OI= 0 at $ -- SL= -- new option Annotated Chart: Chart link: Picked on July 08 at $73.49 Change since picked: +0.00 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.24 million Chart = ************************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 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Intuit Inc - INTU - close: 43.98 change: -0.87 stop: 45.55 Shares of INTU were looking pretty good to the bears this morning. The stock dropped quickly on no news after its third failed attempt (on Monday) to breakout over the $45.50 level of resistance. The early weakness actually pierced INTU's rising 50-dma and traded to a low of $43.15. This triggered us into the play at $43.35. While we are currently triggered we're cautious on new positions. The afternoon rebound in shares of INTU and the general bullish environment make trading bearish plays rather tough. Nimble traders might want to try opening new bearish positions on any new failed rally at $45.00 or $45.50 but we'd actually suggest waiting for further weakness to confirm the new trend lower. Our stop is $45.55. Be forewarned, INTU's many oscillators are mixed but its MACD is hinting at a potential bullish turn around. New weakness under today's low would certainly be comforting. Picked on July 8th at $43.35 Change since picked: +0.63 Earnings Date 08/13/03 (unconfirmed) Average Daily Volume = 4.1 million Chart link: --- Silicon Valley Bancshares - SIVB - close: 23.97 change: +0.04 stop: 24.90*new* Finding weakness in the current bullish market environment is not an easy task, but our SIVB play seems to be performing fairly well in that respect. After rolling over from the site of the 50-dma last week, the stock has been trading in a fairly tight range, between $24.25-23.50. It is particularly encouraging that the stock has not been able to benefit from the broad market strength or the upside action in the Financials this week, and should we see some significant weakness in that area of the market, it could be just the catalyst to push SIVB below support. The tight range over the past week also gives us some solid action points to work with. Failed rebound attempts below $24.25 can be used for new entries, as can a break below $23.40. For now, we're maintaining our stop at $24.90, which is below the 20- dma ($24.72) as it crosses below the 50-dma ($24.85). Picked on June 24th at $22.82 Change since picked: +1.15 Earnings Date 07/17/03 (unconfirmed) Average Daily Volume = 709 K Chart link: --- Whole Foods - WFMI - cls: 47.55 chg: +1.32 stop: 48.26*new* Holy Cow! What's that? Is there still life in this stock? Shares of WFMI actually rallied some 2.85 percent on Tuesday after completely ignoring the broad market rally in Monday's session. The stock had hit new relative lows on Friday and Monday fueled by stronger than normal volume. We were counting on bears to finally pushing WFMI to its support at $45.00. Alas we'll have to wait. The rebound today was on no news and we couldn't find any positive news on any of its rival grocers. We're going to lower our stop loss from $48.51 to $48.26. An alternative tighter stop at $48.01 isn't a bad choice either. We would expect the $48 level to act as new overhead resistance. New positions are not recommended but aggressive traders might consider a failed rally at $48.00. Picked on June 13 at $49.44 Change since picked: -1.89 Earnings Date 07/30/03 (unconfirmed) Average Daily Volume: 1.6 million Chart = ************* NEW PUT PLAYS ************* Ball Corporation - BLL - close: 45.14 change: -0.85 stop: 47.50 Company Description: Ball Corp. is a manufacturer of metal and plastic packaging, primarily for beverages and foods, and a supplier of aerospace and other technologies and services to commercial and governmental customers. Ball's principal business is the manufacture and sale of rigid packaging products, primarily for beverages and foods. Polyethylene terephthalate packaging is the company's newest product line. The aerospace and technologies segment includes civil space systems, defense operations and commercial space operations. The defense operations business unit includes defense systems, systems engineering services and advanced antenna and video systems, as well as electro-optics and cryogenic systems and components. Why we like it: As hard as it is to find solid bearish plays in a bullish market environment, we think we've got one here. BLL first caught our attention in the middle of May when it broke below support near $55. But we avoided adding it to the playlist due to all the congestion resting in the $52-54 area. Once that was broken, the stock seemed to have a fair amount of support in the $46-48 area, so we passed up another opportunity. Well, over the past month, the bears have chewed through even that level of support and it looks like an imminent breakdown below $45 could be at hand. The PnF chart is totally bearish, with a price target of $34. Realistically, if the $45 support fails, then BLL ought to seek out next strong support in the $39-40 area, with support likely to be found near the $38 bullish support line on the PnF chart. One thing that is particularly appealing about this stock is the way it has found strong resistance just over $46 over the past couple weeks, indicating that this broken support level has left behind a fair amount of supply. Showing the strength of overhead resistance that has now built up, yesterday's strong (volume-backed) rebound to the $46 level was reversed just as sharply (on equally heavy volume) on Tuesday. There are a couple ways to play this one, with the most obvious being to enter on a failed rebound near $46 or even as high as $47, which should now be very strong resistance. That was intermediate support on the way down a month ago, and now the 20-dma ($46.81) and 30-dma ($47.39) are bearing down to reinforce that resistance. Momentum traders will want to enter on a break below $44.25, which is just below the intraday low on July 1st. There may be some mild historical support near $44 and then again at $42, but we're looking for continued weakness to extend down towards the $40 level before any significant buying interest is found. Unfortunately, our BLL play will have to be fairly brief, as the company is scheduled to issue its July earnings report on the 24th, which gives us just over 2 weeks to play. Initial stops should be placed at $47.50, just over the 30-dma. Suggested Options: Short-term traders will want to focus on the July 45 Put, as it will provide the best return for a short-term play. Conservative traders looking for a larger move down towards the $40 level or below will want to utilize the August 45 contract, which provides greater insulation from the spectre of time decay. Note that July contracts expire next week. BUY PUT JUL-45 BLL-SI OI=294 at $0.95 SL=0.50 BUY PUT AUG-45 BLL-TI OI=291 at $1.90 SL=1.00 BUY PUT AUG-40 BLL-TH OI=431 at $0.60 SL=0.25 Annotated Chart of BLL: Picked on July 8th at $49.45 Change since picked: +0.00 Earnings Date 07/24/03 (confirmed) Average Daily Volume = 586 K Chart link: ************************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: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 07-08-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: CALL - PCAR ********************** PLAY OF THE DAY - CALL ********************** PACCAR Inc. - PCAR - close: 73.49 change: +0.84 stop: 69.00 Company Description: PACCAR is a global technology leader in the design, manufacture and customer support of high-quality, light-, medium- and heavy- duty trucks under the Kenworth, Peterbilt, DAF and Foden nameplates. It also provides financial services and distributes truck parts related to its principal business. In addition, the Bellevue, Washington-based company manufactures winches under the Braden, Gearmatic and Carco nameplates. (source: company press release) Why We Like It: Auto-related stocks are en vogue this week, bolstered by the Dana Corp - ArvinMeritor news today. We're not suggesting PCAR is any sort of takeover candidate or acquirer but it's one stock we've been wanting to play. The relative strength in this equity has been nothing short of phenomenal. The breakout over $50.00 in March this year was the beginning of a very powerful new up trend. After peaking just above $72 around June 12th, shares of PCAR slowly consolidated back to its rising 30-dma before rebounding strongly back over the $70 mark last Thursday. The recent strength above the previous high should have shorts running scared. Dividend paying stocks are also drawing investors and PCAR announced another quarterly dividend today. The shareholder record date is August 18 with a payable date of September 5th. The only challenge here is the dividend is just 22 cents a share, which doesn't equate to much of a yield on a $73 stock. However, we also suspect that momentum traders may be hoping for a stock split announcement with PCAR's July 24th earnings report. The stock last split 3-for-2 on May 29th, 2002 in the $70 range. Currently, PCAR has 116.2 million shares outstanding and management is authorized to issue 200 million. That's more than enough for another 3-for-2 split. We're suggesting new short-term long positions at current levels with an eye on $80.00 as our short-term target. However, if given the opportunity a dip (and bounce) back near the $70.00 area would be the preferred entry point for bullish positions. Our initial stop loss will be $69.00, which might be about $1 too tight for more aggressive types. Currently we do not plan to hold over the July 24th earnings announcement but we'll reconsider this position as it approaches. Suggested Options: Given our two-week time frame our choice of options would be August strikes. Those wishing for more time should look to the November calls. The 70 and 75 strikes are probably the easiest to play. The $80 strikes are new and should have bid/ask prices soon. BUY CALL AUG 70 PAQ-HN OI= 284 at $5.40 SL=3.00 BUY CALL AUG 75 PAQ-HO OI= 277 at $2.60 SL=1.40 BUY CALL AUG 80 PAQ-HP OI= 0 at $ -- SL= -- new option BUY CALL NOV 70 PAQ-KN OI=2046 at $7.90 SL=5.25 BUY CALL NOV 75 PAQ-KO OI= 88 at $5.10 SL=3.00 BUY CALL NOV 80 PAQ-KP OI= 0 at $ -- SL= -- new option Annotated Chart: Chart link: Picked on July 08 at $73.49 Change since picked: +0.00 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.24 million Chart = ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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