The Option Investor Newsletter Sunday 07-20-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Unexpected Bullishness Futures Market: Retest Index Trader Wrap: CATCH UP Editor's Plays: Sticking With The Plan Market Sentiment: Reversal or Correction Ask the Analyst: Money supply is "surging," but where's it going? 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 7-18 WE 7-11 WE 7-04 WE 6-27 DOW 9188.15 + 68.56 9119.59 + 49.38 9070.21 + 81.16 -211.70 Nasdaq 1708.50 - 25.43 1733.93 + 70.48 1663.45 + 38.19 - 19.46 S&P-100 501.50 - .98 502.48 + 6.40 496.08 + 4.47 - 10.78 S&P-500 993.32 - 4.82 998.14 + 12.44 985.70 + 9.48 - 19.47 W5000 9546.66 - 64.23 9610.89 +148.38 9462.51 +104.02 -153.14 RUT 464.76 - 9.01 473.77 + 17.42 456.35 + 7.60 - 0.81 TRAN 2576.29 + 30.71 2545.58 +130.27 2415.31 - 1.72 - 25.25 VIX 21.36 + .64 20.72 - 0.89 21.61 - 0.10 + 0.62 VXN 33.41 + .61 32.80 + 0.33 32.47 + 1.54 - 1.41 TRIN 0.60 0.94 1.98 1.93 Put/Call 0.61 0.98 1.07 0.99 Avg Highs 522 791 435 291 Avg Lows 29 21 25 22 ****************************************************************** Unexpected Bullishness by Jim Brown Let's see if I got this right. Intel beat estimates by a penny and the market dropped. IBM announced a headline number that was inline with estimates and the stock was killed and the market dropped. MSFT misses earnings by a penny and market celebrated. What did I miss? Dow Chart Nasdaq Chart Consumer Sentiment also missed the mark slightly on Friday with a headline 90.3 for July compared to the consensus estimates for 90.9. Not a big miss on the surface but the whisper number was in the 92 range. The present conditions component rose to 102.1 from 94.7 but the expectations component fell to 82.7 from 86.4. The consumer is beginning to feel better about things with the market moving up and tax cut dollars about to hit their paychecks. They are becoming less convinced that the year end recovery is going to happen. The ECRI Weekly Leading Index posted a strong gain to 126.8 from 124.9 mostly due to the bounce in interest rates and the drop in Jobless Claims. This report is not a market mover since it is a summary of all the prior data from other reports. Still it is confirmation that the economy is continuing to stabilize. While it would be hard to build a case for the Friday rally on these two reports, each is one more brick on the path to recovery. In fact it would be hard to build a case for the Friday rally on anything but options expiration volatility and asset allocation programs. Friday is tied with October 9th as the worst trading day of the year over the last 22 years with only a 23.8% chance of the S&P closing up. For whatever reason it has closed down more than 75% of the time in the past it made up for many of those negative days with Friday's performance. The surprising bullishness came despite negative comments from almost every quarter. We had negative comments from MSFT, IBM, INTC, NOK, MOT and dozens of other techs and that knocked the Nasdaq to a -25 point loss for the week but it still managed a close over 1700. The Dow actually recovered enough on the strength of CAT, MMM, PG and WMT to post a slight +60 point gain for the week. Part of the bullishness came from an analysis of earnings already announced. With over 30% of the S&P already announced the 2Q earnings are coming in at +9.9% year-over-year despite estimates of only 7%. Surprised? You should be because the earnings have been far from exciting to date. Probably more visible are the earnings warnings that have been running 2:1 over those who are raising guidance. So why are the earnings so "good"? The key words here are year-over-year. To put it bluntly the 2Q of 2002 was very bad and provides a very poor comparison to the current reporting cycle. If XYZ Company has averaged 25 cents of earnings in the 2Q for years and only managed 5 cents in 2Q-2002 then a six cent earnings for this cycle would be +20% earnings growth. It is far from great earnings considering the 25 cent prior average but it is all in how you spin the numbers. If analysts can put a spin on the ball by picking their comparisons then you can count on them doing it. The next two quarters are going to be a lot tougher with expectations of +13.4% for Q3 and +21.2% for Q4. The Friday gains were subtle and caught many traders off guard. The midday volume was almost nonexistent and the overall volume was the third lowest since May-1st. On Thursday the declining volume beat advancing volume nearly 6:1. On Friday with nearly one billion fewer shares trading, the up volume beat down volume nearly 3:1. There was a strong shift in sentiment but we only reversed about 50% of the Thursday sentiment. Also, despite the bullish day there were fewer new highs than there was on Thursday. New lows hit another two month high. When taken in context the Friday was not nearly as bullish in the internals as it was on the surface. One of the weakest sectors for the week was the semiconductors once the Intel bounce failed. Various semiconductor makers said visibility was still bad, no pickup in demand and there were several subsectors like communications that performed worse. Other companies said business was good and they were seeing an increase in some types of orders. The general consensus was the improvements were spotty and selective. After the close on Friday the Semiconductor Book-to-Bill report was released and it only showed a 0.93 headline number. This was only slightly above the 0.90 from May. More troubling was the large drop in both orders and shipments. Orders fell by -0.4% in June and shipments fell by an even larger -4.3%. Had we not seen such a steep drop in shipments the BTB number would have dropped from May. YTD orders are down -18% from the same period last year and bookings are down -39%. Remember, last year was a very poor comparison and we are well below those numbers. The shipments in June dropped to their lowest level since Feb-2002 and orders fell for the 4th consecutive month. This was not a positive report despite how the talking heads will try to spin it on Monday. I gave you the negative comments from INTC, IBM and MSFT in the Thursday commentary and they did not paint a pretty picture. On Friday there were some additional news items. Fairchild Semi said they were looking for a decline in revenue for Q3 of -4% to -6%. They said they were receiving some new orders but the pricing remained challenging. You have to give it away to sell it. XLNX lost ground after it said revenue would be only flat to slightly higher. PMCS said revenue would be flat and at the low end of prior estimates and they based their cautious outlook on corporate spending and difficulty in gauging demand. Dell CEO Michael Dell said that U.S. corporate spending on technology appears to be stabilizing but it is going to take a couple more quarters to see improvement. Dell President Kevin Rollins said that while the stabilization in the U.S. is very hopeful they are not seeing any change in the European markets. The bottom line is slow and steady but not the 100% profit growth that analysts have been predicting through Q2 of next year. I have to admit I was surprised to see the rebound on Friday. I expected some short covering before the weekend to capture profits from the four day slide. The magnitude of the rebound, +130 points to 9180 surprised me. However, the Dow was the only major index to gain for the week and it was on the strength of only a handful of stocks. Looking forward we still have multiple problems. The PE on the S&P is 32 and growing. The PE on the Nasdaq is 54 and growing. Both those numbers are at the same extreme level as the top of the Internet bubble. Interest rates are rocketing with the ten year hitting 4% on Friday. Oil is still $32 a barrel and acting like an undeclared tax on the economy. There are simply a large number of reasons why the market should not rush immediately higher and a large number of reasons why it should consolidate before going up at all. On Thursday the Dow was threatening to break support at 9000 and the Nasdaq closed under 1700. Both pulled away from those key levels on Friday and appeared to catch their second wind. Maybe by now it is their 8th or 9th wind but either way they caught it. If this was option related then we could consolidate on Monday and then begin to slide again. If it is a real summer rally then no amount of negative earnings news next week will be able to push us below those levels again. It will however be a touchy week. Next week is devoid of any material economic reports. We will be left to churn based on stock news alone. Recently we have not done well without economic guidance even when that guidance was bad. With strong resistance just above us it may take a lot more than just inline guidance from the next one third of S&P companies that announce next week. Enjoy the rally if it continues but keep looking for the storm clouds to appear. This is the dog days of summer and those severe thunderstorms can appear suddenly and without warning. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Retest Jonathan Levinson The Nasdaq, Dow and S&P futures whipped back up from a higher low this morning in what was a very light volume opex Friday session. From excruciatingly boring to suddenly shocking, the indices ran back up to test the underside of their daily rising trendlines on the Dow and S&P futures in a "return to the scene of the crime" rally. 150-tick chart of the ES Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 1001 996 988 983 974 YM03U 9257 9206 9113 9062 8969 NQ03U 1283 1272 1258 1247 1233 10 minute chart of the US Dollar Index One way of putting it would that "The US Dollar Index did not go up today." 97.30 once again held back the advance, with a lower low following the swan dive. The action was, as expected, bullish for gold and other commodities, with the CRB dropping .04 but crude futures gaining 2% for the session. Daily chart of August gold August gold held the 343 support level again, with an intraday low of 343.20. The gains today stopped right at the descending upper trendline we've been watching since May. A break above that level could constitute a bull flag breakout. The oscillators are trying to turn up from higher levels on this downphase, also bullish. Daily chart of the ten year note yield Bonds took a breather today, giving back some of their gains over the past two days and printing an inside day. Yields closed near their session lows, still holding huge gains on the week. It's tempting to bet on treasuries to go higher, and well they might, but the weekly candle print for the ten year note yield was a bullish "separating lines" formation. Without going into the details of the formation, just take a look at the daily TNX chart above. It remains in a very strong uptrend, with no clear sign of a reversal just yet. Daily NQ candles Friday's end of session rally certainly didn't do much to inspire fear in the hearts of bears. The daily ascending trendline was touched for the first time since June, and nothing was done to alter the sell signals printed on the oscillators. 30 minute 20 day chart of the NQ The upphase I discussed in Thursday's market wrap is weak in the extreme, just a sideways up-phase so far, or a "swup" in the words of my cycle mentor. Using Thursday's channel analogy, think of the price as moving sideways within its upsloping channel, placed within the broader downsloping channel indicated by the oscillators on the daily chart. When the sideways-moving price collides within the wider down-channel, the decline will resume. Daily ES candles The S&P futures put in a far more impressive showing than the NQ, but unfortunately, so much technical damage has been done in the past weeks that it did nothing to improve its outlook either. The upper trendline was barely touched from below, let alone tested, and the descending oscillators remain in their downphases. 20 day 30 minute chart of the ES The shorter cycle upphase depicted on the above 30 minute chart is in full swing, and the price is moving upward as opposed to the "swupping" NQ price. Once again, however, the daily oscillators are in a downphase, and should keep a lid on this move. As noted in the intraday Futures Monitor, I would be surprised to see the price get much beyond 997. That said, the oscillators don't always describe the cycles perfectly. The intraday high was 993.25, and it set a double top as seen on the 150 tick chart above. Daily YM candles The YM chart was the most troublesome, as rallied much further than either of its peers. I suppose that 30 stocks are easier to move on a light-volume op-ex Friday than the 500 S&P stocks, but it's irrelevant to the chart. The ascending trendline was cleared on a closing basis, despite the failure to reverse the sell signals on the oscillators. The YM has been far weaker on a technical basis than the NQ, and so today's action was divergent. We'll have to see how it holds on Monday, particularly with more earnings announcements due before the bell. 20 day 30 minute chart of the YM We see the same picture on the 30 minute chart of the YM- surprising strength, out of the ordinary. The phase in the stochastic is growing long in the tooth, but showed no sign of reversing as of the close. For next week, I expect more weakness from equities, despite what we saw in the YM contract on Friday. While the shorter term oscillators could give us a pop on Monday, the longer cycles appear to have topped this week. While the possibility of higher highs exists, it looks unlikely to me, particularly given the listless showing from the Nasdaq on Friday. The weakness in bonds exceeded that in equities, but the story remains one of a contraction in liquidity, bringing selling in stocks and bonds together, just as the rally saw the reverse. I expect to see this trend continue next week. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** CATCH UP By Leigh Stevens lstevens@OptionInvestor.com Playing catch up is what select big cap stocks have been doing relative to recent Nasdaq gains, especially in the Dow stocks that have delivered improved Q2 earnings. The weekly stats tell the story, with the Dow up 0.8% for the week, the S&P (500) off a half percent and the Nasdaq down by 1.5%. THE BOTTOM LINE - The trend looks overall to be sideways for some more weeks, as the market "consolidates" its substantial gains off the bottom. This puts the market in a trading range until and unless renewed upside momentum (and a second leg higher) is signaled by a decisive upside penetration of 1013-1015 in SPX (S&P 500), 505 in the OEX (S&P 100) and 1760 in the COMPX (Nasdaq Composite). I anticipate the market will work still higher over time, in line with a longer-term bullish outlook for an improving economy. The economy is however only recovering slowly and further overall Index gains may also come slowly, ahead of the all-important Q3 numbers. As the earnings rebounds are selective, some good option plays will be found in individual stocks, such as was seen with CAT (Caterpillar) this past week. Conversely, the levels that would "signal" breakdowns of the current trends are discussed in conjunction with the Index charts below. FRIDAY'S TRADING - The market snapped a 3-day losing streak on Friday, lead by the Dow Average in a rally fueled by CAT and MCD. At the close, the Dow nearly got back to 9200, after rebounding off the low end of its hourly uptrend channel. The Industrial Average was up 137 points (1.5%) to 9188. The Nasdaq Composite was up slightly on the day (+10.5 points or .6%) but was lower on the week as noted. Caterpillar (CAT) and McDonald's (MCD) were responsible for a significant part of the Dow run up. Bargain hunting investors bid up MCD by 4.4% on an upgrade in an analyst's opinion at Bear Stearns. CAT rallied another 3% on Friday after an impressive 8% advance on Thursday. The company blew through consensus (earnings) estimates when it reported Q2 earnings of $1.15 per share versus estimates of only $0.66. Caterpillar said that a weaker dollar against the euro and Australian dollar, helped boost results with revenues rising 12.1% year-over-year to $5.93 billion, versus a consensus of $5.10 billion. The company's machinery and engine volumes were strong. Hey, this is relatively low tech but big muscle business. McDonalds (MCD) ended at $21.18 or up 3.4%. Bear Stearns upgraded the hamburger giant to "outperform", based on the analyst's belief that there earnings will be better than the Street consensus, based on some improved trends and the current management plan - more Big Mac's please. Microsoft rallied to above 27 (27.08), a gain of .39 (1.5%) after the Seattle software giant announced late Thursday that its fiscal Q4 income rose 26% on an 11% increase in sales. The welcome surprise was that they "guided" which is unusual for the company as they more often see their own outlook more in line with the Wall Street consensus. Hey, Bill Gates has some dreams of his own! Another Dow component, Hewlett-Packard gained 3.4% - Lucent technologies was up 5% and Nortel rose 3.9%. As usual, tech stock gains, as reflected in the Nasdaq Composite and Nasdaq 100 (NDX), have run "ahead" of the economy relative to actual current earnings. However, the profit improvement seem to be coming as business spending picks up, albeit slowly. Companies, universities and consumers are starting to replace aging equipment, take on digital hardware and expand their networking capabilities. I'm living proof as I upgraded my PC not long ago to take advantage of the big jump in speed and capacity at LESS money for the box. Despite the market's weakness during the start of earnings season, earnings reports have mostly come out better than expected - of 151 companies in the S&P 500 reporting so far, 2/3rds have beat or exceeded expectations, with about 6% missing the forecasted numbers. The problem of course, if you want to call it that, is that the market has run well AHEAD of expectations. Old market saying: buy the rumor (expectations) and sell the fact (when earnings match expectations). The University of Michigan's preliminary July consumer sentiment index rose to 90.3 from June's 89.7. The number was marginally lower compared with economists' estimates for a 90.5 reading. Most market sectors headed higher Friday, led by the oil service, utility and networking groups. Only airline and paper issues dripped in red ink. With some of recent recovery in some of the airline stocks - AMR comes to mind - the Dow Transportation average appears to be breaking out above its long standing monthly downtrend line per the chart below, thereby joining its big brother, the Industrial average, shown for comparison - As per the usual practice the date shown (7/31/03) is when the bar "ends" at month end. We won't know the full story on the close until then of course. A further note on the above charts - 10,000 on the Industrials and 3000 on the Transports look like big overhanging resistance levels. It's one thing to break out above trendlines and another to churn through increasing amounts (supply) of stock expected to be for sale at key price areas. Stay tuned for the fall and beyond! OTHER MARKETS - Government bonds extended recent losses that took benchmark yields to 10-week highs. (Inverse relationship: prices up, yields down - prices down, yields up.) The 10-year Treasury note was down a half point, to yield 3.985%, which puts us back to nearly 4% on the benchmark Treasury. Mortgage rates last week also spiked higher and if this continues expect a minor shock to ripple outward to home owners still looking to refinance. Hard to believe that anyone is left that is doing that, but it has been on ongoing trend. And, of course, there is the ongoing rush into the new home market and a slowdown here would undermine a key component of the economic growth that has been seen in the last 18 months. Among next week's economic releases of significance for bonds and stocks: June leading economic indicators, weekly initial unemployment claims, June new and existing home sales and June durable goods orders. The U.S. dollar gave back some early gains against its major trading partners and headed lower, as the dollar fell slightly, to 118.41 yen. The euro climbed 0.4 percent to $1.1265. INDEX OUTLOOKS – S&P 500 (SPX) - Daily chart: Some change occurred last week in the technical picture presented by the chart and its indicators. While the sideways move continues, we now have need to account for a potential double top. While I don't currently think that the formation marks a "final" top, the reality is that double tops are not something to explain away either - rather, they are potent reminders that that there may be at least a good-sized pullback before another advance and a challenge is made to the prior highs. While, for example, the apparent double top in March did not lead to much of a dip, there are some differences that can be seen. Mainly, I look for the amount of time that passes from one top to another. If the tops are separated by at least 2-3 weeks, I tend to take more notice of the pattern. Also, when a new high is not "confirmed" by other indicators such as the RSI (RSI is substantially lower the second time) or there is a bullish extreme in my sentiment indicator, this tends to reinforce the possibility of a significant peak. Last week my trading "sentiment" indicator, taken from the call to put daily volume in all equities options (CBOE), got to an extreme on the call side - foretelling a correction. Well, if we (option traders) were usually RIGHT, the indicator would work the other way round. The "typical" correction pattern that consolidates the kind of sizable advance or run up we've seen, is for a larger pullback, such as to below recent lows below 980. There could be a pullback to 950-960 zone at some point that would conform to the pattern. The 21-day moving average is usually key to this - inability to hold above it suggests a downswing ahead. This week may tell the story on that. To be a strong buyer of Index calls, such as out to Aug-Sept., I would like to see an oversold reading, or close to one, on the 14-day RSI, which is currently neutral at around 50 (see above). Dow Industrials Hourly (DJX.X) chart: What is chugging along is the Dow - there is sometimes what is known as the "solitary walk of the Dow", where enough of the 30 stocks are in rallies to keep an uptrend intact. The well- defined uptrend still being maintained on the Dow hourly chart is not being "confirmed" recently by similar action in the S&P 500 (SPX). Based on its uptrend channel, 90 appears to be level to watch in the Dow Index (DJX) as a key support - if pierced, it would suggest a next downside target to the 88.75-89 area. Another thing to watch for is whether the Dow is able to take out the prior recent high in the 9250 area or instead makes a lower relative high. Such a pattern would suggest that upside momentum was slowing down. The 21-hour stochastic is nearing an overbought reading, suggesting a buy of DJX puts on a further extension of Friday's rally that carried into Monday. Buying puts on rallies into declining rally peaks gives an exit point (stop) that is close at hand, or just above the prior top; i.e., a move above the prior high suggests risk of a further advance for a holder of puts. S&P 100 Index (OEX) – Hourly chart: The sideways trading range as I see it is outlined in the OEX hourly chart below along with estimated technical resistance and support areas. OEX stayed mostly above its prior lows in the 495 area, which was a signal for the potential to then rally after the retest of this bottom. However, I have put the next level of support at down in the 485 area at the earlier late-June bottom. I think the broad trading range we're looking at in the OEX is bounded by 485 to around 510, although I also see resistance coming in at the previously broken ("kiss of death") hourly up trendline intersecting currently around 507. My suggested strategy is to buy puts somewhere in the 507-512 price zone. Exactly where can be pinned down by how much further the current upside momentum can carry. Conversely, I continue to suggest buying calls in zone noted on the chart - this is a broader range and again is best determined by when the price trend stalls and then starts to reverse. In a trading range, it can be difficult to get the right entry without tuning in during trading and commentary during the session, such as to the OIN Market Monitor. SEMICONDUCTOR INDEX - Before getting into the broader Nasdaq index, the trouble in sustainability of the tech advance was signaled by the Philly semiconductor index or SOX. While the strong bellwether component Intel (INTC) was bucking this trend and pierced its prior high, the SOX was signaling at least a temporary top by its bearish price/RSI divergence - Nasdaq Composite Index (COMPX) – Weekly: Predictably enough the recent rally stalled at the top end of the weekly uptrend channel, especially given the overbought weekly oscillators like the RSI (setting = 13). The Nasdaq has not been this "overbought" on a 13-week (fourth of a year) basis since late-1999/early-2000. While an overbought extreme should not be used "mechanically" - buy puts and that's it - but does indicate that the probability of a correction is on the rise. That said, the rally could stay alive into the Sept/Oct time frame when there is a tendency for a seasonable top. If the weekly channel works here, there would typically be a drift lower toward the middle to lower end of the channel, before a next rally sets up. As much as is going to realized from the bull flag pattern that developed in prior weeks probably has been seen. Typical bull flag: sharp up move (the "flagpole"), followed by a few bars consolidating the first run up, then a move higher above the "box" outlining the flag that is equal to approximately the first upswing. The pattern seen on the daily chart at right is the up trendline, maybe about to be broken, if the downside momentum suggested by the falling stochastic is realized. If so, downside potential is back to the 1600 area. Stay tuned! Nasdaq 100 Tracking Stock (QQQ) - Hourly: QQQ dropped back to the lower end of its hourly uptrend channel with the move down to the 31 area - prior resistance has, so far, "become" a new support. This typically comes about because traders who sold those prior peaks and then didn't get back on the dip, will buy again as the Q's come back down to this area. They will also exit in a hurry if this level is penetrated! I favor shorting rallies, especially on a move back up to the prior peak in the 32.50 area, or a bit higher such as on up toward the top of channel - this seems doubtful right now as many of the underlying Nasdaq 100 stocks that have led the rally are correcting. If 31 is broken then I would also consider being short on the break, or adding to short positions from higher levels, with an objective to the 29 area. Good Trading Success! ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** Editor's Plays ************** Sticking With The Plan Two weeks of drops and several days of fanatic rebounds have played havoc with the current DJX put play. Every time I think we are about to get the big break down everything falls apart with a sudden recovery. We still have four weeks left on the August puts and anything can still happen. Using the 3,3,3,3,3 scenario and purchasing 3 Aug-88 DJX puts at each level of 90.50, 91.00, 91.50, 92.00 and 92.50 you would have a total of 15 contracts with an average price of $1.18 today. As of today that would not be a bargain since those puts are selling for 70 cents after Friday's rally. They were trading for $1.10 at one point on Thursday. We sold the 10 insurance calls on Monday the 7th for $1.85 when the Dow was dropping back through 9225 from its high at 9261. We bought those calls for 75 cents on the Dow drop to 8871 on July 1st. That $1100 profit offset our cost in the puts making our adjusted basis $670 or 44.6 cents each. I keep getting emails from readers wanting to know if we should abort the play and cash out for a profit. I would say take the money and run if you are worried. For 44 cents I think we have a great lottery ticket for a market drop over the next two weeks. It may never happen OR it could hit 8500. Either way the 44 cents is not going to break me and a $2 profit if we hit 8600 would sure be nice. Your choice! DJX Chart ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. EMC Call from Feb-2nd $10.00 ($7.70 when recommended) After hitting $11.76 two weeks ago EMC has been slipping and after their earnings report this week they dropped even farther. This is a long term play that was started when EMC was $7.70 and should still improve. I am however going to quit following it on a weekly basis. http://members.OptionInvestor.com/editorplays/edply_020203_1.asp Powerball It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Reversal or Correction Jonathan Levinson Zooming out to the long term charts for perspective, this week gave us negative closing prints for the Dow, Nasdaq and S&P indices. As profiled in the Futures Wraps this week, the S&P and Dow violated the ascending trendlines on their daily charts for the first time since the March bottom, while the Nasdaq did not. On the weekly candles, we had bearish candle patterns for this week's candle prints on all three indices, with the Nasdaq giving us a higher high and lower low, but on a negative close. This is one of the more esoteric candlestick formations I can identify, but it looks like a "meeting lines" formation to me: bullish optimism failing from higher levels and closing at a lower price than the previous week. The Dow was the most troublesome to identify, as the sudden rally heading into Friday's close left the weekly candle on what is either a harami cross, or the lesser known "deliberation" pattern with a higher low and lower high, closing positive but revealing indecision. Both patterns are bearish indecision patterns. The S&P printed a harami, the same as the Dow but with a broader overall range. Particularly given the daily ascending trendline violation by these two indices this week, the outlook is not bullish, despite the Dow's challenge of the trendline on light volume going into Friday's close. The S&P remained below it throughout the session. That said, this was options expiration week, and anomalous price action is more the rule than the exception. The failure of the Nasdaq to keel over points to merely corrective action, and the relatively tame put to call readings back that up. On the other hand, one of my pet conditions for a severe decline is complacency on the part of the bulls, and the tame put to call and volatility readings support that. Unfortunately, op-ex week skews that data, and so we look to next week for guidance. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9353 52-week Low : 7197 Current : 9188 Moving Averages: (Simple) 10-dma: 9133 50-dma: 8950 200-dma: 8446 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 993 Moving Averages: (Simple) 10-dma: 996 50-dma: 972 200-dma: 901 Nasdaq-100 ($NDX) 52-week High: 1316 52-week Low : 795 Current : 1259 Moving Averages: (Simple) 10-dma: 1282 50-dma: 1207 200-dma: 1067 ----------------------------------------------------------------- The rebound in Friday's markets did much to defuse the escalating concern in the volatility indices. Both fell comfortably back towards complacency as investors still refuse to show much fear even after the first major week of earnings. CBOE Market Volatility Index (VIX) = 21.36 -1.46 Nasdaq-100 Volatility Index (VXN) = 33.41 -2.06 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.61 1,039,369 633,043 Equity Only 0.52 896,577 473,850 OEX 1.08 53,221 57,825 QQQ 0.75 106,861 80,481 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.1 + 0 Bull Confirmed NASDAQ-100 81.0 + 0 Bull Confirmed Dow Indust. 83.3 + 0 Bull Confirmed S&P 500 77.2 - 1 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 0.92 10-Day Arms Index 0.87 21-Day Arms Index 1.13 55-Day Arms Index 1.12 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 1920 1772 Decliners 880 1259 New Highs 59 78 New Lows 10 8 Up Volume 1266M 995M Down Vol. 301M 555M Total Vol. 1581M 1563M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/15/03 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 Stuck in limbo. The large S&P contracts saw little movement by both the small traders and the large commercial traders. Investors could be waiting to get some sort of reading on trader sentiment after the first week of earnings has been completed. Commercials Long Short Net % Of OI 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%) 07/15/03 414,020 453,033 (39,013) (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 06/24/03 159,405 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% 07/15/03 148,716 70,279 78,437 35.8% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The S&P e-mini contracts saw more shuffling than the larger contracts (above) but overall there is little to discern. Except for the slight less bearish bias in the Commercials who bumped up their long positions while scaling back a few of their shorts, which effectively reduced their net short to a meager 4500 contracts. Meanwhile the small traders lightened up on both long and short contracts but remain rather bearish. Commercials Long Short Net % Of OI 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%) 07/15/03 214,274 218,765 ( 4,491) ( 1.0%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: ( 4,491) - 07/15/03 Small Traders Long Short Net % of OI 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%) 07/15/03 45,372 54,654 (9,282) (9.3%) Most bearish reading of the year: (15,696) - 07/08/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Much like the larger S&P futures there was little change in the NASDAQ 100 futures. Yet we must note one exception. The shuffling in the commercial long/short positions produced the most bearish reading in months. Close a few long contracts here, add a few short contracts here and we have a new relative high in net short positions. Commercials Long Short Net % of OI 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%) 07/15/03 28,467 49,154 (20,687) (26.7%) Most bearish reading of the year: (20,687) - 07/15/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 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% 07/15/03 26,489 8,004 18,485 53.6% 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 Somewhat interesting behavior by the commercials last week. They scaled down their short positions, which significantly bumped up their net long holdings over all. This is effectively telling us that institutions still think the Industrials well be stronger in the coming weeks. Commercials Long Short Net % of OI 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% 07/15/03 21,607 7,855 13,752 46.7% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 06/24/03 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%) 07/15/03 5,475 9,717 (4,242) (27.9%) 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 *************** Money supply is "surging," but where's it going? Jeff the money supply is surging, yet there's no inflation and equities are flat. Where is the money going? Not copper. Gold? I doubt it. Real estate? How can we wisely follow it? Think real hard. Actually, don't think at all about this trader's question. Money supply is "surging." If the ONLY alternative is stocks where money would flow does a growing money supply necessarily "mean" that the alternative asset will rise? I thought about this subscriber's question, some work, but if I hadn't been as complex in my thinking, I would have come to the answer (or a logical attempt at an answer) much quicker. I was still in high school when President Reagan mentioned, "trickle down economics" and while it seemed to be a catchy phrase at the time, this economic concept is an option for the Fed in order to help stimulate the economy. While I love technical analysis, there's going to be little of that in this commentary, but there are ways a technician can still look to apply his/her skills to find out where the money is going. I'm not sure if the trader's question is regarding our June 18th Index Wrap at OptionInvestor.com http://members.OptionInvestor.com/Itrader/marketwrap/iw_061803_1.ASP or the follow up and June 19th Index Wrap http://members.OptionInvestor.com/Itrader/marketwrap/iw_061903_1.ASP that has triggered this trader's question In those wraps we discussed money supply and some options the Fed (Mr. Greenspan) still has in its arsenal to try and stimulate the economy. If you've ever heard that "money is to root of all evil," then read on. I believe about 60% of that saying. After all... "money is the root!" If the trader's question is in relation to these two Index Wraps, then I'm flattered and proud that a trader/investor would be following this dynamic of supply/demand analysis, which may well be a key driver to get an anemic economy back on the mend. As a quick review, there are three levels of money supply, which the Federal Reserve will track. Remember who has printing presses! The Federal Government has the printing presses for printing money that goes into circulation, which allow the efficient exchange of cash for goods and services. Explanation of M1, M2, M3 money supply Below, we're going to look at an update from the Federal Reserve for M1, M2 and M3 money supply on a seasonally adjusted basis (June is preliminary data) and the trader's observation that money supply is "surging" is correct. He's also correct that there is little inflation (CPI and PPI indicate little inflation). Are equities flat? That's debatable considering the rebound we've seen from March. Remember... the MARKET is smart, and it tends to be forward looking. I've also taken things a step further from the recent Index Trader Wraps and have built a table that also includes other investment classes. Believe it or not, CASH is an asset class so I'm showing some historical data on the U.S. Dollar Index (dx00y) which is simply a way to show the value of a U.S. dollar against a basket of seven major foreign currencies. An increase/decrease can be partially viewed as a way to measure the inflow/outflow of dollars into/out of the United States. At the most basic explanation of RISK, cash in your pocket is perhaps deemed "most safe" (effects of inflation excluded). Stepping up the scale of RISK the U.S. Treasury bond, which is backed by the full faith and credit of the United States Government may be deemed safer. For simplicity sake, I'm using the benchmark 10-year YIELD ($TNX.X) as a general benchmark for government debt. A higher YIELD depicts selling in the bond, while a falling YIELD represents selling in the bond as price is falling. The next greater degree of investment risk a trader/investor will take to try and obtain a higher return on his/her capital is higher grade corporate bonds. I'm using the iShares Gs $ Investment (AMEX:LQD) $111.69 to represent PRICEs for a basket of higher grade corporate bonds. These bonds are backed by the full faith and credit of the underlying company. If the company were to ever to file for bankruptcy, creditors (banks) then you the bondholder of the corporations' debt are first in line to get as much of your money back as possible. Stepping out further on the "limb of risk" is junk bonds or low-rated debt. I'm using the Pacholder High Yield Fund (NYSE:PHF) $8.59, which should pay a higher YIELD than government or higher grade corporate bonds, simply because the RISK the investor is taking with these type of securities is greater. Finally, the highest degree of risk is publicly traded stocks. I'm using the S&P 500 Index (SPX.X) 993 to represent this asset class. While not necessarily representative of the commodity gold, I'm using the Amex Gold Bugs Index ($HUI.X) as a representation of what gold price generally may have been doing over the time period studied. Table of Money Supply, dollar and asset classes Starting from the left, I've color coded some months to mark those where the FOMC made a decision to lower its Fed Funds rate (cut interest rates). About the only impact on money supply a fed rate cut will have on money supply, is the amount of influence it has on an investor's decision of what country they will move their cash. It is arguable that M1 and M2 showed a decline in October of 2001 due to the terrorist attacks of September 11, 2001. The Fed also cut rates by 50 basis points on some concern that citizens might "panic" and withdrawal cash from their savings accounts during a period of great uncertainty. By lowering Fed funds rates aggressively, the Fed was allowing a cheaper cost of borrowing among banks to fund withdrawals. Aggressive easing by the Fed actually found the dollar rising in October has foreign currency came into the United States. Remember, if you own euro and want to buy IBM anything here in the U.S., you've got to sell your euro and buy dollar before doing so! Where did the foreign capital go in October after things settle down after September 11th? Every asset class found buying. (I have no data for the LQD as it had not been created at that time. Without going through each month, you can begin to track the flow of capital. Not only money supply, but inflows/outflows of foreign capital with increases/decreases in the dollar (dx00y). April 2002 may be another notable month were we see a decline in M1 and M2. A decline in the dollar may explain the decline in the SPX as capital moved out of the U.S. Exacerbating the decline in the SPX was that capital moved into Treasuries ($TNX.X), while capital stayed unchanged in "junk bonds" as investors there felt the risks taken were worth the higher interest payments being received each month. With a basic understanding of how we can attempt to understand how money flows around and how all the variables (dollar, Treasure and corporate bond and stocks) interact and will depict where money is flowing, lets address the trader's question. First, the S&P 500 Index (SPX.X) is up 1.9% since the end of June. In June, the SPX was up 1.1%, so I would say stocks have been moving based on these benchmarks and at a faster rate the past two weeks than from the end of May to June. But the most interesting thing I've learned from all of this..... Each month I set aside a certain amount of capital to a savings account. A portion of that account is for emergency purposes, and another portion is for a certain goal I have in mind. Last month I deposited the same amount of money into my money market account that I did the month prior, but when I got my monthly account statement, I didn't earn as much interest as I did the month before! How could that be? I had a larger balance, but the interest was lower? Oh yeah. The Fed lowered interest rates by 25 basis points. No wonder I received less interest on my last statement. While I would say that stocks are moving, lets imagine that they have stayed unchanged for the past three months. If you're employed and went to your job on Monday and your employer told you that you had to work an extra hour each day, but he was cutting your pay by 20%, how would you feel? Not very good is my thinking. If you thought you could get another job on Tuesday, you might well quit your job right there on the spot! Now.... think back to the trader's own observation of growing money supply. Then ask the question... "why aren't stocks moving?" We could also imagine that all of the asset classes were unchanged the past three months, but money supply was "surging." In a way, the FACT that money supply is surging tells us what? It may tell us that people are saving more money couldn't it? Look at the various subcategories in the first chart shown in our research, with focus on M1 and M2 subcategories. In a way, a growing money supply doesn't necessarily mean that stocks, bonds, gold, or any other asset is going to see price appreciation does it? If I gave you $1,000.00 and you could put it in a savings account and earn 30% interest, you'd probably take the $1,000 and put it in the saving's account. But if I gave you $1,000 and lowered that interest rate to 1%, well..... you might decide to either invest it somewhere else, or... as Alan Greenspan would rather you do, GO BUY SOMETHING! A refrigerator! A dishwasher! A stereo! A vacation! Quit saving it at an unattractive rate of interest! I'm thinking of buying a piece of property on the Platte River in Northeastern Colorado that I can enjoy. In recent weeks, I bought some higher YIELDing junk bonds that pay a higher rate of interest I laugh.... I typed all of those numbers in the above table in on thought that I could explain why "stocks aren't moving" as money supply "surged." While the full answer isn't as simple as "the reason stocks aren't moving is because money supply is growing as consumers are saving money at low rates," it is the starting point. Look at the dates where M1 and/or M2 declines. Then, look at what the dollar did during that time. If the dollar went down, then follow the various asset classes from lower risk to higher risk (Treasury to SPX). October 2001: M1 and M2 declines, dollar increases (money coming into U.S.) this tells us cash from M1 and M2 is moving somewhere, and it's staying here in the U.S. Treasuries see selling (more cash freeing up), "junk bonds" increase in price (demand created from money/cash), with the bullish % at low risk levels it may have gone to the SPX? April 2002: M1 and M2 declines, dollar DECLINES, (money leaving the U.S), Treasuries see buying, "junk bonds" stay flat. Guess what's left at the end of risk scale? You got it. The SPX. With money moving out of the U.S. and left-over money going into Treasuries, odd-man out is equities. August 2002: M1 declines, but not M2. Dollar increases, Treasuries see buying, higher grade corporate bonds (LQD) see nice gain (hey... some risk is being taken as we step out on the scale of risk), "junk bonds" see selling (too much risk for interest received) and equities (SPX.X) sees marginal gain. Are you getting a feel for things? Without looking back at the table you finish this observation. In November of 2002, M1 declines (money moving somewhere from savings accounts), dollar increases, Treasuries see selling, higher grade corporate bonds see fractional gains, "junk bonds" see nice gain, and SPX see (gain or loss). Now look above and see if you got it right. Now look where we are! And this exercise has really helped me understand why the bullish % charts have reached as high as they have for this long! Yes, M1, M2 and M3 are growing! My goodness he dollar has been strengthening recently hasn't it? Money has been staying here in the U.S. We're seeing selling in Treasuries aren't we? That more cash freeing up. Hey! some of it can go into M1, M2 and even M3. That's OK. Maybe IBM, GM, CAT, INTC or other corporations have been selling Treasuries and building cash reserves. Higher grade corporate bonds have been seeing selling, but "junk bonds" are holding unchanged and kicking off 11% annual interest payments (maybe higher or lower too) and equities look to be doing just fine. At this point, we can chart and project trends or monitor moving averages on everything except M1, M2 and M3. Is it concerning that M1, M2 and M3 are "surging" if you're an equity investor? It could be, but the "surge" in money supply could well be the parking of cash near-term as profits are taken in the Treasury and corporate bond markets. Is Fed Chairman Alan Greenspan and fellow FOMC governors on the right track with a sloooooow cutting of interest rates? Are they attempting to slooowly push the money-plowing money market saver into buying goods and services? While the Fed is always cognizant of the stock and bond markets (more concerned with bond market as various consumer interest rates are derived from the bond market), but its main job is to provide a healthy economy! Every consumer in the United States and even around the world has different near-term and longer-term goals or ideas of what they want to do with their money. Whether it is a prime piece of property in the heart of a waterfowl migration, or that new "boom box" a teenager is saving for after he/she has saved enough money to be on track to pay for their first semester at college. There is always some type of goal to be saving for. But when a rate of return in a money market account is no longer sufficient to have the goal obtainable with the money being earned from a job, then further RISK must be taken in order to achieve the eventual goal! For some, one way to achieve a goal faster is to take on more risk, and move cash out of a lower returning, but safer investment, to a risking, but potentially higher return type of investment. Maybe a 2% gain per month from equities isn't everyone's idea of "fast growth." If so, then I would think that investor wants to see a decline in M1 and M2, see the U.S. dollar at least hold unchanged if not higher, see selling in Treasuries, selling in corporate bonds, selling in "junk bond" and watch those equities SURGE! Last thing. Has anyone noticed that M3 has not declined in the above table? Other than the very fractional decline in January of this year. This is an area to monitor for corporate spending! M3 continues to hint that corporations are still trying to get the balance sheets in order, income statements fine tuned and lean. It may indeed take a decline in M1 and M2, a firming dollar to show the consumer (most consumer money ready to buy products is in M1 or M2) spending at a more aggressive pace, which then builds the demand for products that the nation's company's produce to then begin to see better revenues and earnings. Once that takes place, then corporations are going to start increasing their spending as production lines are bought back into action. This has been a very helpful exercise for me and hopefully you to. I have been wondering why stocks have been able to hang tough the past several weeks and for the first time, I took the time to actually create a table where I could try and track M1, M2, M3 along with the dollar, to better understand some of the basic supply/demand characteristics, where MONEY is the root driver that is the initial catalyst for demand. For me, it really brings into new focus the relationship between money supply and where it flows. And now I've got some things to think about over the weekend. Jeff Bailey ************* COMING EVENTS ************* ========================================== Market Watch for the week of July 21st ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- MMM 3M Company Mon, Jul 21 Before the Bell 1.51 ALTR Altera Corporation Mon, Jul 21 4:15 pm ET 0.09 AMX America Movil Mon, Jul 21 After the Bell 0.39 AME AMETEK Inc. Mon, Jul 21 After the Bell 0.65 ARM ArvinMeritor, Inc. Mon, Jul 21 Before the Bell 0.66 BNK Banknorth Group Inc. Mon, Jul 21 Before the Bell 0.54 BWA BorgWarner, Inc. Mon, Jul 21 Before the Bell 1.54 CD Cendant Corporation Mon, Jul 21 After the Bell 0.35 CTX Centex Corporation Mon, Jul 21 After the Bell 1.84 CHKP Check Point Sftwr TechMon, Jul 21 Before the Bell 0.24 CNF CNF Inc. Mon, Jul 21 After the Bell 0.28 GLW Corning Mon, Jul 21 After the Bell -0.01 RE Everest Re Group Mon, Jul 21 After the Bell 1.92 GSPN GlobespanVirata, Inc. Mon, Jul 21 After the Bell 0.04 GDW Golden West Financial Mon, Jul 21 -----N/A----- 1.69 HAS Hasbro, Inc. Mon, Jul 21 Before the Bell 0.04 HE Hawaiian Electric Mon, Jul 21 After the Bell 0.77 IDXX Idexx Laboratories Mon, Jul 21 Before the Bell 0.42 ICBC Indep Comm Bank Mon, Jul 21 After the Bell 0.62 INET Instinet Group Incorp Mon, Jul 21 -----N/A----- N/A LH Lab Corp of America Mon, Jul 21 After the Bell 0.60 LEE Lee Enterprises Inc Mon, Jul 21 Before the Bell 0.46 LXK Lexmark International Mon, Jul 21 Before the Bell 0.78 LRY Liberty Prop Trust Mon, Jul 21 After the Bell 0.79 LNCR Lincare Holdings Mon, Jul 21 After the Bell 0.50 MHM Masonite Intl Corp Mon, Jul 21 -----N/A----- 0.51 MRK Merck & Co., Inc. Mon, Jul 21 Before the Bell 0.84 MEOH Methanex Mon, Jul 21 -----N/A----- 0.50 NHY Norsk Hydro Mon, Jul 21 03:30 am ET 0.97 NVS Novartis Corporation Mon, Jul 21 Before the Bell 0.51 NVLS Novellus Systems, Inc Mon, Jul 21 -----N/A----- 0.05 PBI Pitney Bowes Inc. Mon, Jul 21 After the Bell 0.59 PCL Plum Creek Timber Mon, Jul 21 After the Bell 0.26 PNC PNC Finl Serv Group Mon, Jul 21 Before the Bell 0.93 SANM Sanmina-SCI Corp. Mon, Jul 21 After the Bell 0.01 SLAB Silicon Laboratories Mon, Jul 21 After the Bell 0.21 SII Smith International Mon, Jul 21 Before the Bell 0.26 SWBT Southwest Bank Texas Mon, Jul 21 After the Bell 0.46 SWFT Swift Transportation Mon, Jul 21 After the Bell 0.24 TXN Texas Instruments Mon, Jul 21 After the Bell 0.06 BBDA Bank of Bermuda Lmtd Mon, Jul 21 Before the Bell N/A UHS Universal Health Serv Mon, Jul 21 After the Bell 0.80 WRE Wash Rl Est InvstTrst Mon, Jul 21 After the Bell 0.50 WFT Weatherford Intl Mon, Jul 21 Before the Bell 0.31 ------------------------- TUESDAY ------------------------------ NDN 99 CENTS Only Tue, Jul 22 After the Bell 0.21 ABGX Abgenix Tue, Jul 22 -----N/A----- -0.38 ATVI Activision Tue, Jul 22 -----N/A----- 0.00 AL Alcan Inc. Tue, Jul 22 -----N/A----- 0.42 AMZN Amazon.com, Inc. Tue, Jul 22 -----N/A----- 0.06 AMTD Ameritrade Holding Tue, Jul 22 Before the Bell 0.10 AMGN Amgen Tue, Jul 22 After the Bell 0.46 AOT Apogent Technologies Tue, Jul 22 After the Bell 0.34 AHG Apria Healthcare Grp Tue, Jul 22 Before the Bell 0.52 ARMHY ARM Holdings Plc. Tue, Jul 22 02:00 am ET 0.02 AJG Arthur J. Gallagher Tue, Jul 22 After the Bell 0.37 ASH Ashland Tue, Jul 22 -----N/A----- 1.16 AVY Avery Dennison Corp Tue, Jul 22 11:00 am ET 0.70 BPC Banco Com Portugues Tue, Jul 22 -----N/A----- N/A BZH Beazer Homes USA Inc. Tue, Jul 22 After the Bell 2.90 BJS BJ SVCS CO Tue, Jul 22 Before the Bell 0.30 BXP Boston Properties Tue, Jul 22 -----N/A----- 1.00 BSX Boston Sci Corp Tue, Jul 22 After the Bell 0.30 BRCM Broadcom Tue, Jul 22 After the Bell 0.09 BNI Brlngtn No Santa Fe Tue, Jul 22 Before the Bell 0.52 CHRW C.H. Robinson Wrldwde Tue, Jul 22 Before the Bell 0.34 CNI Canadian Natl Railway Tue, Jul 22 Before the Bell 0.89 CECO Career Education Tue, Jul 22 After the Bell 0.31 CME CHICAGO MERCANTILE Tue, Jul 22 Before the Bell 0.93 CPS ChoicePoint, Inc. Tue, Jul 22 Before the Bell 0.37 CNET CNET Networks Tue, Jul 22 After the Bell -0.09 CTSH Cognizant Tech Sol Tue, Jul 22 -----N/A----- 0.18 CL Colgate-Palmolive Tue, Jul 22 -----N/A----- 0.62 CPWR Compuware Corporation Tue, Jul 22 After the Bell 0.03 CPO Corn Products Intl Tue, Jul 22 Before the Bell 0.50 CFC Countrywide Financial Tue, Jul 22 Before the Bell 2.83 CYMI Cymer, Inc. Tue, Jul 22 After the Bell -0.20 DNB D&B Tue, Jul 22 After the Bell 0.50 DCLK DoubleClick Tue, Jul 22 After the Bell 0.01 ELNK EarthLink Tue, Jul 22 Before the Bell 0.03 ECL Ecolab Inc. Tue, Jul 22 Before the Bell 0.25 EW Edwards Lifesciences Tue, Jul 22 After the Bell 0.39 EFII Electronics for Imag Tue, Jul 22 After the Bell 0.15 ESA Extended Stay America Tue, Jul 22 After the Bell 0.14 FII Federated Investors B Tue, Jul 22 After the Bell 0.44 FISV Fiserv Tue, Jul 22 After the Bell 0.39 FLS Flowserve Corp Tue, Jul 22 Before the Bell 0.32 HET Harrah's Entert Tue, Jul 22 Before the Bell 0.74 HCA HCA Tue, Jul 22 Before the Bell 0.77 HCP Health Care Property Tue, Jul 22 Before the Bell 0.89 HMA Health Management Ass Tue, Jul 22 Before the Bell 0.30 HRH Hilb, Rogal Hamilton Tue, Jul 22 Before the Bell 0.50 HNI HON INDUSTRIES, Inc. Tue, Jul 22 Before the Bell 0.33 ITW Illinois Tool Works Tue, Jul 22 Before the Bell 0.88 RX IMS Health Tue, Jul 22 After the Bell 0.24 N Inco Tue, Jul 22 -----N/A----- 0.10 IFX Infineon Technologies Tue, Jul 22 01:30 am ET -0.30 IPCR IPC Holdings Tue, Jul 22 After the Bell 1.07 LSCC Lattice Semiconductor Tue, Jul 22 -----N/A----- 0.02 LLTC Linear Technology Tue, Jul 22 After the Bell 0.20 LOGI Logitech Intl Tue, Jul 22 Before the Bell 0.10 LZ Lubrizol Tue, Jul 22 Before the Bell 0.58 MXO Maxtor Corp Tue, Jul 22 After the Bell 0.08 MDCO MEDICINES CO Tue, Jul 22 After the Bell -0.12 MRBK Mercantile Bankshare Tue, Jul 22 Before the Bell 0.71 MDG Meridian Gold Inc. Tue, Jul 22 After the Bell 0.09 MGM Metro-Goldwyn-Mayer Tue, Jul 22 -----N/A----- -0.23 MLNM Millennium Pharm Tue, Jul 22 After the Bell -0.17 MKSI MKS Instruments Tue, Jul 22 4:00 pm ET -0.06 MCO Moody's Corporation Tue, Jul 22 After the Bell 0.56 NU Northeast Utilities Tue, Jul 22 Before the Bell 0.15 OXY Occidental Petroleum Tue, Jul 22 Before the Bell 0.95 OI Owens Illinois Tue, Jul 22 After the Bell 0.47 PLD ProLogis Trust Tue, Jul 22 After the Bell 0.58 PEG PSEG Tue, Jul 22 Before the Bell 0.51 PTZ Pulitzer Inc. Tue, Jul 22 Before the Bell 0.53 DGX Quest Diagnostics Tue, Jul 22 Before the Bell 1.10 RSH RadioShack Corp Tue, Jul 22 Before the Bell 0.29 RYN Rayonier Inc. Tue, Jul 22 Before the Bell 0.70 RGC Regal Ent Grp Tue, Jul 22 Before the Bell 0.33 RNR RenaissanceRe Hold Tue, Jul 22 After the Bell 1.40 RTRSY Reuters Group Tue, Jul 22 02:00 am ET N/A ROK Rockwell Automation Tue, Jul 22 Before the Bell 0.30 RYL Ryland Group Tue, Jul 22 After the Bell 1.80 SLB Schlumberger Tue, Jul 22 After the Bell 0.32 SEPR Sepracor Tue, Jul 22 Before the Bell -0.60 SHW Sherwin-Williams Tue, Jul 22 -----N/A----- 0.75 SEBL Siebel Systems Tue, Jul 22 -----N/A----- 0.02 SIAL Sigma-Aldrich Corp Tue, Jul 22 4:00 pm ET 0.66 SLG SL Green Realty Tue, Jul 22 After the Bell 0.86 STK Storage Technology Tue, Jul 22 -----N/A----- 0.24 SUNW Sun Microsystems Tue, Jul 22 -----N/A----- 0.02 TE TECO Energy Inc. Tue, Jul 22 -----N/A----- 0.29 TK TKAY SHIP MARSHALL Tue, Jul 22 -----N/A----- 2.29 TLAB Tellabs Tue, Jul 22 Before the Bell -0.08 CAKE The Cheesecake Fact Tue, Jul 22 After the Bell 0.30 JOE The St. Joe Company Tue, Jul 22 Before the Bell 0.17 SWK The Stanley Works Tue, Jul 22 Before the Bell 0.50 TMO Thermo Electron Corp Tue, Jul 22 After the Bell 0.24 TMA Thornburg Mortgage Tue, Jul 22 After the Bell N/A TDW Tidewater Tue, Jul 22 Before the Bell 0.29 TMK Torchmark Tue, Jul 22 Before the Bell 0.95 UPS UNITED PARCEL SERVICE Tue, Jul 22 Before the Bell 0.59 VVC Vectren Corporation Tue, Jul 22 After the Bell 0.15 VFC VF Tue, Jul 22 -----N/A----- 0.60 VTSS Vitesse Semiconductor Tue, Jul 22 After the Bell -0.04 WAT Waters Corporation Tue, Jul 22 Before the Bell 0.32 WLP WellPoint Hlth Net Tue, Jul 22 After the Bell 1.39 WSTC West Corporation Tue, Jul 22 After the Bell 0.30 WFSI WFS Financial Tue, Jul 22 After the Bell 0.77 WWY Wm. Wrigley Jr. Co. Tue, Jul 22 -----N/A----- 0.56 XTO XTO Energy Inc. Tue, Jul 22 -----N/A----- 0.37 ----------------------- WEDNESDAY ----------------------------- TW 21st Century Ins Wed, Jul 23 After the Bell 0.18 ABY Abitibi-Consolidated Wed, Jul 23 Before the Bell N/A ACXM Acxiom Wed, Jul 23 After the Bell 0.06 ADO Adecco SA Wed, Jul 23 01:00 am ET N/A ADVP AdvancePCS Wed, Jul 23 After the Bell 0.49 AFFX Affymetrix Wed, Jul 23 After the Bell 0.03 AFL AFLAC Incorporated Wed, Jul 23 After the Bell 0.45 ALB Albemarle Corp Wed, Jul 23 Before the Bell 0.42 AGN Allergan Wed, Jul 23 Before the Bell 0.52 ALO Alpharma Wed, Jul 23 After the Bell 0.25 DOX Amdocs Limited Wed, Jul 23 After the Bell 0.22 BUD Anheuser-Busch Co Wed, Jul 23 -----N/A----- 0.75 AOL AOL Time Warner Wed, Jul 23 Before the Bell 0.10 ABI Applied Biosystems Wed, Jul 23 Before the Bell 0.22 AWE AT&T Wireless Wed, Jul 23 After the Bell 0.04 AVP Avon Products Inc. Wed, Jul 23 -----N/A----- 0.69 BLS BellSouth Corp Wed, Jul 23 08:00 am ET 0.49 BBI Blockbuster Inc. Wed, Jul 23 -----N/A----- 0.25 BC Brunswick Corporation Wed, Jul 23 After the Bell 0.54 BOBJ Business Objects Wed, Jul 23 -----N/A----- 0.17 CBT Cabot Wed, Jul 23 After the Bell 0.50 CSG Cadbury Schweppes Wed, Jul 23 -----N/A----- N/A CP Canadian Pac Railway Wed, Jul 23 Before the Bell 0.38 CHIR Chiron Wed, Jul 23 After the Bell 0.33 CHH Choice Hotels Intl Wed, Jul 23 After the Bell 0.41 CTXS Citrix Systems Wed, Jul 23 After the Bell 0.16 CGNX Cognex Wed, Jul 23 After the Bell 0.06 COLT COLT Telecom Group Wed, Jul 23 Before the Bell N/A COLM Columbia Sportswear Wed, Jul 23 After the Bell 0.20 CYH Community Health Sys Wed, Jul 23 After the Bell 0.29 CA Computer Ass Intl Wed, Jul 23 After the Bell 0.09 CVG Convergys Corporation Wed, Jul 23 Before the Bell 0.27 CVD Covance Wed, Jul 23 After the Bell 0.29 CFR Cullen/Frost Bankers Wed, Jul 23 Before the Bell 0.59 CYTC Cytyc Corporation Wed, Jul 23 After the Bell 0.16 DP Diagnostic Products Wed, Jul 23 Before the Bell 0.54 DL Dial Wed, Jul 23 Before the Bell 0.33 DBD Diebold Wed, Jul 23 Before the Bell 0.57 DST DST Systems Wed, Jul 23 After the Bell 0.44 EK Eastman Kodak Company Wed, Jul 23 Before the Bell 0.29 EDS Electronic Data Sys Wed, Jul 23 After the Bell 0.34 EEP Enbridge Energy Part Wed, Jul 23 After the Bell 0.46 EGN Energen Wed, Jul 23 -----N/A----- 0.46 ESRX Express Scripts, Inc. Wed, Jul 23 After the Bell 0.78 FIC Fair Isaac Corp Wed, Jul 23 4:05 pm ET 0.57 FNF Fidelity Natl Finl Wed, Jul 23 Before the Bell 1.59 FNIS Fidelity Natl Inf Sol Wed, Jul 23 Before the Bell 0.31 FR First Indl Realty TrstWed, Jul 23 After the Bell 0.71 FMBI First Midwest Bancorp Wed, Jul 23 Before the Bell 0.48 FLIR FLIR Systems, Inc. Wed, Jul 23 Before the Bell 0.31 FTI Fmc Technologies Wed, Jul 23 After the Bell 0.29 FDRY Foundry Networks Wed, Jul 23 After the Bell 0.10 FCN FTI Consulting Wed, Jul 23 After the Bell 0.41 FBN Furniture Brands Wed, Jul 23 After the Bell 0.43 GYI GETTY IMAGES INC Wed, Jul 23 -----N/A----- 0.20 GSK GlaxoSmithKline Wed, Jul 23 07:00 am ET 0.69 GSF GlobalSantaFe Corp. Wed, Jul 23 -----N/A----- 0.06 GG Goldcorp Wed, Jul 23 After the Bell 0.10 GLK Great Lakes Chemical Wed, Jul 23 After the Bell 0.37 GBBK Greater Bay Bancorp Wed, Jul 23 Before the Bell 0.41 DA Groupe Danone Wed, Jul 23 -----N/A----- 0.71 HRS Harris Wed, Jul 23 After the Bell 0.39 HHS Harte-Hanks Wed, Jul 23 -----N/A----- 0.25 HMT Host Marriott Wed, Jul 23 Before the Bell 0.21 HUBb Hubbell Incorporated Wed, Jul 23 11:00 am ET 0.43 HYSL Hyperion Wed, Jul 23 After the Bell 0.24 IMO Imperial Oil Limited Wed, Jul 23 -----N/A----- N/A INMRY Instrumentarium Wed, Jul 23 02:00 am ET N/A ISIL Intersil Corporation Wed, Jul 23 -----N/A----- 0.16 JKHY Jack Henry & Ass Wed, Jul 23 -----N/A----- 0.15 KMB Kimberly Clark Wed, Jul 23 -----N/A----- 0.81 KB Kookmin Bank Wed, Jul 23 -----N/A----- N/A LLL L-3 Comm Holdings Wed, Jul 23 Before the Bell 0.58 LRCX Lam Research Wed, Jul 23 After the Bell 0.02 LF LeapFrog Enterprises Wed, Jul 23 After the Bell -0.15 LIN Linens 'n Things Inc. Wed, Jul 23 Before the Bell 0.12 LSI LSI Logic Wed, Jul 23 After the Bell -0.08 MACR Macromedia Wed, Jul 23 After the Bell 0.10 MENT Mentor Graphics Wed, Jul 23 After the Bell 0.09 MCRL Micrel Semiconductor Wed, Jul 23 After the Bell -0.01 MOLX Molex Inc. Wed, Jul 23 4:00 pm ET 0.15 MYL Mylan Laboratories Wed, Jul 23 Before the Bell 0.38 NATI National Instruments Wed, Jul 23 After the Bell 0.15 NSCN NetScreen Tech Wed, Jul 23 After the Bell 0.16 NCEN New Century Finl Wed, Jul 23 After the Bell 1.55 NBL Noble Energy, Inc. Wed, Jul 23 -----N/A----- 0.44 NSC Norfolk Southern Corp Wed, Jul 23 Before the Bell 0.37 NCX NOVA Chemicals Wed, Jul 23 Before the Bell 0.02 OSI Outback Steakhouse Wed, Jul 23 After the Bell 0.60 OVER Overture Services Inc Wed, Jul 23 After the Bell 0.06 PFCB P.F. Chang's Wed, Jul 23 Before the Bell 0.27 PTV Pactiv Wed, Jul 23 After the Bell 0.37 PTEN Patterson-UTI Energy Wed, Jul 23 Before the Bell 0.08 PAS PepsiAmericas Wed, Jul 23 Before the Bell 0.35 PKI PerkinElmer Wed, Jul 23 Before the Bell 0.11 PX Praxair Inc Wed, Jul 23 Before the Bell 0.87 PGN Progress Energy Wed, Jul 23 Before the Bell 0.78 PSD Puget Energy Wed, Jul 23 After the Bell 0.35 QCOM QUALCOMM Inc. Wed, Jul 23 After the Bell 0.30 QSFT Quest Software Inc. Wed, Jul 23 After the Bell 0.06 RHD R.H. Donnelley Corp Wed, Jul 23 After the Bell 0.68 R Ryder System, Inc. Wed, Jul 23 Before the Bell 0.52 SGP Schering-Plough Wed, Jul 23 Before the Bell 0.12 SEE Sealed Air Wed, Jul 23 11:00 am ET 0.57 SINA SINA CORP Wed, Jul 23 After the Bell 0.19 SWKS Skyworks Wed, Jul 23 After the Bell -0.04 STN Station Casinos Wed, Jul 23 -----N/A----- 0.22 STM STMicroelectronics Wed, Jul 23 After the Bell 0.12 SDS SunGard Data Systems Wed, Jul 23 After the Bell 0.31 SWMAY Swedish Match Wed, Jul 23 -----N/A----- N/A SY Sybase Wed, Jul 23 Before the Bell 0.21 SYMC Symantec Wed, Jul 23 -----N/A----- 0.39 TELN Telenor ASA Wed, Jul 23 -----N/A----- N/A TDS Telephone Data Wed, Jul 23 Before the Bell 0.56 TIN Temple-Inland, Inc. Wed, Jul 23 -----N/A----- -0.05 BA The Boeing Company Wed, Jul 23 -----N/A----- 0.45 FAF The First Am Corp Wed, Jul 23 Before the Bell 1.07 REY The Reynolds Reynolds Wed, Jul 23 -----N/A----- 0.40 TKR The Timken Company Wed, Jul 23 After the Bell 0.25 USM U.S. Cellular Wed, Jul 23 Before the Bell 0.36 USTR United Stationers Inc Wed, Jul 23 After the Bell 0.53 VARI Varian, Inc. Wed, Jul 23 After the Bell 0.33 VTR Ventas Wed, Jul 23 After the Bell 0.37 VRTS VERITAS Software Corp Wed, Jul 23 After the Bell 0.15 EYE VISX Inc. Wed, Jul 23 -----N/A----- 0.07 VOLVY Volvo AB Wed, Jul 23 02:00 am ET N/A BER W.R. Berkley Wed, Jul 23 After the Bell 1.10 WSH Willis Group Holdings Wed, Jul 23 After the Bell 0.47 WYE WYETH Wed, Jul 23 07:00 am ET 0.48 YCC Yankee Candle Wed, Jul 23 Before the Bell 0.12 ZMH Zimmer Inc. Wed, Jul 23 After the Bell 0.42 ------------------------- THURSDAY ----------------------------- RKY Adolph Coors, Co. Thu, Jul 24 -----N/A----- 1.88 AFCI Advanced Fibre Comm Thu, Jul 24 After the Bell 0.07 AG AGCO Thu, Jul 24 -----N/A----- 0.31 ARG Airgas Thu, Jul 24 After the Bell 0.25 ACV Alberto-Culver Co. Thu, Jul 24 10:30 am ET 0.68 ALEX Alexander & Baldwin Thu, Jul 24 After the Bell 0.45 ALE Allete Thu, Jul 24 -----N/A----- 0.53 AT ALLTEL Corp. Thu, Jul 24 -----N/A----- 0.77 AXL American Axle Manu Thu, Jul 24 -----N/A----- 0.96 AIG American Intl Group Thu, Jul 24 -----N/A----- 0.94 APPX American Pharm Part Thu, Jul 24 -----N/A----- 0.30 AMT American Tower Corp. Thu, Jul 24 Before the Bell -0.39 ABC AmeriSourceBergen Thu, Jul 24 Before the Bell 1.03 APA Apache Corporation Thu, Jul 24 09:00 am ET 1.76 ADM Archer Daniels MidlandThu, Jul 24 Before the Bell 0.16 ARW Arrow Electronics Thu, Jul 24 Before the Bell 0.15 AZN AstraZeneca PLC Thu, Jul 24 06:00 am ET 0.33 T AT&T Thu, Jul 24 Before the Bell 0.53 AN AutoNation Thu, Jul 24 Before the Bell 0.30 AV Avaya Thu, Jul 24 After the Bell 0.00 BHI Baker Hughes Incorp Thu, Jul 24 Before the Bell 0.21 BLL Ball Corporation Thu, Jul 24 -----N/A----- 1.15 BOL Bausch & Lomb Thu, Jul 24 -----N/A----- 0.48 BDX Becton, Dickinson Co Thu, Jul 24 Before the Bell 0.54 BMS Bemis Company, Inc. Thu, Jul 24 Before the Bell 0.70 BGEN Biogen, Inc. Thu, Jul 24 Before the Bell 0.37 BDK Black & Decker Corp Thu, Jul 24 Before the Bell 0.93 BPL Buckeye Partners Thu, Jul 24 -----N/A----- 0.64 BR Burlington Resources Thu, Jul 24 Before the Bell 1.28 CCMP Cabot Microelect Thu, Jul 24 Before the Bell 0.38 CBL CBL & Associates Prop Thu, Jul 24 After the Bell 1.11 CLS Celestica Thu, Jul 24 Before the Bell -0.04 CEY Certegy Thu, Jul 24 Before the Bell 0.34 CIN Cinergy Corp. Thu, Jul 24 -----N/A----- 0.46 CIT CIT Group Thu, Jul 24 Before the Bell 0.61 CNH CNH Global N.V. Thu, Jul 24 10:00 am ET 0.49 CGI Commerce Group Thu, Jul 24 -----N/A----- 0.73 CFB Commercial Federal Thu, Jul 24 Before the Bell 0.51 CNXT Conexant Systems Inc. Thu, Jul 24 After the Bell -0.09 CNX CONSOL Energy Thu, Jul 24 Before the Bell 0.17 CBE Cooper Industries Ltd Thu, Jul 24 Before the Bell 0.67 CR Crane Thu, Jul 24 After the Bell 0.41 CSX CSX Thu, Jul 24 Before the Bell 0.58 DCX DaimlerChrysler Thu, Jul 24 07:00 am ET 0.07 DCN Dana Thu, Jul 24 -----N/A----- 0.30 DASTY Dassault Systemes SA Thu, Jul 24 -----N/A----- 0.28 EMN Eastman Chemical Co Thu, Jul 24 After the Bell 0.49 EBAY eBay Thu, Jul 24 -----N/A----- 0.35 LLY Eli Lilly Thu, Jul 24 Before the Bell 0.60 ENDP Endo Pharmaceuticals Thu, Jul 24 Before the Bell 0.28 ELAB Eon Labs Thu, Jul 24 Before the Bell 0.29 ERIE Erie Indemnity Thu, Jul 24 -----N/A----- 0.75 EXLT EXULT Thu, Jul 24 After the Bell 0.04 FHR Fairmont Htl Resorts Thu, Jul 24 -----N/A----- 0.28 FLEX Flextronics Thu, Jul 24 After the Bell 0.05 FLA Fl East Coast Ind Thu, Jul 24 Before the Bell N/A BEN Franklin Resources Thu, Jul 24 -----N/A----- 0.48 GTW Gateway, Inc. Thu, Jul 24 After the Bell -0.28 GR Goodrich Corporation Thu, Jul 24 Before the Bell 0.11 GXP Great Plains Energy Thu, Jul 24 09:00 am ET 0.41 HSC Harsco Corporation Thu, Jul 24 Before the Bell 0.62 HR Healthcare Rlty Trst Thu, Jul 24 After the Bell 0.69 HP Helmerich & Payne Thu, Jul 24 -----N/A----- 0.08 IKN Ikon Office Solutions Thu, Jul 24 Before the Bell 0.25 IMN Imation Corp. Thu, Jul 24 Before the Bell 0.53 IDC Interactive Data Corp Thu, Jul 24 Before the Bell 0.18 IFF Intl Flavors Frag Thu, Jul 24 10:00 am ET 0.59 IP Intl Paper Co. Thu, Jul 24 Before the Bell 0.17 IVGN Invitrogen Corp Thu, Jul 24 -----N/A----- 0.52 JDSU JDS Uniphase Corp Thu, Jul 24 After the Bell -0.03 KLAC KLA-Tencor Thu, Jul 24 After the Bell 0.15 KRON Kronos Incorporated Thu, Jul 24 -----N/A----- 0.40 LR Lafarge Thu, Jul 24 -----N/A----- N/A LVLT Level 3 Comm Thu, Jul 24 -----N/A----- -0.58 LMT Lockheed Martin Thu, Jul 24 -----N/A----- 0.52 LYO Lyondell Petrochem Thu, Jul 24 Before the Bell -0.06 MFC Manulife Financial Thu, Jul 24 2:00 pm ET 0.50 MRO Marathon Oil Corp Thu, Jul 24 -----N/A----- 0.94 KRB MBNA Thu, Jul 24 Before the Bell 0.39 MCK McKesson Corporation Thu, Jul 24 After the Bell 0.51 MDU MDU Resources Thu, Jul 24 -----N/A----- 0.52 MEDI MedImmune Thu, Jul 24 -----N/A----- 0.03 MTD Mettler-Toledo Intl Thu, Jul 24 After the Bell 0.58 MTX MINERALS TECHNOLOGIES Thu, Jul 24 After the Bell 0.68 MRH Montpelier Re Hldngs Thu, Jul 24 After the Bell 0.95 NCR NCR Corporation Thu, Jul 24 Before the Bell 0.07 NFX Newfield Exploration Thu, Jul 24 Before the Bell 0.88 NE Noble Corporation Thu, Jul 24 -----N/A----- 0.33 NT Nortel Networks Thu, Jul 24 -----N/A----- 0.00 NBP Northern Border Part Thu, Jul 24 After the Bell 0.64 NST NSTAR Thu, Jul 24 -----N/A----- 0.61 ODP Office Depot Inc. Thu, Jul 24 Before the Bell 0.16 ONB Old National Bancorp Thu, Jul 24 Before the Bell 0.41 ORI Old Republic Intl Thu, Jul 24 -----N/A----- 0.91 OSK Oshkosh Truck Thu, Jul 24 Before the Bell 0.95 PCAR Paccar Thu, Jul 24 -----N/A----- 0.98 PPE Park Place Enter Thu, Jul 24 -----N/A----- 0.14 POM Pepco Holdings, Inc. Thu, Jul 24 -----N/A----- 0.37 PRX Pharmaceutical Res Thu, Jul 24 Before the Bell 0.72 POT Potash Corp Saskatch Thu, Jul 24 Before the Bell 0.48 PCO Premcor Inc. Thu, Jul 24 Before the Bell 0.57 PHM Pulte Homes Inc. Thu, Jul 24 Before the Bell 1.74 IQW Quebecor World Thu, Jul 24 -----N/A----- 0.26 RTN Raytheon Thu, Jul 24 Before the Bell 0.40 RBK Reebok Thu, Jul 24 Before the Bell 0.41 RGA Reinsurance Grp Am IncThu, Jul 24 After the Bell 0.75 RESP Respironics, Inc. Thu, Jul 24 Before the Bell 0.49 SWY Safeway, Inc. Thu, Jul 24 -----N/A----- 0.47 SBC SBC Communications Thu, Jul 24 Before the Bell 0.41 SPI Scottish Power Thu, Jul 24 Before the Bell N/A SRA Serono S.A. Thu, Jul 24 -----N/A----- 0.16 SC Shell Transport Trdng Thu, Jul 24 -----N/A----- 0.77 SCRI SICOR Thu, Jul 24 -----N/A----- 0.23 SI Siemens AG Thu, Jul 24 Before the Bell N/A SNE Sony Corporation Thu, Jul 24 09:30 am ET N/A SFG StanCorp Financial Gr Thu, Jul 24 Before the Bell 1.14 SBUX Starbucks Thu, Jul 24 -----N/A----- 0.16 HOT Starwood Htl Resorts Thu, Jul 24 Before the Bell 0.21 STE Steris Thu, Jul 24 -----N/A----- 0.21 SEO Stora Enso Thu, Jul 24 06:00 am ET 0.08 SUN Sunoco Thu, Jul 24 Before the Bell 1.17 TARO Taro Pharm Ind Thu, Jul 24 11:00 am ET 0.50 DOW The Dow Chemical Co Thu, Jul 24 Before the Bell 0.35 TAC TRANSALTA CORP Thu, Jul 24 -----N/A----- N/A TRH Transatlantic Hldings Thu, Jul 24 Before the Bell 1.28 TSM TSMC Thu, Jul 24 Before the Bell 0.06 TUES Tuesday Morning Corp Thu, Jul 24 Before the Bell 0.15 UNP Union Pacific Thu, Jul 24 Before the Bell 1.03 UDI United Defense Ind Thu, Jul 24 Before the Bell 0.59 URI United Rentals Thu, Jul 24 Before the Bell 0.33 VCI Valassis Comm Thu, Jul 24 Before the Bell 0.55 VAR Varian Medical Sys Thu, Jul 24 After the Bell 0.40 VSEA Varian Semi Equip Ass Thu, Jul 24 After the Bell 0.03 VRSN VeriSign, Inc. Thu, Jul 24 After the Bell 0.14 VRTX Vertex Pharm Incorp Thu, Jul 24 After the Bell -0.61 VVI Viad Corp Thu, Jul 24 Before the Bell 0.40 WC WellChoice, Inc. Thu, Jul 24 After the Bell 0.54 WEN Wendy's International Thu, Jul 24 -----N/A----- 0.53 WDC Western Digital Corp. Thu, Jul 24 After the Bell 0.19 WHR Whirlpool Corporation Thu, Jul 24 06:00 am ET 1.31 WPS WPS Resources Thu, Jul 24 -----N/A----- 0.4 ------------------------- FRIDAY ------------------------------- AVX AVX Corporation Fri, Jul 25 Before the Bell -0.03 BLC Belo Fri, Jul 25 Before the Bell 0.33 CUM Cummins Inc. Fri, Jul 25 Before the Bell 0.12 EAS Energy East Corp Fri, Jul 25 After the Bell 0.11 FPL FPL Group Fri, Jul 25 Before the Bell 1.35 HCR MANOR CARE INC NEW Fri, Jul 25 Before the Bell 0.35 NOI National Oilwell Fri, Jul 25 Before the Bell 0.27 NRD NORANDA INC Fri, Jul 25 Before the Bell N/A NUE Nucor Fri, Jul 25 Before the Bell 0.22 PGL Peoples Energy Corp. Fri, Jul 25 Before the Bell 0.25 RHA Rhodia S.A. Fri, Jul 25 Before the Bell N/A SCG SCANA Fri, Jul 25 Before the Bell 0.39 TROW T. Rowe Price Fri, Jul 25 -----N/A----- 0.38 TRP TransCan Pipelines Fri, Jul 25 -----N/A----- N/A WY Weyerhaeuser Co. Fri, Jul 25 -----N/A----- 0.26 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable PULB Pilaski Financial Corp. 2:1 Jul 21st Jul 22nd MRTN Marten Transport 3:2 Jul 24th Jul 25th SYNX Synergx 2:1 Jul 25th Jul 28th -------------------------- Economic Reports This Week -------------------------- The second full week of Q2 earnings is about to begin with another 25% of the S&P 500 reporting. Look for Dow Jones Industrials component MMM to begin the earnings parade Monday morning before the bell. Earnings will likely overshadow the economic reports this week set to come out on Monday and Friday. ============================================================== -For- Monday, 07/21/03 ---------------- Leading Indicators (DM) Jun Forecast: 0.1% Previous: 1.0% Treasury Budget (DM) Jun Forecast: $21.0B Previous: $29.1B Tuesday, 07/22/03 ----------------- None Wednesday, 07/23/03 ------------------- None Thursday, 07/24/03 ------------------ Initial Claims (BB) 07/19 Forecast: N/A Previous: N/A Friday, 07/25/03 ---------------- Durable Orders (BB) Jun Forecast: 1.0% Previous: -0.4% Existing Home Sales(DM) Jun Forecast: 5.99M Previous: 5.92M New Home Sales (DM) Jun Forecast: 1135K Previous: 1157K Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-20-2003 Sunday 2 of 5 In Section Two: Watch List: Ding! Friday Goes To the Bulls Call Play of the Day: FDX Dropped Calls: AGN Dropped Puts: None ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** Watch List ********** Ding! Friday Goes To the Bulls Intl Flavors - IFF - close: 30.10 change: +0.20 WHAT TO WATCH: Aggressive traders willing to play any bounce ahead of IFF's July 24th earnings report, take note. Shares have fallen from the top of its recent (descending) channel to the bottom of it rather quickly. This happened about a week ago. Since then the stock has churned sideways at support between $29.50 and $30.00 (where it found support in March). Now the stock looks ready to rebound back into its channel. Chart= --- Altera Corp - ALTR - close: 18.80 change: +0.59 WHAT TO WATCH: The SOX semiconductor index fell back from its perch near 400 and it took shares of ALTR with it. The chip stock had been fighting with resistance at $20.00 but now that it has rebounded from the $18.00 level and its 50-dma, bulls may get another chance at a breakout. Volume was pretty strong on Friday so a retest of $20.00 looks like a good bet. Chart= --- Avid Technology - AVID - close: 44.23 change: +6.03 WHAT TO WATCH: Wow! A $6 move and a 15.7% gain. Beating your earnings estimates by 8 cents (25 cents vs. estimates of 17 cents) can do that for a stock. Volume was very big at 2.5 million shares. Bulls might want to look for a pull back to the $42.00 level before considering any plays. Avid announced earnings on Thursday (7/17) evening. Chart= --- Weyerhaeuser Co - WY - close: 54.51 change: +1.60 WHAT TO WATCH: The $53-55 area has been very tough resistance for shares of WY. The stock has been fighting to breakout for several months. Now that is has conquered the $52.50-53.00 level bulls are trying to breakout above the $55 mark. This could spark a short covering rally and a quick move to $60 might be around the corner. A good catalyst would be the company's earnings announcement on July 25th. Chart= =================================== RADAR SCREEN - more stocks to watch: =================================== VAR $60.85 - The stock produced a nice breakout over $60 on Friday but earnings are expected on July 24th. BWA $68.06 - Another breakout to a new high but this auto-related stock is set to announce its earnings on Monday, July 21st. ITT $67.02 - Nice volume, MACD about to turn bullish, the pop in shares of ITT on Friday looks pretty good. Yet overhead resistance at $67-68 has yet to be conquered. Watch for a move but keep in mind ITT announces earnings on July 28th. ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* THE PLAY OF THE DAY ******************* Call Play of the Day: ********************* Fedex Corp - FDX - close: 65.32 change: +1.20 stop: 61.99 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 ^^^^^ Allergan, Inc. - AGN - close: 78.99 change: -0.21 stop: 78.50 The relative strength that first attracted us to our AGN play gradually faded away throughout last week, with the final blow coming on Friday, as the stock traded as low as $78 early in the day. That triggered our stop and despite the afternoon rebound near the $79 level, it looks like the stock has lost the bullish support that we had been relying on recently. Traders that held onto their positions may be able to get a better exit on a continuation of that bounce on Monday, but be careful. The official play is closed this weekend so that we can focus on more technically strong plays. Picked on June 26th at $78.74 Change since picked: +0.25 Earnings Date 07/23/03 (confirmed) Average Daily Volume = 1.02 mln PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-20-2003 Sunday 3 of 5 In Section Three: Current Calls: GS, LOW, OMC, PCAR New Calls: FDX Current Put Plays: FITB, HD, INTU, LEN, XL New Puts: LEH ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ****************** CURRENT CALL PLAYS ****************** Goldman Sachs Grp. - GS - close: 87.69 change: +1.25 stop: 85.50 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: Over the past couple weeks, we've been focusing on the significance of support at the top of the July 7th gap, and GS didn't disappoint last week. Both of the last two days, the stock found intraday support just below $86 (but above the top of the gap at $85.70) and caught a decent rebound on Friday afternoon to end safely above that critical support. Similarly, the Broker/Dealer index (XBD.X) managed to hold support at $550 and the key to further bullishness in GS will be whether the XBD can continue that rebound. We've been advocating new entries on intraday rebounds from above the top of the gap, and traders have certainly had ample opportunity for that over the past couple days. The next upside target for the play will be for a retest of the $90 resistance, which turned back the bulls on Monday and Tuesday of last week. Conservative traders may want to harvest partial gains near that level, but we're holding out for a renewed assault on the $92 level, which is our final target for the play. Maintain stops at $85.50. Suggested Options: Shorter Term: The August 85 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. 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 October 90 call. BUY CALL AUG-85 GS-HQ OI= 4793 at $4.20 SL=2.50 BUY CALL AUG-90 GS-HR OI= 4083 at $1.60 SL=0.75 BUY CALL OCT-90 GS-JR OI=15919 at $3.60 SL=1.75 Annotated Chart of GS: Picked on July 1st at $85.85 Change since picked: +1.84 Earnings Date 09/24/03 (unconfirmed) Average Daily Volume = 4.34 mln Chart = --- Lowe's Companies - LOW - close: 47.03 change: +0.39 stop: 44.90 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: Continuing its pattern of relative strength, LOW has been consolidating its recent breakout over the past week, holding very near its highs. That breakout came at the $46.50 level, and it is interesting to note how that level has persistently attracted buyers over the past several sessions. The stock hasn't been able to materially advance over the past week either, as the $48 level capped the breakout rally and now price is holding up while the daily Stochastics cycle down towards oversold -- a bullish sign. While intraday dips near $46.50 have proven to be decent points to enter the play so far, we remain cognizant of the fact that a steeper pullback near $45.25-45.75 may be necessary to really confirm that old resistance has become new support. A dip and rebound from that area would make an even more attractive entry point. Traders looking to enter on strength will need to wait for a breakout over $48, but must evaluate the risk/reward scenario accordingly, as we're only targeting a move to the $50 level. Maintain stops at $44.90, as the $45 level should be very strong support now. Suggested Options: Shorter Term: The August 45 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. 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 AUG-45 LOW-HI OI= 4865 at $3.10 SL=1.50 BUY CALL AUG-47 LOW-HT OI= 2472 at $1.45 SL=0.75 BUY CALL OCT-47 LOW-JT OI= 2188 at $2.75 SL=1.40 BUY CALL OCT-50 LOW-JJ OI= 6316 at $1.70 SL=0.75 Annotated Chart of LOW: Picked on July 13th at $46.87 Change since picked: +0.16 Earnings Date 08/18/03 (unconfirmed) Average Daily Volume = 4.84 mln Chart = --- Omnicom - OMC - close: 72.47 change: +0.65 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 you've been following along with our play on OMC then you already know that we've grown a bit cautious now that shares have turned under its simple 30-dma. Previously, the moving average was strong support and investors used the opportunity to buy more shares when OMC would dip to it. Now it looks like the stock may be due for more consolidation, especially now that the broader markets are caving into a little profit taking. The new lower high in shares of OMC just over $75 is not encouraging. Fundamentally, many believe that any rebound in the economy is going to benefit media/advertising giants like OMC. Unfortunately, that bullish outlook may not save it from retracing part of its outstanding gains off its March lows. Traders need to be careful. Look for a bounce off its rising 50- dma (currently at 70.81) or look for a move back over the $75 level. News has been somewhat quiet but it appears OMC's earnings are now expected in the first week of August. We remain cautious and do not strongly suggest new entries at this time. Suggested Options: As we don't plan on holding over OMC's earnings, our preference will be for the August strikes but Octobers will be listed as well. BUY CALL AUG 70 OMC-HN OI= 371 at $4.40 SL=2.25 BUY CALL AUG 75 OMC-HO OI=2328 at $1.65 SL=0.85 BUY CALL AUG 80 OMC-HP OI=1407 at $0.55 SL= -- higher risk! BUY CALL OCT 70 OMC-JN OI= 712 at $6.30 SL=4.00 BUY CALL OCT 75 OMC-JO OI=1299 at $3.60 SL=1.85 BUY CALL OCT 80 OMC-JP OI= 289 at $1.85 SL=1.00 Annotated Chart: Picked on July 13 at $73.97 Change since picked: -1.50 Earnings Date 08/06/03 (unconfirmed) Average Daily Volume: 1.66 million Chart = --- PACCAR Inc. - PCAR - close: 73.46 change: +1.38 stop: 69.95 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: We only have a few days left before PCAR's July 24th earnings announcement. Given the violent reaction we've seen this week to some earnings reports it's really doesn't seem worth it to hold over an announcement. We plan to close the play ahead of the report on Wednesday afternoon, if we aren't stopped out first. Overall, if it weren't for the upcoming announcement, we'd be relatively happy that shares of PCAR have been able to weather the market weakness by consolidating above the $70.00 level. The Friday afternoon bounce added almost two percent but the stock could not close over the $74 level, which appears to be new resistance. Given the short timeframe left in this play we are not suggesting new positions for any but the most aggressive and nimble traders. If you're not comfortable jumping in and out (possibly intraday) then you may be better off to pass on this play. Talk to your broker if you're not sure. Meanwhile, what could be driving interest in shares of PCAR? Not only has the stock been a stellar performer since mid-March but the company is now paying a cash dividend. It's not much but the dividend is set for Sept. 5th for shareholders on record as of Aug. 18th. Plus, there is speculation that PCAR could announce another stock split. It last split 3-for-2 on May 29th, 2002 in the $70 range. Surprise! It's trading over $70 now. With management authorized to issue up to 200 million shares and there are only 116.2 million outstanding, there are certainly enough available for another 3:2 split. Suggested Options: We're not suggesting new positions as we plan to close the play at Wednesday's market close. Annotated Chart: Picked on July 08 at $73.49 Change since picked: -0.03 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.24 million Chart = ************** NEW CALL PLAYS ************** Fedex Corp - FDX - close: 65.32 change: +1.20 stop: 61.99 Company Description: With annual revenues of $22 billion, FedEx Corp. is the premier global provider of transportation, e-commerce and supply chain management services. The company offers integrated business solutions through a network of subsidiaries operating independently, including: FedEx Express, the world's largest express transportation company; FedEx Ground, North America's second largest provider of small-package ground delivery service; FedEx Freight, the largest U.S. provider of regional less-than- truckload freight services; FedEx Custom Critical, North America's largest provider of expedited time-critical shipments; and FedEx Trade Networks, North America's largest customs broker and a provider of international freight forwarding and trade facilitation services. FedEx ranked highest in the J. D. Power and Associates 2002 Small Package Delivery Service Business Customer Satisfaction Study(SM) in the categories of air, ground and international delivery services. (source: company press release) Why We Like It: It's the economy! Okay, actually it's the Transports. If the economy is going to improve it can't do it without the transports improving and leading the way is Fedex Corp. The stock has been very strong and rebounding quickly after some profit taking sparked by its mid-June earnings report. Now the Dow Jones Transportation average is hovering below significant resistance at 2600. A breakout here and we could see a big move in the group. FDX looks ready to lead the charge as shares have already hit new highs above $65.00, which marks a close above resistance. Adding more enthusiasm to the fire is FDX's recent announcement that it is adding 5 million shares to its current stock buy back program, which still has 3.1 million shares still unbought (so now FDX says it will buy back 8.1 million shares). The relative strength and the new high look like a great momentum trader's entry point for new bullish positions. Our first target will be the $70 level. We're going to initiate the play with a stop loss under the 50-dma at $61.99. Keep an eye on that TRAN average. A pull back to 2550 in the $TRAN might equal a dip in FDX back to the $64 area - yet another spot to look for an entry point. FYI... a trade at $66.00 would produce a fresh triple-top buy signal on FDX's P&F chart. Suggested Options: We're going to list the August and October 65 and 70 calls but should FDX dip back towards $62-63 then the 60 strikes might work well. BUY CALL AUG 60 FDX-HL OI= 491 at $5.80 SL=3.00 BUY CALL AUG 65 FDX-HM OI=1663 at $1.70 SL=0.90 BUY CALL AUG 70 FDX-HN OI= 175 at $0.30 SL= -- higher risk! BUY CALL OCT 65 FDX-JM OI=3619 at $3.50 SL=1.75 BUY CALL OCT 70 FDX-JN OI= 668 at $1.30 SL=0.65 Annotated chart of FDX: Picked on July 20 at $65.32 Change since picked: +0.00 Earnings Date 09/23/03 (unconfirmed) Average Daily Volume: 1.70 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 ***************** Fifth Third Bancorp - FITB - cls: 55.88 chg: +0.62 stop: 57.51 Company Description: Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $88 billion in assets, operates 17 affiliates with 943 full-service Banking Centers, including 132 Bank Mart. locations open seven days a week inside select grocery stores and 1,883 Jeanie. ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia. The financial strength of Fifth Third's affiliate banks continues to be recognized by rating agencies with deposit ratings of AA- and Aa1 from Standard & Poor's and Moody's, respectively. Additionally, Fifth Third Bancorp continues to maintain the highest short-term ratings available at A-1+ and Prime-1 and is recognized by Moody's with one of the highest senior debt ratings for any U.S. bank holding company of Aa2. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Fifth Third Processing Solutions. (source: company press release) Why We Like It: Sometimes picking on the under-performer when the markets decide to rollover can be a profitable way to catch the general trends. With the INDU and COMPX suffering set backs and investors selling their winners the banking sector, which has been one of the aforementioned winners (since its March low), is a prime candidate for some serious profit taking. The BKX index has fallen back under the 900 level and looks ready to retest the late June support of 850 (currently at 882). Meanwhile, shares of FITB peaked weeks ago in early June (compared to the BKX which peaked a few days ago) and FITB has been suffering a slow decline ever since. Now that selling pressure appears to be outweighing buying pressure we could see FITB's decline pick up speed. So far this month (July) shares of FITB bounced three times at support near $56.00. That support, which also included the simple 50 & 200-dma's, failed today with the last half hour really going to the bears. The company announced their Q2 earnings two days ago when shares were near $58.00. As you can see the results didn't inspire much faith. According to the press releases, FITB's Q2 saw its profits rise eight percent over last year's bolstered by stronger loan growth. Wall Street had been looking for 74 cents a share and FITB reported 75. While it was a positive surprise the stock has obviously been unable to maintain any strength. We're encouraged by the technical breakdown that is strengthened by the bearish oscillators on both its daily and weekly charts. A trade under the $55 mark would produce a fresh double-bottom sell-signal in FITB's P&F chart. We're going to suggest new positions at current levels (under $56) but more cautious traders may want to wait for a move under $55, which appears to be significant support/resistance on its weekly chart. Our first target will be the $51-50 area. We'll initiate the play with a stop at 57.51 even though the month-long trend of lower highs is suggesting a stop at just above $58.00. *We just added FITB to the play list on Thursday night. Nothing has changed. The market bounce on Friday produced a small bounce in FITB but resistance at $56 and its 200-dma held. Bearish traders can use a failed rally at $56 or $57 as an entry point. Meanwhile more cautious folks might want to see more conviction with a move under the $55 level. The chart below is from Thursday. Suggested Options: We're going to list August and November strikes with a preference for the $55 and 50 puts with the 50 puts being the riskier bet. BUY PUT AUG 55 FTQ-TK OI=1781 at $1.20 SL=0.65 BUY PUT AUG 50 FTQ-TJ OI=1264 at $0.25 SL= -- BUY PUT NOV 55 FTQ-WK OI= 328 at $3.00 SL=1.50 BUY PUT NOV 50 FTQ-WJ OI=7832 at $1.35 SL=0.70 Annotated Chart: Picked on July 17th at $55.26 Change since picked: +0.62 Earnings Date 07/15/03 (unconfirmed) Average Daily Volume = 2.4 million Chart link: --- The Home Depot - HD - close: 33.08 change: -0.02 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: The other half of the Home Improvement Retailer duo, HD has been rather stingy about delivering us the breakdown in price we've been expecting. Critical resistance has been found in the $34 area and failed intraday rallies there have made for solid entry opportunities. But at the same time, there hasn't been much downward pressure below the $33 level either. Friday's session did see an intraday dip to $32.66, but the stock came bouncing back into the range by the closing bell. The past several sessions have had the stock tracing out a neutral wedge and a solid downside break of this wedge will be our first clue that the bears are gaining some traction. Aggressive entries can still be had on failed intraday rallies below the $34 level, and slightly more conservative traders can enter on a break below the bottom of the wedge near $32.75. Traders looking for more confirmation before playing, will need to see the 50-dma ($32.18) violated, preferably on rising volume. Recall that our initial target will be $30, with our final exit point sitting at $28. Until this wedge breaks one way or the other, maintain stops at $34.75, just above the recent double-top. Suggested Options: Aggressive short-term traders will want to focus on the August 32 Put, as it will provide the best return for a short-term play. More conservative traders will want to utilize the August 35 contract, as it is currently in the money. BUY PUT AUG-35 HD-TG OI=2087 at $2.40 SL=1.25 BUY PUT AUG-32 HD-TZ OI=7380 at $0.90 SL=0.40 BUY PUT NOV-32 HD-WZ OI=2216 at $2.10 SL=1.00 Annotated Chart of HD: Picked on July 10th at $32.43 Change since picked: +0.65 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 9.42 mln Chart = --- Intuit Inc - INTU - close: 40.62 change: -0.46 stop: 44.01 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: So far so good. Our bearish play in INTU is following the script. The series of lower highs under resistance finally gave into more pronounced selling and the support in the $42.50-43.00 region finally caved in. INTU quickly fell towards the $40.00 level on Thursday before bouncing late afternoon. The $40 level was our initial short-term target. Hence, short-term traders can begin taking profits and reducing the size of their trade. If nothing else, then consider using a tighter stop loss. We're encouraged that given the market bounce on Friday shares of INTU did not participate. Actually, it made a lower high. Should the stock bounce back towards the $42.00-42.50 area, then traders can look for another failed rally to evaluate new bearish entries. Otherwise, the better move is probably to wait for a breakdown through the $40 level of support. We're going to leave our stop at $44.01 for the moment but tighter stops at $43.50 or $43.00 would not be out of the question. Suggested Options: Stocks tend to move lower much faster than they climb. Thus, our preference is for short-term options. We're going to suggest the August contracts. However, we're going to list August and October options. BUY PUT AUG 45.00 IQU-TI OI= 449 at $5.00 SL=2.75 BUY PUT AUG 42.50 IQU-TV OI= 744 at $3.10 SL=1.65 BUY PUT AUG 40.00 IQU-TH OI= 701 at $1.80 SL=0.90 BUY PUT OCT 45.00 IQU-VI OI=1899 at $6.30 SL=4.00 BUY PUT OCT 40.00 IQU-VH OI=1648 at $3.40 SL=1.80 Annotated Chart: Picked on July 8th at $43.35 Change since picked: -2.73 Earnings Date 08/13/03 (unconfirmed) Average Daily Volume = 4.1 million Chart link: --- Lennar Corp. - LEN - close: 68.35 change: -0.88 stop: 73.25*new* Company Description: Lennar Corporation has two core businesses, homebuilding and financial services. The company's homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through its unconsolidated partnerships. Its financial services subsidiaries provide mortgage financing, title insurance, closing services and insurance agency services for both buyers of its homes and others, and sell the loans they originate in the secondary mortgage market. Why we like it: It has taken several attempts, but it looks like we've finally gotten our hands on a winner with our bearish play on the Housing sector using LEN. Wednesday's session gave us a little bounce for aggressive entries on the subsequent rollover near $72, and then LEN broke below $70 on Thursday. Adding to our sense of gratification on Friday, the stock continued south, breaking below the 50-dma ($69.17) for the first time since early May. After hitting an intraday low of $67.25 (we were looking for a possible rebound from the $67 area, as noted in the Market Monitor), LEN did in fact rebound into the close. Look for any continuation of that rebound early next week to run into resistance first at $69.50 and then at $70.50. A rollover from either of those levels could be the setup for the next entry point. It may take a bit of work to crack under the $67 level, but then the stock should be able to make a quick trip down towards the $65 support level. Conservative traders may want to harvest partial gains there, as another bounce would seem highly likely. But so long as LEN continues to trace a pattern of lower highs and lower lows, we'll stick with our original plan of targeting an eventual drop to the $62-63 area. Lower stops to $73.25 this weekend, which is just above the 20-dma ($73.22). Suggested Options: Aggressive short-term traders will want to focus on the August 65 Put, as it will provide the best return for a short-term play. With the volatility seen in the Home Building stocks lately, more conservative traders may want to use the August 70 contract, which is currently in the money and less susceptible to the ravages of time decay. Since there is nearly 2 months to the company's next earnings release, we've also listed a NOV contract, for those traders looking to take advantage of a longer-term move. BUY PUT AUG-70 LEN-TN OI=3353 at $3.90 SL=2.50 BUY PUT AUG-75 LEN-TM OI=1991 at $1.75 SL=0.90 BUY PUT NOV-65 LEN-WM OI= 424 at $4.60 SL=2.75 Annotated Chart of LEN: Picked on July 15th at $71.12 Change since picked: -3.21 Earnings Date 09/09/03 (unconfirmed) Average Daily Volume = 1.63 mln Chart = --- XL Capital Ltd. - XL - close: 80.22 change: +0.58 stop: 83.00 Company Description: XL Capital Ltd. provides insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. Insurance business written includes general liability, other liability, professional and employment practices liability, environmental liability, property, program business, marine and energy, aviation and satellite, as well as other product lines. Reinsurance business written includes treaty and facultative reinsurance to primary insurers of casualty and property risks, as well as life reinsurance, primarily European term assurances, group life, critical illness coverage , immediate annuities in payment and disability income business. Why we like it: As proof that the bulls haven't completely given up yet, the broad market caught a bit of a rebound on expiration Friday and our new bearish play on XL caught a bit of a rebound as well. We can't help but think that part of the rebound in this stock was due to a desire to pin price to the $80 strike for expiration. The only concern we have is the fact that volume ran a bit heavier than on the prior two days as the stock was breaking below support. The big picture remains unchanged though, with a fresh PnF Sell signal and a target of $71. That means we are viewing this nascent bounce as nothing more than an oversold bounce and when it fails, it will be time to jump aboard for the ride back down. Broken support in the $81-82 area should now present solid resistance, so a rollover in that area is likely the best we can do for new entries. Traders that would prefer to enter on weakness need to understand that is a more aggressive approach with this play, as that entry won't come until a trade below $79.40 (just below Friday's intraday low) and then there is the possible support offered by the 200-dma at $78.47. So the safer approach in that case will be to wait for a violation of the 200-dma before chasing XL lower. Keep in mind that we're targeting a drop to the $73-74 area, even though the PnF chart says that a move down to $71 should be expected. With earnings set for July 31st, there just doesn't seem to be enough time for a fall that far. Maintain stops at $83. Suggested Options: Aggressive short-term traders will want to focus on the August 80 Put, as it will provide the best return for a short-term play. While we've listed the $75 strike, note that it has just been listed and does not yet have any open interest yet. Aggressive traders looking to use this strike will need to wait for open interest. Traders with a more conservative approach will want to utilize the October contract, as it should not be subject to as much time decay over the near term. BUY PUT AUG-80 XL -TP OI= 476 at $2.25 SL=1.00 BUY PUT AUG-75 XL -TO OI= 0 at $0.85 SL=0.40 BUY PUT OCT-75 XL -VO OI= 263 at $2.25 SL=1.00 Annotated Chart of XL: Picked on July 17th at $79.64 Change since picked: -0.58 Earnings Date 07/31/03 (confirmed) Average Daily Volume = 762 K Chart = ************* NEW PUT PLAYS ************* Lehman Brothers - LEH - close: 65.18 change: +1.14 stop: 68.50 Company Description: Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Why we like it: Take a quick look at the daily chart of the Broker/Dealer index (XBD.X) and you wouldn't think this is the sector in which to be looking for a bearish play. After breaking into new high territory in early July, the index has been consolidating near those highs over the past couple weeks, finding support at former resistance near $550. In fact, we've been playing the upside in the sector with a bullish play on GS. But shares of LEH are another story altogether. After topping out near $76 in the middle of June, the stock has been steadily losing ground. In fact, at Thursday's intraday low ($63.65), the stock had given back 50% of its March-June rally. Believe it or not, there hasn't been an earnings-related event to trigger the weakness. This is just plain old relative weakness, which is really apparent when looking at a relative strength chart between LEH and the XBD. Thursday's breakdown below $65 looked like it might be a real breakdown and traders that may have been puzzled by Friday's rebound may want to look at that retracement bracket. The 50% level is a common spot for a rebound against the current trend, and it arrived right on schedule. But don't look for it to last very long. When LEH traded $65, it produced a new PnF Sell signal, and a corresponding bearish price target of $58. Do you think it is a coincidence that the bullish support line on the PnF chart is currently at $58? Then we look at the price chart, and we can see the latest rebound attempt about two weeks ago failed at the 50-dma. Most stocks that are starting to weaken are just violating their 50-dmas, and LEH broke its own more than 3 weeks ago! Looking at the chart below, you can see the strong resistance that now ought to be provided by the descending trendline and the 20-dma ($67.64). It's certainly possible that the current rebound will fail near the $66 area, but resistance looks stronger in the $67-68 area, and therefore it ought to make a better entry. Traders that prefer to enter on continued weakness will need to wait for LEH to take out the $63.40 level while at the same time the XBD is violating the $550 support level. Our initial target will be $60, as that is the site of the 61% retracement ($60.40), with the 200-dma ($59.68) nearing that level. LEH may fall all the way to the $58 bearish price target, but there's no need to be greedy. Place stops initially at $68.50, which is above both the 20-dma and last Tuesday's intraday high. Suggested Options: Short-term traders will want to focus on the August 65 Put, as it will provide the best return for a short-term play. Conservative traders entering on a bounce will want to utilize the 70 strike, as it will still be in the money. Aggressive traders looking for a move down towards the $60 level or below will want to utilize the August 60 contract, which although it is currently out of the money, should provide enough time to achieve profitability before time decay has a pronounced effect. BUY PUT AUG-70 LEH-TN OI= 663 at $5.60 SL=3.50 BUY PUT AUG-65 LEH-TM OI= 794 at $2.30 SL=1.25 BUY PUT AUG-60 LEH-SL OI=2054 at $0.80 SL=0.40 Annotated Chart of LEH: Picked on July 20th at $65.18 Change since picked: +0.00 Earnings Date 09/18/03 (unconfirmed) Average Daily Volume = 2.70 mln Chart = ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-20-2003 Sunday 4 of 5 In Section Four: Leaps: Sell The News Traders Corner: All Aboard! The Profit Train Is Back On Track 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 ***** Sell The News By Mark Phillips mphillips@OptionInvestor.com Call it what you want, but investors' reaction to the first full week of earnings reports is not what I would call bullish. Certainly, there have been pockets of strength, but looking at the Technology Trifecta of IBM, INTC and MSFT, there certainly hasn't been much to motivate the bulls, has there? Definitely a "sell the news" type reaction last week, as the news wasn't nearly as good as investors were hoping for. This is precisely the scenario that Jim laid out a couple weeks ago, and I think it is just a bit eerie how accurate his prognostication based on history has been. Of course, the Fed hasn't helped matters much in recent weeks, as the vague promises that everything is going to be ok finally sparked a revolt in the Bond market on Tuesday. You see, the Fed has been trying to talk long-term interest rates down for months now and they were doing pretty well right up to the rate cut at the June FOMC meeting. Despite the quarter-point cut, the wishy-washy statement that went with it told bond investors that the Fed was waffling in its commitment to keep long-term rates low. That shaky belief took another body blow on Tuesday, as Uncle Alan failed to reassure bond traders of his intentions and they opted to call his bluff. As a result of very heavy selling, bond prices plunged and yields soared, bringing the yield on the Ten-Year Note back to the 3.9-4.0% area that proved so pivotal during April. In one short move (a bad miscalculation), the Fed managed to undo all of work that had accomplished in talking the yields down through the middle of June. Better luck next time, Al. I went into a lot of the ramifications of this move (as I see them) in my Thursday Trader's Corner article, so I won't restate them here. But it isn't good for the bond market, it isn't good for the Housing market, and it isn't good for the equity market. Who is it good for? Precious Metals. I've stated my views on gold until blue in the face and there isn't time to do so here today. But I just wanted to re-state my view that this market is one of the few areas of safety in the storm I see coming. Jonathan understands this and frequently writes of it and our old buddy Buzz had it clearly in mind when he set about the ark-building business a couple years ago. Coming back to the equity markets, which is our focus here, I continue to see weakness everywhere I look. Ok, there are a few pockets of strength like SNDK (can you believe the 26% rally in the past 2 weeks?), but the broad market indices are starting to weaken from within and I take a very dim view of any bullish aspirations for the major indices over the next several weeks. To be entirely honest, I don't have a lot to say about the broad market this week. It looks like we're starting to roll over from resistance as the catalyst of July earnings are being removed from the table. But how many times over the past 2 months have I opined that the market looked ready to tip over? I know, too many! The big picture is simple -- all of the major indices look like they are weakening near their recent highs, and weekly Stochastics (10,5,3) are starting to roll over from being in overbought territory. With the weakening of the internals (detailed below), waning bullish catalysts and bearish technical setups, the case for the bears is looking better all the time. As I've stated numerous times in the past, the second half economic recovery is a delusional fantasy and if we're really lucky we might see that recovery appear in 2004 -- but I won't be holding my breath! Alright, let's take a look at the bullish percents again, as that is our regular starting point for looking at market internals. NASDAQ-100 - 81% Back in Bull Confirmed, down from the 91% high NASDAQ Composite - 72.54% (just off another new all-time high) DOW - 83.33% (Just below recent cycle high -- highs in 1998 = 92%) S&P 500 - 77.20% (Cycle high of 82.80% - Still Bull Confirmed) S&P 100 - 82% (Just below cycle high, 11/98 all-time high = 84%) As we've been discussing here in seemingly endless fashion lately, there just isn't any appreciable weakness in the internals, at least not from looking at the bullish percent readings. The clearest picture of incipient weakness I can find in the internals is in the SPX Bullish Percent chart shown below SPX Bullish Percent SharpChart Just as I speculated a couple weeks ago, the SPX Bullish Percent SharpChart gave us a lower high and then another bearish cross back under the 10-dma. At the same time, we got a short-cycle reversal on the CCI oscillator, which has now plunged back under the -100 level. Look back at the December-02/January-03 period of time. Doesn't this setup look awfully familiar? Take a look at some of the other major indices' bullish percent charts using the following link and I think you'll see the mixed message that is still being delivered by the market. 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 As you can see from the chart above, the SPX appears to be finally showing the necessary internal weakening to get the bears interested, but now we need to see the other indices follow suit. The NDX appears to be setting up the same sort of pattern we can see in the SPX and we ought to get that lower high and another bearish cross on the SharpChart over the next week. There's another measure of internal strength/weakness that I want to just mention in passing this weekend, and that is the ratio of new highs to new lows on both the NYSE and NASDAQ. The reason I'm only making brief mention is that I learned long ago not to reinvent the wheel when it isn't necessary to do so. Jeff Bailey has been doing a great job of tracking this information and reporting it periodically in his nightly Index Wraps. Let me encourage you to take a look at the updated table and his commentary related to the deterioration in this measure of internal strength from the Thursday wrap. It is definitely complimentary to our view of the bullish percent charts. There's one more piece of the puzzle that I think warrants a brief mention this weekend and that is the concept of Buying Pressure vs. Selling Pressure. For months now, Buying Pressure has been holding up and Selling Pressure has been waning. But that dynamic is shifting as well, with Buying Pressure topping out in early June and starting to weaken appreciably over the past week. In addition, Selling Pressure is finally starting to make a move to the upside. It took long enough, don't you think?! Last but not least is our good buddy, the Market Volatility index or VIX. The broad market weakness throughout much of last week was enough to have the VIX creeping back over the 23 level. But as proof that complacency seems to be increasing, we got one little rally on Friday and that produced a more than 6% dive in the VIX, which is once again knocking on the door of the 21 level. Give us one more rally, with the VIX cracking below the 20 level, and I'm going to be a lot more excited about entering our DJX play, not to mention several of the other bearish plays that are on one of the playlists below. It isn't full bear ahead just yet, but things appear to be starting to fall into place. For those that don't want to aggressively chase the downside quite yet, I understand your caution, especially after this very choppy and unpredictable rally of the past 2 months. But at the very minimum, I would view any rebound from here as the last chance to harvest bullish gains before the summer slide gets underway. We're quickly populating our playlist, and heavily to the bearish side too. Let's dive right in and see what it has to offer! Portfolio: AIG - I'll be the first to admit that this bearish play has not gone according to plan. No matter how weak AIG looks each time it approaches the $54 support level, it seems as though there is an endless supply of willing dip buyers, and they performed on cue a few weeks back when the stock dipped near that level. Since then, the stock has been steadily working higher and on Friday actually managed a close over $60. This is a critical point for the stock, as it is right at strong resistance and just below our $61 stop. Both the 50-dma and the 200-dma seem to have lost their effectiveness in providing either support or resistance with the numerous crossovers in the past couple months. Technically, I'm having a hard time making a case for AIG to head down, as the patterns I've been relying on are not panning out. For traders already in the play, keep those stops in place. Until we get another close below $57, I am not advocating new positions. Another item of note is the relative performance of the '04 and '05 LEAPS in recent weeks. Note how much worse the '04 LEAP has performed as price has moved against us again. This is the beginning of time decay factors starting to creep into the front- year LEAPS and the reason why we're now starting to introduce the '06 LEAPS. HD - Last week proved to be just a fairly volatile one of consolidation for our HD play, as the stock tried on numerous occasions to push back over $34, while at the same time being unable to sustain a breakdown under $33. The stock appears to be weakening following its recent double top just below $35, but there hasn't been a breakdown yet. In order to solidify the bearish picture, we'll need to see a break below the 50-dma, which is now just over $32. SMH - Last week certainly provided plenty of excitement for traders in the Semiconductor sector, with 3 consecutive days of the SOX pushing over the $400 level. But with INTC failing to provide the bullish catalyst that many seemed to have been expecting with its earnings report, the sector caved in towards the end of the week. Our SMH play certainly gave us a Maalox moment Wednesday morning, with its opening surge to $32.95, just a nickel below our stop. But fortunately that was followed by a sharp pullback and then consolidation. The pullback continued through the open on Friday, with the stock trading briefly below the $31 level before recovering into the end of the day. I continue to think we've seen a top in the sector for now and traders that took advantage of last week's foray over $32 as an entry point have likely gotten the best entry possible into the play. There's a long way to go though before we'll have anything we can term a breakdown, which would require the SMH to break under the bottom of its ascending channel, currently right at $29. Maintain stops at $33 and settle in for some more volatility as earnings season continues. ADBE - I was really hoping to get an entry closer to the $36 target last week, but after several days of failing to hold over $35, Thursday's plunge back below that level looked too good to pass up. So we've got another live bearish play in the Portfolio. Watch List: DJX - Are we having fun yet? The DJX certainly is providing plenty of up and down movement without going very far in either direction! Support at $90 is still holding firm, but it looks like sellers are getting a bit more aggressive at resistance, as the DJX continues to get knocked back every time it edges above the $92 level. This range will eventually break, and when it does, it could get exciting. Despite my bearish expectations, I remain aware that we haven't yet seen any significant internal weakening, with the Bullish Percent on the DOW holding at 83%. That tells me that there's likely to be one more push towards the June highs before support finally breaks. I may miss this one, but I'm sticking with the entry target of $93.50-94.00. Next week looks promising to deliver both that entry and the subsequent rollover. Radar Screen: WMT - Alright, I may have gotten a bit too aggressive on my bearish view of WMT. With the Retail index (RLX.X) holding near its recent highs, the stock is finally starting to catch up a little and is testing the $58 resistance level. This week I backed out to the weekly view and noted that we can draw a descending trendline from the 1999 high and the 2002 high, and that line currently rests at $60. I am going to exercise patience here and look for a test of that trendline before considering WMT as a new active play. LEN - Oh, what might have been. Rather than bouncing and giving us an entry setup on a test of resistance, LEN (and the rest of the Housing sector) got slammed lower on Tuesday in response to the sharp selloff in Treasuries. By Friday's close, the stock was cracking below the 50-dma and it appears the decline off the recent highs is underway. The only way I'll consider a new play on LEN at this point is if we can get a rebound back near the $75 level and right now that seems like an awful lot to ask. BBH - Now that we've harvested our gains in AMGN, we can turn a clear eye to trying to game the downside in the overall Biotechnology index via the BBH. Looking at the daily chart though, I see nothing that makes me want to jump into that fire, as the stock is holding up VERY well near its recent highs. A possibility exists for a rollover in the $135-140 area, but until we see a lower high or a lower low, playing the downside in this sector is just a bit too aggressive. GM - Did you see GM's earnings report last week? Shouldn't a 39- cent upside surprise have generated some buying interest? Rather than rallying or selling off, the stock just continued to meander in a very tight range near $36. I think the key is that investors were reminded that the bulk of GM's net income is coming from its Financial Services arm, rather than automotive production. With long-term rates on the rise, it's bound to cut into that income and there's no sign yet that GM has gotten any better at making money from the automotive side of the game. With interest rates on the rise, I can't see how that is going to bode well for the picture going forward. Simply put, I want to short the heck out of GM, but I refuse to play unless we can get the stock to pop up near the $39-40 area. SNDK - Forget about it! The only decent entry on SNDK came back in early June, as the chart has gone parabolic over the past few weeks. Even earnings last week were not able to stimulate the "sell the news" crowd and SNDK delivered another 14% gain on the week. Add that to the 12% gain the week before, and I've lost all interest in gaming the upside in this runaway move. XL - I've made no secret of my displeasure with our AIG play, as the stock has consistently bounced from support. A couple weeks ago, I ran across XL as an alternate in the Insurance sector and we've certainly had a couple weeks of encouraging price action. In fact, price has been heading down since finishing a double top near $88 in mid-June. Late last week, the stock broke below $81, generating a new PnF Sell signal, with a tentative bearish price target of $71. All we need now is a decent rebound from current levels, setting up a potential entry in the $83-85 area. Closing Thoughts: The first week of July earnings are now behind us and I certainly didn't see anything there that made me want to second guess my bearish outlook for the next couple months. Nowhere have I seen a report pointing to strong growth in any area of business. The upside surprises are coming from things like cost-cutting, and favorable exchange rates. Is that the stuff of which economic recovery is born? I think not. Rising long-term interest rates are not going to be good for the housing or equity markets, and I think we just may be ready to tip over for the remainder of the summer. Hold onto your hats, because I don't think we're going to have a typical listless summer! Have a great weekend! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: AIG 04/24/03 '04 $ 55 AIG-MK $ 5.60 $ 2.75 -50.89% $61.00 '05 $ 55 ZAF-MK $ 8.50 $ 6.10 -28.24% $61.00 HD 07/09/03 '04 $ 32 HD -MZ $ 2.45 $ 2.65 + 8.16% $36.50 '05 $ 30 ZHD-MF $ 3.20 $ 3.50 + 9.38% $36.50 SMH 07/09/03 '04 $ 30 SMH-MF $ 2.70 $ 2.85 + 5.56% $33.00 '05 $ 30 ZTO-MF $ 5.00 $ 5.00 + 0.00% $33.00 ADBE 07/17/03 '04 $ 35 AEQ-MG $ 4.20 $ 4.80 +14.29% $38.50 '05 $ 35 ZAE-MG $ 7.20 $ 7.70 + 6.94% $38.50 '06 $ 35 WAE-MG $ 9.00 $ 9.40 + 4.44% $38.50 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 LEH 07/20/03 $68-69 JAN-2004 $ 65 LEH-MM JAN-2005 $ 65 ZHE-MM JAN-2006 $ 60 WHE-ML RIMM 07/20/03 $22-23 JAN-2004 $ 22 RUL-MX JAN-2005 $ 20 XRY-MD New Portfolio Plays ADBE - Adobe Systems $34.22 **Put Play** It seems we're developing a bit of a pattern here, as almost as soon as I can move a play onto the Watch List, we get handed a solid entry point. ADBE didn't quite get up to our $36 target last week, but Monday's sharply failed rally seemed good enough to me. After 3 more attempts to hold above $35, Thursday's decline back under that level and close under the 50-dma was too good to pass up. That was just in time to catch Friday's slide down to the $33.50 level and it could just be that we're off to the races. Keep in mind though that that the $32 support level is really going to be the key over the near term, as that is the site of the ascending trendline from the October and March lows. The decline off the early June highs already generated a Sell signal on the PnF chart, and that long column of O's gives a bearish vertical count of $21. There's plenty of room to fall and it looks like we got a decent entry as well. We're starting out with a fairly wide stop at $38.50, just above the June closing highs. BUY LEAP JAN-2004 $35 AEQ-MG $4.20 BUY LEAP JAN-2005 $35 ZAE-MG $7.20 BUY LEAP JAN-2006 $35 WAE-MG $9.00 New Watchlist Plays LEH - Lehman Brothers $65.18 **Put Play** I've had both GS and LEH listed as possible bearish plays on the Radar Screen for a couple weeks and I've finally had to concede that of the two, LEH is by far the weaker of the two stocks. While GS isn't too far below its recent highs, LEH has already retraced fully 50% of its rally from the March-June rally, breaking the $65 support level last Thursday and generating a new PnF Sell signal in the process. That column of O's now gives a tentative bearish price target of $58, and I find it interesting that $58 is also the site of the bullish support line. The rebound from just below the $64 level really comes as no surprise, as the stock just caught the expected rebound from the 50% retracement mentioned above. We'll be looking for an extension of this rebound back near the $68-69 area, and a rollover from there should make for a very nice entry for a ride down to our $58 target. One other thing to keep a sharp eye on is the Broker/Dealer index (XBD.X). This index has been VERY strong, breaking out to new 2-year highs recently. Critical support is now seen at $550 and critical resistance at $580. Regardless of price action in LEH, I do not feel that it would be wise to initiate new bearish positions if the XBD is able to move through that resistance at $580. As with several of our new bearish Watch List plays, you'll note that I'm not shooting for home runs right now, just looking to catch moderate sized moves and then get out. That's the way to win in this market environment, with strong trending moves likely to be scarce between now and Labor Day. BUY LEAP JAN-2004 $65 LEH-MM BUY LEAP JAN-2005 $65 ZHE-MM BUY LEAP JAN-2006 $60 WHE-ML RIMM - Research In Motion, Ltd. $21.14 **Put Play** We've been looking at shares of RIMM as a potential bearish play here for a couple weeks now, noting how the stock has been working higher in an ascending channel since early March. As mentioned here previously, we needed a breakdown out of that channel before ever considering a bearish play and we got that last week when the stock plunged below $22.20. Given the strong bullish trend leading up to that technical violation, I would have been very surprised to see a steep breakdown and sure enough, we got a slight rebound off of the $21 level last week as the 50-dma provided support. RIMM now needs to rebound back near the $22-23 area, test the bottom of the broken channel (now as resistance) and roll over near the site of either the 20-dma ($22.54) or the bottom of the channel. It should be clearly understood that this is a very aggressive bullish play, where I'm attempting to pick a top in a Technology stock that has been performing well lately. But with strong resistance at $23-24, weekly Stochastics turning bearish and the PnF bullish price target of $22 having already been achieved, I think we've got a nice setup for a downside play over the next couple months. I don't have any illusions about a large drop, as support is very likely near $18 and should be very strong at $16. We're playing for a fairly small move in terms of dollars, but when dealing with inexpensive options like we are here, such a move could still work out quite nicely. Unfortunately, RIMM doesn't have 2006 strikes available, but they should show up in the next week or so. Once they're released, we'll add them in. BUY LEAP JAN-2004 $22 RUL-MX BUY LEAP JAN-2005 $20 XRY-MD Drops AMGN - $71.54 As Hannibal used to say on the old TV Show 'The A Team', "I love it when a plan comes together. While I really had my doubts going in because of my overall negative bias for the market, AMGN delivered the goods. After letting us in just above $60, the stock maintained its steady ascent until clearing $67.50 and then it really took off. Last Tuesday, the stock hit the $72 level, which was both our target and the bullish price target from the PnF chart. Game over, time to harvest gains. I wish they all worked out this nicely, as after entry, AMGN just maintained its ascending trend and never even threatened our stop. The stock may continue higher from here, but I just can't justify trying to squeeze any more out of the play after the PnF price target has been achieved. ************************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 ************************************************************** ************** TRADERS CORNER ************** All Aboard! The Profit Train Is Back On Track By Mike Parnos, Investing With Attitude Last month the CPTI took a hit. This month we hit back for almost $2,000. The market cooperated reasonably well. We didn't have to make any significant adjustments during the life of our trades. It was almost as much fun as Kobe Bryant had in that Colorado hotel room. It was definitely safer. The Breakdown: SPX Iron Condor = +$1,620 LLTC Condor = +$950 DJX Bear Call Spread = (-$555) QQQ Baby Strangle = (-$50) Total: +$1,965 New Total Our new total, since we instituted the CPTI portfolio, bounced back up to a still impressive $23,500 in eight months. Feels good to be back in the green. Due to our conservative strategies, we sort of nibble around the edges of the market. Some traders contacted me boasting about how much they made in the last few months by buying calls on biotech stocks. I asked if they took their profits yet. "No, they're going higher," I was told. Mark my words, the euphoria will revert to depression in a few months. Meanwhile, we'll be plodding along, picking up a few thousand here and a few thousand there – sleeping well and ordering our pizzas with pepperoni and caviar. Here's a recap of our July trades. I always enjoy writing this part – well, almost always. _____________________________________________________________ JULY CPTI PORTFOLIO POSITION FINAL UPDATE July Position #1 – LLTC Baby Condor – Closed at $34.56 We sold 10 contracts of LLTC July $35 calls @ $1.05 and bought 10 contracts of LLTC July $37.50 calls @ $.45 for a net credit is $.60 Then we sold 10 contracts of LLTC July $30 puts @ $.75 and bought 10 contracts of LLTC July $27.50 puts @ $.40 for a net credit is $.35. Our total credit of $.95 and our risk was $1.55 ($2.50 - $.95). We created a maximum profit range of $30 to $35 and a safety range of $29.05 to $35.95. Maximum profit was $950. LLTC gave us a scare, but finished at 34.56 -- slightly below our short $35 call. We realized the full $950 profit. ______________________________________________________________ July Position #2 – SPX Iron Condor – Closed at $989.25 We sold 4 contracts of SPX July 940 puts and bought 4 contracts of SPX July 925 puts for a net credit: $1.50. Then we sold 4 contracts of SPX July 1025 calls and bought 4 contracts of SPX July 1040 calls for a net credit of $2.55. Our total credit was $4.05 while our risk was $10.95 ($15 - $4.05) The range was 940 to 1025. I reduced the number of contracts to four in order to reduce our exposure. Maximum profit was $1,620. The SPX closed comfortably in the range. The trading part is over. The official settlement price, as of Friday morning's opening, was 989.25. We realized the full profit of $1,620. ______________________________________________________________ July Position #3 – DJX – Bear Call Spread – Plus – 91.27 We established a bear call spread by selling 15 contracts of DJX July $90 calls @ $1.90 and buying 15 contracts of DJX July $92 calls @ $1.00. Net credit of $.90 X 15 contracts = $1,350 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. The DJX closed at 90.51 on Thursday -- BUT -- the DJX works the same way as the SPX. Therefore, we had to wait until the 30 DOW stocks open Friday morning before we could determine how we did. The DJX settlement open number was 91.27. Our breakeven point was 90.90. The result was that we lost $555 ($.37 x 1500) _____________________________________________________________ Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $31.18 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. Our objective was 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 was only $1.85 because we had $2.00 of intrinsic value. We sold the July $28 call for $3.80. We owned the July $30 put at a cost of $.05. The QQQs never reversed sufficiently to realize any profit on the July $30 put. It expired worthless and we lost $50. _________________________________________________________________ July Position #3 – RUT Iron Condor – Never Entered. _________________________________________________________________ Quickie Results: 1) SPX Iron Condor with a range of 965 to 1025 – Credit of $2.30 The SPX closed Thursday, it's last day of active trading, at 981.73. We had a nice cushion, but, as we learned last month, it "ain't over till the fat lady sings." And the "fat lady" sang Friday morning and the SPX opened at 989.25 – well within our range. Our profit was $1,150 – in a week. 2) QQQ Lottery Strangle – Bought the $31 put and $33 call – Cost of $.30 The QQQs closed today at $31.28. The NASDAQ closed down a whopping 50 points. During the day Thursday, the $31 puts could have been sold for $.20. We should have closed out the calls on Thursday, but we risked very little. Our loss was $300. 3) BBH Sell Strangle – with a range of $130 to $135 – Credit of $2.05 BBH closed today at $133.40 – comfortably inside our range. Our profit was $1,025 – for a week. Total Gain From July Quickies -- $1,875. It's interesting that our "one week" plays are often more profitable than the regular month-long plays in our regular portfolio. Hmmmm . . . maybe that's deserving of a little more attention. _________________________________________________________________ NEW AUGUST CPTI PORTFOLIO TRADES August Position #1 – BBH Iron Condor – Closed at $133.40 Let's sell 10 contracts of BBH August $125 puts @ $1.45 and buy 10 contracts of BBH August $120 puts @ $.80 for a net credit of $.60. Let's also sell 10 contracts of BBH August $140 calls @ $1.75 and buy 10 contracts of BBH August $145 calls @ $.85. We have a maximum profit range of $125 to $140 with a total credit of $1,550. Our risk is $3,450. August Position #2 – LLTC Sell Straddle – Closed at $34.40 We're going to sell 10 contracts of LLTC August $35 call @ $1.45 and sell 10 contracts of LLTC August $35 put @ $2.40 for a total credit of $3.45. Our maximum profit can be about $3,450 if LLTC finishes at $35. Our profit range is from $31.55 to $38.45. Our bail-out points are at the parameters of the profit range. August Position #3 – SPX Iron Condor – Closed at $993.32 This is a slightly more aggressive position than usual. Why? The range is smaller. Also, note the different number of contracts we use for the calls and the puts. We're going to sell 3 contracts of the SPX August 125 calls and buy 3 contracts of the August 150 calls for a net credit of $3.70 ($1,110). Then, we'll sell 6 contracts of the August SPX 960 puts and buy 6 contracts of the August SPX 950 puts for a net credit of $2.00 ($1,200). The total credit will be $2,310 – and that's our maximum profit. I reduced the number of contracts on the bear call spread because there's a $25 exposure. As of Friday's close, SPX did not have call strike prices between 1025 and 1050. If they did, we would have undoubted used some configuration using a higher short call. These figures, obviously, aren't etched in stone. There's a good possibility that the SPX will open up additional strike prices between the 1025 and 1050. Let this SPX bear-call spread position just be a guideline. Be prepared to adjust before putting on the position. A Good Start Let's start off with these three positions. Perhaps we'll add another later this week if something looks irresistible. Remember, that all the numbers will change on Monday's open. If you reasonably close to getting the premiums in the above position, the trades are still viable. ______________________________________________________________ Words of Wisdom So far I've had a few responses to my request for "words of wisdom" that you'd like to share. "Words of wisdom" can encompass almost anything – so don't be shy. Don't worry, I won't reveal you as the source. a) You know you're getting old when . . .you wake up with that morning-after feeling -- and you didn't do anything the night before. b) Why is a Laundromat a really bad place to pick up a woman? Because a woman who can't even afford a washing machine will probably never be able to support you. ______________________________________________________________ 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 ______________________________________________________________ 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 7/18/2003 This play did not work out the way I had expected. The net position of the Dow in relation to when we bought the spread is essentially the same and we are rapidly losing time value. I believe that the Dow is in the midst of a wave 4 correction. (See "Where is the Dow Going?" for a more detailed analysis.) I suspect that the Dow is as high as it is going to go for now and that it should reach the 8650 level soon. I am going to offer two alternatives. For the conservative trader, go ahead and sell the options and exit the play. For the more aggressive trader, sell the call options and hang on to the put options. As the Dow falls, the puts should increase in value and we may be able to exit this trade at a break even or better. 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 7/18/2003 are DJX – 91.88 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.35 2.60 0.56 14 Buy DJVUJ SEP 88 Put 1.40 1.60 -0.27 22 ---- ---- ------ 3.75 4.20 0.29 QQQ Chart: QQQ update 7/18/2003 Sometimes plays just work out great. The QQQ gapped open on Monday allowing us to buy back the July 37 option even cheaper. If you chose to not repurchase the option, then you are sitting on a profit. If you did chose to repurchase, then you are up about 0.10. The QQQ should continue to decline over the next week. If you do hold the Aug 03 37 puts, as the QQQs go lower, the spread will increase in value because the delta is now positive. Holders of just the Jan 04 31 puts will see higher profits as the the Aug 37 put will not be offsetting the gains of the Jan 04 31 puts. The QQQs should meander its way to 28. Hold. 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 7/18/2003 are QQQ – 31.28 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 2.70 2.80 -0.60 25 Sell 1 QQQSK Aug 03 37 Put 5.60 5.80 0.99 58 Liquidation 1: -0.40 + .50 = 0.10 BA Chart: BA update 7/18/2003 BA is continuing its wave 4 correction (down) on the daily chart. BA has reached the 40% retracement level but the oscillator indicates more of a correction is forthcoming. However, the hourly chart shows that BA is in the middle of a wave 4 correction (up) of the C wave. (Remember C waves are five wave basic patterns.) Expect BA to move up to about 34 before continuing down to about 31.50. At that point, we will buy back the Aug 30 call. 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 7/18/2003 are BA – 33.31 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAHF Aug 03 30 Call 3.40 3.60 -97 21 Buy 2 BAAU Jan 04 37.5 Call 1.10 1.25 32 24 Liquidation value: -1.40 + .40 = -1.00 T Chart: T update 7/18/2003 T appears to need one more small leg down to complete the five wave basic pattern of the 1 wave. It should then retrace to about 20.20 (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: $19.25 Pos Num Sym Strike Type Bid Ask Delta Vol OI Sell 1 TGC Aug 15 Call 4.20 4.50 96 25 70 Buy 2 TJX Oct 22.5 Call 0.45 0.55 24 15 10285 Credit: $310 ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould I went to school at the University of Illinois in Champaign- Urbana. In the main library was a wall devoted only to answering questions. Anyone could use a 3x5 card to submit a question. Someone, no one knew who, would then research the question and post an answer, usually within one or two days. One day I noticed my roommate used a rubber stamp to imprint his return address on an envelope. (This was in the days before the PC.) I thought that was a tremendous time saver and wanted one. However, I did not know where to get one. I did know where I could find out. I submitted a question on the question wall. I asked, "Where could I get a rubber stamp made?" The next day, a response was posted. It read, "Check the Yellow Pages under Rubber Stamps." Duh. I knew the answer to that, but sometimes it takes someone smacking you upside the head with the obvious answer to make you realize you just asked a dumb question. I called a buddy of mine, a fellow Elliottician, and asked him his estimation about the market. I wanted his opinion as to whether we were already done with the correction and were now entering a new five wave basic pattern up. He is convinced that the market is headed down a bit more. I told him that the pattern on the Dow is really not conclusive either way. Of course, he said, but look at the S&P. ** Smack ** The Dow and S&P 500 pretty much march in lock step. Oh, sure there are times when there are divergences, but if we were to overlay the Dow and S&P 500, we would see pretty much the same pattern. Chart: Dow Weekly since 1962 Chart: S&P 500 Weekly since 1962 (Note: The S&P 500 index started in 1962, hence the time frame.) It is rather clear from the chart that whatever one index does, the other one follows suit. Hence if the S&P 500 behaves in a particular way, then it is a pretty good bet that the Dow is going to follow. And vice versa. Since we are only interested in what has happened since the high of January 2000, let's zoom in on that timeframe. Chart: Dow Weekly since January 2000 to 7/18/2003 Chart: S&P 500 Weekly since January 2000 to 7/18/2003 A comparison of the above two charts leaves one wondering why the Dow is acting so erratically and the S&P 500 a little bit more predictably. Hard to say exactly, but I would speculate that with 500 stocks versus only 30, the S&P 500 would adhere more to the crowd behavior that Elliott Waves are so good at categorizing. Whatever the reason, the S&P 500 is behaving with more easily identifiable Elliott Waves than the Dow so let's take a moment to analyze it. Chart: S&P 500 Weekly since January 2000 to 7/18/2003 with indicators According to Advanced Get, and this seems reasonable, the S&P 500 is in a wave 4 retracement and is currently at about the 40% level. The oscillator is at about a 150% retracement. This is a little more than I would like to see but acceptable. The important thing to note is that the oscillator is turning. The S&P 500 target price by January 2005 is about 650. The wave 4 so far is tracing out a very nice A-B-C correction pattern. Remember that in an expanded flat, which is what this is looking like it is turning out to be, the C wave will be a five wave basic pattern. Looking a little closer at the C wave shows that it has a little bit further to go on the upside, most likely 1060-1080, before it should head down again. This pattern and the analysis is no where near as evident on the Dow. However, since the Dow and S&P 500 trade pretty much together, we can expect about the same behavior from the Dow. Chart: S&P 500 daily 7-18-2003 Short term, the S&P 500 looks to be in the midst of a wave 4 retracement of the final C wave. The oscillator is heading toward zero as the S&P 500 retraces to the 930 level. Applying the rule of alternation, this should be a more complex correction than the 2 wave. Advanced Get may have even labeled the top of the 3 wave incorrectly. It may be, in fact, the B wave in the in progress A- B-C correction. (see the Dow chart below) If this scenario pans out, look for the S&P 500 to fall to the 930 level over the next several weeks and then rise again possibly up to 1060-1080. At that point the weekly 4 wave will be complete and the S&P 500 will start its decline to 650. Chart: Dow 500 daily 7-18-2003 Short term, the Dow presents the same type of scenario, but I think just a bit clearer. It appears that the 4 wave is well underway. Advanced Get shows the 4 wave complete, but it is hard to visualize a nice A-B-C correction. I would say that we have an A wave (green lettering), a B wave and the start (waves i and ii) of a C wave. Expect the Dow to decline to the 8650 level before bouncing back to 9800. It will then start its decline to 6000. Bottom line, I am short term bearish the markets. I am expecting a bounce after which I will be long term bearish. ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-20-2003 Sunday 5 of 5 In Section Five: Covered Calls: Q&A With The Covered-Calls Editor Naked Puts: Success Basics Spreads/Straddles/Combos: Stocks Bounce Back As Traders Buy The Dip! Updated In The Site Tonight: Market Posture: Options Expire, Stocks Soar Higher ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* COVERED CALLS ************* Trading Basics: Q&A With The Covered-Calls Editor By Mark Wnetrzak The recent volatile activity in stocks has generated a difficult situation for one of our readers. Attn: Covered-Calls Editor Subject: Managing Losses Hello Mark, BCGI is getting creamed today. What is your suggestion for the covered call position from last weekend's section? Sincerely, Kevin S Regarding position management with covered-calls: Even though the in-the-money covered-call strategy offers less risk, it still requires a disciplined approach and sound money management techniques, as there is risk of loss in all trading. Covered-calls do hedge against downside movement, however they are not a remedy for protracted bearish activity, nor for catastrophic downside moves due to ill-timed news. Whether an investor exits a position or opts for an adjustment strategy will depend on their long-term outlook for the stock -- due diligence is mandatory! -- and their risk-reward tolerance. One must weigh the "cost" of remaining in a position, often times locking-in a (albeit smaller) loss, versus exiting the position; preserving capital for those positions with a higher probability of success. This is a very difficult decision that only you can make. Regarding Covered-call Adjustments: Generally, if you are defensive and trying to lower your cost basis in your covered-call position, you would roll down and/or forward. If this is done before expiration, you would need to buy back your current “sold” calls, which should be relatively cheap. An investor who remains bullish in the long-term will do this to protect for short-term weakness, but ultimately, he expects the stock to recover. Usually, you will have to move forward several months or use LEAPS in order to obtain a credit in the new position. Of course, in the case of a catastrophic drop in price, the best that can be accomplished is to lock-in a loss (until expiration), which would still be less than the current loss, "if" the stock doesn't drop further. A "ratio-call" spread can also be used as a repair technique for long-term covered call stocks that have slumped in the recent market. The goal is to allow the stock owner to lower the break-even price while significantly increasing the profit potential through the addition of a bull-call spread. The idea is to buy an equivalent amount of calls as one owns in shares of stock so that twice as many "covered" calls can be sold: half the short calls are covered by the original stock position while the other half are obligated in a "bull-call" spread. As in all repair strategies, a bullish outlook is retained for the underlying issue and the investor must believe that the "bearishness" is temporary or of a short-term nature. Also, it is very important to completely understand any strategy or adjustment technique you intend to use -- YOU are the only one who can decide what is right for your portfolio! -- and the ability to manage losses is paramount to long-term success. Larry McMillan's book, Options as a Strategic Investment, has some great information on covered calls. The book is a great resource, covering all aspects of the covered-write strategy and it should be available in the OIN bookstore or your local library. Hope this helps, Mark W. Editor's Note: Additional BCGI remarks in the summary below. 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 5.52 JUL 5.00 0.60 0.30* 13.9% IBIS 7.95 9.27 JUL 7.50 0.85 0.40* 8.2% SUPG 5.86 5.18 JUL 5.00 1.20 0.34* 7.9% BEAV 2.69 2.78 JUL 2.50 0.35 0.16* 5.9% CNET 5.71 6.83 JUL 5.00 0.90 0.19* 5.7% AMR 11.32 10.59 JUL 10.00 1.70 0.38* 5.7% WEBX 13.90 15.19 JUL 12.50 2.10 0.70* 5.2% GP 18.96 19.52 JUL 17.50 2.05 0.59* 5.1% RSYS 13.00 14.51 JUL 12.50 1.05 0.55* 5.0% BLUD 22.02 20.57 JUL 20.00 2.85 0.83* 4.7% OVRL 20.68 20.37 JUL 20.00 1.50 0.82* 4.6% MTON 5.60 5.19 JUL 5.00 0.90 0.30* 4.6% ASIA 5.75 10.01 JUL 5.00 1.00 0.25* 4.6% CYBX 24.04 23.38 JUL 22.50 2.00 0.46* 4.5% WEBX 14.45 15.19 JUL 12.50 2.45 0.50* 4.5% LEXR 10.85 12.76 JUL 10.00 1.05 0.20* 4.4% EDS 21.99 22.46 JUL 20.00 3.00 1.01* 3.9% IMMU 6.91 6.25 JUL 5.00 2.15 0.24* 3.7% ASIA 5.97 10.01 JUL 5.00 1.15 0.18* 2.7% MHR 8.11 7.37 JUL 7.50 0.95 0.21 2.5% RHAT 8.27 7.17 JUL 7.50 1.20 0.10 1.0% USG 19.95 14.55 JUL 15.00 5.40 0.00 0.0% USG 19.57 14.55 JUL 15.00 4.90 -0.12 0.0% Q 5.23 4.60 JUL 5.00 0.50 -0.13 0.0% OI 13.91 11.94 JUL 12.50 1.75 -0.22 0.0% BCGI 17.70 12.59 JUL 15.00 3.10 -0.75+ 0.0% INET 5.08 5.25 AUG 5.00 0.45 0.37* 6.9% SSTI 5.47 5.00 AUG 5.00 0.75 0.28 5.2% CHINA 13.48 13.40 AUG 10.00 4.00 0.52* 4.8% CY 13.84 12.53 AUG 12.50 1.95 0.61* 4.5% STEL 8.25 7.48 AUG 7.50 1.10 0.33 4.0% RFMD 5.89 6.19 AUG 5.00 1.15 0.26* 4.0% INSP 15.52 14.96 AUG 15.00 1.20 0.64 3.9% BCGI 20.02 12.59 AUG 17.50 3.30 -2.90+ 0.0% * Stock price is above the sold striking price. Comments: The major averages managed to eek out a positive gain for the week, mainly with the help of Friday's option-expiration rally. Next week should be interesting as the bullish momentum is showing some signs of waning. The covered-call portfolio did fairly well though one issue experienced a rather drastic drop. Boston Communications (NASDAQ:BCGI) was hammered on Thursday after the company said that Verizon Communications (NYSE:VZ), which provides over half of BCGI's revenue, "may" try to create its own internal prepaid platform in 2004 and reduce or eliminate the need for BCGI. The stock traded above $14 for the first 30 minutes on Thursday and an exit during that time would have allowed the losses noted above in the summary. Anyone still in the August position will have a very difficult decision to make as the cost basis in the issue, after buying back the calls (for a quarter?), should be around $17.00. Rolling-forward and down doesn't offer much help and will be a long and tedious process. The July position, with a cost basis around $14.70, offers a slightly better prospect at a "break-even" exit using a DEC-12.50 call, providing the stock doesn't drop further. Next week, we will show the position closed. A few of the Asian internet stocks acted a bit worrisome this week as their parabolic moves came under pressure and should be monitored closely. So, besides Chinadotcom (NASDAQ:CHINA), our August watch list will include: SSTI, CY, STEL and INSP. Positions Previously Closed: Quest Software (NASDAQ:QSFT), Mirant (NYSE:MIR), Siebel Systems (NASDAQ:SEBL), Shaw Group (NYSE:SGR), 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 BEAS 12.79 AUG 12.50 BUC HV 1.00 6157 11.79 28 6.5% CYBX 23.38 AUG 20.00 QAJ HD 4.40 37 18.98 28 5.8% AW 12.55 AUG 12.50 AW HV 0.60 65 11.95 28 5.0% DRIV 21.98 AUG 20.00 DQI HD 2.80 122 19.18 28 4.6% THOR 16.35 AUG 15.00 TQU HC 1.95 173 14.40 28 4.5% EXTR 5.75 AUG 5.00 EXJ HA 0.95 2665 4.80 28 4.5% ANEN 10.75 AUG 10.00 EVB HB 1.10 27 9.65 28 3.9% 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). ***** BEAS - BEA Systems $12.79 *** A Merrill Lynch Boost *** BEA Systems (NASDAQ:BEAS) is an application infrastructure software provider. The company's WebLogic Enterprise Platform includes BEA WebLogic Server, a standards-based application server that serves as a platform for deployment and integration of enterprise-scale applications and Web services; BEA WebLogic Integration, a standards-based platform for workflow, application integration, Web services and business-to-business integration; BEA WebLogic Portal, a sophisticated rules-based infrastructure for rich user interfaces to a wide variety of enterprise data, and BEA WebLogic Workshop, an easy-to-use framework for development and deployment of Web services and Java-based applications. Also included as integral parts of the product line are BEA WebLogic JRockit, a flexible Java Virtual Machine, BEA Tuxedo, a multi-language enterprise platform for enterprise applications and BEA Liquid Data for WebLogic, a tool for simplifying access and aggregation of distributed information. Merrill Lynch upgraded coverage of BEAS on Wednesday to a "buy" and added the stock to the their "Focus One" list with a price target of $15. The friendly nudge by Merrill launched BEAS above its near-term resistance of $12.20, which should now provide support. Investors who agree with the Merrill Lynch outlook can gain a favorable cost basis in the issue with this position. Earnings are due in August. AUG-12.50 BUC HV LB=1.00 OI=6157 CB=11.79 DE=28 TY=6.5% ***** CYBX - Cyberonics $23.38 *** Waiting On The Results *** 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. Cyberonics intends to announce the results from its depression pivotal study causality analysis plan on Wednesday, July 23, before the market opens. Investors can speculate on the results with this position, which offers a cost basis near strong technical support. AUG-20.00 QAJ HD LB=4.40 OI=37 CB=18.98 DE=28 TY=5.8% ***** AW - Allied Waste $12.55 *** On The Move! *** Allied Waste Industries (NYSE:AW) is a non-hazardous solid waste management company in the U.S. The company provides collection, transfer, recycling and disposal services for approximately 10 million residential, commercial and industrial customers. The company operates as a vertically integrated company, which entails picking up waste from businesses and residences and disposing of that waste in its own landfills to the extent that it is economically feasible. The company serves its customers through a network of 340 collection companies, 175 transfer stations, 169 active landfills and 66 recycling facilities in 118 major markets within 39 states. With earnings due on July 31, Allied Waste has been rallying on strong volume since the April low and the recent move above the highs in DEC and JAN suggests further upside potential. Investors who agree with the bullish outlook can "target shoot" an entry point in the stock with this position. AUG-12.50 AW HV LB=0.60 OI=65 CB=11.95 DE=28 TY=5.0% ***** DRIV - Digital River $21.98 *** Rally Mode *** 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. On Wednesday, Digital River reported earnings showing a revenue increase of 18% to $22.8 million from last year. We simply favor the move to a new two-year high and investors who believe the rally will continue can speculate on that outcome with this conservative position. AUG-20.00 DQI HD LB=2.80 OI=122 CB=19.18 DE=28 TY=4.6% ***** THOR - Thoratec $16.35 *** Rally Mode: Part II *** Thoratec (NASDAQ:THOR) offers 2 complementary circulatory support product lines, the Thoratec Ventricular Assist Device system (VAD system), an external device for short- to mid-term cardiac support, and the HeartMate Left Ventricular Assist system (HeartMate), an internal device for longer-term cardiac support. In addition to its cardiac assist products, the company offers vascular access grafts used in hemodialysis for patients with end-stage renal disease. The company is also developing a small-diameter access graft for use in coronary artery bypass graft surgery. Thoratec also sells whole-blood coagulation testing equipment for use in bedside anticoagulation management, coagulation screening and skin incision devices for the drawing of blood from adult, children and infant patients. With Thoratec due to report earnings on July 22, we simply favor the bullish technicals and our position offers a conservative method to participate in the future movement of the issue with a cost basis closer to support. AUG-15.00 TQU HC LB=1.95 OI=173 CB=14.40 DE=28 TY=4.5% ***** EXTR - Extreme Networks $5.75 *** Bottom Fishing *** Extreme (NASDAQ:EXTR) is a provider of network infrastructure equipment for corporate, government, education and healthcare enterprises and metropolitan service providers. Its Layer 3 Summit, BlackDiamond and Alpine products share the same common hardware architecture and operating system, enabling businesses to build a network infrastructure that is simple, easy to manage and scalable to meet the demands of future growth. The company's other products include ExtremeWare Software, and Infrastructure and Services Management. Extreme jumped sharply on Friday after the company reported earnings and forecast a stronger future. The company has been forming a Stage I base for almost a year and recent technical signals suggest a bullish future. This position offers reasonable speculation with a cost basis near recent buying support. Target shooting a lower net-debit should offer a better potential yield and lower costs basis. AUG-5.00 EXJ HA LB=0.95 OI=2665 CB=4.80 DE=28 TY=4.5% ***** ANEN - Anaren $10.75 *** Bottom Fishing: Part II *** Anaren (NASDAQ:ANEN) is a provider of microwave components and assemblies for wireless and satellite communications and the defense electronics markets. Through its focused research and development efforts, Anaren has designed and continues to design components and subsystems that enable high speed wireless access to the Internet and other broadband wireless applications, as well as advanced radar and receiver applications for defense electronics subsystem applications. In addition, the company is developing and producing a diverse set of products and technologies to support the latest generation of wireless communications systems. The company's customer base includes global OEMs that serve the wireless, satellite and defense electronics markets, including, Ericsson, Lucent Technologies and Nokia. Anaren has been consolidating for over a year and recently moved above a resistance area around $10.00. With earnings due in August, investors can speculate on the near-term performance of the issue with this position. AUG-10.00 EVB HB LB=1.10 OI=27 CB=9.65 DE=28 TY=3.9% ***** ***************** 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 CHTR 5.13 AUG 5.00 CUJ HA 0.55 1568 4.58 28 10.0% LEXR 12.76 AUG 12.50 EQG HV 1.15 667 11.61 28 8.3% ABGX 13.01 AUG 12.50 AZG HV 1.35 537 11.66 28 7.8% PVN 10.22 AUG 10.00 PVN HB 0.80 2251 9.42 28 6.7% VIRL 10.43 AUG 10.00 UVB HB 1.00 67 9.43 28 6.6% CERN 30.20 AUG 30.00 CQN HF 1.85 218 28.35 28 6.3% GLFD 5.09 AUG 5.00 GQF HA 0.35 384 4.74 28 6.0% GIVN 12.90 AUG 12.50 QPG HV 1.05 361 11.85 28 6.0% RMBS 18.70 AUG 17.50 BNQ HW 2.10 4461 16.60 28 5.9% ATYT 10.76 AUG 10.00 QFY HB 1.25 3152 9.51 28 5.6% IMCO 6.02 AUG 5.00 IQZ HA 1.25 39 4.77 28 5.2% PLCM 15.42 AUG 15.00 QHD HC 1.10 1637 14.32 28 5.2% MKSI 21.66 AUG 20.00 QQB HD 2.45 29 19.21 28 4.5% CTIC 11.01 AUG 10.00 CUC HB 1.40 896 9.61 28 4.4% SLNK 16.22 AUG 15.00 SXU HC 1.75 16 14.47 28 4.0% ***************** NAKED PUT SECTION ***************** Options 101: Success Basics By Ray Cummins One of our readers asked for some help with strategy selection and additional information on option trading fundamentals. Attn: Questions@OptionInvestor.com Subject: Trading Strategies Greetings, I recently started the trial subscription and I am overwhelmed by the amount of information available on your website. I was hoping to learn the basics of trading through your service but it seems as if most of the information is geared towards more experienced readers. Could you please recommend some links or books that will help with the fundamentals of options and the best strategies for new traders. Thanks Much! PI Regarding Trading Strategies and Fundamentals: The wonderful thing about option trading is its diversity. There are an incredible number of strategies available, one for every type of market trend, character and outlook. Positions involving combinations of calls and puts, with different strike prices and expiration months, along with index and futures options, offer the astute trader a variety of ways to participate in the market. This assortment provides even the most conservative investor the ability to construct positions with an acceptable level of risk and reward in almost any situation. The primary requirement for profitable trading is the ability to achieve reasonable returns and control risk effectively. For this reason, a trader without specific goals and a loss-limiting system is certain to fail in the long-run. A very careful and deliberate approach to strategy selection is the first step in the process. After the principal techniques have been identified, it is crucial to execute them with discipline and consistency. Discipline in option trading is the ability to maintain one’s self-control and implement the pre-determined plan. The most difficult skill that traders must learn is the ability to overcome human (emotional) impulses. When real money is at stake, the influences of greed and fear (of loss) will attempt to sway your judgment, hindering a rational thought process. If you can not overcome these effects, the chances of success are slim. In fact, that is the primary reason it is so important to utilize strategies that promote a mechanical approach to trading. Techniques that offer little opportunity for indecision generally provide more consistent returns and they are exposed to far less risk than those with a high level of maintenance. Indeed, the secret to success in any form of trading is to have a systematic strategy: a plan of attack. The options market is unique because it offers a variety of different ways to profit however, the risk can often be significant. The easiest way to limit or control the potential for loss is to devise and follow a specific process or set of rules. The structure of this system will require a variety of profitable strategies along with the knowledge to implement and manage them correctly and consistently. Profitable trading strategies have a number of common traits; well defined principles, ease of execution and flexibility. However, the most important characteristic for the majority of investors is asset preservation. In the options market, the successful systems are generally those which employ sound defensive measures. The ability to protect and conserve portfolio capital, while achieving consistent returns is a fundamental requirement of any profitable technique. Fortunately, numerous option-trading strategies satisfy this criteria and our goal at the OIN is to help novice investors learn how to utilize the wide variety of trading techniques and provide them with the tools necessary to profit on a regular basis. For basic option trading information, visit the CBOE's educational website: http://www.cboe.com/LearnCenter/ or the learning center at the Options Clearing Corporation: http://www.theocc.com/learning_center/opt_ed/get_started.jsp Some of the most popular books among option traders are: McMillan on Options, and Profit with Options: Essential Methods for Investing, both by Lawrence McMillan; The Option Advantage, and The New Option Secret by David Caplan; Option Volatility and Pricing Strategies, by Sheldon Natenberg; The Complete Option Player, by Ken Trester; How I Trade Options, by Jon Najarian, and The Options Course, by George Fontanills. All of these books are available in the OIN's online bookstore. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield GNTA 14.21 12.32 JUL 10.00 0.50 0.50* 4.6% 13.0% CBST 12.95 11.29 JUL 10.00 0.40 0.40* 3.6% 11.6% FWHT 20.33 21.47 JUL 17.50 0.45 0.45* 3.8% 11.3% SINA 23.53 29.02 JUL 20.00 0.30 0.30* 3.3% 10.5% CDWC 48.30 47.91 JUL 45.00 0.80 0.80* 3.9% 10.3% FWHT 19.14 21.47 JUL 15.00 0.40 0.40* 3.0% 10.3% ADVS 17.74 16.89 JUL 15.00 0.45 0.45* 3.4% 10.2% KMRT 25.20 24.25 JUL 20.00 0.50 0.50* 2.8% 9.8% MERQ 41.34 41.08 JUL 37.50 0.50 0.50* 2.9% 8.2% AVID 38.99 44.23 JUL 35.00 0.45 0.45* 2.8% 8.1% OIIM 16.49 17.00 JUL 15.00 0.30 0.30* 3.0% 8.0% CHKP 19.94 19.80 JUL 17.50 0.40 0.40* 2.5% 7.3% ISIL 26.48 25.30 JUL 22.50 0.35 0.35* 2.3% 7.3% AMLN 25.45 22.89 JUL 20.00 0.45 0.45* 2.0% 7.1% SNDK 41.20 54.98 JUL 32.50 0.40 0.40* 1.8% 6.7% NTE 14.00 17.94 JUL 11.63 0.10 0.10* 1.9% 6.4% ** MEDI 37.71 39.43 JUL 30.00 0.60 0.60* 1.8% 6.4% MCHP 24.86 24.46 JUL 22.50 0.35 0.35* 2.3% 6.4% AAII 20.10 20.74 JUL 17.50 0.25 0.25* 2.1% 6.4% SOHU 32.45 40.90 JUL 22.50 0.50 0.50* 2.0% 6.2% CTSH 24.25 27.53 JUL 20.00 0.40 0.40* 1.8% 5.9% PLMD 42.59 36.28 JUL 35.00 0.50 0.50* 1.6% 5.5% NTES 33.70 38.83 JUL 25.00 0.45 0.45* 1.6% 5.4% CVTX 34.43 32.25 JUL 25.00 0.45 0.45* 1.6% 5.3% YHOO 32.14 29.90 JUL 27.50 0.40 0.40* 1.6% 5.0% JCOM 45.95 48.41 JUL 37.50 0.35 0.35* 1.4% 4.9% AVCT 31.21 27.00 JUL 27.50 0.70 0.20 0.8% 2.3% AVCT 30.97 27.00 JUL 27.50 0.40 -0.10 0.0% 0.0% ALGN 13.38 11.35 AUG 10.00 0.35 0.35* 3.2% 10.1% BLUD 23.10 20.57 AUG 20.00 0.65 0.65* 2.9% 8.3% CYBX 23.72 23.38 AUG 20.00 0.60 0.60* 2.7% 8.2% MSTR 43.68 41.00 AUG 35.00 0.75 0.75* 1.9% 6.8% NFLX 26.49 24.15 AUG 20.00 0.35 0.35* 1.5% 5.4% DRIV 23.05 21.98 AUG 17.50 0.30 0.30* 1.5% 5.3% SNDK 48.18 54.98 AUG 37.50 0.60 0.60* 1.4% 5.1% MRVL 38.10 35.32 AUG 32.50 0.60 0.60* 1.6% 5.1% * Stock price is above the sold striking price. ** Adjusted for a 3-1 split Comments: Friday's "technical bounce" ended another great month for bullish option traders and the upside activity did much to bolster the success of the Naked Puts section. Only one position finished the expiration period negative and looking forward, most of the issues in the portfolio have weathered the past week's "sell-off" relatively well. The only play on the early-exit list is Immucor (NASDAQ:BLUD), which tanked after the company reported slightly lower-than-expected quarterly earnings and cut the top end of its outlook for fiscal 2004. Conservative investors should consider closing this position unless they absolutely want to own the stock for the long-term. Issues on the "watch" list include Marvell Technology Group (NASDAQ:MRVL), Netflix (NASDAQ:NFLX), and Align Tech (NASDAQ:ALGN). 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 LEXR 12.76 AUG 10.00 EQG TB 0.30 316 9.70 28 3.4% 11.4% SOHU 40.90 AUG 35.00 UZK TG 1.20 864 33.80 28 3.9% 11.2% SNDK 54.98 AUG 42.50 SWQ TS 0.70 694 41.80 28 1.8% 6.5% RDC 23.43 AUG 22.50 RDC TX 0.45 206 22.05 28 2.2% 5.5% TRN 21.93 AUG 20.00 TRN TD 0.35 300 19.65 28 1.9% 5.3% SHPGY 22.05 AUG 20.00 UGH TD 0.35 295 19.65 28 1.9% 5.3% CELG 32.18 AUG 25.00 LQH TE 0.30 591 24.70 28 1.3% 4.8% BJS 38.34 AUG 35.00 BJS TG 0.45 493 34.55 28 1.4% 3.9% 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). ***** LEXR - Lexar Media $12.76 *** Solid Earnings! *** Lexar Media (NASDAQ:LEXR) designs, develops and markets high performance flash cards and connectivity products marketed as "digital film" to the digital photography market, as well as to other markets utilizing portable digital storage media for the capture and retrieval of digital content. The firm's digital film products enable customers to capture digital images and download them to a personal computer for editing, distributing and printing. Lexar Media offers flash cards in the five major media formats used by digital cameras and other electronic devices: CompactFlash, Memory Stick, SmartMedia, Secure Digital Card and MultiMedia Card. Last week, Lexar Media posted net income that more than tripled from the same period last year, beating consensus earnings expectations due to strong demand for digital camera equipment. Lexar also boosted its full-year net income goal to $0.34 a share, up from analyst expectations of $0.30, and investors who agree with a bullish outlook for the company can speculate on its future share value with this position. AUG-10.00 EQG TB LB=0.30 OI=316 CB=9.70 DE=28 TY=3.4% MY=11.4% ***** SOHU - Sohu.com $40.90 *** Testing All-Time Highs! *** Sohu.com (NASDAQ:SOHU) is an Internet portal in China. The firm's portal consists of sophisticated Chinese language Web navigational and search capabilities, 15 main content channels, Internet-based communications and community services, and a unique platform for e-commerce and short messaging services. Each of the company's interest-specific main channels contains multi-level sub-channels that cover a range of topics; news, business, entertainment, sports and careers. The firm also offers free Web-based e-mail. Sohu.com offers a universal registration system, and the company's portal attracts consumers and merchants alike. One of the key features is a proprietary Web navigational and search capabilities that reflects the cultural characteristics and thinking and viewing habits of the People's Republic of China Internet users. Internet use is growing exponentially among foreign countries and China enjoys the largest population in the world. The inflated demand is reflected in the value of all of the "china-dot-com" stocks and investors who want to participate in the country's Internet explosion should consider this position. AUG-35.00 UZK TG LB=1.20 OI=864 CB=33.80 DE=28 TY=3.9% MY=11.2% ***** SNDK - SanDisk $54.98 *** Pure Premium-Selling! *** 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. Sandisk shares moved to a multi-year high last week after reporting lofty second-quarter profits as sales grew substantially. The results far exceeded Wall Street estimates and although the stock is a bit overbought, the option premiums offer a reasonable risk/reward outlook for aggressive put-writers. AUG-42.50 SWQ TS LB=0.70 OI=694 CB=41.80 DE=28 TY=1.8% MY=6.5% ***** RDC - Rowan Companies $23.43 *** Hot Sector! *** Rowan Companies (NYSE:RDC) is a provider of international and domestic contract drilling and aviation services. Rowan also operates, through LeTourneau, a subsidiary of the company, a mini-steel mill, a manufacturing facility that produces heavy equipment for the mining, timber and transportation industries and a drilling products company that has designed and/or built one-third of all mobile offshore jack-up drilling rigs. Rowan provides contract drilling services utilizing a fleet of 22 self-elevating mobile offshore drilling platforms (jack-up rigs), one mobile offshore floating platform (semi-submersible rig) and 18 land drilling rigs. Shares of oil service companies soared Friday and RDC has one of the better looking charts in the group. Traders who think the "rally has legs" can profit from continued upside activity in the sector with this position. AUG-22.50 RDC TX LB=0.45 OI=206 CB=22.05 DE=28 TY=2.2% MY=5.5% ***** TRN - Trinity Industries $21.93 *** Transport Sector Hedge! *** Trinity Industries (NYSE:TRN) is engaged in the manufacture, sale and leasing of a variety of products and services for the transport, industrial, construction and energy sectors of the marketplace. The rail group manufactures and sells railcars and component parts. The construction products group manufactures and sells highway guardrail and safety products, concrete and aggregate, girders and beams. The inland barge group manufactures and sells barges and related products for inland waterway services. The industrial products group makes and sells container heads and pressure and non-pressure containers for the storage and transportation of liquefied gases and other liquid and dry products. The railcar leasing and management services group provides services such as fleet management and leasing. The company also has an all other segment that includes its captive insurance and transportation companies, structural towers and other peripheral businesses. Shares of TRN have enjoyed a spike in buying pressure over the last two weeks and the outlook for this industrial firm appears fundamentally sound. Investors who wouldn't mind owning a stock in the transport group can establish a reasonable cost basis in the issue with this position. AUG-20.00 TRN TD LB=0.35 OI=300 CB=19.65 DE=28 TY=1.9% MY=5.3% ***** SHPGY - Shire Pharmaceuticals $22.05 *** On The Rebound! *** Shire Pharmaceuticals Group plc (NASDAQ:SHPGY) is an emerging global pharmaceutical company with a strategic focus on four therapeutic areas: central nervous system disorders, gastro intestinal, oncology and anti-infectives. The firm has sales and marketing subsidiaries with a large portfolio of products targeting the United States, Canada, the United Kingdom, the Republic of Ireland, France, Germany, Italy and Spain. Shire also covers other significant pharmaceutical markets indirectly through distributors. It operates and manages its businesses within three individual operating segments: United States, International and Global Research and Development. Shire is an old favorite among pharmaceutical sector investors and it appears that the stock is finally in "recovery" mode. Traders who like the risk/reward outlook for the issue from the current levels can speculate on a continued rebound in its share value with this position. AUG-20.00 UGH TD LB=0.35 OI=295 CB=19.65 DE=28 TY=1.9% MY=5.3% ***** CELG - Celgene $32.18 *** Entry Point? *** Celgene (NASDAQ:CELG) is a biopharmaceutical company engaged in the discovery, development and commercialization of novel therapies designed to treat cancer and immunological diseases through regulation of cellular, genomic and proteomic targets. The company has 3 major commercial-stage programs: Thalomid, Focalin (d-MPH) and cellular therapeutics. Thalomid is its lead product and was approved for sale in the United States in 1998. Thalomid is being evaluated in clinical trials for the treatment of solid tumor and hematological cancers, as well as serious inflammatory diseases. CELG also has a preclinical and clinical stage pipeline of new drug candidates and cell therapies, highlighted by a range of classes of small molecule, orally administered therapeutic agents. Earnings for Celgene are due next week and traders who are bullish on the company's future can use this position to establish an entry point in the stock with a basis near $25. AUG-25.00 LQH TE LB=0.30 OI=591 CB=24.70 DE=28 TY=1.3% MY=4.8% ***** BJS - BJ Services Company $38.34 *** A Big Day! *** BJ Services Company (NYSE:BJS) is a provider of pressure pumping and oilfield services serving the petroleum industry worldwide. The company's pressure pumping services consist of cementing and stimulation services used in the completion of new oil and gas wells and in remedial work on existing wells, both onshore and offshore. Other oilfield services include completion products and tools, completion fluids and tubular services provided to the oil and gas exploration and production industry, commissioning and inspection services provided to refineries, pipelines and offshore platforms, as well as specialty chemical services. In 2002, the company acquired OSCA, a completion services (pressure pumping), completion tools and completion fluids company with operations primarily in the Gulf of Mexico, Brazil and Venezuela. Shares of BJS soared Friday amid a buying frenzy in the oil service segment and the recent technical indications suggest the issue may be experiencing a trend reversal. Traders who think the stock will continue its upward momentum should target an entry point with a slightly higher premium ($0.50 or more) for the sold put to allow for a brief consolidation from Friday's rally. AUG-35.00 BJS TG LB=0.45 OI=493 CB=34.55 DE=28 TY=1.4% MY=3.9% ***** ***************** 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 MOGN 26.91 AUG 22.50 QOG TX 0.95 137 21.55 28 4.8% 14.1% ACLS 8.00 AUG 7.50 ULS TU 0.30 16 7.20 28 4.5% 10.9% ZRAN 23.99 AUG 20.00 ZUO TD 0.60 68 19.40 28 3.4% 10.5% JCOM 48.41 AUG 40.00 JQF TH 0.95 395 39.05 28 2.6% 8.7% BRCM 25.56 AUG 20.00 RCQ TD 0.40 4007 19.60 28 2.2% 7.9% POWI 25.66 AUG 22.50 QPW TX 0.55 55 21.95 28 2.7% 7.8% AVID 44.23 AUG 40.00 AQI TH 1.00 31 39.00 28 2.8% 7.5% WEBX 15.19 AUG 12.50 UWB TV 0.25 79 12.25 28 2.2% 7.5% WBSN 19.99 AUG 17.50 DQH TW 0.40 12 17.10 28 2.5% 7.4% SINA 29.02 AUG 20.00 NOQ TD 0.40 765 19.60 28 2.2% 7.0% BRKS 16.69 AUG 15.00 BQE TC 0.30 50 14.70 28 2.2% 6.2% NSCN 25.26 AUG 22.50 QKN TX 0.35 34 22.15 28 1.7% 4.9% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Stocks Bounce Back As Traders Buy The Dip! By Ray Cummins Microsoft and McDonalds led a broad recovery Friday with the software giant posting favorable earnings while the fast-food giant received an upgrade from a popular investment brokerage. The blue-chip Dow Jones industrial average advanced 137 points to 9,188 amid strength in McDonald's (NYSE:MCD), which was the target of an upgrade from Bear Stearns. The tech-laced NASDAQ Composite index finished up 10 points at 1,708 after Microsoft (NASDAQ:MSFT) posted a 26% rise in net profit and boosted its revenue forecast for its fiscal year. The broader Standard & Poor's 500-stock index added 11 points to end at 993 as buying pressure emerged in oil & gas services, electronic manufacturing, restaurant, steel, specialty retail, aluminum, and insurance companies. Trading volume was moderate with 1.4 billion shares swapping hands on the New York Stock Exchange while 1.6 billion shares were crossed on the NASDAQ. Advancers paced decliners by a 2 to 1 ratio on the Big Board and by 3 to 2 on the technology exchange. In the U.S. Treasury market, the benchmark 10-year note slid 20/32 to a price of 96-31/32, while its yield rose to 4.00% from Thursday's close of 3.98%. ***************** 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 78.99 JUL 65 70 0.50 69.50 $0.50 Closed ERTS 72.35 76.42 JUL 60 65 0.55 64.45 $0.55 Closed UNH 48.93 52.44 JUL 42 45 0.60 44.40 $0.60 Closed PRX 49.16 56.70 JUL 40 45 0.60 44.40 $0.60 Closed WLP 86.87 81.69 JUL 75 80 0.60 79.40 $0.60 Closed GILD 53.75 66.52 JUL 45 47 0.30 47.20 $0.30 Closed JCOM 44.35 48.41 JUL 30 35 0.60 34.40 $0.60 Closed MRK 62.59 61.77 JUL 55 60 0.50 59.50 $0.50 Closed EBAY 102.36 110.11 JUL 90 95 0.35 94.65 $0.35 Closed UNH 50.22 52.44 JUL 45 47 0.30 47.20 $0.30 Closed YHOO 34.85 29.90 AUG 27 30 0.25 29.75 $0.15 Closed IRF 28.00 28.00 AUG 22 25 0.25 24.75 $0.25 Open MER 49.25 52.74 AUG 42 45 0.25 44.75 $0.25 Open EBAY 113.07 110.11 AUG 95 100 0.50 99.50 $0.50 Open GENZ 44.02 48.01 AUG 35 37 0.20 37.30 $0.20 Open MEDI 39.01 39.43 AUG 32 35 0.25 34.75 $0.25 Open SYMC 45.65 43.81 AUG 35 40 0.55 39.45 $0.55 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The position in Biogen (NASDAQ:BGEN), although previously closed, ended profitably. Yahoo! (NASDAQ:YHOO) has been closed to limit potential losses. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status APC 44.46 44.42 JUL 50 47 0.40 47.90 $0.40 Closed FNM 68.55 66.77 JUL 80 75 0.60 75.60 $0.60 Closed LOW 44.15 47.03 JUL 50 47 0.30 47.80 $0.30 Closed BZH 87.00 79.05 JUL 100 95 0.75 95.75 $0.75 Closed HOV 62.12 52.65 JUL 75 70 0.65 70.65 $0.65 Closed IBM 84.92 83.72 JUL 95 90 0.45 90.45 $0.45 Closed IGEN 31.60 33.89 JUL 37 35 0.35 35.35 $0.35 Closed MHK 56.56 66.39 JUL 65 60 0.45 60.45 ($2.10) Closed * OEX 491.61 501.50 JUL 520 515 0.40 515.40 $0.40 Closed ACS 45.06 43.90 AUG 55 50 0.65 50.65 $0.65 Open BBBY 38.59 38.56 AUG 45 42 0.35 42.85 $0.35 Open MMM 128.28 130.18 AUG 140 135 0.70 135.70 $0.70 Open CI 44.49 41.11 AUG 55 50 0.30 50.30 $0.30 No Play ICUI 27.90 24.00 AUG 35 30 0.60 30.60 $0.60 Open PG 88.56 89.80 AUG 95 90 1.25 91.25 $1.25 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss The big surprise this week was the sudden rally in Mohawk (NYSE:MHK), which occurred a day after the carpet maker said its second-quarter earnings "matched" year-ago results, beating analysts' expectations. The news did not seem extraordinarily bullish but the stock reacted as if the company had announced a 4-for-1 split and a $10 dividend. In any case, there was little opportunity to exit the position in a timely manner, thus we closed for a loss during Thursday's session and the summary reflects the cost to exit the spread at that time. Bearish positions in Kohl's (NYSE:KSS) and Guidant (NYSE:GDT) have previously been closed to limit losses. The bearish spread in Cigna (NYSE:CI) was not available near the target credit and Proctor & Gamble (NYSE:PG) is now on the "watch" list. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status NBIX 56.84 53.70 JUL 45 50 4.25 49.25 0.75 Closed GILD 53.81 66.52 JUL 45 47 2.20 47.20 0.30 Closed BSTE 48.96 55.01 JUL 40 45 4.50 44.50 0.50 Closed EBAY 110.02 110.11 AUG 95 100 4.60 99.60 0.40 Closed TECD 31.03 29.28 AUG 25 30 4.20 29.20 0.08 Open? LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss It appears we picked a bad time to speculate on Tech Data as the issue was downgraded by two different brokerages after the recent rally. Conservative traders should consider closing the position on any further downside movement. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status INTU 46.13 40.62 JUL 55 50 4.50 50.50 0.50 Closed 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 35.49 JUL 37 30 0.10 1.25 Closed ESI 29.63 36.70 OCT 35 25 0.15 3.30 Open? ITT Educational Services (NYSE:ESI) was the top play of the month with an outstanding $3.30 potential gain for speculative traders. The position in Qualcomm (NASDAQ:QCOM) also achieved favorable profits. The Shaw Group (NYSE:SGR) position has previously been closed to limit losses. 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 19.80 OCT-20C JUL-20C 0.10 1.50 Open GDT 39.98 49.40 OCT-45C JUL-45C 0.80 2.20 Closed SRNA 19.71 19.97 AUG-22C JUL-22C 0.45 0.90 Closed BEAS 11.08 12.79 SEP-12C JUL-12C 0.65 1.00 Open IR 47.95 49.41 SEP-50C JUL-50C 1.20 1.60 Open OVER 18.24 22.85 NOV-20C JUL-20C 1.90 2.10 Closed ADTN 55.69 49.50 AUG-60C JUL-60C 1.40 1.60 Closed ARTI 24.32 21.15 SEP-25C JUL-25C 1.60 1.65 Open NSCN 24.18 25.26 SEP-25C JUL-25C 1.60 1.70 Open GP 19.25 19.52 OCT-20C JUL-20C 1.60 1.70 Open MSFT 27.31 26.89 JAN-27C JUL-27C 1.80 1.90 Open Closed positions in Broadcom (NASDAQ:BRCM), Electronic Data Systems (NYSE:EDS), National Semiconductor (NYSE:NSM), McData (NASDAQ:MCDT), Verity (NASDAQ:VRTY), and Viacom (NYSE:VIA) have previously offered profitable opportunities. 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 19.13 JUL 17.5 17.5 1.80 2.70 Closed BAC 80.01 83.15 JUL 80 80 2.40 5.00 Closed CVTX 35.37 32.25 JUL 35 35 2.00 3.30 Closed RJR 36.19 36.65 AUG 37.5 35.0 3.15 3.70 Open? DG 18.64 18.28 AUG 20 17.5 1.20 1.30 Closed? MBI 50.24 50.76 AUG 50 50 5.20 5.00 Closed? BSX 60.00 57.55 AUG 60 60 7.00 7.30 Open AIG 55.69 60.02 AUG 55 55 4.90 5.60 Open FRE 50.00 51.94 AUG 50 50 5.10 6.25 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 hit the target exit point in less than one week, as did Core Therapeutics (NASDAQ:CVTX). Dollar General (NYSE:DG) and MBIA Inc. (NYSE:MBI) are now on the "early-exit" list. Questions & comments on spreads/combos to Contact Support ************************* OPTION-TRADING STRATEGIES ************************* Controlling Risk With Options The only thing that a trader can really control is the risks associated with a particular strategy. I will attempt to address some of the more creative ways to hedge or limit risk when involved in the markets. One basic strategy is the married put play. This involves buying stock and at the same time, purchasing one put option for every 100 shares of stock. We are able to quantify the risk in this trade until the option expires. The risk is the difference between the stock purchase price and the strike price on the option plus the premium paid for the option. This sounds complicated, but is very easy to figure. At or before expiration, you can sell the stock and option, buy a new option to control risk or if the put is in the money, you can exercise the option and this will sell the stock at your strike price. If the option expires worthless, you will have to raise your cost of the stock by the amount of the premium paid for the put options. A quick example may help to clarify this example. If we buy 100 shares of XYZ at $30 a share and one Aug 30 put for 1 point, at expiration our cost on the stock will now be 31. This assumes that the put expires worthless. Also, it should be noted that our maximum risk on the trade is only $1 per share. I will mention that after the put option expires, we will have to sell the stock or purchase another put if we wish to hedge our position. Failure to do so will open our exposure to the total cost of the stock purchased, until we sell the stock or purchase another put option. The married put strategy will allow the trader to quantify and control the risks associated with the outright purchase of stock. We will be able to sleep at night and not worry about items outside of our control or outside the control of the company. The brokers at One Stop Option can work with you to personally help you develop a strategy that you are comfortable with. We have the experience to help you choose the proper option to limit your risk while at the same time allowing the greatest possibility for profit. Please feel free to call and inquire about how we could enhance your investment choices and determine the proper strategies for your risk tolerance. Andrew Aronson VP Investments One Stop Option (888) 281-9569 (312) 528-3315 Andrew Aronson and Alan Knuckman have rejoined the OIN team with a great service for option traders. Andrew and Alan are experienced option principles, as well as long-time OIN associates, and they recently started a specialty brokerage for derivatives traders. Their personal service will enable traders to be more confident, comfortable and successful with options. They will also help novice market players learn the "right" way to trade options with education and coaching for maximum portfolio performance. Alan and Andrew's expertise is a resource that will easily pay for itself thorough timely executions and the piece of mind that comes from someone watching your trades throughout the day. The commission rates are comparable to discount brokers but you get to speak directly with option professionals, not customer service clerks. Clients can call them directly to review positions and update orders and they also offer "auto-trading" for many of the plays in the newsletter. OneStopOption Strengths: * Dedicated option brokerage with "live" option principals/brokers * Order routing to "best-priced" exchange and timely executions * All types of orders (stop/limit/OCO) to encourage disciplined trading and proper money management * Advanced option trading level approval for inexperienced traders * Foreign accounts including Canada -- Futures trading available * Direct electronic trading and personalized customer services * Ability to filter recommendations and provide strategy advice * Free OIN subscription for those who qualify (based on account size and portfolio activity) Get Execution, Education, and Option Experience at OneStopOption Visit their new site -- www.onestopoption.com -- or send an E-mail to: Aaronson@OptionInvestor.com ************* 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. ***** CCMP - Cabot Microelectronics $57.61 *** Up-Trend Intact? *** Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to planarize or flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. Planarization is a polishing process that levels, smoothes, and removes the excess material from the surfaces of these layers. CMP slurries are liquid formulations that facilitate and enhance this polishing process and generally contain engineered abrasives and proprietary chemicals. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. CCMP - Cabot Microelectronics $57.61 PLAY (less conservative - bullish/credit spread): BUY PUT AUG-45.00 UKR-TI OI=491 ASK=$0.35 SELL PUT AUG-50.00 UKR-TJ OI=197 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$49.45 ***** GILD - Gilead Sciences $66.52 *** A Rally With No End? *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $66.52 PLAY (less conservative - bullish/credit spread): BUY PUT AUG-55.00 GDQ-TK OI=1697 ASK=$0.45 SELL PUT AUG-60.00 GDQ-TL OI=942 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$59.45 ***** SII - Smith International $37.87 *** A Big Day! *** Smith International (NYSE:SII) is a worldwide supplier of premium products and services to the oil-gas exploration and production industry, the petrochemical industry and other industrial markets. The company provides a range of technologically-advanced products and engineering services, including drilling and completion fluid systems, solids-control equipment, waste-management services, three-cone and diamond drill bits, fishing services, drilling tools, underreamers, casing exit and multilateral systems, packers and liner hangers. The company also offers supply-chain management solutions through an extensive network providing pipe, valve, tool, safety and maintenance products. SII - Smith International $37.87 PLAY (conservative - bullish/credit spread): BUY PUT AUG-32.50 SII-TZ OI=1189 ASK=$0.25 SELL PUT AUG-35.00 SII-TG OI=231 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$34.75 ***** BRL - Barr Labs $59.25 *** Sell-Off In Progress! *** Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical firm primarily engaged in the development, manufacture and marketing of generic and proprietary prescription pharmaceuticals. The company manufactures and distributes over 100 different dosage forms and strengths of pharmaceutical products in core therapeutic categories, including oncology, female healthcare including many hormone replacement and oral contraceptives, cardiovascular anti -infectives and psychotherapeutics. In addition, the company has a proprietary, novel vaginal ring drug delivery system it is using to develop products intended to address a variety of female health issues and unmet medical needs. BRL - Barr Labs $59.25 PLAY (conservative - bearish/credit spread): BUY CALL AUG-70.00 BRL-HN OI=2057 ASK=$0.35 SELL CALL AUG-65.00 BRL-HM OI=559 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$65.50 ***** BGEN - Biogen $40.05 *** A Brief Biotech Burnout? *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human healthcare. The firm derives revenues from sales of its Avonex (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis (MS) and from royalties on worldwide sales by its licensees of a number of products covered under patents it controls. In addition, Biogen has a number of ongoing research programs and a pipeline of development-stage products, the furthest along of which, Amevive (alefacept), is being considered for approval by the United States Food and Drug Administration and regulatory authorities in the European Union and Canada for the treatment of moderate to severe psoriasis. BGEN - Biogen $40.05 PLAY (less conservative - bearish/credit spread): BUY CALL AUG-47.50 BGQ-HW OI=882 ASK=$0.35 SELL CALL AUG-45.00 BGQ-HI OI=12546 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$45.30 ***** NVLS - Novellus Systems $35.70 *** Premium-Selling Only! *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $35.70 PLAY (less conservative - bearish/credit spread): BUY CALL AUG-42.50 NLQ-HA OI=2116 A=$0.30 SELL CALL AUG-40.00 NLQ-HH OI=3287 B=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$40.30 ************* 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. ***** LXK - Lexmark $73.50 *** Trading Range? *** Lexmark International (NYSE:LXK) is a leading developer, maker and supplier of printing solutions, including laser and inkjet printers, multifunction printing products, associated supplies and services, for offices and homes in more than 150 countries. Lexmark delivers high-powered solutions, services and supplies that meet or exceed the needs of customers ranging from the small office to the large corporate enterprise. Years of industry leadership, coupled with a close relationship with its customers, allows Lexmark to develop high-quality, easy-to-use business products and services. LXK - Lexmark $73.50 PLAY (speculative - bearish/debit spread): BUY PUT AUG-85.00 LXK-TQ OI=92 ASK=$12.10 SELL PUT AUG-80.00 LXK-TP OI=636 BID=$7.70 INITIAL NET-DEBIT TARGET=$4.30-$4.35 POTENTIAL PROFIT(max)=15% B/E=$80.65 **************** 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. ***** NE - Noble Corporation $34.86 *** Sector Recovery? *** Noble Corporation (NYSE:NE) is a provider of diversified services to the oil and gas industry. The firm performs contract drilling services with a fleet of 49 offshore drilling units located in key markets worldwide. Its fleet of floating deepwater units consists of nine semisubmersibles and three dynamically positioned drillships, seven of which are designed to operate in water depths greater than 5,000 feet. Its premium fleet of 34 independent leg, cantilever jack-up rigs includes 21 units that operate in depths of 300 feet and greater, four of which operate in depths of 360 feet and greater, and 11 units that operate in depths up to 250 feet. Its fleet also includes three submersible drilling units. Over 60% of the fleet is deployed in global markets, principally the North Sea, Brazil, West Africa, the Middle East, India and Mexico. The firm also provides labor contract drilling services, site and project management services, and engineering services. NE - Noble Corporation $34.86 PLAY (speculative - bullish/calendar spread): BUY CALL DEC-37.50 NE-LU OI=64 ASK=$1.80 SELL CALL AUG-37.50 NE-HU OI=74 BID=$0.30 INITIAL NET DEBIT TARGET=$1.40-$1.45 INITIAL TARGET PROFIT=$0.55-$0.80 ***** ING - ING Groep N.V. $19.07 *** Trading Range? *** ING Groep N.V. (NYSE:ING) is a global financial institution that offers banking, insurance and asset management to approximately 60 million clients in 60 countries. The clients are individuals, families, small businesses, large corporations, institutions and governments. The company is comprised of various businesses that increasingly serve their clients under the ING brand. It primarily offers retail and wholesale financial services. On the retail side, the strategy focuses on retail wealth accumulation and financial protection (retail banking, asset management, asset gathering, life insurance and pensions) and private banking, supported by a unique multi-product, multi-channel distribution approach. This is a very flexible mix of Internet, call centers, intermediaries and branches that enables ING to deliver unlimited access, maximum convenience, immediate and accurate execution, personal advice, tailor-made solutions and competitive rates. ING - ING Groep N.V. $19.07 PLAY (conservative - bullish/calendar spread): BUY CALL JAN-20.00 ING-AD OI=20 ASK=$1.15 SELL CALL AUG-20.00 ING-HD OI=845 BID=$0.30 INITIAL NET DEBIT TARGET=$0.75-$0.80 INITIAL TARGET PROFIT=$0.45-$0.70 ***** ************************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 ************** Options Expire, Stocks Soar Higher To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/MP_072003.asp ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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