The Option Investor Newsletter Sunday 07-13-2003 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: Conflicting Evidence Futures Market: Week in flux Index Trader Wrap: WHIPPY Editor's Plays: Still On Target Market Sentiment: Trend change? Ask the Analyst: Weighting your account bullish and bearish Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 7-11 WE 7-04 WE 6-27 WE 6-13 DOW 9119.59 + 49.38 9070.21 + 81.16 8989.05 -211.70 + 83.63 Nasdaq 1733.93 + 70.48 1663.45 + 38.19 1625.26 - 19.46 + 18.23 S&P-100 502.48 + 6.40 496.08 + 4.47 491.61 - 10.78 + 4.57 S&P-500 998.14 + 12.44 985.70 + 9.48 976.22 - 19.47 + 7.08 W5000 9610.89 +148.38 9462.51 +104.02 9358.49 -153.14 + 57.47 RUT 473.77 + 17.42 456.35 + 7.60 448.75 - 0.81 - 0.15 TRAN 2545.58 +130.27 2415.31 - 1.72 2417.03 - 25.25 - 13.28 VIX 20.72 - 0.89 21.61 - 0.10 21.71 + 0.62 - 1.79 VXN 32.80 + 0.33 32.47 + 1.54 30.93 - 1.41 - 2.12 TRIN 0.94 1.98 1.93 1.00 Put/Call 0.98 1.07 0.99 0.51 ****************************************************************** Conflicting Evidence Conflict brews over President Bush's apparently unsupported allegation that Iraq had sought uranium from Niger, with that statement made during his January State of the Union address. Friday afternoon, CIA Director George Tenet took the blame. CNBC reported on the issue all afternoon, noting that questions about the issue dogged President Bush in his trip in Africa, a trip he intended to focus attention on other issues. Conflicting evidence presents itself in a study of the markets, too. Economic numbers released this week muddied the economic picture, with this week's much worse-than-expected initial claims numbers conflicting with last week's much better-than-expected ISM services number. Today saw the release of May trade deficit and June PPI numbers, with the trade gap widening to $41.8 billion, in line with expectations that ranged from $41.5 billion to $42 billion. Exports rose 0.9 percent while imports rose 0.7 percent. Increased sales of autos, capital goods, and industrial materials added to export figures, while the imports figure rose in part due to the declines in the U.S. dollar. Are we really importing more goods? The same volume of imports now costs more U.S. dollars, and those figures are recorded in U.S. dollars, but some do believe the higher figure resulted from increasing demand for capital goods and industrial materials. June core PPI, which excludes energy and food, fell 0.1 percent rather than rising 0.3 percent as had been expected. PPI climbed 0.5 percent. The falling core PPI gave rise to debates whether deflation worries might be legitimate, but the number certainly reflects a continued inability to raise prices among the producers. Dow biggie General Electric reported Q2 earnings that met expectations, but the bellwether stock narrowed its 2003 expectations to $1.55 to $1.61 per share from its earlier estimate of $1.55 to $1.70 per share. While some also characterized this guidance as being in line since many analysts had pegged the expectations at $1.60 per share, others reacted more negatively and the stock lost 0.25 percent. Whether this number was expected or not, it did not suggest an economic rebound underway. GE traded as high as 28.85 and as low as 27.99 on higher-than-average volume on a light-volume day on the indices, but closed at 28.12. GE blamed higher plastics and oil costs for the narrowed expectations. While the quarterly earnings of 38 cents per share met expectations, they were below the year-ago earnings of 44 cents per share. Revenue, although above expectations, was also slightly below year-ago levels. Coca-Cola will also be battling conflicting evidence, as a former employee filed a wrongful termination suit against the company in which he charged that the company pumped up revenues and manipulated product test studies. The Justice Department now investigates, adding its heft to the SEC, which began an inquiry into the charges a month ago. During that month, KO has traded down from its June high of $48.34 to today's closing price of $43.91. Although down $0.10 today, KO bounced from its low of 43.35 to close at 43.91. Foreign markets presented conflicting evidence of global economic strength or weakness. The Nikkei fell 320.27 points or 3.22 percent in Friday's trading, but other global bourses took little notice. The FTSE 100 closed up 0.73 percent, the CAC 40 traded up 1.29 percent, and the DAX added 1.73 percent. Our markets behaved similarly, with the Dow adding 0.92 percent, the SPX 0.95 percent, the OEX 1.08 percent, and the COMPX 1.05 percent. I ended last weekend's Market Wrap with the prediction that the indices seemed primed to move higher, perhaps only over the next week or so, with maybe a down day or two along the way. We got the move higher from last weekend's levels and the couple of down days. Do I still believe that the move higher will end in within that period I predicted? The charts present conflicting evidence. Daily Chart of the SPX: After breaking out of its bull flag week before last, the SPX this week maintained 986 support. Friday, the SPX dipped below its ascending trendline and its 21-dma, but closed above both. That's the evidence on the bullish side of the case. The bearish side can present evidence, too. The SPX's rise did not even test the midline resistance of the ascending channel, nor did it test the June high. While the SPX made a lower high, the 5(3)3 stochastics were perhaps setting up bearish divergence, with the stochs making equal highs while the price made a lower high. RSI turns over again from a lower low, not signaling divergence, but not signaling strength, either. MACD remains inconclusive and the modest ADX level currently shows a trend-less or range-bound market. I haven't shown the hourly chart here, but it depicts similar conflicting evidence: RSI turning up again while the stochastics turn down out of overbought territory, the -DI ADX line making a bearish cross of the +DI line, and a flattening MACD. Bearish and bullish evidence appears evenly matched, but next week's evidence of continued economic weakness or economic recovery may make one case stronger than the other. Market pundits will have much evidence to weigh, with such heavyweights or former heavyweights as C, INTC, MOT, PHTN, FRMD, TER, YUM, JPM, GENZ, GMH, AMD, AAPL, CDWC, CERN, IBM, ISSX, QLGC, SNDK, MO, KO, GM, IGT, NXTL, NOK, SAP, DCTM, CY, IDPH, MCHP, MSFT, NFLX, PSFT, SFA, SNWL, UTSI, WEBX, XLYX, and ERCY reporting. C reports Monday before the open, and INTC, MOT, PHTN, RFMD, TER, and YUM report Tuesday. While many point to the easy comparisons to be made and the possibility that many companies can surprise to the upside, GE's experience Friday showed that participants will look beyond the easy comparisons. In addition, markets seemed priced to perfection. Take a look at only one of these stocks due to report next week. Daily Chart of SFA: This is a good-looking price chart complete with ascending moving averages, a stair-stepping climb higher, and an ADX still above 30, but that steep rise cannot persist forever. SFA must consolidate or pull back at some time. Evidence shows warning signs in the form of bearish divergences on the indicators. Even ADX has begun to slope down. These kinds of divergences have shown up previously in the chart--check out the stochastics highs in mid-May and mid-June and compare them to price highs--while prices continued to move higher, but they will someday signal what bearish divergences usually do signal. SFA has more than doubled in price since February. The company's prospects had better have increased, too. Dramatically. I have no foreknowledge of SFA's likely results, and it's possible that they will surprise to the upside and the stock will continue to gain. This is just meant to be a representative chart. I can reproduce dozens of charts that look like this one. So far, few have stumbled, with most continuing to climb, consolidate, and then resume their climbs. Perhaps they can do that all the way into next year, but that seems doubtful. In addition, next week's economic calendar is full, with the Kansas City Fed Manufacturing Index due Monday; NY Empire Manufacturing Index due Tuesday along with retail sales; June CPI, Capacity Utilization, and Industrial Production due Wednesday; Initial Claims, Building Permits, Housing Starts, and the July Philadelphia Fed due Thursday, and July preliminary Michigan Sentiment due Friday. Several of those numbers will have the capacity to move the markets, but perhaps none will be as important as the Greenspan testimony at the House on monetary policy. That testimony takes place at 10:00 ET Tuesday and it wouldn't be unlikely for market participants to decide to take profit ahead of that testimony. Jeff Bailey sometimes poses the thought that perhaps markets aren't hit or buoyed by a specific piece of news as much as they were already primed to move a certain direction and the news provided the impetus. Right now, markets are priced as if the economic recovery had already begun, and that's where the danger lies. With conflicting technical developments, confirmation must come from price action, however. One type of price action would be consolidation, with the SPX holding current 986 support while daily oscillators relieve overbought pressure. The modest level of the ADX hints at that possibility. If that's to happen, look for MACD to remain flat while price holds above 984-96 and RSI and the stochs travel down toward oversold levels. If consolidation occurs, it might do so in the form of a bearish right triangle, with a flat bottom either near 984-986 or slightly lower at 972-975, with a descending top formed from the two recent highs. This formation appears to be setting up on the chart and would indicate likely lower prices sometime within the next two weeks, but bearish formations can break to the upside, too. This range would be difficult to trade as traders could not be sure how many touches of the upper trendline would occur before a fall through the lower trendline, with the best policy perhaps being a decision to wait for either an upside or downside break of the triangle. A fall through 984 might therefore find next support at 972-975 historical support, but a break of 972 might drive the OEX down to the 959-962 level that represents the 25 percent rally retracement. SPX 929 represents the 38.2 percent rally retracement and also is the area of the 200-ema, but there's also light support at 935. If the SPX instead bounces from the 984-986 level, it perhaps will see next resistance at 1000, of course, and then at 1010 and 1015, near the June 1015.33 high. Above that is the resistance implied by the midline of the rising regression channel, somewhere between 1023 and 1027 depending on how quickly the SPX should rise, and then again near 1045-1050. Evidence does not currently suggest a move above the June high, but instead would favor either range- bound trading or a move lower, perhaps to test the 25 percent retracement near 960 again. Ahead of the initial reactions to Greenspan's address and the earnings and economic numbers due next week, it's not possible to project how deep a retracement would take the SPX, but a retracement between 25 percent (960) and 38.2 percent (929-930) seems most likely. That depends on earnings that reasonably approximate expectations and outlooks that leave room for hope of economic recovery. There's no guarantee that either will happen. The OEX daily chart also displays conflicting evidence. The OEX also tested its descending trendline and its 21-dma, and closed above both. It also formed a lower high, but held 494-496 support. Bearish divergence shows up on the chart. Daily Chart of the OEX: Here I've included both the 21(3)3 and 5(3)3 stochastics. The 5(3)3 stochastics reveal bearish divergence (equal stochastics highs while price makes a lower high), but the 21(3)3's do not, although their downturn in midrise signals weakness, too. Unlike the SPX's RSI, OEX RSI kicked back up again on Friday, perhaps indicating that market strength was concentrated in the big caps that might be represented in the OEX. That conclusion is belied by the RUT, however, which also gained and showed an RSI that kicked back up. OEX MACD flattens. I have not shown ADX here, but it dives even more strongly than the ADX for the SPX, indicating a continued loss of strength in the previous rally. -DI made a bearish cross of +DI, but they're still close and can recross in the other direction. Although the low ADX shows that oscillator evidence can be trusted since the market is not strongly trending, the oscillator evidence proves inconclusive and may be pointing to a choppy market. Price must guide decisions and hopefully will realign the oscillators so that evidence can be found of future direction. CCI, shown here, is also inconclusive as it oscillates around the signal line. The same possible bearish right triangle sets up on this chart, with the preferred tactic possibly being to await either a downside or upside break of the triangle to initiate plays. Support is layered underneath the current position, perhaps strongest at 500.80-501, 497.60-498, 494-496, and then 489-491, at which point it would be testing the bull flag's support. Other support might be found at the 25 percent rally retracement just below 485, at 478.50-480, and at the 38.2 percent rally retracement and 200-ema at 469-470. OEX resistance is also layered closely overhead, in two-point increments. OEX 504 and 506 have proved to be resistance in the past week. The descending trendline off the recent price tops crosses near 507.75, just below last week's 508.28 high. The OEX would find a zone of resistance between 510-513, and a close above that level would hint at a move toward the top of the regression channel, currently near 530. If the OEX moves that far, it might then see light resistance near the June high, near 417.50, near the top of the regression channel, and again at 533 and 542. If the OEX did manage a move to the top of the regression channel, the currently low ADX hints that it might also establish a trading range throughout the summer doldrums. If each of these charts presents conflicting evidence, a comparison of the DJI and NDX offers even more conflicting evidence. Unlike the other indices, the DJI did not close above its 21-dma. In fact, it challenged that average and fell back from it, displaying more weakness than the two S&P's. Daily Chart of the DJX, as proxy for DJI: Because the DJI could not close above its 21-dma, it perhaps might be expected to show more price or oscillator weakness, too, but prices this week also maintained 9050 support on a closing basis and oscillators show similar mixed evidence. The comparative weakness might lend more evidence to the theory that the DJI will again test its 25 percent retracement level near 8880, but the holding of 9050 support challenges that evidence. The DJI appears to be setting up a bearish right triangle, too, with the likely outcome being a downside break of that triangle. The break might not be catastrophic, however, perhaps portending a drop only to a 25 percent or 38.2 percent retracement of the rally. Support might be found in 50-point increments down to 8950. The 25 percent rally retracement lies at 8880, some support exists between 8710-8740, and the 38.2 percent retracement and 200-ema lie between 86.20 and 86.60. An upside break of the potentially bearish right triangle would occur at a move over 9200, with last week's 9260 level providing next resistance, and with 9300, 9350, and 9400 also providing possible resistance. DJI 9400 would be the location of the midline resistance. Although oscillator evidence does not now point to a move above the midline resistance, a break above that level might send the DJI to test the top of the channel, currently near 9770. Interim resistance would be found at 95-95.50 and 9700. One caution exists: Unlike the DJI, the TRAN did make a higher high this week, and at 2538.45, it closed far above its 21-dma at 2461.61. The TRAN often leads its sister index, the DJI, but Dow theory says that the DJI now must confirm that higher high on the TRAN. If not, we have seen divergence between the sister indices, and that predicts a fall in both. The NDX also shows far more strength than the DJI, offering another piece of conflicting evidence. The NDX broke out of its bear flag formation and traded at a new relative high this week. Not only did it trade at a new relative high, but during this week's pullbacks, it also found support at the level of its June high. Oscillator evidence proved much less bullish than the price action, however. Daily chart of the NDX: Bearish divergences have been setting up, but just as with the SFA chart shown earlier, we've seen those NDX bearish divergences set up at other points throughout the rally without any significant damage to the rally. At some point, they will result in the pullback they're predicting, but it's not yet clear that time is upon us. ADX remains strong, above 30, but it has flattened. The buying pressure line has turned down, but there has as yet been no bearish cross of the two lines. It's also possible to draw alternative lines to the ones I've drawn on the formation, what Jonathan Levinson calls a bulloney bullhorn: a widening formation of ever higher highs and lower lows that indicates emotional and unstable trading. Because these are widening formations, it's difficult to pinpoint a breakout or breakdown, but traders looking for a sign of a breakdown might first watch for a move below 1250. It's difficult to suggest a short/put play at such a breakdown, though, because that brings the NDX into a congestion zone in which support might be found at any one of several different points, including the 21-dma near 1235, 1200, and the July 1 low of 1180. NDX 1162-1166 might offer next support, with 1140 the site of historical resistance. NDX proves the most difficult index for which to predict action because the emotional trading displayed by the bullhorn or megaphone formation produces unclear indicator evidence. This adds confusion to the conflicting evidence presented by all the indices: a strong TRAN coupled with a weaker sister DJI index; S&P charts with bearish right triangles holding support and the 21-dma; individual stock charts showing bearish divergence while charts continue to stair-step higher. Markets behaved pretty much this week as I predicted last week. My best guess for immediate market direction is one I dread to make: markets that stutter one direction and then another, chopping around in a trading range in a manner that defies easy trading decisions. I do believe that markets will retrace again within the next two weeks and possibly next week, although perhaps not as deeply as many expect. Next week will give me and all of us a better look, though, and it's my sincere hope that my best guess for immediate market direction proves less trustworthy than last week's best guess turned out to be. We'll have more evidence before us this time next week, and perhaps our guesses will be less guesswork and more analysis of less conflicting technical and fundamental evidence. Linda Piazza ************** FUTURES MARKET ************** Week in flux Jonathan Levinson Friday was a long, confusing and for awhile, boring session, with both equities and treasuries closing higher and gold finishing fractionally lower. 150-tick chart of ES3U Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 1009 1004 994 989 979 YM03U 9213 9156 9068 9011 8923 NQ03U 1301 1292 1279 1269 1256 10 minute chart of the US Dollar Index The US Dollar Index went nowhere today but finished higher, with a brief spike north of 96.00. The action was bullish for gold for most of the session, with an end of day pullback closing the August gold contract 20 cents in the red at 344.40. Daily chart of August gold The metals indices closed positive, with the Gold Bugs Index (HUI) closing higher by one cent to 152, and the Precious Metals Index (XAU) up .55 to 78.09. Led by wheat, sugar and crude oil, the CRB added .05 to 234.78. Daily chart of the ten year note yield Like the rest of the markets, treasuries traded choppily today, but ended the day higher. The strength in treasuries and equities together broke the recent trend of equities trading inversely to treasuries, and so that particular intermarket relationship remains unclear for the moment. As the above chart shows, the ten year note yield seems to be lazily trying to put in a relative top. However, with the recent uptrend still intact, it's anyone's guess as to whether this downphase will bring the TNX back down to its lows or not. The TNX closed the day lower by 3.7 basis points at 3.64%. The thirty was down 2.5 bps to 4.684%. Daily NQ candles Friday was just one of those days. Long, counterintuitive, and tricky. We had inside days printed on all 3 major equity contracts, with lower highs and higher lows on the Nasdaq, S&P and Dow futures. Nothing was accomplished, technically, other than to run the clock and the oscillators. Yesterday's low was never tested, though a higher low was printed in the afternoon after the failure off the highs. 30 minute 20 day chart of the NQ The day gave us a rounded top, a very messy head and shoulder- esque formation which broke down to its approximate target before bouncing into the close. The high coincided perfectly with the top on the stochastic and Macd histogram on the 30 minute charts as noted in the intraday Market Monitor. The end-of-session ramp job did not reverse the ongoing downphases, but a continuation on Monday morning could have that effect. Daily ES candles Friday brought us no closer to knowing whether the ascending daily trendline will hold or not, as it was never tested. The daily oscillators on the S&P futures moved further along their tenuous upphase, and the lower high provided bears some encouragement, on the basis that if this is the upphase, the downphase should be a doozy. 20 day 30 minute chart of the ES The MacD is the only indicator supporting further upside on the end-of-day bounce for Monday morning, and even there, the histogram is in a downphase. Given the toppy short cycle oscillators on the 150-tick ES chart above, as well as the longer cycle oscillators on the 30 minute chart, I'm expecting at least a pullback on Monday morning, barring any unforeseen bullish developments. The Fibonacci grid continues to work well for support and resistance, with 1004 to 988 delimiting the current range within which Friday's session traded. Daily YM candles Nothing to add on YM. Once again, it traded very similarly to the ES contract. 20 day 30 minute chart of the YM The main question after Friday is whether equities are reversing their uptrends or merely consolidating for more upside. It's currently a difficult question, the obvious answer to which being that one the daily chart, there's an uptrend which is strongest on the Nasdaq futures and weakest on the Dow and S&P. The 30 minute charts gave us a lower high following a sharp correction yesterday, and on the ES and YM, this followed a failure to print a higher year high as did the NQ. On the weekly candles, we had positive closes for the equity futures and a negative close for the ten year note yield, with a harami printed for YM, doji's for NQ and ES, and a gravestone doji for the TNX. These are all bearish candle formations, indicating overall uncertainty and potentially lower levels for equities and treasury yields. The trouble is that on the NQ and ES, the candle prints also imperfectly resemble a low-reliability bullish pattern called "3 separating lines". I'll personally go with the uptrends on the daily charts for guidance, above which the outlook looks bullish and below which we'll know that a reversal is under way. Most significantly, this week showed treasuries trading mostly against equities, despite Friday's break in the week-long trend. The Fed was draining reserves via open market operations, despite which buyers of treasuries managed to close yields negative for the week. Hopefully, next week will show us whether a renewed bid for treasuries will prove bullish or bearish for equities. ******************** INDEX TRADER SUMMARY ******************** WHIPPY By Leigh Stevens lstevens@OptionInvestor.com Whip-saw markets are ones where there is roller coaster ride during the week and very short-term traders can make money with masterful timing, but the patient longer-term holder of index calls or puts will mostly only see erosion of the option (time) premium as, by week's end, there is not much of a price change. Call me "whippy". THE BOTTOM LINE - However, the bulls can take heart as the past 6 weeks action looks like a bull flag consolidation before another up leg. This would be "confirmed" by a decisive upside penetration of 1013- 1015 in the S&P 500 (SPX) or 505 in the 100 (OEX), in which case OEX projects to 550 as a possible target based on the measuring implication of the aforementioned flag pattern. The (Nasdaq) Composite or COMPX has a different pattern and this past week has already broken out above the top end of the same type of "flag" pattern by piercing 1690. However, the aforementioned bull flag formation doesn't project to more than 1750 as a next objective, which is also near resistance impli9ed by the top end of its weekly uptrend channel. However, other technical considerations suggest that COMPX could eventually get back to the 2100 area or its early 2002 peak. This would also suggest that the Nasdaq 100 could reach the 1700 area by year's end or early next, from its current level of 1280. 40-42 is a possible target for QQQ. Stay tuned! A BULLISH FUNDAMENTAL CASE - What could "support" such a bullish technical potential is the question that my bottom line commentary raises; i.e., what are the fundamental influences. Now, I sometimes have been known to call these the "funny-mentals", but I declare it's only in jest. Actually, there are some well-reasoned arguments for a bullish unfolding scenario for our economy. The U.S. unemployment rate climbed to 6.4% recently, which was the highest in nearly 10 years. Not exactly a picture to gladden the hearts of consumers and get them to open those wallets even more than they've been doing to reach for the plastic. However, a close look at some other economic signs point to a possible end of a "jobless" recovery: 1. A set of surveys of corporate chief executives taken over the past few weeks indicate that more a third of these CEO's say they are planning to hire in the Q3 and very few are planning to lay off workers or any MORE workers. (Surveys were conducted by the Center for State and Local Policy at the University of Massachusetts and polled 400 chief executives in Boston, Chicago, Dallas and San Francisco.) The key question was: "In the next three months, Q3 of 2003, will the number of employees at your company increase, stay the same or decrease?" 36% said the number would increase, 54% said stay the same, and 10% said decrease. This is quite bullish for hiring hints relative to what was the case in the year before this survey. 2. In May and June, the Labor Department reported a rise in the number of temporary workers often a first hint of a rebound. Temporary workers are generally the first to be fired as times get bad and the first to be hired as times become good. In April, 1.6% of all workers were temporary employees, but this rose to 1.7% in June. The increase may be small, but its a significant trend and suggests some hope for laid off and unemployed workers. 3. The number of wage and salary workers in the non-farm sector has actually risen some 266,000 since Jan. 1 - the total is as of early-July and is according to the Labor Department's household survey. This rise can be compared to the huge loss (1.4 million) of workers in 2001 and 2002. Note: Reservations about these stats in the household survey - the numbers for the total civilian population used in the survey sample were not adjusted for the call-up of reservists for the war in Iraq, which might account for about half of the increase. 4. The survey of employers also done by the Labor Department shows a modest decline of 30,000 jobs from May to June. This represents a big improvement in the rate of job decline over 2001 and 2002, a period when employers reported whopping losses of 2.2 million jobs an average of 90,000 jobs per month! When the Fed talked in late June about "labor and product markets that are stabilizing," it was making a key point. The rates of change in recent Labor Department surveys, reinforced by the optimism in the recent set of chief executive surveys, suggests that the job market may be about to turn the corner. And, pent up demand by recently hired workers offers a potent boost to the economy typically. FRIDAY'S TRADING - Stocks closed higher after General Electric (GE), a Dow component met the Street's earnings expectations. Because of it there were some analysts' upgrades of some other blue-chip stocks. The Dow was up 83.5 points, closing above 9100 at 9119.6, while the Nasdaq Composite Index ran up a substantial 1% or 18 points to close at 1734. The S&P 500 index rallied 9.4 points to close at 998, still under the key 1000 mark. Money managers and investors appeared to be paying up for up stocks in anticipation of Q2 earnings that will be at least in line, if not better than, expectations. S&P bellwether GE's earnings led to a collective sigh of relief by not missing its revenue and profit targets, even though its Q2 net income was off by 14%. Overall revenues did rise a bit to to $33.37 billion from $33.33 billion, although this figure was just a bit shy of estimates. GE also shaved its full-year earnings estimate to a range of $1.55 to $1.61, from a range of $1.55 to $1.70. This performance by GE led to some upbeat talk about other key stocks, like Home Depot and rival Lowe's. Intel (INTC) which figures prominently in both the Dow and the Nasdaq was up nearly 2% after an analyst upgrade. IBM ran up a percentage point after some upgrading by Street analysts. In economic news, a report on U.S. wholesale prices indicated a RISE in prices for the first time in three months in June, as food and energy prices were up. With the market more worried about falling prices taking corporate profits down also, this was actually "good" news. The Producer Price Index or PPI rose by a greater than expected half percent, ending some months of declining prices that had raised this specter of deflation - think Japan. The widely followed "core" index, which excludes food and energy prices, fell by 0.1%, versus an expectation of a 0.1% increase in the core index. Meanwhile, the U.S. trade deficit of goods and services widened to $41.8 billion in May from a revised $41.6 billion in April, according to the Commerce Department. No surprises there - and, I defy you to buy something these days NOT made in China - excepting autos and high-end electronics. Earnings (its the money honey) are the primary focus for investors as they await 100's of company reports expected over the next 3 weeks. OTHER MARKETS - The 10-year Treasury note gained an 1/8 point, to yield 3.636%. The dollar firmed also and traded at 117.65 yen, up from 117.58 yen late Thursday, while the euro fell against the dollar to $1.1298 from $1.1389 in the previous session. INDEX OUTLOOKS – S&P 500 (SPX) - Weekly chart: The S&P 500 Index (SPX) is the key to the old economy stock sectors, and the most widely watched market measure by big money institutional (fund) money managers. This week I provide a little bit extra focus on the SPX in that I start the way I often start when I survey price history each week - from the big picture weekly chart showing 3 or more years, to the daily chart with the multi-month record of trading and finally to the hourly chart. The hourly chart should ideally be able to display a 100 days of the hourly OHLC (Open, High, Low, Close), but this is not achieved by many chart packages, so I tend to show a lot of the longer hourly history, which you may not see elsewhere. The weekly chart above with the "flag" or consolidation (sideways) pattern outlined that I described in my "bottom line" comments at top. Now, the upside potential (emphasis on "potential") implied by price consolidation, a period of a narrow price range after a sizable run up, is not suggested unless there is a move above the upper line. Conversely, a move down below the bottom line is a negation of the bullish potential, so we would look out below if there was a drop to below 970. The range bound pattern is why the trading suggestion has been to buy calls or select stocks on moves toward the lower end of the consolidation and buy put options on moves to the areas of selling interest or resistance - which has been in the 1010 area. It takes earnings momentum trends to get the S&P moving higher as individual traders and investors don't achieve as much influence in the large capitalization main-stream stocks in the main S&P indices. Whereas, it takes only a wing and a prayer to move some of the tech stocks ever higher - hey, I think I've seen this before! Anyway, I would note that Charles Schwab got some favorable ratings increases last week cause their trading volumes have jumped over recent weeks. The big guns aren't trading 10-50,000 share blocks at Charles the Schwab. I would still say that it will take the ability for the S&P 500 to hold above 1000 to be seeing renewed upside momentum in the S&P stock groups. S&P 500 (SPX) - Daily chart: Trading in the middle range, as represented by the 21-day moving average, which is mostly bullish - because, after a big run up, the ability to then find support on the pullbacks and on price dips is the sign of a technically strong market. Trading "sentiment" among option traders is closer to the bearish view shown in increased or substantial put option volume activity and is keeping me leaning toward the idea that the next breakout will be to the upside. Summer is not when big sustained advances occur, but all money managers don't go on vacation - heck, this isn't France where everyone goes away for August. (Or, where all eyes are on the Tour in July - if you don't know this reference you don't "know" the incredible ironman from Austin, Lance Armstrong.) Anyway, given that the market discounts or looks ahead to the earnings picture expected out 6 months ahead, you will see the expectations implied by buying stocks NOW. S&P 500 (SPX) - Hourly chart: 1010-1015 is the area to watch for its potential to signal a further upside move on a move above this area. Conversely, A dip much below 990 or a close under the prior hourly lows at 983 would be a bearish omen suggesting that would be some further selling pressure or downside potential. S&P 100 Index (OEX) – Hourly chart: The sideways move is either a consolidation pattern - consolidation or minor "give-back" of the prior up swing - or is suggesting flagging upside momentum in stocks or the willingness to continue to bid the leader stocks higher. As long as the OEX stays above the recent low in the 495 area and especially the low before that at 485 only the normal consolidation pattern is being suggested. If there is a move above the "line" of recent hourly highs at 506-508, this would suggest renewed upside momentum. I'm anticipating wanting to buy calls in the 495 area, exiting at 492 if OEX slips to there, and perhaps add to positions on an advance through 506-508. I'll likely want to trade out of the same if 512, the prior top is again the reversal point for a rally. A decisive upside penetration of 512, suggests a next objective to around 530 however. On the bearish side, a break of 485 suggests downside back to the 470 area in the OEX, which would be the low end of a downtrend channel. I think we need some more positive earnings announcements to kick the S&P 100 through overhead supply or stock for sale when OEX hits the top end of its recent range around 510-512. The way bellwether S&P stock General Electric (GE) has failed to maintain upside follow through after its move to new high for the year, it seems that there is amble stock for sale on rallies from here. Dow Industrials Hourly (DJX.X) chart: The Dow has held above 89-90 which maintains its hourly price pattern within its uptrend channel. 96 is the high end of this channel currently as noted on the chart below. 92.50, then 93.50 is the area of likely selling interest for the Dow 30 and these points are the key technical resistance levels to watch. It could be just more sideways from here. So far however, the Average is maintaining price levels that are keeping it the well-defined uptrend channel outlined below. Until the Dow breaks below the low end of this channel, I have to assume a bullish trading bias. I mentioned GE and its a good example, as the stock should find good support in the 26 to 28 price zone and it seems unlikely that there is a lot of downside to the stock (and to the Dow itself) unless the earnings start to show up as under or well under expectations. Nasdaq Composite Index (COMPX) – Weekly: What looked like it might be a "triple top" when viewed from the perspective of the hourly charts just turned out to the top end of a temporary price ceiling as seen from the perspective of the weekly chart below. Remember the point about looking first at the weekly chart even if you're a very short-term trader - otherwise you could miss the forest for the trees. The Composite (COMPX)looks to be near at least temporary resistance at last week's high, which is also the top end of a weekly uptrend channel. Prices tend to swing up and down even within an uptrend and this recent zig (rally), may have a zag to follow. There is another little channel that suggests that the Nasdaq, even though nearly at an "overbought" extreme, could zip on up to 1900 before coming down. Stay tuned - hardly ever a dull moment with tech stocks. Nasdaq 100 (NDX) MONTHLY chart: To keep a broad BROAD view, we can look at the Nasdaq 100 on a monthly chart basis. From this way of viewing the semi- logarithmic chart scale (equal PERCENTage moves being the equal in distance) in a multiyear time frame, its not surprising to see a rebound from the lows of last fall as the Index came down to long-term support. I think of it as falling back to its long- term rate of change or upward price "progression" - like falling back to the mean so to speak. Hey, when you get too far ahead of the traffic flow, there's a speeding ticket in the wings. Nasdaq 100 Tracking Stock (QQQ) - Hourly: I thought there was a chance of QQQ falling to major support around 27.50-28 - WRONG! But, as I said also, a sign of renewed bullish trend was the hourly close above 31-31.25 and that fact that it there was the same close on daily basis. If you were short the stock and I was, I exited on my suggested ay with it, with exiting stops at 31.30 stop for only a slight loss. The very reason I like to take out short stock positions in a price area where there appears to be substantial stock for sale. If the stock then churns through there, more buyers are going to be behind the pack. The 33.50 area is where I peg technical resistance currently, at the top of an implied uptrend channel. What was resistance around 31.25 should now be support if last week's rally has got "legs". The price channel lines have been pretty reliable over recent week (true almost anytime the market is "trending"), except for the occasional "overshooting" of them which tends to drive traders crazy for a while, me included. That is at least for those who rely on technical patterns - but, you have to allow for the occasional tendency for price swings to carry further than expected. Extreme temporary price swings might today be a gut reaction to stories that suddenly appear on the news wires and seems to, or actually does, relate to terrorism or a new epidemic or the like. Or, like the week before last, a mistake in a sell order for index futures as 10,000 instead of 100 - opps! Good Trading Success! ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ************** Editor's Plays ************** Still On Target "I love it when a plan comes together" - Hannibal, from the A-Team Thus far the plan for our laddered DJX put/call play has worked pretty well. Monday, July 7th saw a lot of action as the markets rallied quickly in the first hour. The DJX ran from under 91 to 92.61, triggering two more fills. To recap when our play began, click here: http://members.OptionInvestor.com/editorplays/edply_062903_1.asp Following the plan we bought more August 88 DJX puts when the DJX traded at 92.00 (Dow 9200) early Monday morning. Our cost was $1.00. As the markets continued to rally, we got the opportunity to buy even more August 88 DJX puts when the DJX crossed the 92.50 mark. Our cost was $0.90. Using a 2, 4, 6, 8, 10 contract increment starting at Dow 9050 (DJX 90.50) we bought puts at every 50 Dow points. By late Monday morning we had accumulated 30 August 88 DJX puts for $3,280. However, we also had 10 contracts of the July DJX 91 calls as insurance that we bought for 75 cents at Dow 8950 the previous week. These were protection should the Dow keep climbing. As of mid-day Monday, these calls were worth $2.10. As the markets started to fade on Monday I choose to raise my stop on the calls to Dow 9225 (DJX 92.25). Later that day we excited the DJX calls for $1.85 when the Dow fell through our stop. Additionally, we cancelled the order to buy more puts at Dow 9300. This left us with 30 Aug-DJX 88 puts with a total cost of $2130. Chart of the DJX: The only thing left to do is to wait and let the Dow (DJX) continue to do its part and follow the script. Our expectation is that the Dow will eventually trade to 8500 (DJX 85.00) but our plan is to exit the play at our profit target of Dow 8600 (DJX 86.00). When the DJX hits 86 we will sell all 30 puts. However, should the markets rally, then we'll use two stops to exit the play. Our first stop will be Dow 9300 (DJX 93.00) where we will sell half our puts. Our second stop will be Dow 9350 (DJX 93.50) where we will sell our remaining puts. Jim will be back on the Market Monitor this Monday covering any changes or progress in this play. **************** MARKET SENTIMENT **************** Trend change? Jonathan Levinson On Thursday, we discussed the possibility of a change of trend based on the many extreme readings we've been following here and the "feel" of the tape on Thursday's downside reversal. Friday gave us positive closes on the Dow, Nasdaq and S&P, but without violating the highs from Thursday. We saw a number of surprising developments in the options market, with the put to call ratio printing extreme readings above 1.0, and the equity put to call ratio exceeding the index put to call ratio for several consecutive half hour segments. This is a rare event, as the index put to call ratio is almost always higher than the equity put to call ratio, and usually by a wide margin. As a sentiment indicator, the put to call ratio is imperfect due to the plethora of bullish and bearish strategies that can be applied using either puts or calls. Nevertheless, the predominance of put volume over call volume is generally seen as indicating bearish option speculation, and on a contrarian basis, it's generally taken as a bullish indicator. The price action obliged, proving resilient to anything more than corrective price drops, and the averages finished positive. The volatility indices were all negative, and combined with the high put to call readings, it gave the appearance of net selling of puts by option writers. Next week is option expiration week, which should help to muddle the issue further still. The indices failed to exceed Thursday's highs, and to that extent, our downside reversal thesis is still intact. However, as I note in the Futures Monitor, the uptrend on the daily candle charts is still very much intact. We watch market breadth, commitments of traders, and the bullish percents to try to gain a lead major market turns before price confirms it. Were the high put to call readings net bullish or bearish? We'll find out next week. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9353 52-week Low : 7197 Current : 9119 Moving Averages: (Simple) 10-dma: 9098 50-dma: 8903 200-dma: 8419 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 998 Moving Averages: (Simple) 10-dma: 991 50-dma: 965 200-dma: 897 Nasdaq-100 ($NDX) 52-week High: 1307 52-week Low : 795 Current : 1280 Moving Averages: (Simple) 10-dma: 1252 50-dma: 1193 200-dma: 1057 ----------------------------------------------------------------- If we remember correctly the old market maxim says "when the VIX is high it's time to buy and when the VIX is low it's time to go." The problem is the VIX has been "low" for more than two months as it churns between 21 and 25. Traditionally, the "sell" signal was when the VIX neared or traded under the 20 level. Well, we're seeing the range on the VIX narrow substantially this week and Friday's candle ended at its lows and approaching a new 52-week low. If this were a stock, one might be thinking it's about to breakdown through support of 20 and initiate a new bearish leg down. That's not good from a contrarian standpoint but probably means we still have another leg (however brief) higher in the markets. CBOE Market Volatility Index (VIX) = 20.72 -0.81 Nasdaq-100 Volatility Index (VXN) = 32.80 -0.86 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.98 533,391 521,795 Equity Only 0.88 425,661 378,041 OEX 0.99 26,885 26,851 QQQ 3.98 36,628 145,783 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.8 + 0 Bull Confirmed NASDAQ-100 80.0 + 0 Bull Confirmed Dow Indust. 86.6 + 0 Bull Confirmed S&P 500 79.4 + 0 Bull Confirmed S&P 100 82.0 - 1 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 1.21 21-Day Arms Index 1.20 55-Day Arms Index 1.15 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 1947 1939 Decliners 882 1102 New Highs 201 340 New Lows 8 7 Up Volume 967M 989M Down Vol. 479M 457M Total Vol. 1479M 1494M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/08/03 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 was little change last week in the large S&P contracts. It appears both big and small traders are waiting to see how the initial burst of Q2 earnings come in and how investors react to them. Commercials Long Short Net % Of OI 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%) 07/08/03 415,053 453,720 (38,667) (4.5%) 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 06/17/03 202,040 184,028 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% 07/08/03 152,239 74,749 77,490 34.2% 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 The same holds true for the commercials here in the e-minis, as they appear to be waiting before making any big commitments. However, we've seen a drastic turnaround in the small traders sentiment going from extremely bullish to know the most bearish in months. Commercials Long Short Net % Of OI 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%) 07/08/03 192,815 224,124 (31,309) ( 7.5%) 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 06/17/03 466,837 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%) 07/08/03 56,394 72,090 (15,696) (12.2%) Most bearish reading of the year: (15,696) - 07/08/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 NASDAQ futures remain in a holding pattern. Commercials remain net short and small traders remain net long. Commercials Long Short Net % of OI 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%) 07/08/03 30,489 48,311 (17,822) (22.6%) 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 06/17/03 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% 07/08/03 26,136 9,035 17,101 48.6% 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 Ditto here too. There's almost no change in the commercials' net long position in the Industrial futures and there is a small bump in the small traders net short position. Commercials Long Short Net % of OI 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% 07/08/03 20,752 11,860 8,892 27.3% 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 06/17/03 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%) 07/08/03 5,005 8,093 (3,088) (23.6%) 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 *************** Weighting your account bullish and bearish Jeff: A few questions regarding your business plan. What is your target monthly return? What is the maximum percentage of your account you will place on 1 trade? Using the bullish % data, is there some kind of formula you use as to the percentage of puts/calls you use? IE, when the bullish % reaches 70% 8 puts/2 calls, when it is 20% 3 puts/7 calls...am I clear here? Wow! I'm going to have to consult my attorney about full disclosure and perhaps financial net worth before I can answer all the above, and what I (Jeff Bailey) do with my trading account isn't, nor should it be a blueprint for everyone as we all have different tolerances for risk and financial objectives. But I'm going to take a shot at all of the trader's questions posed and I'm hoping that a "real life" example, using my current trading account status, will perhaps give a tie in with a prior column "Your account is your business." First, I'm single, 40-years old, no debt, don't own a house at this point, own a 2002 Dodge Ram Turbo-Deisel 1/2-ton pickup truck, and have 1 dependent named "Drake" that will turn 7-months old on Saturday, July 12th! I have a career with Sunset Investment group, which I feel pays me a fair wage for a solid 40+ hourly workweek. Under difficult economic conditions, if I were to lose my job tomorrow, I would probably fuel up my pickup truck, move all my belongings into storage with the exception of Drake, fishing/hunting gear and laptop computer and head for Alaska. I would visit a friend I haven't seen in several years for the summer and do some fishing. Then around August, head east toward central Canada and hunt the waterfowl migration south to Arkansas over the span of 5-months, or until I couldn't stand being away from Colorado. This should give you the reader an idea of my "risk profile" and I have no dependence on my trading account at this point. I do not consider myself "independently wealthy" and upon return from a lifelong dream of following a waterfowl migration the length of the continent, would probably have to look for a job. The caveat to having to look for a job upon return from an extended vacation is that Frontier Airlines (NASDAQ:FRNT) $12.74 were trading $100 in February of next year. What is my target monthly return? What is the maximum percentage of your account you will place on 1 trade? My target monthly return is lofty 6% return on total account capital, which I find difficult to keep fully invested at any point in time. I follow a very similar business plan as outlined in "Your account is your business." For the purposes of meeting the "pattern day trader" (I've been known to make 4 or more round-trip day trades within any rolling 5 business day period) requirement, I will at times have the minimum capital required to maintain the $25,000 in my trading account. I follow the discipline of not exposing more than 10% of my total account capital into any one underlying STOCK. For example, based on a $25,000 account, I would not buy/short more than $2,500 worth of stock and hold it overnight. For options, I consider 1 contract to be equivalent to 100 shares and will on rare occasion exceed a stock equivalent $2,500 risk exposure. I usually find that based on a $25,000 account, I will rarely place more than $1,000 (4% of total account) at risk in an option. It is also very rare to see my account "totally" weighted toward bullish or bearish trade scenarios. I personally have never had a margin call. Here is what my trading account looks like at Friday's close and I would think most subscribers, especially those at OptionInvestor.com will be familiar with some of the positions held. I would like to think that each trade has a "purpose" and will discuss some of them in brief. Trading account using q-charts' portfolio tracker I like to keep my portfolio divided into two sections with bullish trades at the top and bearish trades at the bottom. I'm not going to discuss each holding in detail but since I this trading account is very rarely "fully invested" (it can be on intra-day basis with short-term trades and use of intra-day margin), with money market rates where they are, I decided back in May to try and get some YIELD "kick" in the Pacholder High Yld Fund (NYSE:PHF), which is a closed-end "junk bond" fund. The Geron (NASDAQ:GERN) position is now what's left of a 5-lot options trade. It was SPECULATIVE and ended up paying off pretty good with gains taken on 3 other contracts, what's left may be exericised at $5.00 on expiration, but I'm not sure at this point. The Oxford Health (OHP) Nov. 45 calls need some explaining. I had previously bought 1 August $35 call (OHPHG) on May 21 for $3.60 and I sold that call on June 17th for $9.50 after a nice move higher. However, I needed to adjust the position as its gain represented a little more than my trading discipline allows and rebalancing was required. With bullish prospects still intact, I wanted continued exposure to the stock and extended duration with the November $45 call that very same day. I was also bullish on Merck (NYSE:MRK) on June 17th as the stock extended gains from a spread-triple top buy signal the session prior with strong volume. With the various market bullish % at "overbought" and HIGH risk levels for bulls, I was looking for some "boring" stocks like OHP and MRK that looked to be breaking away from some larger bases where a longer-term bullish move might present opportunity. Frontier Airlines (NASDAQ:FRNT) is good story and perhaps a lesson to "just pay the stinking offer!" On June 16th, I had the stock on my "watch list" for a triple-top buy signal at $8.50 as the Airline Index (XAL.X) had been catching fire. I made note in Market Monitor as FRNT traded $8.53. On June 17th, the stock was gaining again at $8.96 and I again made note in Market Monitor (10:16:32) that I wasn't going to "chase it" and tried working a bid in between bid/offer at $1.90 for November $7.50 calls. No go and market maker immediately matched by bid and raised offer. I finally gave in on June 26th after stock was consolidating, but finding "suspicious" support above $8.50 as if shorts were nervous about something. Similar to GERN, 5 lot was taken, some profits locked in, and will let the rest rip until February of next year. Autozone (AZO) and Micron (MU) are new bullish positions. AZO is kind of a pullback into trend trade that I think represents the kind of technicals that institutions are willing to buy if they feel the bulk of stocks in the market are more overextended. Micron (MU) allows some technology exposure my account may have needed at the time, with stock triggering a triple-top buy signal and breaking above longer-term downward trend. Maybe a stock a semiconductor bulls rolls toward if he/she takes profits from a bigger winner? My QQQ trade is from an Index Trader Wrap this past week. It is "partial" position, but after being a little too quick on an SPY short from July 1 and not having gotten some bullish % reversals lower like I thought might take place, the QQQ serves a near-term hedge for my SPY trade and was initiated just as the SPY came back to original bearish entry point. Ryland (RYL) and Centex (CTX) are both homebuilders. I bought puts on both one day when Treasury YIELDS were moving higher and we had noted that the building sector bullish % from Dorsey/Wright and Associates had reversed into "bear alert" status. I've placed an "*" by RYL as I've now determined that for whatever reason, its relative strength remains too strong, but continue to like CTX as a relative strength loser in the sector. I don't really need two homebuilder stocks at this point, and may look to exit RYL on pullback to $70, but will base that on the condition of the sector bullish % if a pullback does occur. Plenty of time in both for October expiration to gather further observations. Altria (NYSE:MO) is a stock I've liked, but recent developments gives some uncertainty toward the stock. Took a bearish trade today, which I profiled in the Option Investor.com Market Monitor, and also discussed action in today's 01:00 PM EST update. I don't really own a position in the 13-week Treasury YIELD ($IRX.X), but this would represent an approximation of cash balance. It should be noted that this balance contains the current credit for a short position in the SPY, which at some point I must return to the owner. I would currently plan on doing this if the SPY itself trades $102.50. When the bullish % reaches 70% 8 puts/2 calls, when it is 20% 3 puts/7 calls...am I clear here? Yes, something like that, but not all at once, and if anything, that's the mindset I try and get in. However, I always like to nip away first, see some success before legging in further. It been my observation and current thinking based on this observation that bears are going to need to see more than just the NASDAQ-100 Bullish % ($BPNDX) reversing into "bull correction" status, even at these higher levels of bullish risk to really get the thinking that internal weakening is taking place. Perhaps this is reflecting in my account? I'm not seeing too many "+" signs in the bear section right now. I have taken some gains off the table in the bullish side and there's some "-" signs on that side of the ledger too. But with some gains locked in for June, it has given me a little room in July, and I'm on target per my monthly objective of a "lofty" 6% gain. We shall see as I'm only two-weeks into the month and still have some hard work and disciplined trading ahead. You don't need a "portfolio" tracker to necessarily keep track of how "balance" your account is or how things are going as it relates to your annual, quarterly and monthly objectives. A simple spreadsheet that is updated once a week is more than sufficient (for traders). A swing-trade or longer-term investor need only update every two weeks or once a month respectively. Again, I should stress, that my account is not a blueprint for YOU! We all have different objectives and tolerance for risk and no position listed above is to be construed as bullish or bearish recommendation on my part, or that of Sunset Investment Group. Well, I hope a real life example is helpful, and hopefully helps a trader/investor discover that they can track their account, and see how a disciplined business plan can work to their favor, if not help mitigate risk on capital invested. Jeff Bailey ************* COMING EVENTS ************* ========================================== Market Watch for the week of July 14th ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- BAC Bank of America Corp Mon, Jul 14 Before the Bell 1.57 BBT BB&T Corporation Mon, Jul 14 Before the Bell 0.71 C Citigroup Inc. Mon, Jul 14 -----N/A----- 0.80 FNFG First Niagara Finl Mon, Jul 14 Before the Bell 0.13 MTB M&T Bank Corporation Mon, Jul 14 During the Market 1.24 MI Marshall & Ilsley Mon, Jul 14 During the Market 0.58 MTG MGIC Investment Corp. Mon, Jul 14 Before the Bell 1.38 PKG Packaging Corp Am Mon, Jul 14 After the Bell 0.09 PRK Park National Mon, Jul 14 -----N/A----- 1.65 PKX POSCO Mon, Jul 14 -----N/A----- N/A RMBS Rambus Inc. Mon, Jul 14 After the Bell 0.04 RFMD RF Micro Devices Mon, Jul 14 After the Bell -0.06 SSP The E.W. Scripps Co Mon, Jul 14 Before the Bell 0.83 ------------------------- TUESDAY ------------------------------ ACN Accenture Tue, Jul 15 Before the Bell 0.25 ADTN ADTRAN, Inc. Tue, Jul 15 Before the Bell 0.27 ASO AmSouth Bancorp Tue, Jul 15 Before the Bell 0.44 AMCC Applied Micro Crcuts Tue, Jul 15 After the Bell -0.04 BLK BlackRock, Inc. Tue, Jul 15 Before the Bell 0.57 BRE BRE PROPERTIES INC Tue, Jul 15 After the Bell 0.60 CDN Cadence Design Sys Tue, Jul 15 After the Bell 0.09 CSL Carlisle Companies Tue, Jul 15 After the Bell 0.86 CEC CEC Entertainment Tue, Jul 15 After the Bell 0.54 CTAS Cintas Corporation Tue, Jul 15 Before the Bell 0.38 CYN City National Corp Tue, Jul 15 After the Bell 0.91 CBSH Commerce Bancshares Tue, Jul 15 Before the Bell 0.71 DJ Dow Jones & Company Tue, Jul 15 During the Market 0.25 ETN Eaton Tue, Jul 15 -----N/A----- 1.34 FBAN F.N.B. Corporation Tue, Jul 15 After the Bell 0.52 FNM Fannie Mae Tue, Jul 15 Before the Bell 1.87 FITB Fifth Third Bancorp Tue, Jul 15 Before the Bell 0.74 FBF FleetBoston Financial Tue, Jul 15 Before the Bell 0.58 FRX Forest Laboratories Tue, Jul 15 Before the Bell 0.48 FULT Fulton Financial Tue, Jul 15 -----N/A----- 0.33 GCI Gannett Tue, Jul 15 Before the Bell 1.20 GPT GreenPoint Financial Tue, Jul 15 Before the Bell 1.55 HLYW Hollywood Enter Tue, Jul 15 -----N/A----- 0.29 HCBK Hudson City Bancorp Tue, Jul 15 After the Bell 0.28 INTC Intel Corporation Tue, Jul 15 -----N/A----- 0.13 JEF Jefferies Group Tue, Jul 15 Before the Bell 0.60 JNJ Johnson & Johnson Tue, Jul 15 Before the Bell 0.69 MDC M.D.C Holdings Tue, Jul 15 Before the Bell 1.20 MYG Maytag Tue, Jul 15 Before the Bell 0.56 MEG Media General Tue, Jul 15 Before the Bell 0.72 MEL Mellon Financial Corp Tue, Jul 15 -----N/A----- 0.39 MER Merrill Lynch Tue, Jul 15 Before the Bell 0.71 MOT Motorola Inc. Tue, Jul 15 After the Bell 0.00 MSM MSC Industrial Direct Tue, Jul 15 Before the Bell 0.19 JNC Nuveen Investments Tue, Jul 15 Before the Bell 0.34 SPOT PanAmSat Tue, Jul 15 Before the Bell 0.17 PPP Pogo Producing Tue, Jul 15 -----N/A----- 0.94 PII Polaris Industries Tue, Jul 15 Before the Bell 0.91 PCP Precision Castparts Tue, Jul 15 Before the Bell 0.62 RJF Raymond James Tue, Jul 15 After the Bell 0.37 RDC Rowan Companies, Inc Tue, Jul 15 Before the Bell -0.03 PHG Royal Philips Elect Tue, Jul 15 Before the Bell N/A SCHL Scholastic Tue, Jul 15 After the Bell 0.87 STX Seagate Technology Tue, Jul 15 After the Bell 0.31 SOV Sovereign Bancorp Tue, Jul 15 After the Bell 0.35 STT State Street Corp Tue, Jul 15 Before the Bell 0.47 SYK Stryker Tue, Jul 15 After the Bell 0.52 TER Teradyne Inc. Tue, Jul 15 After the Bell -0.21 NYT The New York Times Co Tue, Jul 15 Before the Bell 0.46 TSFG The South Financial Tue, Jul 15 Before the Bell 0.42 TRMK Trustmark Corporation Tue, Jul 15 -----N/A----- 0.50 TSS TSYS Tue, Jul 15 -----N/A----- 0.17 USB U.S. Bancorp Tue, Jul 15 -----N/A----- 0.49 WM Washington Mutual Tue, Jul 15 After the Bell 1.09 WFC Wells Fargo & Company Tue, Jul 15 Before the Bell 0.91 WABC Westamerica Bancorp Tue, Jul 15 -----N/A----- 0.70 YUM Yum! Brands, Inc. Tue, Jul 15 After the Bell 0.46 ----------------------- WEDNESDAY ----------------------------- AMD Advanced Micro Dev Wed, Jul 16 After the Bell -0.54 ADS Alliance Data Systems Wed, Jul 16 -----N/A----- 0.18 ASD American Standard Wed, Jul 16 During the Market 1.82 APH Amphenol Wed, Jul 16 Before the Bell 0.55 AMR AMR Corporation Wed, Jul 16 -----N/A----- -2.67 AAPL Apple Computer, Inc. Wed, Jul 16 -----N/A----- 0.03 ASML ASML Holdings NV Wed, Jul 16 -----N/A----- -0.08 BXS BancorpSouth, Inc. Wed, Jul 16 After the Bell 0.39 ONE Bank One Wed, Jul 16 Before the Bell 0.73 BOKF BOK Financial Wed, Jul 16 -----N/A----- 0.62 BCR C.R. Bard, Inc. Wed, Jul 16 After the Bell 0.94 COF Capital One Financial Wed, Jul 16 After the Bell 1.10 CNT CENTERPOINT PPTYS TR Wed, Jul 16 After the Bell 1.04 CHZ Chittenden Wed, Jul 16 After the Bell 0.49 CCE Coca-Cola Enterprises Wed, Jul 16 Before the Bell 0.54 CNB Colonial BancGroup Wed, Jul 16 -----N/A----- 0.29 CMA Comerica Incorporated Wed, Jul 16 Before the Bell 0.96 CBSS Compass Bancshares Wed, Jul 16 -----N/A----- 0.65 DHI D.R. Horton Wed, Jul 16 After the Bell 0.95 ET E*TRADE Group, Inc. Wed, Jul 16 -----N/A----- 0.14 EMC EMC Corporation Wed, Jul 16 Before the Bell 0.03 F Ford Motor Company Wed, Jul 16 Before the Bell 0.18 GD General Dynamics Wed, Jul 16 Before the Bell 1.17 GNTX Gentex Wed, Jul 16 Before the Bell 0.33 GENZ Genzyme Corporation Wed, Jul 16 Before the Bell 0.32 TV Grupo Televisa, S.A. Wed, Jul 16 After the Bell 0.35 HDI Harley-Davidson Wed, Jul 16 Before the Bell 0.58 HCN Health Care REIT Wed, Jul 16 -----N/A----- 0.70 HU Hudson United Bancorp Wed, Jul 16 After the Bell 0.64 GMH Hughes Electronics Wed, Jul 16 Before the Bell -0.03 IBM Intl Business Mach Wed, Jul 16 After the Bell 0.98 IFIN Investors Finl Serv Wed, Jul 16 Before the Bell 0.32 JPM J.P. Morgan Chase Co Wed, Jul 16 Before the Bell 0.62 JCI Johnson Controls Wed, Jul 16 Before the Bell 1.88 KMI Kinder Morgan Wed, Jul 16 -----N/A----- 0.73 KRI Knight Ridder Wed, Jul 16 Before the Bell 0.93 NITE Knight Trading Group Wed, Jul 16 Before the Bell 0.13 KFT Kraft Foods Wed, Jul 16 After the Bell 0.58 LEG Leggett & Platt Wed, Jul 16 -----N/A----- 0.24 MERQ Mercury Interactive Wed, Jul 16 Before the Bell 0.20 MIL Millipore Corp. Wed, Jul 16 After the Bell 0.46 MHK Mohawk Industries Wed, Jul 16 After the Bell 1.08 NCC National City Wed, Jul 16 Before the Bell 0.77 NET Network Associates Wed, Jul 16 Before the Bell 0.11 NYB New York Comm Bancorp Wed, Jul 16 Before the Bell 0.50 NFB North Fork Bancorp Wed, Jul 16 Before the Bell 0.61 NTRS Northern Trust Wed, Jul 16 -----N/A----- 0.44 BTU Peabody Energy Corp. Wed, Jul 16 Before the Bell 0.25 PPDI Pharm Product Develop Wed, Jul 16 After the Bell 0.39 PP Prentiss Properties Wed, Jul 16 After the Bell 0.78 PFGI Provident Finl Grp Wed, Jul 16 Before the Bell 0.54 QLGC QLogic Wed, Jul 16 After the Bell 0.33 RDN Radian Group Wed, Jul 16 After the Bell 1.14 SNDK SanDisk Corp. Wed, Jul 16 After the Bell 0.31 SXT Sensient Tech Corp Wed, Jul 16 Before the Bell 0.49 SON Sonoco Products Wed, Jul 16 -----N/A----- 0.34 SOTR SouthTrust Wed, Jul 16 Before the Bell 0.50 STJ St. Jude Medical Wed, Jul 16 Before the Bell 0.43 STU Student Loan Wed, Jul 16 After the Bell N/A SNV Synovus Financial Wed, Jul 16 After the Bell 0.31 TFX Teleflex, Incorp Wed, Jul 16 After the Bell 0.83 ALL The Allstate Corp Wed, Jul 16 After the Bell 0.74 PGR The Progressive Corp Wed, Jul 16 After the Bell 1.22 UB UnionBanCal Wed, Jul 16 After the Bell 0.90 WFSL Washington Federal Wed, Jul 16 Before the Bell 0.52 WBS Webster Financial Wed, Jul 16 Before the Bell 0.87 WERN Werner Enterprises Wed, Jul 16 After the Bell 0.29 ------------------------- THURSDAY ----------------------------- MO Altria Group, Inc. Thu, Jul 17 -----N/A----- 1.19 ABK Ambac Financial Group Thu, Jul 17 Before the Bell 1.29 ATR AptarGroup Thu, Jul 17 After the Bell 0.54 ARB Arbitron Inc. Thu, Jul 17 Before the Bell 0.26 ASBC Associated Banc-Corp Thu, Jul 17 -----N/A----- 0.75 AF Astoria Finl Corp Thu, Jul 17 Before the Bell 0.66 ATML Atmel Corporation Thu, Jul 17 After the Bell -0.08 ALV Autoliv Thu, Jul 17 Before the Bell N/A AVB Avalonbay Communities Thu, Jul 17 After the Bell 0.80 AVID Avid Technology, Inc. Thu, Jul 17 After the Bell 0.17 AVCT Avocent Corporation Thu, Jul 17 Before the Bell 0.29 BAX BAXTER INTL INC Thu, Jul 17 -----N/A----- 0.41 BCC Boise Cascade Thu, Jul 17 Before the Bell -0.25 CWG CanWest Global Comm Thu, Jul 17 -----N/A----- N/A CAT Caterpillar Inc. Thu, Jul 17 Before the Bell 0.65 CEN Ceridian Thu, Jul 17 Before the Bell 0.17 CF Charter One Financial Thu, Jul 17 After the Bell 0.66 CHRT Charterd Semicon Manu Thu, Jul 17 After the Bell -0.38 CFBX Comm First Bankshares Thu, Jul 17 Before the Bell 0.50 ED Consolidated Edison Thu, Jul 17 -----N/A----- 0.38 CTB Cooper Tire & Rubber Thu, Jul 17 Before the Bell 0.18 COT Cott Corporation Thu, Jul 17 Before the Bell 0.32 CCK CROWN HOLDINGS INC Thu, Jul 17 Before the Bell 0.25 CVTX CV Therapeutics Thu, Jul 17 After the Bell -0.95 CY Cypress Semiconductor Thu, Jul 17 Before the Bell 0.03 CYT Cytec Industries Inc. Thu, Jul 17 After the Bell 0.54 DHR Danaher Thu, Jul 17 Before the Bell 0.78 DPH Delphi Thu, Jul 17 -----N/A----- 0.16 DAL DELTA AIR LINES DEL Thu, Jul 17 -----N/A----- -2.08 DLX Deluxe Corporation Thu, Jul 17 Before the Bell 0.85 DO Diamond Ofshre Drlng Thu, Jul 17 Before the Bell -0.07 D Dominion Resources Thu, Jul 17 Before the Bell 0.83 DOV Dover Corporation Thu, Jul 17 After the Bell 0.33 DSL Downey Financial Corp Thu, Jul 17 Before the Bell 1.02 ELUX Electrolux Ab Thu, Jul 17 -----N/A----- 1.26 ESV ENSCO International Thu, Jul 17 Before the Bell 0.17 EFX Equifax Inc. Thu, Jul 17 Before the Bell 0.36 FCS Fairchild SemiconIntl Thu, Jul 17 After the Bell 0.03 FDC First Data Thu, Jul 17 Before the Bell 0.47 FTN First Tennessee Natl Thu, Jul 17 Before the Bell 0.88 FMER FirstMerit Thu, Jul 17 Before the Bell 0.45 FBC Flagstar Bancorp Thu, Jul 17 After the Bell 1.09 FO Fortune Brands Thu, Jul 17 -----N/A----- 0.99 FCX Frprt-McMoRn Cop Gld Thu, Jul 17 Before the Bell 0.34 GM General Motors Corp. Thu, Jul 17 Before the Bell 1.19 GPC Genuine Parts Thu, Jul 17 Before the Bell 0.56 GP Georgia-Pacific Thu, Jul 17 Before the Bell 0.14 GPN Global Payments Inc. Thu, Jul 17 After the Bell 0.35 GGG Graco Thu, Jul 17 After the Bell 0.49 GDT Guidant Thu, Jul 17 -----N/A----- 0.55 HSY Hershey Foods Corp Thu, Jul 17 Before the Bell 0.52 HIB Hibernia Corp. Thu, Jul 17 Before the Bell 0.41 HON Honeywell Thu, Jul 17 Before the Bell 0.37 HBAN Huntington Bancshares Thu, Jul 17 Before the Bell 0.36 IDPH IDEC Pharmaceuticals Thu, Jul 17 After the Bell 0.25 IEX Idex Thu, Jul 17 Before the Bell 0.49 IR Ingersoll-Rand Co. Thu, Jul 17 Before the Bell 0.72 IDTI Integrated Dvice Tech Thu, Jul 17 -----N/A----- -0.06 IGT Intl Gaming Tech Thu, Jul 17 -----N/A----- 0.27 IVC Invacare Thu, Jul 17 -----N/A----- 0.48 ESI ITT Educational Serv Thu, Jul 17 Before the Bell 0.19 JEC Jacobs Eng Grp Thu, Jul 17 Before the Bell 0.58 LSTR Landstar System Thu, Jul 17 -----N/A----- 0.84 LEA Lear Corp. Thu, Jul 17 -----N/A----- 1.26 LM Legg Mason Thu, Jul 17 Before the Bell 0.76 MAN Manpower Thu, Jul 17 Before the Bell 0.34 MAR Marriott Intl Thu, Jul 17 Before the Bell 0.47 MGG MGM MIRAGE Thu, Jul 17 Before the Bell 0.35 MCHP Microchip Technology Thu, Jul 17 After the Bell 0.15 MSFT Microsoft Thu, Jul 17 -----N/A----- 0.24 NCF Natl Commerce Finl Thu, Jul 17 -----N/A----- 0.39 NXY Nexen Thu, Jul 17 Before the Bell 0.77 NXTL Nextel Communications Thu, Jul 17 Before the Bell 0.24 NOK Nokia Thu, Jul 17 Before the Bell 0.16 PCBC Pac Capital Bancorp Thu, Jul 17 Before the Bell 0.42 PNR Pentair, Inc. Thu, Jul 17 Before the Bell 0.88 PBCT People's Bank Thu, Jul 17 -----N/A----- 0.24 PSFT PeopleSoft Thu, Jul 17 After the Bell 0.13 PMCS PMC-Sierra, Inc. Thu, Jul 17 After the Bell -0.03 PLCM Polycom Incorporated Thu, Jul 17 After the Bell 0.03 PFS Provident Finl Serv Thu, Jul 17 Before the Bell 0.17 RF Regions Financial Thu, Jul 17 Before the Bell 0.71 RHI Robert Half Intl Thu, Jul 17 -----N/A----- -0.01 COL Rockwell Collins Thu, Jul 17 Before the Bell 0.36 RG Rogers Communications Thu, Jul 17 Before the Bell N/A RCN Rogers Wireless Comm Thu, Jul 17 -----N/A----- N/A TSG Sabre Holdings Corp. Thu, Jul 17 Before the Bell 0.20 SAP SAP AG Thu, Jul 17 Before the Bell 0.19 SFA Scientific-Atlanta Thu, Jul 17 After the Bell 0.19 S Sears, Roebuck and Co Thu, Jul 17 Before the Bell 0.95 SEIC SEI Investments Thu, Jul 17 Before the Bell 0.32 SIB SI Bank & Trust Thu, Jul 17 After the Bell 0.45 SKYF Sky Financial Group Thu, Jul 17 Before the Bell 0.42 SLM SLM Corporation Thu, Jul 17 Before the Bell 0.44 SUP Superior Industries Thu, Jul 17 Before the Bell 0.66 TXT Textron Inc. Thu, Jul 17 Before the Bell 0.65 BK The Bank of New York Thu, Jul 17 Before the Bell 0.41 KO The Coca-Cola Company Thu, Jul 17 Before the Bell 0.54 MNI The McClatchy Company Thu, Jul 17 Before the Bell 0.80 TRB Tribune Thu, Jul 17 -----N/A----- 0.57 UCBH UCBH Holdings, Inc. Thu, Jul 17 -----N/A----- 0.33 UPC Union Planters Corp Thu, Jul 17 Before the Bell 0.67 UIS Unisys Thu, Jul 17 Before the Bell 0.16 UTX United Technologies Thu, Jul 17 Before the Bell 1.23 UNH UnitedHealth Group Thu, Jul 17 Before the Bell 0.66 UPM UPM-Kymmene Group Thu, Jul 17 Before the Bell 0.15 UTSI UTStarcom Thu, Jul 17 After the Bell 0.30 VLY Valley Natl Bancorp Thu, Jul 17 During the Market 0.39 GWW W.W. Grainger Thu, Jul 17 Before the Bell 0.61 WB WACHOVIA CORP 2ND NEW Thu, Jul 17 Before the Bell 0.77 WTNY Whitney Holding Corp Thu, Jul 17 Before the Bell 0.59 XLNX Xilinx, Inc. Thu, Jul 17 After the Bell 0.15 ZION Zions Bancorp Thu, Jul 17 After the Bell 0.98 ------------------------- FRIDAY ------------------------------- GE General Electric Fri, Jul 11 Before the Bell 0.38 AKZOY Akzo Nobel N.V. Fri, Jul 18 -----N/A----- N/A ACI ARCH COAL INC Fri, Jul 18 -----N/A----- -0.06 CX CEMEX S.A. Fri, Jul 18 Before the Bell 0.83 EQT Equitable Resources Fri, Jul 18 Before the Bell 0.52 ERICY Ericsson LM Telephone Fri, Jul 18 Before the Bell -0.27 KEY KeyCorp Fri, Jul 18 Before the Bell 0.52 LAB LaBranche & Co Inc. Fri, Jul 18 Before the Bell 0.18 MAT Mattel Fri, Jul 18 Before the Bell 0.07 TBL The Timberland Co Fri, Jul 18 Before the Bell 0.16 UBSI United Bankshares Fri, Jul 18 Before the Bell 0.54 UST UST Inc. Fri, Jul 18 Before the Bell 0.77 WL Wilmington Trust Fri, Jul 18 Before the Bell 0.47 WIT Wipro Limited Fri, Jul 18 -----N/A----- 0.18 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable NCEN New Century Financial 3:2 Jul 11th Jul 14th CNTE Centene Corp 3:2 Jul 11th Jul 14th ANSI Advanced Neuromodulation 3:2 Jul 11th Jul 14th CMTL Comtech Telecom Corp. 3:2 Jul 14th Jul 15th EXJF Exchange Natl Bancshares 3:2 Jul 15th Jul 16th FAB FirstFed America 2:1 Jul 17th Jul 18th PULB Pilaski Financial Corp. 2:1 Jul 21st Jul 22nd -------------------------- Economic Reports This Week -------------------------- It's a busy week on Wall Street. Q2 earnings hit their stride and investors will be inundated with announcements. Plus we have a full roster of economic reports with the Retail sales, CPI, Production & Utilization, jobless claims and Michigan Sentiment. ============================================================== -For- Monday, 07/14/03 ---------------- None Tuesday, 07/15/03 ----------------- NY Empire St Index (BB) Jul Forecast: 19.4 Previous: 26.8 Retail Sales (BB) Jun Forecast: 0.4% Previous: 0.1% Retail Sales ex-auto(BB)Jun Forecast: 0.3% Previous: 0.1% Wednesday, 07/16/03 ------------------- CPI (BB) Jun Forecast: 0.2% Previous: 0.0% Core CPI (BB) Jun Forecast: 0.1% Previous: 0.3% Business Invntories(BB) May Forecast: 0.0% Previous: 0.1% Indl Production(DM) Jun Forecast: 0.1% Previous: 0.1% Capacity Utilization(BB)Jun Forecast: 74.4% Previous: 74.3% Thursday, 07/17/03 ------------------ Initial Claims (BB) 07/12 Forecast: 425K Previous: 439K Housing Starts (BB) Jun Forecast: 1.750M Previous: 1.732M Building Permits (BB) Jun Forecast: 1.790M Previous: 1.803M Philadelphia Fed (DM) Jul Forecast: 7.5 Previous: 4.0 Friday, 07/18/03 ---------------- Mich Sentiment-Prel.(DM)Jul Forecast: 91.0 Previous: 89.7 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 07-13-2003 Sunday 2 of 5 In Section Two: Watch List: Watch Out for Earnings Call Play of the Day: LOW Dropped Calls: None Dropped Puts: BVF, SIVB ************************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 ************************************************************** ********** Watch List ********** Watch Out for Earnings Lexmark Intl Inc - LXK - close: 75.98 change: +0.92 WHAT TO WATCH: Shares of LXK have been consolidating between $70 and $77 for two months. Nimble swing and day traders can trade the range but bulls looking for a breakout can watch the $77.50- $78.00 level. A trade at $78 would be a fresh triple-top buy signal on its P&F chart. Earnings are July 21st. Chart= --- Wellpoint Health Network - WLP - close: 84.25 change: +0.10 WHAT TO WATCH: Shares of WLP appear to be building a head-and- shoulder pattern. If the stock breaks the $82.50 level, that should form a breakdown of its neck. From there, bears can target a move to the $75.00 level which just happens to coincide with the simple 200-dma. However, expect some support near $79 and $80. Earnings are expected on July 22nd. Chart= --- Timberland Co - TBL - close: 58.63 change: +1.70 WHAT TO WATCH: Up, up and away! Shares of TBL have been very strong the month of July and they have almost doubled from its February lows near $30. Earnings are expected on July 18th and we might see a "sell the news" affect once the numbers are out. Chart= --- Avid Technology - AVID - close: 41.14 change: +1.55 WHAT TO WATCH: AVID is another stock that has enjoyed a very strong July that many suspect has been bolstered by plenty of short-covering. The recent breakout above $38.00 was also a bullish triangle breakout on its P&F chart. The stock has been a massive winner for investors having broken the $40 level after closing near $9.00 last October. Earnings are near the 17th of July. Chart= --- Centex Corp - CTX - close: 77.23 change: -0.77 WHAT TO WATCH: The homebuilders are seeing continued profit taking, albeit slowly. A break under CTX's 50-dma could portend a move to $70.00 but shares did bounce from $75 just a week ago. Aggressive traders only. Earnings should be on July 21st. Chart= =================================== RADAR SCREEN - more stocks to watch: =================================== IR $49.14 - A move above $50 would be a breakout over tough resistance and could spark more short covering. But watch out for earnings near the 17th this week. COF $51.75 - Shares have regained the $50 level and just retested it again as support. Short-term traders could aim for $55 but earnings are July 16th. QCOM $38.64 - Can QCOM break resistance at $40.00? It's already tried once but the stock's stair-step climb higher is still in affect. Earnings should be the 23rd of July. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** *************** PLAY OF THE DAY *************** Call Play of the Day: ********************* Lowe's Companies - LOW - close: 46.31 change: +1.66 stop: 43.75 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ Biovail Corp - BVF - close: 44.55 change: +0.54 stop: 46.01 Well that was fast! We added BVF on Thursday night when it closed at $44.01. Our short-term target was the $40.00 level but we didn't expect it to reach it in just one day. Actually, shares of BVF only traded down to 40.50 on Friday's session before violently rebounding back above the $44 mark. Some speculate the move was a knee jerk reaction to insider selling news on transactions that happened a couple of years ago. Whatever the case, this produced a very big hammer-style candlestick that usually says "reversal". We're going to cut our losses immediately! Picked on July 10 at $44.01 Change since picked: +0.54 Earnings Date 07/29/03 (unconfirmed) Average Daily Volume: 1.95 million Chart = --- Silicon Valley Bancshares - SIVB - close: 23.80 change: +0.19 stop: 24.90 Enough is enough! We've been tortured by SIVB's incessant tight range action between support and resistance for nearly 3 weeks now without any conclusive evidence of either a breakout or a breakdown. While it has been encouraging to see the 20-dma consistently provide resistance, it has been disappointing to see the bears unable to even effect a drop under the $23.50 support that has been building for the past couple weeks. While a breakdown is still possible, with the 20-dma continuing to exert downward pressure, the way volume has dried up over the past couple weeks indicates that it just isn't worth waiting around any longer. Traders with open positions may want to hold out for the breakdown, but should tighten stops to $24.40, just above the 20- dma. With earnings set to be released next Thursday, our energy is better expended on more promising plays. Picked on June 24th at $22.82 Change since picked: +0.98 Earnings Date 07/17/03 (unconfirmed) Average Daily Volume = 720 K Chart = *********** 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. 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The Option Investor Newsletter Sunday 07-13-2003 Sunday 3 of 5 In Section Three: Current Calls: AGN, AMGN, DGX, EBAY, GS, HAR, PCAR, PHM New Calls: LOW, OMC Current Put Plays: BLL, HD, INTU, WFMI New Puts: None ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ****************** CURRENT CALL PLAYS ****************** Allergan, Inc. - AGN - close: 80.73 change: +0.97 stop: 78.50 Company Description: Allergan is a technology-driven, global healthcare company that develops and commercializes specialty pharmaceutical products for the ophthalmic neurological, dermatological and other specialty markets, as well as ophthalmic surgical devices and contact lens care solutions. Its revenues are principally generated by prescription and non-prescription pharmaceutical products in the areas of ophthalmology and skin care, neurotoxins, intra-ocular lenses and contact lens care products. The company's are sold to drug wholesalers, independent and chain drug stores, pharmacies, commercial optical chains, commercial optical chains, food stores, hospitals and individual medical practitioners. Why we like it: Friday was the second day in a row that our AGN play dipped to the 20-dma (currently $79.11) and caught a solid bounce. The follow through on Friday was better though, as it propelled the stock back to close near Thursday's opening level. The action in the broad market has been rather whippy over the past few days, and the same can certainly be said about AGN. The stock seems to be trying to consolidate its recent rebound and the bounce from higher support certainly looks positive. Another rebound from the $79-80 area looks favorable for new entries, although more conservative traders may want to wait for confirmation of strength with a breakout above last week's $81.60 high before committing fresh cash to the play. There's only a week and a half until the company releases its earnings report, so if the breakout is going to happen, it will need to do so soon. On a breakout, we're still looking to harvest gains on a move up to the $84-85 area. Maintain stops at $78.50 Suggested Options: Shorter Term: The July 75 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Just beware of the fact that July options expire next week. Longer Term: Aggressive traders looking to capitalize on a breakout above the recent highs will want to look to the August 85 Call. This option is 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. More conservative long-term traders should utilize the August 80 call. BUY CALL JUL-80 AGN-GP OI=1423 at $1.90 SL=1.00 BUY CALL AUG-80 AGN-HP OI= 224 at $3.90 SL=2.50 BUY CALL AUG-85 AGN-HQ OI= 35 at $1.65 SL=0.75 Annotated Chart of AGN: Picked on June 26th at $78.74 Change since picked: +1.99 Earnings Date 07/23/03 (confirmed) Average Daily Volume = 1.08 mln Chart = --- Amgen, Inc. - AMGN - close: 69.80 change: +0.29 stop: 68.50*new* Company Description: The biggest of the Biotech big guns, AMGN makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, as well as neuroendocrine and neurodegenerative diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. Its Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of new drugs in various stages of development as well as research and marketing alliances with Hoffman-La-Roche and Johnson & Johnson. Why we like it: Almost as though it has the ability to defy gravity, AMGN continued to impress, with Friday's session seeing yet another foray over the $70 level. That makes four days in a row that the stock has traded at or above that level, but in each case it has been unable to hold it on a closing basis. Can the bulls manage one more strong push to get the job done? We think so, but they're running out of time if they're going to do it on our timetable. There are only 6 more trading sessions before AMGN announces its Q2 earnings, and one way or the other, we're looking to be out of the play before that event. With the stock so close to our eventual target of $72, it is hard to advocate new entries up here. Aggressive traders may be able to parlay an entry off a bounce from the $69 area into a $3 gain if our target is achieved, but must do so with the understanding that there's a lot of air down to the $67.50 level if something were to spook the bulls. As we've been discussing for most of the past week, there just isn't enough potential reward in the play to be chasing the stock higher, and our attention should be focused on milking that last little bit of profit from the play, while not giving too much back if the stock reverses. Accordingly, we've raised our stop to $68.50, which is just below Tuesday's intraday low. Suggested Options: Shorter Term: The July 70 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. This option carries greater risk though due to July contracts expiring next week. Longer Term: Since our target for this play is only $72, even longer term traders should limit their focus to the August 70 strike. BUY CALL JUL-70 YAA-GN OI=17638 at $0.95 SL=0.50 BUY CALL AUG-70 YAA-HN OI=14483 at $2.45 SL=1.25 Annotated Chart of AMGN: Picked on June 24th at $65.05 Change since picked: +4.75 Earnings Date 07/22/03 (confirmed) Average Daily Volume = 9.95 mln Chart = --- Quest Diagnostics - DGX - close: 67.02 change: -0.63 stop: 64.75 Company Description: Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Why we like it: We were wondering if DGX was going to give us a normal retracement back to confirm support at the recent breakout level and we got that answer in a big way on Friday. CIBC downgraded the stock to Sector Underperform before the open, delivering a sharp gap down to $66, and after weakening just a bit from there, we saw the strength of buying interest, as the stock was quickly propelled back over $67. After that initial excitement, DGX traded in a fairly sedate range between $66.50-67.00, but managed to eke out a close just over $67 at the end of the day. That certainly seems to be the confirmation that support is firm at the site of last Monday's breakout and traders that were quick on the trigger got a great entry this morning. Successive rebounds from above Friday's intraday low look like solid entry points, ahead of the expected rally to take out the recent high near $69 and eventually reach our initial target of $72. Take note of the way the 10-dma acted as support on Friday, as this moving average should continue to provide support in the week ahead. If DGX is going to break out to new highs ahead of earnings, next week will have to be it, as the company is set to report the following Tuesday morning. Given the strong volume on Friday's dip and rebound, our $64.75 stop should be safe. Suggested Options: Shorter Term: The July 65 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. At this point though, only aggressive traders should choose this option with July contracts expiring next week. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 70 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher ahead of earnings without time decay becoming a dominant factor over the short run. More conservative long-term traders should utilize the August 65 call. BUY CALL JUL-65 DGX-GM OI=1873 at $2.70 SL=1.25 BUY CALL JUL-70 DGX-GN OI=1158 at $0.35 SL=0.00 BUY CALL AUG-65 DGX-HM OI=1973 at $4.10 SL=2.50 BUY CALL AUG-70 DGX-HN OI=1221 at $1.45 SL=0.75 Annotated Chart of DGX: Picked on July 1st at $65.78 Change since picked: +1.24 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 899 K Chart = --- eBay Inc - EBAY - close: 113.07 change: +0.99 stop: 110.99 *new* Company Description: eBay is the world's online marketplace(TM). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. (source: company press release) Why We Like It: The strength displayed in shares of Internet auction giant EBAY is enormous. It's almost as strong as EBAY's triple-digit P/E ratio. As a matter of fact, EBAY's share price and current P/E are almost the same. Happily (for EBAY shareholders) the valuation question that has weighed heavily on YHOO after its recent earnings announcement has been unable to take a hold of EBAY. Of course most Internet investors see EBAY's business model and future growth as significantly stronger than YHOO's. We continue to hold onto EBAY as a call play with the expectation that momentum traders may try for one last push higher ahead of the company's July 22nd earnings announcement (a week from this coming Tuesday). The stock's ability to hold above the $111 level is a possible entry point for aggressive short-term players. However, because we are not planning on holding over the earnings report, initiating new positions now would be very speculative and involve a greater degree of risk. Thankfully we plan to reduce some of that risk by raising our stop loss to $110.99. Something else to keep in mind is that EBAY is a potential split candidate. The stock was split 2-for-1 on May 25th, 2000 when it was trading near $120. It's certainly in announcement range now, especially since our current target is $120. Unfortunately, we couldn't pin down how many shares EBAY's management is authorized to issue. The 10-Q forms look like they have a typo and state only 900,000 shares are authorized. Yet the company already has some 315 million shares outstanding so maybe that is really 900 million shares authorized. One last time I want to remind readers that initiating new plays now, while tempting, is becoming increasingly risky. Suggested Options: We only have six trading days left before EBAY's earnings. Choose options carefully. *JULY OPTIONS EXPIRE THIS FRIDAY* BUY CALL AUG-110 QXB-HB OI= 2475 at $ 7.20 SL=4.00 BUY CALL AUG-115 QXB-HC OI= 7025 at $ 4.60 SL=2.50 Annotated Chart: Picked on June 27th at $104.05 Change since picked: +9.02 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 6.76 million Chart link: ---- Goldman Sachs Grp. - GS - close: 87.32 change: +0.77 stop: 84.50 Company Description: The Goldman Sachs Group is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net- worth individuals. The company provides investment banking, which includes financial advisory and underwriting, and trading and principal investments, which includes fixed income, currency and commodities, equities and principal investments. GS recently completed the acquisition of Spear, Leeds & Kellog, which is engaged in securities clearing, execution and market making, both floor-based and off-floor. Why we like it: It would be difficult to call last week's trading in GS a trend, but if anything, it would appear to have been a bullish week. Beginning with a sharp gap and run session on Monday, the stock topped out near $88, plunged back under $87 on Thursday and then traded a nice, tight inside day on Friday. After Thursday's sharp slide, we were expecting a test of Monday's gap as support, but perhaps the intraday low of $86.00 was close enough. At any rate, the inside day setup gives us some levels to watch on Monday. A break below $86 would confirm that the gap IS going to be tested and we would then want to watch for new entries near $85.60 (top of the gap) or $84.70 (bottom of the gap). On the other hand, bullish continuation above Thursday's intraday high ($88.23) could set up a momentum entry enroute to a test of the June highs near $92. The more conservative momentum entry approach would be to wait for a trade above Wednesday's intraday high ($88.65) before entering. If trading the inside day setup, look for confirmation of strength/weakness from the Broker/Dealer index (XBD.X), which traded an inside day of its own. Weakness would be signaled on a drop under $550, and strength demonstrated by a push above $568. Until we get resolution of the current range, maintain stops at $84.50. Suggested Options: Shorter Term: The July 85 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. This is an aggressive choice though, with July contracts expiring next week. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 90 Call. This option is 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. More conservative long-term traders should utilize the August 85 call. BUY CALL JUL-85 GS-GQ OI=15254 at $2.70 SL=1.25 BUY CALL AUG-85 GS-HQ OI= 2289 at $4.30 SL=2.75 BUY CALL AUG-90 GS-HR OI= 2107 at $1.75 SL=0.85 Annotated Chart of GS: Picked on July 1st at $85.85 Change since picked: +1.47 Earnings Date 09/24/03 (unconfirmed) Average Daily Volume = 4.38 mln Chart = --- Harman Intl - HAR - close: 82.18 change: +1.58 stop: 78.75 *new* Company Description: Harman International Industries, Incorporated (www.harman.com) is a leading manufacturer of high-quality, high fidelity audio products and electronic systems for the consumer and professional markets. (source: company press release) Why We Like It: So far so good. HAR is following the play script pretty well. After the initial pop early this week the stock has maintained its relative strength and held support at $80.00, which was previously resistance. Dip buyers moved in and bid the stock higher on Friday. News has been rather light for HAR but the company did purchase Wavemakers Inc. and shares barely faltered on the news. More conservative traders can raise their stop loss to just under $80.00 but we're going to keep our stop just below the rising 21-dma, which has been support for months. This makes our new stop at $78.75. In today's momentum market investors are putting more money into growth companies like HAR and with a PEG ratio of 0.4 this stock still has plenty of price appreciation left to go despite its currently overbought condition. Last month HAR increased its share buyback program by 1 million shares authorizing management to buy back up to 1.54 million shares. The company has 28.7 million shares in the "float" or on the open market. Furthermore, the company is set to buy back up to $100 million in outstanding debt. Something else that could be driving shares of HAR are dreams of a split announcement. The company last split 2-for-1 on September 20th, 2000 near $80.00. We suspect they actually announced in the $60-65 dollar range. It is more traditional to have the company announce any split with its earnings, which appear to be August 19th, but they don't have to wait to announce one. Suggested Options: Given that HAR's earnings are expected in August, we'd prefer to play the August options. Unfortunately, after the recent quadruple witching in June and the new issuance of the August options, there haven't been many takers. Even though there is little open interest, small traders who use market orders of 10 contracts or less should have them executed automatically at the current bid or ask (market). We're going to list Augusts and an Octobers. *JULY OPTIONS EXPIRE THIS FRIDAY* BUY CALL AUG 80 HAR-HP OI= 1 at $4.40 SL=2.20 BUY CALL AUG 85 HAR-HQ OI= 26 at $1.45 SL=0.70 BUY CALL OCT 80 HAR-JP OI= 16 at $6.10 SL=3.25 BUY CALL OCT 85 HAR-JQ OI 100 at $3.30 SL=1.65 Annotated Chart: Picked on July 6th at $80.26 Change since picked: +1.92 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 321 thousand Chart link: --- PACCAR Inc. - PCAR - close: 72.45 change: +1.11 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 on Monday. 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 this week. 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. This week has been one of consolidation between $71 and $74. Traders can still choose to gauge an entry on a bounce above $70.00 or wait for a new high above $74. Our short-term target remains $80.00. Keep in mind there are less than 10 trading days left before PCAR's earnings announcement and we currently don't plan to hold over the report. Suggested Options: Given our short-term 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. *JULY OPTIONS EXPIRE THIS FRIDAY* BUY CALL AUG 70 PAQ-HN OI= 303 at $4.80 SL=2.50 BUY CALL AUG 75 PAQ-HO OI= 351 at $2.20 SL=1.10 BUY CALL AUG 80 PAQ-HP OI= 28 at $0.90 SL= -- BUY CALL NOV 70 PAQ-KN OI=3046 at $7.30 SL=5.00 BUY CALL NOV 75 PAQ-KO OI= 97 at $4.80 SL=2.65 BUY CALL NOV 80 PAQ-KP OI= 0 at $3.00 SL=1.50 Annotated Chart: Picked on July 08 at $73.49 Change since picked: -1.04 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.24 million Chart = --- Pulte Homes - PHM - close: 61.80 change: -0.46 stop: 60.50 Company Description: Pulte Homes, Inc., (www.pulte.com) based in Bloomfield Hills, Michigan, has operations in 44 markets across the United States. Under its Del Webb brand, the Company is also the nation's leading builder of active adult communities for people age 55 and older. Over its history, the Company has constructed more than 330,000 homes and has been named Builder of the Year for 2002 by Professional Builder magazine. Pulte Mortgage LLC is a nationwide lender committed to meeting the financing needs of Pulte Homes' customers by offering a wide variety of loan products and superior customer service. (source: company press release) Why We Like It: Initially we added PHM to the call list as a hedge against our RYL put play and as a speculation on another rebound in the homebuilders from their recent profit taking. Shares of PHM rebounded nicely from the $60.50 level on July 1st and then slowly climbed higher hugging its 50-dma. As of Thursday this week the DJUSHB homebuilders index began to grow weaker and PHM along with it. The specter of investors selling their winners ahead of any uncertainty in earnings is beginning to weigh on the homebuilders who have been big winners this year. The recent breakdown in PHM has us on the defensive. We would not recommend new positions unless we see a decisive bounce from the $60.00 level (or a move back above $65). Unfortunately, our stop is currently at 60.50 and we're loathe to move a stop backwards once set. The $61.50 level appears to be holding as support as the 38.2% retracement of its March-June rally. We'll see if this level holds. We're currently not suggesting new positions. Suggested Options: We are not suggesting new entries at this time. Annotated Chart: Picked on July 01 at $63.52 Change since picked: -1.72 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 767 thousand Chart = ************** NEW CALL PLAYS ************** Lowe's Companies - LOW - close: 46.31 change: +1.66 stop: 43.75 Company Description: As a retailer of home improvement products, Lowe's has a specific emphasis on retail do-it-yourself and commercial business customers. The company specializes in offering products and services for home improvement, home decor, home maintenance, home repair and remodeling and maintenance of commercial buildings. Why we like it: Regardless of what the outcome is of the recent housing boom and whether rising interest rates put the kibosh on another round of refinancing activity, shares of LOW made a very bullish move on Friday, indicating further upside is in store. After rebounding from the $42 level just one short week ago, the stock rallied sharply last week, pausing briefly near $45 resistance and then blasting off again on Friday, closing over $46.50 for the first time in over a year. If there was any doubt as to the strength of Friday's rally, a look at the buying volume (40% over the ADV) should put those doubts to rest. A quick look at the PnF chart shows the significance of that breakout, as it generated a new Buy signal with a tentative bullish price target of $58! Before considering that as a viable target, the stock will need to work through resistance on the weekly chart between $47.50-50.00, but all signs look bullish right now. Pulling up a relative strength chart of LOW vs. its main competitor HD shows why we're bullish on LOW and bearish on HD. That chart has been consolidating near support for nearly 2 months and broke out to the upside with conviction last week. As strong as Friday's breakout appeared (both in terms of price and volume), we would feel a lot better about new positions on a pullback to confirm old resistance as new-found support. That would require a pullback and rebound from the $45.00-45.50 area, which has been acting as resistance since the middle of April. With earnings not set to be released until the middle of August, we've got plenty of time to let this bullish trend unfold in our favor. One reason we're not advocating momentum entries without at least a mild pullback has to do with Friday's close above the upper Bollinger band. Stocks can continue to push their bands either higher or lower, but it is usually an uphill battle. Waiting for the pullback before entry just presents a more favorable risk-reward dynamic. Our first target will be for a test of the 2002 high at $50 and then we'll see how much gas the bulls still have in their tank. Place stops initially at $43.75, which is just below Thursday's intraday low, as well as the converged 10-dma ($43.91) and 20-dma ($44.08). Suggested Options: Shorter Term: The July 45 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. But with July expiration looming next week, the more conservative approach would be to use the August 45 Call. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 47 Call. This option is 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. More conservative long-term traders could utilize the October 47 call. BUY CALL JUL-45 LOW-GI OI=11321 at $2.10 SL=1.00 BUY CALL AUG-45 LOW-HI OI= 3263 at $2.90 SL=1.50 BUY CALL AUG-47 LOW-HT OI= 744 at $1.40 SL=0.75 BUY CALL OCT-47 LOW-JT OI= 1553 at $2.70 SL=1.25 Annotated Chart of LOW: Picked on July 13th at $46.87 Change since picked: +0.00 Earnings Date 08/18/03 (unconfirmed) Average Daily Volume = 4.83 mln Chart = --- Omnicom - OMC - close: 73.97 change: +1.80 stop: 69.99 Company Description: Omnicom 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: If the economy is improving then that means companies are going to be recommitting money back towards their advertising budgets. Of course that means more business for the likes of OMC. Besides, the stock has been a stellar performer from its March lows. Bulls have been buying the dips near its rising 30-dma and that's exactly where shares are riding right now. Earnings are expected at the end of July and that gives us three weeks to ride any momentum into their announcement. The stock has some resistance in the $75-76 area but we projecting a move up to the $80 level. We'll start the play with a stop loss at $69.99 but more conservative traders could use Thursday's low of 71.34. Suggested Options: As we don't plan on holding over OMC's end of July earnings, our preference will be for the August strikes but Octobers will be listed as well. BUY CALL AUG 70 OMC-HN OI= 57 at $5.70 SL=3.00 BUY CALL AUG 75 OMC-HO OI=2173 at $2.45 SL=1.25 BUY CALL AUG 80 OMC-HP OI=1333 at $0.70 SL= -- much riskier BUY CALL OCT 70 OMC-JN OI= 733 at $7.40 SL=5.00 BUY CALL OCT 75 OMC-JO OI=1161 at $4.40 SL=2.20 BUY CALL OCT 80 OMC-JP OI= 284 at $2.45 SL=1.25 Annotated Chart: Picked on July 13 at $73.97 Change since picked: +0.00 Earnings Date 07/29/03 (unconfirmed) Average Daily Volume: 1.66 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 ************************************************************** ***************** CURRENT PUT PLAYS ***************** Ball Corp. - BLL - close: 44.00 change: -0.10 stop: 46.50*new* 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: Persistent bearish trends are hard to come by in the current market, but it is hard to argue with BLL's bearish trend of the past 3 months, as one support level after another has given way. We initiated coverage just in time for entries ahead of a break of the $45 support level and it has been encouraging to see the past two days' tests of the $43.50 level, which is next support. The fact that both of those dips were bought though, brings up the possibility of a more pronounced oversold rebound before the bearish trend continues. We would actually welcome such a move, as it would set up the next high-odds entry point, preferably on a rollover from the $45.00-45.50 area. There should now be very strong resistance near $46, and that will be reinforced by the declining 20-dma at $46.17, as it has been providing consistent resistance since early May. Chasing the stock lower without a bounce first does not seem to be a winning strategy with the lower Bollinger band currently just above $43. The stock needs to have some pressure relieved first and then we can hammer it on the next failed bounce. 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=327 at $1.40 SL=0.75 BUY PUT AUG-45 BLL-TI OI=404 at $2.45 SL=1.25 BUY PUT AUG-40 BLL-TH OI=494 at $0.65 SL=0.30 Annotated Chart of BLL: Picked on July 8th at $45.14 Change since picked: -1.14 Earnings Date 07/24/03 (confirmed) Average Daily Volume = 620 K Chart = --- The Home Depot - HD - close: 33.17 change: +0.74 stop: 34.75 Company Description: A home improvement retailer, The Home Depot operates more than 1500 stores throughout the United States. The do-it-yourself warehouse retail stores offer building materials, home improvement products and related furnishings. Additionally, the company provides lawn and garden products and an assortment of services to both individual home-owners and independent contractors. Why we like it: Almost as though waiting for us to begin bearish coverage of the stock, BofA came out before the open on Friday, upgrading HD to a Buy. That gave the stock an early pop that extended up to the $33.50 level and that may have been the oversold rebound we were hoping for. After the initial excitement wore off though, the stock gradually drifted lower throughout the afternoon, ending just above $33. Stepping back, we're once again confronted by the technicals that originally attracted us to the play and we can't shake the feeling that the sharp selloff earlier in the week is the primary story. A rollover below the $34 level looks like a high-odds entry point for aggressive traders. A quick comparison between HD and its primary competitor LOW, shows how the stock is quickly losing strength relative to its peer, with the relative strength chart breaking below its 50-dma over the past 2 days. Traders looking for more weakness before playing will want to see HD take out the $32 support level and then break the 50-dma ($31.75) before playing. That breakdown will confirm the recent double-top at $34.70 and have us looking for a quick drop to $30 and then our final target of $28. Maintain stops at $34.75, as a close over that level would be a significant bullish development. Suggested Options: Aggressive short-term traders will want to focus on the July 32 Put, as it will provide the best return for a short-term play. With July contracts expiring next week though, conservative traders will want to utilize the August 32 contract, which provides greater insulation from the spectre of time decay. BUY PUT JUL-32 HD-SZ OI=4729 at $0.30 SL=0.00 BUY PUT AUG-32 HD-TZ OI=5094 at $1.05 SL=0.50 BUY PUT AUG-30 HD-TF OI=4506 at $0.35 SL=0.00 Annotated Chart of HD: Picked on July 10th at $32.43 Change since picked: +0.74 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 9.59 mln Chart = --- Intuit Inc - INTU - close: 43.30 change: +0.14 stop: 45.55 Company Description: Intuit Inc. is a leading provider of business and financial management solutions for small businesses, consumers and accounting professionals. Its flagship products and services, including QuickBooks., Quicken. and TurboTax. software, simplify small business management and payroll processing, personal finance, and tax preparation and filing. ProSeries. and Lacerte. are Intuit's leading tax preparation software suites for professional accountants. (source: company press release) Why We Like It: Whether you call it a seasonal play or technical weakness it just looks like a bearish candidate. Last earnings season the stock was hammered on INTU's earnings and revenue warning for the second half of this year. The company blamed a sluggish economy and lower consumer spending across all the product lines. Since that announcement and corresponding $12 drop Prudential cut the stock from a "buy" to a "hold". Shares eventually traded below the $35 level before rebounding with the broader markets. INTU almost "filled the gap" with its mid-June high near $49.00 but soon thereafter traders started taking profits. The breakdown under its 200-dma and the $45.00 level are rather negative. Not helping the share price were negative comments just recently from Prudential. The research firm is concerned about INTU's 2004 earnings and competition from Microsoft into the small business accounting market. Shares of INTU appear reluctant to give up much ground. While the stock is certainly under performing the markets and the GSO software index it isn't moving very fast. We do see a strong series of lower highs as selling pressure slowly wears down the bulls. Plus, we're encouraged by the two consecutive closes under the simple 50-dma. New positions can be taken at current levels but momentum traders may want to wait for a move back under $43. Meanwhile, target shooting types can look for another failed rally, this time under $44.50. Suggested Options: Stocks tend to move lower much faster than they climb. Thus, our preference is for short-term options like July's but these expire in five days and are NOT recommended. We're going to suggest the August contracts. However, we're going to list August and October options. FYI.. INTU does have 42.50 strikes but we're not listing any. *JULY OPTIONS EXPIRE THIS FRIDAY* BUY PUT AUG 45 IQU-TI OI= 246 at $3.20 SL=1.65 BUY PUT AUG 40 IQU-TH OI= 523 at $1.10 SL=0.60 BUY PUT OCT 45 IQU-VI OI=1914 at $4.90 SL=2.50 BUY PUT OCT 40 IQU-VH OI=1647 at $2.55 SL=1.30 Annotated Chart: Picked on July 8th at $43.35 Change since picked: +0.05 Earnings Date 08/13/03 (unconfirmed) Average Daily Volume = 4.1 million Chart link: --- Whole Foods - WFMI - cls: 47.88 chg: +0.81 stop: 48.26 Company Description: Founded in 1980 in Austin, Texas, Whole Foods Market is the world's largest natural and organic foods supermarket with $2.7 billion in sales in fiscal year 2002. The company currently has 143 stores and employs more than 27,000 Team Members in the United States and Canada. The motto, "Whole Foods, Whole People, Whole Planet"(TM) captures the company's mission to find success in customer satisfaction and wellness, Team Member excellence and happiness, enhanced shareholder value, community support, and environmental improvement. For six consecutive years, Whole Foods Market has ranked on Fortune's annual list as one of the "100 Best Companies to Work For." Whole Foods Market, Bread & Circus. and Harry's Farmers Market. are all registered trademarks owned by Whole Foods Market IP, LP. (Source: company press release) Why We Like It: WFMI is getting swanky, with a planned new address in a center to be built on Columbus Circle at the southwest corner of Central Park. It's also making progress on its new landmark store and world headquarters in downtown Austin. Perhaps all the news excited the WFMI investors. They sent WFMI climbing 1.72 percent on Friday. A study of the $RLX and competitors Wild Oats (OATS), Kroger (KR), Albertson's (ABS), and Safeway (SWY) shows the retail index gaining 1.97 percent, KR gaining 1.98 percent, and closest competitor OATS gaining 1.43 percent. Perhaps it wasn't the glitzy new location after all that sent WFMI climbing, but we liked that story better. Although WFMI could not maintain 48.00 and today's anemic volume did not confirm the move, the day's strong trading created technical damage to the chart outlook on our short play. Stochastics, RSI, and MACD all turned up, although MACD remains below signal. WFMI climbed above its 10-dma and closed there. Based on these technical considerations, we expect another test of 48.20 early next week and possibly a test of our stop, too. With a couple of weeks to go before earnings are released, we hope to see WFMI roll over again beneath that stop, but we would not suggest new entries at this time. Suggested Options: We're not suggesting new positions in WFMI at this time. *JULY OPTIONS EXPIRE THIS FRIDAY* Annotated Chart for WFMI: Picked on June 13 at $49.44 Change since picked: -1.56 Earnings Date 07/30/03 (unconfirmed) Average Daily Volume: 1.6 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ********** 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 Sunday 07-13-2003 Sunday 4 of 5 In Section Four: Leaps: Let The Earnings Parade Begin Traders Corner: Quickie Time Again – Keep Em" Short & Sweet & Profitable Traders Corner: Elliott Wave Play Updates Traders Corner: Where is the Dow Going? ************************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 ************************************************************** ***** LEAPS ***** Let The Earnings Parade Begin By Mark Phillips mphillips@OptionInvestor.com The more things change, the more they remain the same. That phrase certainly applies to the stock market lately, as investors continue to believe that surging liquidity will result in economic recovery. That's really the story behind the recent rally and with July earnings upon us, we'll soon get to see whether there is any kernel of truth to it or if it is the same recycled fairy story of a second-half recovery that we've been fed for the past 3 years. Based on the trend of increasing money supply and the way it has flowed into consumer debt creation, without so much as a hint of growth in business loan activity, I can't shake the feeling that this chapter of the story is going to end badly, just like the prior 3 chapters. Jonathan has been doing a great job of reflecting on the macro picture in this arena in his Wednesday Market Wraps, so I won't rehash any of it here. The Fed may be sending lots of money out there (through whatever extraordinary means they may choose) to stimulate business development, but I believe they have left out two huge components of the equation. The first is a huge excess of production capacity. As long as that exists, companies have no need to invest in expansion projects. Making matters worse is the excess production capacity means that companies have no pricing power and that translates to more fierce price competition and falling prices -- with the end result being falling prices. The other factor I believe the Fed is ignoring is that with interest rates bottoming, the incentive for homeowners to refinance is going to dry up. Unemployment is on the rise - still - and really with no signs of it improving anytime soon. With consumers having propped up the economy in the past couple years, how are they going to continue to do so if they've already refinanced all they can and more and more of them are losing their jobs. You see the conundrum the Fed is faced with don't you? Unfortunately, the remedy they have chosen appears to be the financial equivalent to pushing on a string. You can move the near end (money creation) all you want, but it is unlikely to have even a remote impact on the other end of the string that you're really interested in (economic growth). We are in the early stages of what is likely to be one of the strongest bear markets in history (including the 1930s and the experience of the Nikkei over the past decade plus) and this little bull run will turn out to be just one of a long series of bear market rallies that I expect to continue for some time to come. But for now, the bulls are still in charge, so let's take a look at some of our usual factors and see what grabs our attention. Unfortunately, I'm already way behind schedule today and have more of a deadline than usual, as I'm leaving town for the weekend and already have reservations at the other end of my journey. So I'm going to keep my commentary rather brief (at least compared to my usual novel) this week. In short, all of the major indices are still trading very near their recent highs and while I continue to add bearish plays to the Watch List and Portfolio, I think we need to be cognizant of the big picture that shows very little indication of internal weakening. The key to that view for me comes from the Bullish Percent readings, and as usual, we see very little there to provide encouragement for the bears just yet. Here are the updated readings as of Friday's close. NASDAQ-100 - 80% Back in Bull Confirmed, down from the 91% high NASDAQ Composite - 72.64% (another new all-time high) DOW - 86.67% (Highest reading since 1/99 -- highs in 1998 = 92%) S&P 500 - 79.40% (Cycle high of 82.80% - Still Bull Confirmed) S&P 100 - 82% (Just below cycle high, 11/98 all-time high = 84%) Other than the NDX, I see very little sign of internal weakening in the broad market, and even that index popped back up into Bull Confirmed with a fresh column of X last week. In fact, we have the DOW and COMPX registering fresh cycle highs last week. Haven't we read somewhere that overbought can become more overbought? The action in the broad markets and the internals is providing living proof of that maxim. We've been talking in recent weeks about the bullish percent SharpCharts for the major indices and I think it is worth mentioning again here. In the interest of getting this turned in at a decent time tonight, I won't duplicate the charts here, but you should have gotten adept at pulling them up yourselves by now. Here is the link and BP symbols for easy reference. http://stockcharts.com/def/servlet/SC.web?c=$bpspx,uu[w,a]dacaynay[dd][pb10][iLd20]&pref=G Here are the pertinent Bullish Percent symbols. DOW - $BPINDU SPX - $BPSPX OEX - $BPOEX NDX - $BPNDX COMPX - $BPCOMPQ Both the NDX and the SPX saw enough internal weakening to have the bullish percent lines cross under their respective 10-dmas, with the CCI oscillators falling below the -100 lines. By my reckoning, that is the bearish signal that we want to see to give us some conviction to the downside. But look at how we're starting to see a rebound in these bullish percent lines, which have now crossed back above the 10-dmas. We're also starting to see the CCI oscillator creep back over the zero line. What does that mean? Recall this snippet from last week's column? "I think we are likely watching a variant of the pattern of last December and January play out. We got the primary bearish cross in mid-June (early December) and then after a brief rebound following the initial dip, we ought to get a second bearish cross at a lower level of bullish percent sometime in July, leading to a similar pattern to that seen in January." Take a quick look at the Sharp Charts of the NDX and SPX Bullish Percents and I think you can see the potential for this scenario to play out. The big unknown for me is the still very strong picture presented by the Bullish Percent on the DOW, COMPX and OEX. For now, there is still a lot of internal strength and the bears need to be careful. But as we head into July earnings in earnest next week, I have a strong conviction that the irrational bullish enthusiasm of the past couple months is going to run headlong into economic reality. One way or the other, I think we're going to see some fireworks, even if it is a couple weeks late. I think the actual earnings are really irrelevant and what investors are going to focus on is the future guidance. That's what they've been buying stocks on, is the EXPECTATION of future improvement. If their hopes are dashed by bearish comments in the coming weeks, it could be a painful few months for the bulls. On the other hand, if their hopes are found to be justified, we could be looking at new highs for year just around the corner. The picture presented by the VIX is finally starting to look more encouraging, with Friday's close under 21 for the first time since last May. I'm hoping we have lower levels in store over the next week or so, and a close under 20 will make the bearish case that much stronger, as more and more traders shift to the bullish side of the boat, making it that much more lop-sided and unstable. The March 2002 low on the VIX was 19.03 and if we get anywhere near that level, I would consider it a high odds entry point for long- term bearish positions on either the DOW or the S&Ps. We'll just have to wait and see how it all plays out, now won't we? And now let's move on to the growing list of plays. It was an active week, and there's a lot of ground to cover. Portfolio: AIG - Is that pesky support ever going to fail? Each time AIG comes down to challenge the $54-55 support area, buyers emerge to prop it right back up. I still feel a significant breakdown is in the future, but there are good odds it won't materialize until after the company reports earnings on July 24th. Resistance seems to be firming up just over $58 and the long-term descending trendline has now fallen below $60. But until AIG prints $54 and creates a new PnF Sell signal, the stock remains rangebound, torturing us on a weekly basis. Aggressive traders can still use failed rallies below $58.50 to enter the play. We'll want to see the 50-dma crossing back under the 200-dma to give us an indication that strength is waning. I think the biggest thing that concerns me about this play is the lack of a price decline to accompany the drop in weekly Stochastics over the past month. That is normally a sign of strength, which is not what we want to see in this bearish play. AMGN - I don't know how many ways I can say how astounded I am with the performance of our AMGN play. Last week was another stellar performance, with 4 out of 5 days providing a test of the $70 resistance level and each one being a potential profit-taking opportunity. I certainly wouldn't fault anyone for harvesting gains at current levels, with even the '05 LEAP showing better than a 50% gain from where we logged our entry. From here on out, it is all about maximizing gains on the play. Our final target is $72, which is the bullish price target from the PnF chart. If that level is traded next week, then we'll close the play then and there. Note that we've raised our stop to $68.50, as that is just below last Tuesday's intraday low. Yes, that's an aggressive stop for a LEAPS play, but I think it is warranted given the proximity of our eventual target. QQQ - Bringing the misery to an end, QQQ surged through the $32 level early last week and stopped us out by a mere 3 cents. To be honest, I'm glad to have it behind us. It is a perfect example of the hazards of being too eager to enter a play contrary to the dominant market trend. HD - It was an aggressive way to play, but I think it is going go pan out nicely. Needless to say, the double top last week triggered our HD play to move to the Portfolio. SMH - Despite showing more strength than I was expecting, I took the plunge on SMH early last week and we have another new bearish play in the Portfolio. Watch List: DJX - As recently as Thursday, I was thinking that the jig was up and we had missed the ideal entry point on our DJX play. But then the bulls delivered another robust rebound on Friday, and the possibility of another assault on those highs is still in play. One of the most encouraging signs I saw on Friday was the VIX finally cracking below 21 on a closing basis -- for the first time since May of 2002. I'm going to stick with the entry target of $83.50-94.00 on the play and if we get a VIX plunging under 20 next week, then so much the better. Radar Screen: GS - The bullishness in the Brokerage sector (XBD.X) last week certainly gave GS a lift. Now the question is whether the stock can test its June highs near $92. Based on the action in the XBD index, I really think it can. We have a lower high in GS to work with, but until there is a lower low to go along with it, we'd just be trying to game a top in a relatively strong stock in a strong sector. LEH - For traders looking to play the downside in the Brokerage sector, LEH certainly seems to have more appeal than GS, primarily due to its lack of upside traction last week. Hovering between $65-70 for the past 3 weeks now, the stock could be primed for a breakdown, but I just can't bring myself to put it on the Watch List until we see which way this range is going to break. My biggest concern is the price action in the Broker/Dealer index (XBD.X), which tagged a new 2-year high last week on expectations that profits are improving with increased trading activity. WMT - Now that's more like it! We got a taste of renewed bullishness from the Retail index (RLX.X) last week, as it tagged a new 52-week high at $344. I'm looking for another thrust higher before the top is in, perhaps near the $360 area. WMT is finally showing a bit of traction as well, currently challenging the $57 level. The manner in which the stock is lagging the RLX is encouraging, but I want to see how the stock behaves near the $58 resistance level, which has turned back every decent rally since May of last year. Earnings aren't scheduled to be released until the middle of August, so there is plenty of time for a solid entry to set up. At this point, I want to wait to see whether year-long resistance is going to hold or fail. Until we have that piece of data, gaming a top in WMT just doesn't have the appeal needed to get me off the fence. LEN - While it was encouraging to see the Housing index ($DJUSHB) and LEN put in a lower high last week, I'm not convinced we've seen the end of bullishness in the sector just yet. Instead of an imminent breakdown, I'm expecting one more thrust towards the highs before all is said and done. I may be dead wrong on that account, with bond yields holding the bulk of their recent gains, but I just can't justify a new position here just yet. Before getting aggressive to the bearish side, I think we will also need to see a lower low to go along with last week's lower high. The next couple weeks should prove to be quite interesting and I wouldn't rule out a new Watch List play as early as next week, depending on favorable price action. BBH - As strong as the temptation is to short into the recent rally in the Biotech sector, I can't justify it, especially when we're already leaning bullish with our AMGN play. I'm going to keep BBH here though, because if the uptrend in AMGN fails, then I think that will be a strong indication that it is time to shift BBH to the Watch List. Eager and aggressive traders might consider an early play on another failure below the $135 level, looking for a return back to the $100-110 area. Note that we're right back into the area of the recent highs and this is where aggressive traders might look to place their bets. But not me! If anything, BBH looks like it wants to break out over recent resistance and we could be looking at a move up towards $140 before this train runs out of steam. RIMM - With the strength in the Wireless and Internet space, RIMM has had quite a run off of its March lows, consistently working higher in a neat little ascending channel. But that channel is fast approaching some formidable resistance near $24. I don't yet see any signs of weakness on the chart, but the first indication of such will be a break below the bottom of the channel. The strategy will be to wait for the breakdown and then look to enter bearish positions on a failure to then get back into the channel. This will still take a few weeks (I expect) to set up, but once it does, RIMM could give us a very nice ride back to the $16-17 area, which the most recent breakout took place. Note that the past few weeks have got RIMM moving close to the bottom of its channel, but no breakdown yet. Patience is the key for now. GM - Doesn't GM's trading pattern over the past few weeks look an awful lot like it did in late April and the first part of May before the stock broke down to the $33 level? I just can't shake the feeling that there isn't enough bang for the buck in this one unless we can get an entry on the next spike move. With earnings coming out next week, that sort of move seems unlikely unless the company really pulls a rabbit out of their hat. I'm starting to cool my jets on GM as a solid bearish play, primarily because of the erratic price action we've witnessed in recent months. Long term, I think it is headed much lower, but the only way to play it is to get the really attractive entry point. SNDK - That's just downright cruel! While I was looking for a pullback last week, SNDK just rocketed out of the gates on Monday and never looked back, tacking on nearly 12% by Friday's close. I know the stock looks really strong and has a bullish price target well above $70, but I just can't stomach the risk necessary to chase the stock here. We've got to wait for the pullback first and hopefully we'll get a nice little "sell the news" event after next week's earnings report. I continue to think we need to see at least a 25% pullback to consolidate this rally before continuing higher, and right now that equates to SNDK pulling back into the $40-41 area. Closing Thoughts: I had a fair amount of charting problems this morning in trying to get this column put together before heading out of town for another long weekend. As a result of all the activity with the play lists, I had to keep my commentary rather short. As I think you can read between the lines though, I see the market as having changed very little in the past month. We've seen very little internal weakening and the major indices are all trading very close to their recent highs. I'm still leaning into the bearish camp, as demonstrated by two more bearish Portfolio plays and a bearish Watch List play this week. But I still feel we're fighting a bullish trend that just refuses to accept the reality of economic weakness. Remember that the market can stay irrational much longer than we can stay solvent. Keep that in mind before uttering any phrase that begins with "XYZ stock just can't..." Of course it can! We just need to balance risk and reward in our pursuit of profits. July earnings are upon us and corporate officers will either have to put up or shut up. Investors have been persistently bidding stocks higher in anticipation of the second half recovery and if there's no evidence of that happening, then it could be a painful rest of the summer for the bulls. Of course there's always the possibility that this year will be different, so we'll have to stay on our toes. Either way, the next few weeks are likely to be very interesting. Have a great weekend! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: AMGN 05/21/03 '04 $ 60 YAA-AL $ 7.00 $12.50 +78.57% $68.50 '05 $ 60 ZAM-AL $10.90 $16.70 +53.21% $68.50 Puts: AIG 04/24/03 '04 $ 55 AIG-MK $ 5.60 $ 3.80 -32.14% $61.00 '05 $ 55 ZAF-MK $ 8.50 $ 7.00 -17.65% $61.00 HD 07/09/03 '04 $ 32 HD -MZ $ 2.45 $ 2.70 +10.20% $36.50 '05 $ 30 ZHD-MF $ 3.20 $ 3.60 +12.50% $36.50 SMH 07/09/03 '04 $ 30 SMH-MF $ 2.70 $ 3.00 +11.11% $33.00 '05 $ 30 ZTO-MF $ 5.00 $ 5.20 + 4.00% $33.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: DJX 05/04/03 $93.50-94.00 DEC-2003 $ 92 DJV-XN DEC-2004 $ 92 YDK-XN ADBE 07/13/03 $36 JAN-2004 $ 35 AEQ-MG JAN-2005 $ 35 ZAE-MG JAN-2006 $ 35 WAE-MG New Portfolio Plays HD - The Home Depot $34.55 **Put Play** To be entirely honest, I really didn't expect HD to be able to test its June highs so thoroughly, so when Tuesday's euphoric ramp left the stock up above $34.50, after an intraday high just 2 cents below June's intraday high, I just couldn't stand the temptation and took advantage of the higher-risk entry point. As luck would have it, the sharp decline of the next two days had me feeling a bit smug in having captured THE cycle high, but I remained cognizant of the risk of a bounce until the $32 support gave way. Well that's precisely what transpired on Friday, as BofA upgraded the stock to Buy, resulting in a pop back to the $33.50 level. The afternoon session produced a very slight bleed into the close, but it was encouraging to see a lack of bullish follow-through. As I mentioned last week, this play is all about trying to game a top in HD, in some respects a less volatile way to play the expectations of weakness in the overall Housing sector. One other factor in our favor is the was HD is underperforming its primary competitor (LOW) and that relative underperformance really stood out on Friday, with LOW moving to a new high and HD failing to follow suit. I actually have rather modest expectations for HD for the duration of the play, as I think the best we could hope for would be a drop to the 200-dma (currently $26.67). There are several support levels to deal with on the way to that optimistic target though, starting with the 50- dma ($31.75), the bottom of the June dip ($31.58), more support at $30 and then the bottom of the 5/20 gap at $28.07. Realistically, I think we should target the $28 level and if achieved, we should be gladly harvesting our gains. The bullishness in the rest of the market (including the Housing sector) really hasn't faded yet, so I want to err on the side of caution and give HD some room to move before commencing the decline in earnest. Initial stops are set at $36.50, just above the 50% retracement ($36.35) of the decline from 2/02-1/03 slide. Traders that missed last week's entry point can use any subsequent bounce near the $34 level as a viable entry. We'll know it is safe to tighten our liberal stop once the stock closes below $31.50. BUY LEAP JAN-2004 $32 HD -MZ $2.45 BUY LEAP JAN-2005 $30 ZHD-MF $3.20 SMH - Semiconductor HOLDR $31.80 **Put Play** Let me be perfectly clear about this bearish play on SMH. It is VERY aggressive and we are once again trying to game a top in one of the stronger sectors of the market. Remember what happened with the QQQ play that was stopped out this week? We're taking the same sort of risk in trying to pick a top in the Chip sector right now. The Semiconductor index (SOX.X) is trying valiantly to accomplish a decisive breakout over year-long resistance in the $400-407 area, and the SOX has yet to break down from its ascending channel from the February lows. With that said, I believe the rise in this sector to be wholly unsustainable, due to the complete lack of evidence of any recovery in Tech spending. As we've discussed in recent commentaries, the rally in recent months has been driven by surging liquidity and the belief (read:hope) that it will translate to economic recovery later this year and early in 2004. If you believe that fairy tale, then this play isn't for you. SMH has tracked the SOX fairly well (as we would expect) and has traded within its own ascending channel off the February lows. We'll need to see a break below the 50-dma ($28.86) and the bottom of the channel ($28.50) before we'll know the play is working. As noted in the Watch List writeup last weekend, I was looking for a rally failure in the $30.50-31.50 area, and we definitely got more than that, with Tuesday's intraday surge above $32 and then sharp pullback into the close. In fact, I probably would have left it alone if not for that final-hour swoon. While there was a bit of weakness to round out the weak, there is nothing to point at saying the top is in and we're headed straight down from here. Successive rebound failures below $32 look good for aggressive entries, while more conservative traders may still want to wait for a break and close below $30 before playing. I'm not willing to give this play nearly as much breathing room as we did on the QQQ play, so I'm setting a very tight stop at $33, which is just above the June intraday high of $32.47. Things could get really exciting over the next couple weeks with earnings season breaking into full stride. In my opinion, it will be time to "Show us the money", as companies are forced to demonstrate improving business or suffer the wrath of investors that have heard the same tired promises once too often. BUY LEAP JAN-2004 $32 SMH-MF $2.70 BUY LEAP JAN-2005 $30 ZTO-MF $5.00 New Watchlist Plays ADBE - Adobe Systems $34.63 **Put Play** After playing ADBE successfully to the upside earlier this year, I've been watching for a favorable setup to play the downside in the stock and I think that opportunity is near at hand. After topping out near $38 in early May (where we exited the bullish play), we've seen the stock enter into a more bearish trend. The June earnings were certainly not well received and the stock cratered down to the $32 level and it took nearly 3 weeks for any sort of upward traction to take hold. Over the past couple weeks, ADBE has been working higher and is currently finding resistance just below the top of its June gap. Please note that this is still an aggressive bearish play because the stock has not yet broken it ascending trendline connecting the October and March lows. So the risk we run with this play is the possibility that the recent weakness is no more than a long period of consolidation. With weekly oscillators not showing anything approaching overbought territory, it may seem like we're just throwing darts, but I invite you to take a look at that weekly chart. Draw a trendline connecting the 4/01 and 5/02 highs and you can see how it has provided resistance over the past couple months. I'm expecting it to continue to do so, and with that trendline currently just over $37, we appear to have a favorable risk/reward dynamic in front of us. We'll look to initiate positions on a closure of the June gap, so our entry target is $36. We'll set our stop at $38.50 initially, which is just above the early May highs. The first downside objective will be for a break below the ascending trendline (currently at $32) and then we'll look for a break under $30 and a test of the 200-dma ($29.20). ADBE isn't set to report earnings until September, so we've got plenty of time for the trade to start working in our favor before the waters get muddied by those sort of gyrations. Note that we've started including the 2006 LEAPS here on the ADBE play. Over the next couple months, we'll gradually phase in the 2006 strikes and by September, we'll stop using the 2004 LEAPS as they will be starting to show too much time decay for our purposes. BUY LEAP JAN-2004 $35 AEQ-MG BUY LEAP JAN-2005 $35 ZAE-MG BUY LEAP JAN-2006 $35 WAE-MG Drops QQQ - $32.28 This bearish play is a perfect example of what happens when we leap too soon. I got way too aggressive on the entry point back in May, with the result being we shorted into the breakout over the $30 level and the QQQ has just continued to climb. Setting our stop more than $3 above entry should have easily survived unless I was dead wrong on the play. Well, Tuesday's close above that $32.25 stop proved that I had indeed under-estimated the bullish resolve in Tech-land. I'd still like to try gaming a bearish play in this arena, but until there's a pattern of lower highs to work with, I feel it would be ill- advised. For now, we'll focus our bearish efforts elsewhere. ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** Quickie Time Again – Keep Em" Short & Sweet & Profitable By Mike Parnos, Investing With Attitude This week marks my one-year anniversary as an option strategist for OptionInvestor. We seem to have survived each other pretty well. It appears that I've educated more readers than I've confused or offended. That's encouraging! I've written close to 150,000 words (John Grisham eat your heart out) about options – with more than a few opinions and jokes thrown in to make it all tolerable. It's amazing what you can accomplish during commercials. There have been a few casualties. Many options have given their life for our strategies. There have been marriages – puts to stocks. We have lost our shorts and re-covered our shorts. We've violated a few trend lines, but have been forgiven. We've combined our longs with attractive naked options to produce baby profits. If you combine enough baby profits, they will grow into adulthood and you will live happily ever after. Don't you just love happy endings? And it all started here – at the Couch Potato Trading Institute. Many CPTI students now know a lot more about option trading than their brokers. My emails are filled with great questions, well thought out alternatives, strategy suggestions, and stories of accounts that are moving up nicely. Nothing could make me happier! What do we have to look forward to in year #2? Hopefully, more of the same. You never have too much wisdom, too many smiles, too much money or too many cable channels. I have my work cut out for me. _________________________________________________________________ One Week Left With only a week remaining before expiration, we'll see if we can pick up a few extra dollars by putting on some short-term trades. Here are a few ideas. Be careful. Remember, the money you trade may be your own. July Quickie Trade #1 – SPX Sell Strangle I know we already have a SPX trade on in our CPTI portfolio, but this looks pretty safe to me (for what that's worth). We have a nice wide range of 965 to 1025 and only four trading days (and an open) to hold on. Sell 5 contracts of July SPX 965 puts @ $1.10 Sell 5 contracts of July SPX 1025 calls @ $1.20 Total credit of $2.30. Maximum profit potential $1,150. Consider exiting the trade if the SPX hits 970 or 1020. July Quickie Trade #2 – QQQ Lottery Strangle This is the trade that worked out very well for us in last month's quickie. It's cheap, the risk is low, and we're looking for a $2- 3 move in the QQQs. Buy 10 contracts of July QQQ $31 put @ $.20 Buy 10 contracts of July QQQ $33 call @ $.10 Total debit of $3.00. Profit potential is unlimited. But, let's be reasonable. A $.60 profit would give us $600. That would be nice. We got more last month, but we can't expect to hit our version of the "lottery" too often. July Quickie Trade #3 – BBH Sell Strangle – Closed at $131.41 Sell 5 contracts of July BBH $135 calls @ $.70 Sell 5 contracts of July BBH $130 calls @ $1.35 Total credit, and maximum profit, of $1,025. Maintenance of about $13,000. We've created a maximum profit range of $130-$135 and a safety range of $127.95 and $137.05. If BBH trades at $127.95 or $137.05, you should exit the trade. ______________________________________________________________ JULY CPTI PORTFOLIO POSITIONS UPDATE July Position #1 – LLTC Baby Condor – Closed at $34.76 Sell 10 contracts of LLTC July $35 calls @ $1.05 Buy 10 contracts of LLTC July $37.50 calls @ $.45 Net credit is $.60 Sell 10 contracts of LLTC July $30 puts @ $.75 Buy 10 contracts of LLTC July $27.50 puts @ $.40 Net credit is $.35 Total credit of $.95. Risk is $1.55 ($2.50 - $.95) Linear Technology (LLTC) was one of our profitable quickies last month. We now want to try to establish a slightly longer relationship. We've created a maximum profit range of $30 to $35 and a safety range of $29.05 to $35.95. Maximum profit is $950. LLTC is in the range and going in the right direction. _____________________________________________________________ July Position #2 – SPX Iron Condor – Closed at $998.14 Sell 4 contracts of SPX July 940 puts Buy 4 contracts of SPX July 925 puts Net credit: $1.50 Sell 4 contracts of SPX July 1025 calls Buy 4 contracts of SPX July 1040 calls Net credit: $2.55 Total credit: $4.05. Risk is $10.95 ($15 - $4.05) Here we go again. The range is 940 to 1025. I'm still anticipating (what do I know?) that pullback we never really got in June. I've reduced the number of contracts to four to reduce our exposure. This still may be a bit aggressive for some of you. Be careful and stay within your risk tolerance. Maximum profit is $1,620. So far, so good. ______________________________________________________________ July Position #3 – DJX – Bear Call Spread – Plus - $91.20 We're due to experience the summer doldrums – and why shouldn't the DOW participate? We're going to establish a bear call spread and use that money to buy some puts. Here we go. Sell 15 contracts of DJX July $90 calls @ $1.90 Buy 15 contracts of DJX July $92 calls @ $1.00 Net credit of $.90 X 15 contracts = $1,350 Now, you can just leave that position alone and, if the DOW finishes below 9000 at July expiration, you keep the $1,350. Your exposure would be $1.10 (9200 – 9000) X $1,900. Your maximum profit would be $1,350. Seems to have reversed and is heading in the right direction – at least for the moment. _____________________________________________________________ Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $31.84 In May we bought 10 contracts of the July QQQ $30 puts @ $2.05 and bought 10 contracts of the July QQQ $28 calls @ $1.80 for a total debit of $3.85. The QQQs have made a big move up. It's either going to break through resistance or bounce off and head back down. Our objective is for a $3-4 move in the next month. One of our long options will hopefully pay for almost the entire position. That will leave our other long option, which is now practically free, poised for the bounce back as the QQQs reverse. Our exposure is only $1.85 because we have $2.00 of intrinsic value. Earlier this week, we sold the July $28 call for $3.80. We now own the July $30 put at a cost of $.05. If the QQQs move down a few points, we might just make a few bucks. ______________________________________________________________ July Position #3 – RUT Iron Condor – Aborted. We were going to put on an Iron Condor with a 420/480 range. Either I was drunk when I came up with the numbers, or the premiums changed dramatically on Monday morning. Regardless, with premium gone, the proposed position was aborted. ______________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our plays or our strategies? Feel free to email me your questions. An excellent source for new students is the OptionInvestor archives where we've been discussing strategies and answering questions since last July. To find past CPTI (Mike Parnos) articles, look under "Education" and click on "Traders Corner." They're waiting for you 24/7. ______________________________________________________________ Take Advantage Of . . . OptionInvestor is a tremendous resource. The OI writers really know their stuff and it's all archived for you. Take advantage of this knowledge base. Go to the archives and print out some of the columns. File them. They're yours forever. Know that, when you renew your subscription, you're keeping the door open. The knowledge will continue to flow. The possibilities are endless. So are the potential profits. ______________________________________________________________ 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 Master Strategist and HCP ************** TRADERS CORNER ************** Elliott Wave Play Updates By Steve Gould DJX Chart: DJX update 7/11/2003 The net position of the Dow in relation to when we bought the spread is essentially the same. We are rapidly losing time value though. I still suspect that the play is going to move one way or the other in July. I think the best strategy at this point is to wait until July expiration and if there is no significant movement, roll this play over to December. Option The original option values on 6/6/2003 were DJX – 90.62 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.80 3.00 0.51 15 Buy DJVUJ SEP 88 Put 2.70 2.90 -0.33 23 ---- ---- ----- 5.50 5.90 0.18 Current values on 7/11/2003 are DJX – 91.20 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.25 2.50 0.48 16 Buy DJVUJ SEP 88 Put 1.70 1.90 -0.32 21 ---- ---- ------ 3.95 4.40 0.16 QQQ Chart: QQQ update 7/11/2003 Expiration day is quickly approaching. The July 37 put will still have value and needs to be rolled over. The August 37 put is the same price and it will just cost you the spread difference plus commissions. I find that on the QQQs I can usually get the option for the difference in the spread, i.e., buy back the July for 5.20 and sell the August for 5.20 in two separate orders. Here is the strategy for really aggressive traders. It looks like the QQQs are at the top of the 3 wave and about to start the 4 wave retracement. Buy back the July 31 puts and wait for the QQQs to move to 28. Sell them there to exit the play. Option The original option values on 6/13/2003 were QQQ – 29.96 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 3.00 3.20 -0.44 32 Sell 1 QQQSK Jul 03 37 Put 6.90 7.10 0.99 41 Credit: .50 Current values on 7/11/2003 are QQQ – 31.84 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 2.10 2.15 -0.40 29 Sell 1 QQQSK Jul 03 37 Put 5.10 5.30 0.96 58 Liquidation 1: -1.10 + .50 = -0.60 BA Chart: BA update 7/11/2003 BA is continuing its wave 4 correction. The minimum retracement level of 25% has been reached, but the oscillator indicates more of a correction is forthcoming. I think we got the anticipated bounce and BA should continue down. Because of the rule of alternation, expect this retracement to be a flatter correction than wave 2. With option expiration this week, we will need to roll over the July 30 call to August. Option The original option values on 6/17/2003 were BA – 36.15 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 6.10 6.40 -99.5 29 Buy 2 BAAU Jan 04 37.5 Call 2.70 2.85 52.6 25 Credit: 0.40 Current values on 7/11/2003 are BA – 35.18 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 5.10 5.20 -99 35 Sell 1 BAHF Aug 03 30 Call 5.20 5.30 -95 33 Buy 2 BAAU Jan 04 37.5 Call 1.80 1.85 40 28 Liquidation value: -1.60 + .40 = -1.20 T Chart: T update 7/11/2003 T retraced 38% and then headed down. I expected it to retrace a little bit more than it did but that is OK. T appears to have either finished or about to have finished the 1 wave of the 5 wave and should retrace somewhere between 20.38 – 20.74 (wave 2) before it continues heading back down. I know that I get antsy to enter a play, but this is a good example that sometimes it is best to wait for the optimal moment before initiating a play. Let’s stick to the original game plan and wait until we get the price we want. Option T: $19.39 Pos Num Sym Strike Type Bid Ask Delta Vol OI Sell 1 TGC Aug 15 Call 4.40 4.60 92 0 70 Buy 2 TJX Oct 22.5 Call 0.60 0.70 29 0 10317 Credit: $300 ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould It is said that there are three types of people in the world: Those who can count and those who can’t. Actually, if I am going to divide people up into two categories, it would be those who like to drive automatic transmissions and those who like to drive stick shifts. Those people who drive automatics are willing to sacrifice efficiency for convenience. For example, they will run their computer with all the defaults even though it bogs it down a bit. They still have all the advertising icons on their desktop from software they installed. (Quicken is especially notorious for this.) They have all the default tones on their cell phones and will use only two features, namely the answer key and the off key. They will be satisfied with the default values on everything because they would rather spend their time enjoying the device rather than fiddling with it. People who drive stick shifts on the other hand, like to take control of the situation and handle things manually. They will build their own computer to get the best components for the best price. They know how to use every feature on their cell phone and actually transmit pictures of the kids to their parents with that new camera feature, even though their parents don’t know how to view them. They will tweak and optimize every control on every piece of equipment they have to make it run faster and more efficiently. When it comes to Elliott Waves the Elliottician has two choices, too. He can either rely on a computer program to label waves or he can label them himself. The true Elliott Jedi Knight will label the wave himself, but there are times when it is interesting to see how a software program labels a wave and compare the two. There are several programs on the market that label Elliott Waves. I have tested several of them and each one has good points and bad points. The one I cut my teeth on and the one I happen to use is Advanced Get. (In the interest of full disclosure, I do not receive any compensation from Advanced Get.) In the future I am planning to discuss some of the proprietary features of Advanced Get but for now I think it would be interesting to see the way Advanced Get labels the Dow versus the way I would label it. Chart: Dow from Jan 2000 Using Purist Labeling Here is a daily chart of the Dow from January 2000. I moved the final blue arrow a little bit to better visualize the price movement over the last week. According to this particular labeling, the Dow has completed the A-B-C correction and is now progressing with the 3 wave of the (3) wave of the 3 (circle) wave. Three waves are rather intense so if this labeling is correct, the next several weeks to months should be a sharp decline. Chart: Dow Purist Labeling From October 2002 Zooming in a bit shows in more detail that the Dow has completed the (i) wave and is in the process of completing the (ii) wave if it is not already complete. Chart: Dow Hourly 7/13/2003 Zooming in even more to an hourly chart of the Dow shows that the Dow has indeed finished the (i) wave (the 5 wave at 6/30/03) and is currently working on the A-B-C correction of wave (ii). I do not believe that the way Advanced Get labeled the last 1-2-3-4 waves is correct. It looks like it should be more of an A-B-C correction that has only completed the A wave (currently wave 3) and B wave (currently wave 4). It looks like the Dow will make one last surge up in the next few days to complete the C wave and then start heading back down. We could possibly see a Dow of 9300 before it reverses. If the Dow pierces the 9352, then we will have to reevaluate our wave count. Now, let's take a look and see the way that Advanced Get would label the Dow. Chart: Dow from January 2000 Using Advanced Get Labeling This is the same daily chart as the first one except I am letting Advanced Get label the waves. Because Advanced Get does not deal with complex corrections very well, I have localized the starting point at March 2002. What this chart is saying is that after completing the five wave basic pattern, the Dow is undergoing an A-B-C correction. According to Advanced Get, the C wave is complete and the Dow should start heading down. This is the same way that I labeled the Dow from that point. The localization point was labeled (2) on my chart. The only difference is that Advanced Get is not able to come up with a plausible wave count from the peak in January 2000 to the localization point. However, since this is a common reference point, we can make our comparisons from there. A close up view of this chart starting at the localized point really yields no additional useful information. However, the weekly view does. Chart: Dow Weekly Using Advanced Get Labeling 7/11/2003 This is a weekly chart of the Dow for the last 2 years. Advanced Get has labeled the wave starting from March of 2002 as the beginning of a five wave basic pattern. The March 2002 high is the localization point on the daily chart. Two interpretations of this pattern are valid. The first one, and this is the way the wave is labeled, puts the Dow currently at the peak of a wave 4 corrective pattern. This pattern is a classic Type I set up and it satisfies the following criteria: 1. The oscillator has retraced about 140% and looks to be turning. 2. The 4 wave has traced out a nice A-B-C correction pattern. 3. The 2 wave and the 4 wave satisfy the rule of alternation. 4. The 4 wave is at the purple/aqua resistance bars If this analysis holds, then the Dow is headed toward 6500 by the end of the year. Chart: Dow Weekly Alternative 7/11/2003 The alternative analysis labels the 5 wave as a truncated 5th wave and the 4 wave is actually the A wave of the subsequent A-B-C correction. This alternative doesn't seem as feasible because the 4 wave would not have traced out a nice A-B-C correction pattern. Otherwise, the oscillator did retrace a little more than 90%, there is an oscillator divergence and the alternate 5 wave does show a five wave basic subpattern. The weekly pattern and the daily pattern to not coincide. In the daily pattern, the five wave basic pattern is complete by October of 2002 with the subsequent A-B-C correction whereas the weekly chart traces out a 1 through 4 wave instead. The weekly pattern may be a more valid interpretation as the oscillator on the weekly does not support a 5 wave in October. In any case all the analyses show the Dow headed down for a while. Time will tell just how far down and which analysis is valid. Bottom line it appears that despite which analysis you choose, the Dow is headed down over the next several weeks. Where it goes from there is yet to be determined. We will know more as the pattern unfolds. ************************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 Sunday 07-13-2003 Sunday 5 of 5 In Section Five: Covered Calls: Trading Basics: Success With Covered-Calls Naked Puts: Options 101: Trading Rules Spreads/Straddles/Combos: Upgrades Spur Rally In Industrial Stocks! Updated In The Site Tonight: Market Posture: Uptrend! Downtrend! What Type of Market are We In? ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************* COVERED CALLS ************* Trading Basics: Success With Covered-Calls By Mark Wnetrzak Even the best market conditions can create havoc for investors who write covered-calls on long-term portfolio holdings. The ideal environment for selling covered-calls is a neutral to mildly bullish market. In a perfect world, stocks climb steadily up to the range of the sold (call) strike price and they remain in that area until the option expires. Of course, this kind of activity will yield the maximum potential profit in the original position and make for easy adjustments going forward, however the market is rarely that cooperative. Most problems with the covered -call strategy are related to volatility -- when the stock (or market in general) makes a big move one way or the other -- and traders who use this technique must always be prepared to deal with unexpected gyrations in the underlying issue. The most frequently used method of position adjustment with the covered-write strategy is "rolling;" a transaction that involves buying back previously sold calls and then selling new (longer term or different strike) calls to generate additional premium. There are a variety of reasons for initiating a "roll-out" and depending on the current market conditions, it may be necessary for a trader to completely alter the original profit/loss outlook in a particular position. In most cases, the underlying stock has simply changed character and the covered-call writer is attempting to avoid a loss or improve his profit potential. When making position adjustments or rolling-out to new options, there are a few things to consider. First and foremost, don't hold on to declining issues unless there is a high probability of a recovery in the near future. One of the most common mistakes new traders make is keeping a bearish stock until it is almost worthless, hoping it will go up again. They ignore the obvious because they don't want to accept the fact that they have chosen a "loser" and their pride prevents them from moving on to new and more prosperous positions. A trading plan can help prevent this predicament as the profit and loss targets, as well as the time need to achieve these goals, are pre-determined, leaving little room for emotion-based judgments that erode the value of your portfolio. Another objective that should always be on the mind of a trader is to "lock-in" profits whenever possible. A poor adjustment can turn a great covered-call into a disaster, so be careful when adding new money into a position in anticipation of further gains. A good example of this idea can be seen in the current market where the majority of stocks are trading at far higher prices than anyone expected a few months ago. Investors who recently sold in- and at-the-money calls on long-term portfolio stocks are scrambling to keep those plays from early assignment, which would limit profits and possibly generate tax liabilities in those issues. One final concern is the time frame of the options sold. Recall that the underlying purpose of the strategy is the sale of time value (or premium) for income, thus the key is to take in enough cash to offset the disadvantages of limited profit potential and and maintain a reasonable downside margin. But herein lies the problem; selling longer-term options actually reduces the amount of premium you receive for the option, when compared to selling a series of front-month options. In addition, writing options with distant expiration dates will greatly reduce a trader's ability to make efficient adjustments in the future -- you simply can't roll out forever. Next week, we'll continue our discussion of position management with a focus on the recent activity, where most stock prices have risen above the strike price of the written calls. Trade Wisely! 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 SVNT 5.30 5.68 JUL 5.00 0.60 0.30* 13.9% IBIS 7.95 10.22 JUL 7.50 0.85 0.40* 8.2% SUPG 5.86 5.65 JUL 5.00 1.20 0.34* 7.9% BEAV 2.69 3.45 JUL 2.50 0.35 0.16* 5.9% CNET 5.71 6.96 JUL 5.00 0.90 0.19* 5.7% AMR 11.32 10.95 JUL 10.00 1.70 0.38* 5.7% WEBX 13.90 15.84 JUL 12.50 2.10 0.70* 5.2% GP 18.96 19.25 JUL 17.50 2.05 0.59* 5.1% RSYS 13.00 15.80 JUL 12.50 1.05 0.55* 5.0% USG 19.57 16.83 JUL 15.00 4.90 0.33* 4.9% BLUD 22.02 23.10 JUL 20.00 2.85 0.83* 4.7% OVRL 20.68 21.01 JUL 20.00 1.50 0.82* 4.6% MTON 5.60 5.49 JUL 5.00 0.90 0.30* 4.6% ASIA 5.75 10.80 JUL 5.00 1.00 0.25* 4.6% CYBX 24.04 23.72 JUL 22.50 2.00 0.46* 4.5% WEBX 14.45 15.84 JUL 12.50 2.45 0.50* 4.5% USG 19.95 16.83 JUL 15.00 5.40 0.45* 4.5% LEXR 10.85 10.71 JUL 10.00 1.05 0.20* 4.4% RHAT 8.27 7.69 JUL 7.50 1.20 0.43* 4.4% MHR 8.11 7.65 JUL 7.50 0.95 0.34* 4.1% BCGI 17.70 20.02 JUL 15.00 3.10 0.40* 4.0% EDS 21.99 22.41 JUL 20.00 3.00 1.01* 3.9% IMMU 6.91 6.80 JUL 5.00 2.15 0.24* 3.7% ASIA 5.97 10.80 JUL 5.00 1.15 0.18* 2.7% Q 5.23 4.75 JUL 5.00 0.50 0.02 0.5% OI 13.91 12.11 JUL 12.50 1.75 -0.05 0.0% MIR 2.78 1.75 JUL 2.50 0.65 -0.38 0.0% SGR 12.62 10.75 JUL 12.50 0.90 -0.97 0.0% RFMD 5.89 6.59 AUG 5.00 1.15 0.26* 4.0% * Stock price is above the sold striking price. Comments: Speculation reigned supreme this week as the NASDAQ powered above the June high while the DJ-30 and SP-500 sputtered. A preview of earnings week added a nice touch of volatility which suggests that next week could be quite interesting. The three positions listed as closed (below) all rallied nicely this week to offer a second chance exit, for those so inclined. Next week, we will list two more positions as closed since the horrid technical picture doesn't bode well for the future: Mirant (NYSE:MIR) -- bankruptcy worries increase; and Shaw Group (NYSE:SGR) -- earnings disappointment. On Monday, Thoratec (NASDAQ:THOR) jumped higher at the open and a reasonable entry point (as listed on Sunday) wasn't available without an aggressive roll-in, so the position isn't listed above. With one week left for the July expiration, re-evaluate any issues that you do NOT want to own and act accordingly. Positions Previously Closed: Quest Software (NASDAQ:QSFT) and Siebel Systems (NASDAQ:SEBL) which are both positive, and Dendreon (NASDAQ:DNDN). 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 INET 5.08 AUG 5.00 UAU HA 0.45 979 4.63 35 6.9% SSTI 5.47 AUG 5.00 SJV HA 0.75 596 4.72 35 5.2% CHINA 13.48 AUG 10.00 UIH HB 4.00 1328 9.48 35 4.8% CY 13.84 AUG 12.50 CY HV 1.95 2493 11.89 35 4.5% STEL 8.25 AUG 7.50 URU HU 1.10 124 7.15 35 4.3% BCGI 20.02 AUG 17.50 QGB HW 3.30 628 16.72 35 4.1% INSP 15.52 AUG 15.00 IOU HC 1.20 36 14.32 35 4.1% 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). ***** INET - Instinet $5.08 *** Cheap Speculation! *** Instinet Group (NASDAQ:INET) offers customers trade, execution, order management and ancillary services, enabling them to trade equity securities directly with each other through its platforms, as well as with other investors in over 40 securities markets around the world. Instinet offers its customers smart order- routing technology that directs their equity transactions among the various markets to which the company is connected to obtain better execution. In 2002, Instinet's customers used its two platforms to complete a total of 156 million transactions, which represents an average of approximately 619,000 transactions each trading day. Through its electronic platforms, customers can also access over 40 securities markets, including NASDAQ, the NYSE and stock exchanges in Frankfurt, Hong Kong, London, Paris, Sydney, Tokyo, Toronto and Zurich. Instinet's transaction volume is on the rise and so is the company's share price. The stock appears poised to move higher in the coming sessions and traders who believe the issue is destined for a rally can profit from upside movement with this position. Earnings are due July 21. AUG-5.00 UAU HA LB=0.45 OI=979 CB=4.63 DE=35 TY=6.9% ***** SSTI - Silicon Storage $5.47 *** On The Rebound *** Silicon Storage Technology (NASDAQ:SSTI) operates as a supplier of flash memory semiconductor devices for the digital consumer, networking, wireless communications and Internet computing markets. SSTI offers over 90 products based on its proprietary SuperFlash design and manufacturing process technology. Its product offerings include standard flash products, application specific memory products, embedded controllers and mass data storage products. Silicon's memory devices have densities ranging from 256 kilobits to 32 megabits and are generally used for the storage of program code. The company's customers include 3Com, Apple, Cisco, Dell, Hyundai, Intel, IBM, Nintendo, and etc. Shares of Silicon Storage continue to recover from the March bottom and now appear to be starting a new leg higher. We simply favor the recent technical trend and this position offers a great way to speculate on the future movement of the issue in a conservative manner. Target shooting a lower net-debit will increase the potential yield and downside protection in the position. Earnings are due on July 23. AUG-5.00 SJV HA LB=0.75 OI=596 CB=4.72 DE=35 TY=5.2% ***** CHINA - Chinadotcom $13.48 *** "Scorching Hot" Sector *** Chinadotcom (NASDAQ:CHINA) is a pan-Asian integrated Internet company that has a business model centered around its e-business solutions, advertising (including e-marketing services, portal services and other media assets) and the sale of IT products. By integrating its e-business solutions services and Internet advertising services with its media assets network, the company offers a comprehensive suite of Internet products, services and solutions to a diverse clientele of users, online advertisers and Web-based enterprises. The company has also invested in Internet and related technology and software companies in the pan-Asian region and the U.S. that it believes add value and depth to its business. The Asian internet group is one "hot" sector and it shows no sign of cooling down. This position simply offers a way to speculate on the continued bullish momentum with a cost basis closer to technical support. AUG-10.00 UIH HB LB=4.00 OI=1328 CB=9.48 DE=35 TY=4.8% ***** CY - Cypress Semiconductor $13.84 *** Rally Mode! *** Cypress Semiconductor (NYSE:CY) designs, develops, manufactures and markets a broad line of digital and mixed-signal ICs for a range of markets, including data communications, telecommunications, computing, consumer and instrumentation systems. The company has four product lines organized into two business segments, Memory and Non-memory. Cypress views its product offerings by market segment in order to enhance its focus on serving end markets. These market segments include the wide area networks and storage area networks, which focus on networking applications; wireless infrastructure and wireless terminal, which focus on wireless connectivity, and computation and consumer, which focuses on personal computers, gaming and video applications. Cypress has now rallied above the June high (which should provide near-term support) on heavy volume and is showing no signs of changing its current trend. We simply favor the bullish technical indications and our conservative position offers a method to participate in the future movement of the issue with relatively low risk. Earnings are due July 17 AUG-12.50 CY HV LB=1.95 OI=2493 CB=11.89 DE=35 TY=4.5% ***** STEL - Stellent $8.25 *** Rocketing Higher *** Stellent (NASDAQ:STEL) develops, markets and services content management software with the main focus of helping organizations derive maximum value from their content that exists in the normal course of business such as Microsoft Office documents, Web pages, images, graphics, multimedia, CAD and other files. Customers use Stellent Content Management System to help them leverage this enterprise content while streamlining the process of obtaining or accessing content from content creators and delivering it to content consumers employees, partners and customers, so that timely decisions can be made. Stellent Content Management System can be deployed to satisfy immediate needs at a line of business or departmental level as well as strategic needs at an enterprise level. On July 2, Stellent announced that based on a preliminary, "unaudited" analysis of its results of operations, it expects to report total revenues of approximately $17.3 million for the 1st- quarter of its fiscal year 2004, ended June 30, 2003. The stock has climbed almost straight up as investors look forward to the actual report on July 22. The long-term chart suggests a bullish future for Stellent and investors who agree with the bullish potential of the company can use this position to speculate on the future movement of its share value. AUG-7.50 URU HU LB=1.10 OI=124 CB=7.15 DE=35 TY=4.3% ***** BCGI - Boston Communications $20.02 *** Bracing For A Rally? *** 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 in April 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 recently as investors appear to be moving into the stock and expecting "good" news when the company reports earnings on July 16. This position offers traders a method to profit from the recent bullish activity and "inflated" options with a cost basis closer to support. AUG-17.50 QGB HW LB=3.30 OI=628 CB=16.72 DE=35 TY=4.1% ***** INSP - InfoSpace $15.52 *** Climbing Higher *** InfoSpace (NASDAQ:INSP) develops and delivers a wireless and Internet platform of software and application services to a range of customers that span each of its wireline, merchant and wireless business units. Many of the company's products and application services are offered to its customers, which, in turn, offer these products and application services to their customers as their own solutions. InfoSpace provides its services across multiple platforms, including PCs and non-PC devices. In the wireline business, it delivers its services throughout its own sites, as well as to Web portals and to broadband service providers. In the merchant business, it offers its products and services to Verizon Information Services, merchant aggregators, merchant banks, financial institutions and independent sales organizations. In the wireless business, it delivers its products and application services to wireless carriers and other consumer service companies. InfoSpace continues to stair-step higher from the October low and its reverse split in September. The technicals remain bullish and traders who believe the rally will continue can profit from that outcome with this position. Earnings are due July 30. AUG-15.00 IOU HC LB=1.20 OI=36 CB=14.32 DE=35 TY=4.1% ***** ***************** 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 MOSY 12.55 AUG 12.50 QSY HV 1.65 3572 10.90 35 12.8% OXGN 10.25 AUG 10.00 QYO HB 1.15 685 9.10 35 8.6% FTUS 7.64 AUG 7.50 FEQ HU 0.70 22 6.94 35 7.0% GERN 8.87 AUG 7.50 GQD HU 1.90 652 6.97 35 6.6% XMSR 13.33 AUG 12.50 QSY HV 1.65 3572 11.68 35 6.1% OVER 21.51 AUG 20.00 GUO HD 2.80 3761 18.71 35 6.0% AMKR 15.69 AUG 15.00 QEL HC 1.65 108 14.04 35 5.9% URI 15.06 AUG 15.00 URI HC 0.90 71 14.16 35 5.2% THOR 16.25 AUG 15.00 TQU HC 2.05 68 14.20 35 4.9% AQNT 11.10 AUG 10.00 QBT HB 1.60 3 9.50 35 4.6% ALXN 19.43 AUG 17.50 XQN HW 2.80 194 16.63 35 4.5% SINA 27.77 AUG 22.50 NOQ HX 6.30 237 21.47 35 4.2% APHT 8.97 AUG 7.50 HQY HU 1.80 10 7.17 35 4.0% IMPH 18.00 AUG 17.50 QPH HW 1.25 40 16.75 35 3.9% ***************** NAKED PUT SECTION ***************** Options 101: Trading Rules By Ray Cummins One of our new readers asked for some guidelines that a trader might use to be successful in the options market. This subject has been covered at length by numerous writers here at the OIN, however one of the previous Broker's Corner narratives stands out as an excellent instruction manual for novice traders. This article is intended to offer a few helpful hints that will hopefully benefit you in the future. While the markets appear to be in a perpetual trading range, it is becoming more and more frustrating to trade in these conditions. Many investors have either given up as indicated by the anemic volume or are looking at new trading strategies for an answer to why they haven’t been making the gains they once were. Before you start a new strategy, develop and write down some sound trading rules that are easy to follow. You should begin by establishing your investment goals and objectives. Ask yourself, “why am I trading?” and/or “what (realistic) short and long term rate of return do I want to achieve?” Are you investing for fun, to build wealth, to earn a living, and/or to retire? An example would be, “I want to make 50% per year. To do this, I have to average 4% per month.” A lot of people like the idea of 10% or 20% per month. But it comes at a cost. Higher returns come with higher risk. There is no way getting around it. In concert with your investment goals, you need to determine your risk tolerance. What amount can you afford to lose? Stocks are risky. Options on stocks are even riskier. After you have determined your goals and risk tolerance, you have a choice of many investment strategies. This article is a little vague because I can’t cover every possible variable for every type of investor. Just because some person is successful shorting stocks doesn’t mean it is the strategy for you. You might be eligible for something even riskier and more complex. The amount of time you have to monitor your investments also determines the strategies you can use. Some people can spend all day and night at their computers analyzing charts and trading while others barely have time to stop and eat. Depending on your circumstances, choose a strategy that not only fits your goals and risk tolerance, but also your time frame and your experience. Some people just don’t comprehend the concept of various strategies. It isn’t because they are dumb. It is similar to how some people are whizzes at calculus while others have a hard time with algebra. Another tip is to use a variety of strategies for your overall portfolio. Cash allocation is important to diversification. For instance, allocate the majority of your investment capital in lower risk instruments, while dedicating a smaller portion to more aggressive strategies. Everyone’s cash allocation model is different. You’re model should represent your goals and risk tolerance. Determining how much cash to invest in various strategies is key to achieving those goals. For instance, if you have an annual return goal of 20%, with 80% of your capital in a money market account earning 4% annually and 20% invested in options, the small amount in options will need to be very successful to make about 100% annually. Now that the boring tedious stuff is out of the way, we can get to the hard part. Choosing a research method can be very frustrating. With so many indicators to choose from, which ones are the best? The best indicators are the ones that work for you in all market conditions. I have read that statistically, only 1 out of 4 stocks goes up in a bear market. If you are buying or going long as an investment strategy, then you will have to find the stocks going up. The same is true for the stocks going down. The problem with so many stocks going down is that you have to determine which will continue to go down. Some traders use only technical or fundamental analysis. I think both should be used. I think the key to using technical indicators is to find a few that work well for you. If you use too many, the signals may conflict. KISS – Keep It Simple Stupid is what I tell my clients. Just as investment objectives are different for each investor, so are the tools for each person. Personally, I like using Stochastics, MACD, and Bollinger Bands as a confirmation tool for the bar chart and the 10 and 40 DMA. After you have found a few candidates for your strategy, develop strict entry parameters. This should reflect your research method. If all of your criteria are met, then proceed with caution. If one of the criteria doesn’t meet your parameters, don’t enter the position. This is where having too many indicators can burn you. We are emotional creatures that will find a reason to enter if we find a conflicting indicator that matches our emotion. There is a reason the average investor is considered "the sheep" and the institutional money is the “smart money” -- “Smart money” trades without emotion. Once you have committed to entering a position, it is important to have a strict exit strategy. Again, some require tighter stop loss parameters than others. It all depends on your tolerance. Because you have determined your goals, you know how much you need to profit on the trade to help meet those return goals. Don’t let your emotions get the better of you. If you entered the trade because of technical and fundamental reasons, then you should exit the trade if any of those reasons change. Do not get greedy. That is the worst emotion of all. After you have determined your sell parameters and written them down, write “3 ways to lose money – hope, fear, and greed.” Write down all of your trading rules and keep a copy of the list on hand at all times. Laminate it if necessary. Keep a copy near your computer and a copy in your wallet. The reason to have the rules is to be consistent. If you are consistent, and your results aren’t meeting your goals, it may be easier to pinpoint the problem. This is a little vague for a reason, if you need help with your rule book, I am happy to help you get through the steps. As a financial consultant, it is my job to help determine an investor’s needs and develop a strategy to help them reach their goals. Except for our ego, there are no consolation prizes for succeeding on our own. Robert John Ogilvie Options Broker & ROP 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 GNTA 14.21 14.39 JUL 10.00 0.50 0.50* 4.6% 13.0% CBST 12.95 11.70 JUL 10.00 0.40 0.40* 3.6% 11.6% FWHT 20.33 22.99 JUL 17.50 0.45 0.45* 3.8% 11.3% SINA 23.53 27.77 JUL 20.00 0.30 0.30* 3.3% 10.5% CDWC 48.30 50.21 JUL 45.00 0.80 0.80* 3.9% 10.3% FWHT 19.14 22.99 JUL 15.00 0.40 0.40* 3.0% 10.3% ADVS 17.74 18.45 JUL 15.00 0.45 0.45* 3.4% 10.2% KMRT 25.20 24.20 JUL 20.00 0.50 0.50* 2.8% 9.8% AVCT 30.97 32.08 JUL 27.50 0.40 0.40* 3.2% 9.3% MERQ 41.34 42.30 JUL 37.50 0.50 0.50* 2.9% 8.2% AVID 38.99 41.14 JUL 35.00 0.45 0.45* 2.8% 8.1% OIIM 16.49 18.00 JUL 15.00 0.30 0.30* 3.0% 8.0% AVCT 31.21 32.08 JUL 27.50 0.70 0.70* 2.8% 8.0% CHKP 19.94 20.70 JUL 17.50 0.40 0.40* 2.5% 7.3% ISIL 26.48 27.72 JUL 22.50 0.35 0.35* 2.3% 7.3% AMLN 25.45 23.00 JUL 20.00 0.45 0.45* 2.0% 7.1% SNDK 41.20 48.18 JUL 32.50 0.40 0.40* 1.8% 6.7% MEDI 37.71 39.01 JUL 30.00 0.60 0.60* 1.8% 6.4% MCHP 24.86 26.41 JUL 22.50 0.35 0.35* 2.3% 6.4% AAII 20.10 21.41 JUL 17.50 0.25 0.25* 2.1% 6.4% NTE 14.00 18.45 JUL 11.63 0.10 0.10 1.9% 6.4% ** SOHU 32.45 40.82 JUL 22.50 0.50 0.50* 2.0% 6.2% CTSH 24.25 28.44 JUL 20.00 0.40 0.40* 1.8% 5.9% PLMD 42.59 38.60 JUL 35.00 0.50 0.50* 1.6% 5.5% NTES 33.70 39.84 JUL 25.00 0.45 0.45* 1.6% 5.4% CVTX 34.43 35.37 JUL 25.00 0.45 0.45* 1.6% 5.3% YHOO 32.14 32.19 JUL 27.50 0.40 0.40* 1.6% 5.0% JCOM 45.95 53.45 JUL 37.50 0.35 0.35* 1.4% 4.9% * Stock price is above the sold striking price. ** Adjusted for a 3-1 split Comments: Buyers returned to the market Friday amid optimism of a recovery in corporate earnings during the second half of 2003. The upside momentum was obvious in a number of key sectors including drug, financial, paper, retail, computer hardware and most importantly (for our portfolio) biotechnology. It was surprising activity, given the fact that during the first week of quarterly earnings, there were few companies that achieved the sanguine predictions for business activity and profits. With that idea in mind, traders should continue to be vigilant in their portfolio management and exit or adjust any suspect positions. Issues on the "watch" list include: Cubist (NASDAQ:CBST) and Amylin (NASDAQ:AMLN) Previously Closed Positions: None 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 ALGN 13.38 AUG 10.00 CUA TB 0.35 485 9.65 35 3.2% 10.1% BLUD 23.10 AUG 20.00 QMQ TD 0.65 37 19.35 35 2.9% 8.3% CYBX 23.72 AUG 20.00 QAJ TD 0.60 71 19.40 35 2.7% 8.2% MSTR 43.68 AUG 35.00 EOU TG 0.75 53 34.25 35 1.9% 6.8% NFLX 26.49 AUG 20.00 QNQ TD 0.35 227 19.65 35 1.5% 5.4% DRIV 23.05 AUG 17.50 DQI TW 0.30 130 17.20 35 1.5% 5.3% SNDK 48.18 AUG 37.50 SWQ TT 0.60 824 36.90 35 1.4% 5.1% MRVL 38.10 AUG 32.50 UVM TZ 0.60 409 31.90 35 1.6% 5.1% 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). ***** ALGN - Align Technology $13.38 *** Improving Your Smile! *** Align Technology (NASDAQ:ALGN) is primarily engaged in the design, manufacture and marketing of Invisalign, a proprietary system for treating malocclusion, or the misalignment of teeth. Invisalign includes ClinCheck, an Internet-based application that allows dental professionals to simulate treatment, in three dimensions, by modeling two-week stages of tooth movement, and Aligners, which are thin, clear plastic, removable dental appliances that are manufactured in a series to correspond to each two-week stage of the ClinCheck simulation. The company says approximately 80,000 patients worldwide are being treated using the Invisalign system. Investors started buying this unique company early in the year and since that time, the issue has quadrupled in value. Traders who believe the company's earnings will be favorable can speculate on that outcome with this position. AUG-10.00 CUA TB LB=0.35 OI=485 CB=9.65 DE=35 TY=3.2% MY=10.1% ***** BLUD - Immucor $23.10 *** You Can't Live Without BLUD! *** Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood prior to blood transfusion. Immucor also markets a complete family of automated instrumentation for all of their market segments. During the past year, the company resolved the remaining performance issues relating to its ABS2000 instrument and launched new software for the product. The company has recently signed an agreement with the University of Vermont to commercialize an in-vitro diagnostic test to measure platelet markers useful in anti-platelet pharmacological drug development and potentially to improve real-time treatment of cardiovascular disease. Traders who like the outlook for the company can establish a relatively low risk basis in the issue with this position. AUG-20.00 QMQ TD LB=0.65 OI=37 CB=19.35 DE=35 TY=2.9% MY=8.3% ***** CYBX - Cyberonics $23.72 *** Testing Multi-Year Highs! *** Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and markets the NeuroCybernetic Prosthesis, an implantable medical device that delivers a novel therapy, Vagus Nerve Stimulation, for treating epilepsy and debilitating neurological, psychiatric diseases and other disorders. In July 1997, the NCP System was approved by the United States Food and Drug Administration for commercial distribution in the United States for the treatment of epilepsy, which the firm sells using its own employee-based direct marketing organization. In addition, the NCP System is marketed internationally for the treatment of epilepsy (mainly in Europe) using a combination of Cyberonics' own direct sales organization and independent distributors. During fiscal 2001, the firm obtained approval for commercial distribution of the NCP System for the treatment of depression in Europe and Canada. CYBX is in a bullish sector and the company has a product that is proven and well known for treating epilepsy. In addition, the firm's fundamentals are improving with 6 straight quarters of 20% or better revenue growth. Investors can establish a cost basis near $20 in the issue with this position. AUG-20.00 QAJ TD LB=0.60 OI=71 CB=19.40 DE=35 TY=2.7% MY=8.2% ***** MSTR - MicroStrategy $43.68 *** Premium Selling Only! *** MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly critical business intelligence software market. Large and small firms alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. The firm's business intelligence platform offers exceptional capabilities that provide organizations, in virtually all facets of their operations, with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. Shares of MSTR have been in "rally mode" since its lows in mid-2002, up over 1000% in just 12 months. The issue is now at an all-time high near $44 and with earnings due in a few weeks, there is lots of speculation in the August put options. Traders with a bullish outlook on the issue can take advantage of the inflated option premiums with this position. AUG-35.00 EOU TG LB=0.75 OI=53 CB=34.25 DE=35 TY=1.9% MY=6.8% ***** NFLX - Netflix $26.49 *** Beating-Up On Blockbuster! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX is one of the hottest companies in years in the retail video and music industry and the firm's fundamentals suggest the bullish trend will continue in the near-term. AUG-20.00 QNQ TD LB=0.35 OI=227 CB=19.65 DE=35 TY=1.5% MY=5.4% ***** DRIV - Digital River $23.05 *** Rally Underway! *** Digital River (NASDAQ:DRIV) is a provider of electronic commerce outsourcing solutions. As an application service provider, the company enables its clients to access its proprietary electronic commerce system over the Internet. The company's technology plat- form allows it to provide a suite of electronic commerce services, including Web commerce development and hosting, transaction processing, fraud screening, digital delivery, integration to physical fulfillment and customer service. Digital River also provides analytical marketing and merchandising services to assist clients in increasing Web page view traffic to, and sales through, their Web commerce systems. Digital River announced last week that it will continue its agreement with TIBCO Software to provide new software distribution and entitlement management capabilities. In addition, the company has also signed an expanded e-commerce agreement with Aladdin Systems, a pioneer of the global standard in file compression. The company's quarterly earnings are due on July 23 and investors who believe the results will be favorable can speculate conservatively on that outcome with this position. AUG-17.50 DQI TW LB=0.30 OI=130 CB=17.20 DE=35 TY=1.5% MY=5.3% ***** SNDK - SanDisk $48.18 *** The Rally Continues! *** SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. The company has designed its flash memory storage solutions for applications in the consumer electronics and industrial/communications markets. The company's products are used in a number of rapidly growing consumer electronics applications, such as digital cameras, PDAs, portable digital music players, digital video recorders and smart phones, as well as in industrial and communications applications. The company's products include removable CompactFlash cards, MultiMediaCards, FlashDisk cards and Secure Digital Cards and embedded FlashDrives and Flash ChipSets with storage capacities ranging from eight megabytes to 1.2 gigabytes. Shares of SNDK reached a new 2-year last week and there are no signs of a retreat in the near future. AUG-37.50 SWQ TT LB=0.60 OI=824 CB=36.90 DE=35 TY=1.4% MY=5.1% ***** MRVL - Marvell Technology $38.10 *** Testing 2-Year Highs! *** 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. Marvell has moved near the top of a historic resistance area near $40 after a recent Lehman Brothers upgrade and the stock appears poised to climb higher in the coming sessions. Investors who believe the firm's shares are destined for a future rally can profit from additional upside movement in the issue with this position. AUG-32.50 UVM TZ LB=0.60 OI=409 CB=31.90 DE=35 TY=1.6% MY=5.1% ***** ***************** 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 PDII 17.67 AUG 15.00 PKU TC 0.80 38 14.20 35 4.9% 13.4% SSTI 5.47 AUG 5.00 SJV TA 0.30 3 4.70 35 5.5% 12.9% MOGN 28.00 AUG 22.50 QOG TX 0.70 100 21.80 35 2.8% 9.5% JNPR 14.48 AUG 12.50 JUX TV 0.40 9435 12.10 35 2.9% 8.3% JCOM 53.45 AUG 45.00 JQF TI 1.30 187 43.70 35 2.6% 7.9% SINA 27.77 AUG 20.00 NOQ TD 0.50 453 19.50 35 2.2% 7.2% AEIS 17.55 AUG 15.00 OEQ TC 0.40 120 14.60 35 2.4% 7.1% TECD 31.03 AUG 30.00 TDQ TF 1.00 5 29.00 35 3.0% 7.0% AVID 41.14 AUG 35.00 AQI TG 0.85 28 34.15 35 2.2% 6.6% SOHU 40.82 AUG 30.00 UZK TF 0.60 598 29.40 35 1.8% 5.9% NTES 39.84 AUG 30.00 NQG TF 0.55 191 29.45 35 1.6% 5.6% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Upgrades Spur Rally In Industrial Stocks! By Ray Cummins Computing giant Hewlett-Packard and retailer Home Depot led the market higher Friday in the wake of bullish brokerage comments on the blue-chip issues. The Dow Jones industrial average ended up 83 points at 9,119 as 26 of the 30 components closed with gains. The NASDAQ Composite also advanced, up 18 points to 1,733 as semiconductors, wireless services, and application software enjoyed buying activity. In the broader markets, retail stocks helped the S&P 500 index close 9 points higher at 988. Trading volume was moderate with over 1.2 billion shares changing hands on the New York Stock Exchange and about 1.5 billion shares traded on the NASDAQ. Winners beat losers by almost a 2 to 1 ratio on the Big Board and by 5 to 3 on the technology exchange. The bond market recovered slightly with the 10-yr note up 4/32 while its yield ended at 3.64%. ***************** 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 or 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 AGN 77.24 80.73 JUL 65 70 0.50 69.50 $0.50 Open ERTS 72.35 76.70 JUL 60 65 0.55 64.45 $0.55 Open UNH 48.93 51.20 JUL 42 45 0.60 44.40 $0.60 Open PRX 49.16 50.00 JUL 40 45 0.60 44.40 $0.60 Open WLP 86.87 84.25 JUL 75 80 0.60 79.40 $0.60 Open GILD 53.75 59.28 JUL 45 47 0.30 47.20 $0.30 Open JCOM 44.35 53.45 JUL 30 35 0.60 34.40 $0.60 Open MRK 62.59 61.44 JUL 55 60 0.50 59.50 $0.50 Open EBAY 102.36 113.07 JUL 90 95 0.35 94.65 $0.35 Open UNH 50.22 51.20 JUL 45 47 0.30 47.20 $0.30 Open IRF 28.00 28.74 AUG 22 25 0.25 24.75 $0.25 Open MER 49.25 49.55 AUG 42 45 0.25 44.75 $0.25 Open YHOO 34.85 32.19 AUG 27 30 0.25 29.75 $0.25 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The position in Biogen (NASDAQ:BGEN), although previously closed to limit losses, is profitable. Watch-list issues include Merck (NYSE:MRK) and Yahoo! (NASDAQ:YHOO). CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status APC 44.46 44.81 JUL 50 47 0.40 47.90 $0.40 Open FNM 68.55 70.35 JUL 80 75 0.60 75.60 $0.60 Open GDT 39.95 45.57 JUL 50 45 0.60 45.60 $0.03 Open? KSS 49.45 57.22 JUL 60 55 0.60 55.60 ($1.62) Closed LOW 44.15 46.87 JUL 50 47 0.30 47.80 $0.30 Open? BZH 87.00 83.85 JUL 100 95 0.75 95.75 $0.75 Open HOV 62.12 58.38 JUL 75 70 0.65 70.65 $0.65 Open IBM 84.92 84.89 JUL 95 90 0.45 90.45 $0.45 Open IGEN 31.60 31.13 JUL 37 35 0.35 35.35 $0.35 Open MHK 56.56 56.14 JUL 65 60 0.45 60.45 $0.45 Open OEX 491.61 502.48 JUL 520 515 0.40 515.40 $0.40 Open ACS 45.06 44.05 AUG 55 50 0.65 50.65 $0.65 Open BBBY 38.59 39.75 AUG 45 42 0.35 42.85 $0.35 Open MMM 128.28 129.24 AUG 140 135 0.70 135.70 $0.70 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss The bearish spread in Kohl's (NYSE:KSS) became an exit candidate Friday when Banc of America Securities raised its rating for the company's shares to "buy" from "neutral," saying the retailer had made a positive move by "biting the bullet on inventory." Traders should also consider closing positions in Guidant (NYSE:GDT) and Lowe's (NYSE:LOW) to limit potential losses. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status NBIX 56.84 55.11 JUL 45 50 4.25 49.25 0.75 Open GILD 53.81 59.28 JUL 45 47 2.20 47.20 0.30 Open BSTE 48.96 54.87 JUL 40 45 4.50 44.50 0.50 Open EBAY 110.02 113.07 AUG 95 100 4.60 99.60 0.40 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status INTU 46.13 43.30 JUL 55 50 4.50 50.50 0.50 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status QCOM 33.55 38.64 JUL 37 30 0.10 1.25 Open SGR 12.62 10.75 OCT 15 10 (0.10) 0.00 Closed ESI 29.63 31.53 OCT 35 25 0.15 0.65 Open Qualcomm (NASDAQ:QCOM) and ITT Educational Services (NYSE:ESI) have already offered favorable profits for short-term traders. The Shaw Group (NYSE:SGR) position should probably be closed in the wake of the company's announcement that fiscal quarterly earnings fell 88% on lower revenue and write-offs related to an oil refinery where it provided construction services in 1998. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status CHKP 18.05 20.07 OCT-20C JUL-20C 0.10 1.50 Open GDT 39.98 45.47 OCT-45C JUL-45C 0.80 2.20 Open BRCM 21.40 27.86 JAN-25C JUL-25C 1.70 2.75 Closed SRNA 19.71 21.40 AUG-22C JUL-22C 0.45 0.90 Open MCDT 13.47 12.12 OCT-15C JUL-15C 0.70 1.00 Closed BEAS 11.08 11.36 SEP-12C JUL-12C 0.65 0.85 Open IR 47.95 49.41 SEP-50C JUL-50C 1.20 1.50 Open OVER 18.24 21.51 NOV-20C JUL-20C 1.90 2.10 Open? ADTN 55.69 56.51 AUG-60C JUL-60C 1.40 1.40 Open ARTI 24.32 23.24 SEP-25C JUL-25C 1.60 1.50 Open NSCN 24.18 25.97 SEP-25C JUL-25C 1.60 1.50 Open Closed positions in Electronic Data (NYSE:EDS), National Semi (NYSE:NSM), Verity (NASDAQ:VRTY), and Viacom (NYSE:VIA) have previously achieved profitability. CREDIT STRANGLES **************** No Open Positions DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status TYC 17.27 18.87 JUL 17.5 17.5 1.80 2.70 Open? BAC 80.01 82.88 JUL 80 80 2.40 2.75 Open RJR 36.19 36.32 AUG 37.5 35.0 3.15 3.70 Open? DG 18.64 19.34 AUG 20 17.5 1.20 1.30 Open BSX 60.00 60.65 AUG 60 60 7.00 7.30 Open MBI 50.24 49.20 AUG 50 50 5.20 5.00 Open AIG 55.69 57.16 AUG 55 55 4.90 5.00 Open FRE 50.00 53.55 AUG 50 50 5.10 6.10 Open? Tyco (NYSE:TYC), R.J. Reynolds (NYSE:RJR) and Freddie Mac (NYSE:FRE) have achieved favorable "early-exit" profits. The Bank of America (NYSE:BAC) straddle reached the break-even point in less than one week. Questions & comments on spreads/combos to Contact Support ************* 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. ***** EBAY - eBay Inc. $113.07 *** New All-Time High! *** eBay (NASDAQ:EBAY) is a web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and miscellaneous items. The eBay trading platform is a fully automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. EBAY - eBay Inc. $113.07 PLAY (conservative - bullish/credit spread): BUY PUT AUG-95.00 QXB-TS OI=1951 ASK=$0.80 SELL PUT AUG-100.00 QXB-TT OI=3049 BID=$1.30 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$99.45 ***** GENZ - Genzyme General $44.02 *** New Disease Treatments! *** Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme Corporation, a biotechnology and human healthcare company that develops products and provides services for unmet medical needs. Genzyme General develops and markets therapeutic products and diagnostic products and services with an emphasis on genetic disorders and other chronic debilitating diseases with defined patient populations. The company is organized into two segments, Therapeutics, which focuses on developing and marketing products for genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and specialty therapeutics, and Diagnostic Products, which develops, markets and distributes in vitro diagnostic products. The company also operates a wholly owned subsidiary, GelTex Pharmaceuticals. GENZ - Genzyme General $44.02 PLAY (conservative - bullish/credit spread): BUY PUT AUG-35.00 GZQ-TG OI=263 ASK=$0.35 SELL PUT AUG-37.50 GZQ-TO OI=212 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$37.25 ***** MEDI - MedImmune $39.01 *** New 2003 High Coming? *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of unique products on the market and a diverse product pipeline. The firm is focused on using advances in immunology and other biological sciences to develop new products that address significantly unmet medical needs in areas of infectious disease, immune regulation and cancer. MedImmune actively markets three products, Synagis, Ethyol and CytoGam and MEDI's Chief Executive David Mott expects the FDA to approve its inhaled influenza vaccine FluMist sometime this quarter. MedImmune will co-market the vaccine with Wyeth and the companies expect to provide the vaccine initially to healthy people between 5 and 49 years old, which will mean a potential market of 160 million people a year in the United States. MEDI - MedImmune $39.01 PLAY (conservative - bullish/credit spread): BUY PUT AUG-32.50 MEQ-TZ OI=347 ASK=$0.45 SELL PUT AUG-35.00 MEQ-TG OI=767 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$34.70 ***** SYMC - Symantec $45.65 *** Consolidation Complete? *** Symantec (NASDAQ:SYMC) provides a broad range of content and network security solutions to individuals and enterprises. The company is a provider of virus protection, firewall, virtual private network, vulnerability management, intrusion detection, remote management technologies and security services to various consumer groups and enterprises around the world. The company currently views its business in five primary operating segments: Consumer Products, Enterprise Security, Administration, Services and Other. SYMC - Symantec $45.65 PLAY (conservative - bullish/credit spread): BUY PUT AUG-35.00 SYQ-TG OI=348 ASK=$0.30 SELL PUT AUG-40.00 SYQ-TH OI=640 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$39.45 ***** CI - Cigna Corporation $44.49 *** Next Leg Down? *** Cigna Corporation (NYSE:CI) and its subsidiaries are investor- owned employee benefits organizations in the United States. Its subsidiaries are major providers of employee benefits offered through the workplace, including health care products and other services, life, accident and disability insurance, retirement products and services and investment management. CIGNA's main perating divisions include Employee Health Care, Disability and Life Benefits, CIGNA Group Insurance, Employee Retirement, and Investment Services, and International Life, Health and Employee Benefits. CI - Cigna Corporation $44.49 PLAY (conservative - bearish/credit spread): BUY CALL AUG-55.00 CI-HK OI=74 ASK=$0.25 SELL CALL AUG-50.00 CI-HJ OI=443 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$50.65 ***** ICUI - ICU Medical $27.90 *** Pre-Earnings Sell-Off? *** ICU Medical (NASDAQ:ICUI) develops, manufactures and markets proprietary, disposable medical connection systems for use in intravenous therapy applications. The company's devices are designed to protect healthcare workers and their patients from exposure to infectious diseases, such as Hepatitis B and C and Human Immunodeficiency Virus, through accidental needle sticks. The company also produces custom I.V. systems that incorporate its proprietary products, low-cost generic I.V. systems and the Punctur-Guard line of blood collection needles. ICUI - ICU Medical $27.90 PLAY (less conservative - bearish/credit spread): BUY CALL AUG-35.00 QPD-HG OI=32 ASK=$0.35 SELL CALL AUG-30.00 QPD-HF OI=105 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$30.60 ***** PG - Procter & Gamble $88.56 *** Trading Range? *** The Procter & Gamble Company (NYSE:PG) manufactures and markets more than 250 products to more than five billion consumers in 130 countries throughout the world. The firm categorizes its various businesses as follows: Baby, Feminine and Family Care, Fabric and Home Care, Beauty Care, Health Care, and Food & Beverage. The company acquired Clairol, a manufacturer of hair color and hair care products from the Bristol-Myers Squibb Company in 2001. PG - Procter & Gamble $88.56 PLAY (aggressive - bearish/credit spread): BUY CALL AUG-95 PG-HS OI=1807 A=$0.25 SELL CALL AUG-90 PG-HR OI=2044 B=$1.50 INITIAL NET-CREDIT TARGET=$1.30-$1.35 POTENTIAL PROFIT(max)=35% B/E=$91.30 ************* 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. ***** TECD - Tech Data $31.03 *** Prudential Upgrade! *** Tech Data (NASDAQ:TECD) is a distributor of information technology products, logistics management and other value-added services worldwide. The company serves over 100,000 value-added resellers, direct marketers, retailers, corporate resellers and Internet resellers in more than 80 countries throughout the United States, Europe, Canada, Latin America, the Caribbean and the Middle East. It offers a variety of products from manufacturers and publishers such as Adobe, Apple, Cisco, Computer Associates, Creative Labs, Epson, Hewlett-Packard, IBM, Intel, Iomega, Lexmark, Microsoft, Nortel Networks, NEC, Palm, Seagate, Sony, Symantec, 3Com, Toshiba, Viewsonic and Western Digital. Products are generally shipped the same day the orders are received from regionally located logistics centers. TECD - Tech Data $31.03 PLAY (less conservative - bullish/debit spread): BUY CALL AUG-25.00 TDQ-HE OI=200 A=$6.30 SELL CALL AUG-30.00 TDQ-HF OI=801 B=$2.00 INITIAL NET-DEBIT TARGET=$4.20-$4.25 POTENTIAL PROFIT(max)=18% B/E=$29.25 **************** CALENDAR SPREADS **************** A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are speculative (out-of-the-money) spreads with low initial cost and large potential profit. ***** GP - Georgia-Pacific $19.25 *** Trading Range? *** Georgia-Pacific (NYSE:GP) is engaged in four principal business operations: the manufacture of tissue products (including bath tissue, paper towels and napkins) and disposable tabletop products (including disposable cups, plates and cutlery); the manufacture of containerboard and packaging (including linerboard, medium and corrugated packaging); the manufacture of bleached pulp and paper (including paper, market and fluff pulp, craft and bleached board), and the manufacture and distribution of building products (including plywood, oriented strand board, various industrial wood products and softwood and hardwood lumber, as well as certain non-wood products, including gypsum board, chemicals and other products). GP's four principal businesses are broken down into six operating segments: North America consumer products, international consumer products, packaging, bleached pulp and paper, building products manufacturing and building products distribution. GP - Georgia-Pacific $19.25 PLAY (speculative - bullish/calendar spread): BUY CALL OCT-20.00 GP-JD OI=7072 ASK=$2.00 SELL CALL JUL-20.00 GP-GD OI=17313 BID=$0.35 INITIAL NET DEBIT TARGET=$1.55-$1.60 INITIAL TARGET PROFIT=$0.45-$0.70 ***** MSFT - Microsoft $27.31 *** Reader's Request! *** Microsoft (NASDAQ:MSFT) develops, builds, licenses and supports a range of software products for a multitude of computing devices. The company's software products include scalable operating systems for servers, personal computers and intelligent devices; server applications for client/server environments; information worker productivity applications; business solutions applications, and software development tools. During 2002, Microsoft launched Xbox, its next-generation video game system. The firm's online efforts include the MSN network of Internet products and services and its alliances with companies involved with broadband access and various forms of digital interactivity. Microsoft also licenses consumer software programs, sells hardware devices, provides consulting services and trains and certifies system integrators and developers. MSFT - Microsoft $27.31 PLAY (conservative - bullish/calendar spread): BUY CALL JAN-27.50 MSQ-AY OI=87152 ASK=$2.30 SELL CALL JUL-27.50 MSQ-GY OI=199990 BID=$0.40 INITIAL NET DEBIT TARGET=$1.80-$1.90 INITIAL TARGET PROFIT=$0.95-$1.20 *********************** STRADDLES AND STRANGLES *********************** Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** CVTX - CV Therapeutics $35.37 *** Earnings Play! *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. The company's quarterly earnings report is due 7/17/03. CVTX - CV Therapeutics $35.37 PLAY (very speculative - neutral/debit straddle): BUY CALL JUL-35.00 UXC-GG OI=632 ASK=$1.25 BUY PUT JUL-35.00 UXC-SG OI=233 ASK=$0.95 INITIAL NET-DEBIT TARGET=$2.05-$2.10 INITIAL TARGET PROFIT=$0.65-$0.90 ***** ************************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 ************** Uptrend! Downtrend! What Type of Market are We In? 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