The Option Investor Newsletter Wednesday 07-30-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: "A notch" Futures Wrap: Watching the grass grow Index Trader Wrap: See Note Weekly Fund Family Profile: Brown Brothers Harriman ("BBH") Funds Traders Corner: The Good, The Bad and The Ugly Futures Corner: Performance Report Part 3 Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 07-30-2003 High Low Volume Advance/Decline DJIA 9200.05 - 4.41 9236.54 9164.97 1.64 bln 628/ 960 NASDAQ 1720.91 - 10.46 1733.40 1717.07 1.52 bln 502/ 994 S&P 100 497.29 - 0.56 499.80 496.19 Totals 1130/1954 S&P 500 987.49 - 1.79 992.62 985.96 RUS 2000 472.80 - 0.80 474.23 470.93 DJ TRANS 2606.22 - 12.15 2620.52 2598.15 VIX 20.72 + 0.49 21.06 20.54 VXN 30.86 + 0.70 31.42 30.86 Total Volume 3,342M Total UpVol 1,163M Total DnVol 2,096M 52wk Highs 435 52wk Lows 58 TRIN 1.38 PUT/CALL 0.80 ******************************************************************* "A notch" Jonathan Levinson The markets closed lower by a notch, while the summary of the Fed's Beige Book found that the economy edged higher by a notch. 20 day 30 minute INDU The Dow closed lower by all of 4 points, while the COMPX dropped 10. The narrowing pennant formations are setting the markets up for a big move in either direction, and with a plethora of economic data commencing tomorrow, the break could come at any time. 20 day 30 minute COMPX The Energy Department reported that U.S. crude inventories rose by 1 million barrels to 277.3 million for the week ended July 25, while the American Petroleum Institute reported a 400,000 barrel decline to 276.6 million barrels. In either case, analysts got it wrong, expecting a larger increase. Gasoline inventories fell by 3.3 barrels to 204.5 million barrels according to the Energy Department, while the API reported a 2.1 million barrel drop to 206.3 million barrels. The big news, however, was the most recent set of data concerning mortgage and refi activity. The Mortgage Bankers Association (MBA) announced that seasonally- adjusted demand for mortgage refinancings, the MBA refinancing index, dropped 32.9% for the week ended July 24. Demand for loans with which to buy homes, the Purchase index, dropped 3.5% following last week's 1.1% loss. The Application index dropped 24.9%. The average interest rate for a 30-year fixed rate mortgage rose to 5.87% from 5.72%. As I have been discussing for the past several weeks in our Wednesday market wraps, this trend poses significant risks to the economy and to the market, as the liquidity generated by debt origination has been providing fuel with which to support the financial system. Further more, the rapid rise in interest rates comes against the backdrop posted below. I won't rehash this material, and strongly encourage you to review recent Wednesday market wraps for a more detailed discussion. Here are some highlights: Chart of Total Consumer Credit Chart of Unemployment Rate Chart of US Bankruptcy Filings Chart of State and Local Surplus or Deficit Against this backdrop, GE CEO Jeff Immelt made statements in an interview worth repeating (and attributing to him). Note that GE owns CNBC, on which channel the interview took place: "I'm pretty optimistic. It is not that every thing is perfect. I still see the U.S. on a slow economic growth trend. I don't see anything negative as I look at the economy today..." Photo of Jeff Immelt I beg to differ, and while charts are always open to interpretation, those posted above appear pretty unequivocal. The quote was released last night in a Reuters story at 7:05PM. One would be hard pressed to find a clearer example of manifest editorial bias. The President spoke today and was optimistic about the economy, saying that he expected his tax cut package to stimulate productivity and job growth. "There's still work to do, but I'm optimistic about the future and I believe you'll see more jobs created and that will be good for the country," he said. Regarding the deficit: "We would have had deficits with or without tax cuts for this reason: the slowdown in the economy, the decline in the stock market starting March of 2000, plus the recession, reduced the amount of revenues coming into the federal Treasury." Donald Grimes, economist at the University of Michigan's Institute of Labor and Industrial Relations, released a study today noting that U.S. economic recovery since the end of the recession in November 2001 has been substantially more drawn-out than the recovery period of the early 1990s. "The current jobless recovery has lasted nearly twice as long and has resulted in three times as many job losses compared to the economic recovery in 1991-92. While most people would attribute the continued weakness to job losses in information technology industries, states that have suffered the greatest during the post-recession period are not technology-based states, but are industrial states in the Midwest," he said. Grimes noted that California, home of the tech revolution, saw significantly greater job losses in the early '90s than it has since 2000. Rather than rehash the debt and money supply situation, with which material we should by now be thoroughly familiar, the following is a longer term view of the markets we follow. I'm hoping to gain some perspective on the recent market action, particularly as the treasury and commodity markets continue to diverge from equities during weeks past. SPX 33 year monthly The long term Nasdaq and S&P 500 charts speak for themselves. Note that the unwinding of the tech bubble brought the COMPX to a 76.4% retracement off its alltime high, while the SPX stopped at the 50% line. COMPX 33 year monthly The weekly charts reflect the toppiness that we've been following for weeks in the tri-weekly Sentiment Wraps. SPX 3 year weekly COMPX 3 year weekly Noteworthy is that bond yields have recently rallied very strongly, bonds selling off sharply with no corresponding action in either direction from equities which have drifted mostly sideways during that time. Recall that bonds and stocks rallied together through most of this year, and so the recent action from the larger treasury market is so far baffling. My interpretation is that the selloff in treasuries has yet to reach equities, but I can think of arguments on the other side as well. Ten year note yield 3 year weekly The strong uptrend in gold does not bode well for equities, in my opinion. Note that the weekly chart of the Dec '03 contract reveals a continuation pennant forming so far. Gold 3 year weekly The Federal Reserve Board's Beige Book was released at 2PM EST, and caused a brief stir of buying for a few minutes. The report found that the U.S. economy is showing some signs of improvement, with 8 out of 12 districts reporting "somewhat stronger growth." The manufacturing sector looked stronger with Philadelphia and Richmond and calling an end to the downturn in production, though goods prices throughout the country still appeared soft. The report noted the jump in automobile inventories in June and July. Overall, the report noted that economic activity had picked up "a notch." There are no doubt windowless offices filled with harried quants attempting to discern what percentage of GDP corresponds to "a notch". The inability of the report to spark more that a fleeting bid no doubt owes itself to the more negative "hard" data we've been following, including initial and continuing jobless claims, the current account deficit, the CPI and the PPI. Statements like "inflation remains tame" and "consumer spending is lackluster" did nothing to rally bonds, contrary to what one might otherwise have expected. The markets all but ignored the Beige Book, but what I find to be most interesting is its reflection of the Fed's view on current and ongoing economic conditions. The full report can be accessed at As Jeff Bailey noted in the 3:15 Market Update, "The word that showed up most often was "mixed" and as one subscriber has pointed out in the past, where I use quotation marks too frequently and perhaps improperly, we can envision the late Chris Farley in a Saturday Night Live skit using his fingers to signify quotation marks around today's release of the Fed Beige Book Data, which contains little hard data points..." The bottom line is that the Fed pulled out the stops quite some time ago. The more than tripling of the money supply inside of 15 years, the lowering of rates to 45 year lows, the aggressive ongoing daily intervention via Fed repo agreements, all indicate a Fed increasingly open to exercising strong measures, while the charts on unemployment, state budgets, personal borrowing and bankruptcies tell a sad tale of the failure of those measures so far. It is my sincere hope that the optimistic "mixed" story in the Beige Book and in the mainstream financial media's spin thereon is both well-founded and an indication of brighter times to come. However, in light of the proliferation of "hard" data to the contrary and the new threats posed by rising rates, a weak dollar, and the other factors discussed above, the Fed's Beige Book sounds more like the placative tone of an airline steward than an objective report of the current and future conditions facing us. In other news, the Investment Company Institute reported that net inflows into stock funds totaled $18.7 billion in June, topping $11.9 billion of inflows during May. This data follows over 1 year of mostly negative inflows since March 2002. Trimtabs is estimating that the trend will continue, projecting inflows of $8.5 billion for this month. We have the following economic data due tomorrow: Report Briefing Market Prior Expects Expects Jul 31 8:30 AM Chain Deflator-Adv. Q2 - 1.0% 1.4% 2.4% Jul 31 8:30 AM Employment Cost Index Q2 - 0.9% 1.0% 1.3% Jul 31 8:30 AM GDP-Adv. Q2 - 1.5% 1.5% 1.4% Jul 31 8:30 AM Initial Claims 07/26 - 410K 400K 386K Jul 31 10:00 AM Chicago PMI Jul - 53.0 53.8 52.5 Jul 31 10:00 AM Help-Wanted Index Jun - 37 37 36 Today's session gave us an inside day following a very light week for economic data. Tomorrow and Friday are much heavier, and with tension building with today's price compression within what is proving to be a persistent trading range, the stage is set for a big move either way. If this year has taught us anything, it's patience and open-mindedness. The markets could blast to the upside as easily to the downside, although I personally find the latter to be the more likely outcome. With the indices just below their year highs, volatility very low and beginning to climb, bullish percents toppy and bears hesitant to go short, the downside appears for the moment to be the path of lesser resistance. We'll keep close on our stops in case The Great Humiliator disagrees. See you at the bell! ************ FUTURES WRAP ************ Watching the grass grow Jonathan Levinson Today's inside day was treacherous for traders who grew impatient, decreasingly so as the session wore on, for the simple reason that the range was narrowing into a wedge. Treasuries rallied back to their descending trendline but did not seriously challenge it, and gold sold off to just above support. Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 998 992 988 982 978 YM03U 9279 9228 9184 9133 9089 NQ03U 1288 1277 1269 1258 1250 10 minute chart of the US Dollar Index The US Dollar Index climbed throughout the session, reaching 96.19 as of this writing. The action was predictably bearish for gold, silver and the precious metals indices, and shaved .95 off the Commodities Index. Daily chart of August gold August gold gapped down and never looked back. The move was sufficient to cause the oscillators to pause in their ongoing upphases, but it's going to take a break below 354 to cause them to abort. Daily chart of the ten year note yield The rally in treasuries today didn't change much on the daily chart, particularly with the bullish hammer close on the ten year note yield, as yields bounced off their intraday lows following the Beige Book release. Given the strength and persistence of this uptrend, and the fact that today's action coincided with a net 2.25B addition from the Fed via two successive repos, I am far from convinced that the selling in bonds is finished. Daily NQ candles There's little way to render today's action on the Nasdaq or other futures interesting, as we posted an inside day across the equity futures, with a higher low and lower high printed for all three contracts. In every case, the long term trendlines held, and no fresh signals were printed. 30 minute 20 day chart of the NQ The NQ remains on weak sell signals on the 30 minute chart, but with the multitude of economic data scheduled for tomorrow, those could be reduced within minutes. Daily ES candles The ES weakened as well, only in this case, below rather than above its daily trendline. 20 day 30 minute chart of the ES The lower trendline on this bear flag/ pennant looms ever closer below, and today's intraday low of 984 was picture-perfect. Once again, we have weakening sell signals, open to either reversal or continuation, depending on how tomorrow's data is received. Daily YM candles Same picture on the YM, with today's price action compressed into a pennant within a broader range. The clichi "anything can happen" unfortunately applies. 20 day 30 minute chart of the YM The action in treasuries and gold were both strong countertrend moves which felt stronger than they were. A continuation of today's moves into tomorrow's session could change that considerably, as a move below 354 on GC3Q and 4.2% on the TNX could represent trend changes. Equities continue to feel toppy, and I continue to feel bearish, and if not for the lessons of the spring rally, I'd be feeling bearish with greater abandon. We note the QQQ put to call ratio of almost 7 from yesterday's Sentiment Wrap, which a reader and I both thought at first to be erroneous. That many puts is good for strong support under the market, as their writers have every incentive to keep the price levitated to expire them worthless. Nevertheless, the put to call ratio can also be signaling the beginning of a large move, as the savvier options market positions itself. As always, these conjectures will be settled by the price. Trade carefully tonight and tomorrow, as today's inside day is setting us up for a busy session. ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_073003_1.asp ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ************************** WEEKLY FUND FAMILY PROFILE ************************** Brown Brothers Harriman ("BBH") Funds The BBH Funds are a family of mutual funds managed Brown Brothers Harriman, America's oldest and largest partnership (private) bank with roots dating back to 1818. Brown Brothers & Company started nearly 200 years ago as an importer of Irish linen and then later entered the banking business by way of its success as a dry-goods merchant. In 1843, Brown Brothers moved their New York office to Wall Street and expanded into shipping and banking. Meanwhile, in the late 1800s E.H. Harriman was taking significant ownership positions in U.S. railroads. In 1931, Brown Brothers & Company combined with two Harriman family firms and created Brown Brothers Harriman. The combined entity shifted its emphasis from investment banking, to commercial banking and investment advisory services. In 1990, Brown Brothers Harriman made their foray into the world of mutual funds, launching the BBH European Equity Fund (BBEEX). Today, the BBH Funds managed by Brown Brothers Harriman offer ten mutual funds with different investment objectives and risk-reward tradeoffs to meet the range of investor goals, time horizons, and tolerances for risk. Typically, the BBH Funds require a $100,000 minimum initial investment to open a regular account, but the BBH Funds are also offered on a no-load NTF basis through a number of leading NTF fund networks, including the Dreyfus LION NTF, Schwab Retail OneSource, Fidelity Retail FundsNetwork, and TD Waterhouse Retail NTF programs. For more information, or to download a fund prospectus, go to the Brown Brothers Harriman website at www.bbh.com. Fund Overview While there are 10 BBH Funds to choose from, only six are offered on a no-load NTF basis through Schwab's retail NTF network, which are also the same six funds included in Morningstar's mutual fund database. The BBH Broad Market Fund (BBBMX) was launched in July 2000, but couldn't be found in Morningstar's system, so we'll use the BBH website for fund information there. Below is a summary of the 10 Brown Brothers Harriman mutual funds sorted into two broad groups: equity funds and fixed income funds (including money market funds). BBH Equity Funds: BBH Tax-Efficient Equity Fund (BBTEX), Large-Cap Core BBH International Equity Fund (BBHEX), Large-Cap Core/Growth BBH European Equity Fund (BBEEX), Large-Cap Core/Growth BBH Pacific Basin Equity Fund (BBPBX), Large-Cap Core BBH Fixed Income Funds: BBH Broad Market Fund (BBBMX), Corporate Debt (BBB-Rated) BBH Inflation-Indexed Fund (BBHIX), Intermediate Treasury BBH Tax-Free Short/Intermediate (BBTFX), Short-Term Muni BBH Money Market Fund (N/a), BBH U.S. Treasury Money Market Fund (N/a) BBH Tax-Exempt Money Market Fund (N/a) If you toss out the three BBH money market funds, you're talking about seven stock and bond funds to select from, including three international stock funds, one domestic stock fund and three U.S. bond funds. At $101 million in assets, BBH International Equity Fund is the largest of the four stock portfolios. BBH Inflation- Indexed Securities Fund, at $384 million, is the family's largest fixed income fund. The BBH Tax-Free Short-Intermediate Fund also has over $100 million in assets, per Morningstar. BBH Tax-Efficient Equity Fund (BBTEX) seeks to provide investors with tax-efficient long-term capital growth while also producing current income. The fund's profile says that its style/strategy may best be characterized as a "core fundamental" approach, with primary emphasis given to "bottom-up" stock selection. The main focus here is on large-sized and medium-sized companies that are globally competitive, and have strong business models and market positions. Both Lipper and Morningstar put the fund in the core (blend) style box and in the large-cap sector overall. The BBH International Equity Fund (BBHEX) seeks long-term growth of capital through investments primarily in the common stocks of foreign-based companies. It generally invests over 80% of total assets in stocks of non-U.S./Canadian companies in the developed markets of the world. The BBH website states that while foreign markets do offer strong growth potential, they're generally less stable (more volatile) than the U.S. market. Break the non-U.S. market into its two main components, European and Pacific stocks, and you have two fund siblings, BBH European Equity Fund and BBH Pacific Basin Equity Fund. The firm's most successful mutual fund based on fund assets, BBH Inflation-Indexed Securities Fund (BBHIX), seeks a high level of current income, consistent with minimum share price fluctuations and the maintenance of liquidity. It invests principally in U.S. government securities that are indexed to inflation; therefore, offering protection against inflation. Return performance over time has matched the return of its benchmark, the Salomon Smith Barney Inflation-Linked Securities Index. Debt maturities tend to fall in the intermediate-term range overall. BBH Broad Market Fund (BBBMX) is a general bond fund that seeks to maximize total return consistent with preservation of capital and prudent investment management. It seeks to enhance yield by investing a small but significant portion of assets in mid-grade corporate bonds (A-rated, BBB-rated) and foreign debt securities. Lipper calls it a corporate debt BBB-rated fund; Morningstar has no report for the BBH Broad Market Fund. The $104 million BBH Tax-Free Short/Intermediate Fund (BBTFX) is a short-term muni bond fund that seeks to provide current income consistent with a conservative bond fund strategy that minimizes share price fluctuations and maintains liquidity. Its benchmark is the Lehman Brothers 3-Year Muni Bond Index. At May 31, 2003, the fund's portfolio had an average credit quality of AAA and an average effective duration of 2.3 years, per Morningstar. A 12- month yield of 2.69% increases the fund's appeal. In the next section, we see how these BBH funds have performed in relation to their index benchmarks and fund category peers. Fund Performance BBH Tax-Efficient Equity Fund (BBTEX), Brown Brothers Harriman's only domestic stock fund product, is currently up 11.4% on a YTD basis through July 29, 2003, ranking in the third quartile of the Morningstar large-blend category and lagging the S&P 500 index by two full percentage points. In 1999, the fund's first full year, investors were treated to a 25.1% annual return, but from 2000 to 2002, the fund's annual fund losses were higher than both the S&P index and category average. The result is disappointing relative returns on a trailing 3-year annualized basis. Relative to other large-cap blend funds, Morningstar rates BBB Tax-Efficient Equity Fund just two stars, reflecting sub-par returns and above-average risk. Brown Brothers Harriman's three international stock funds haven't performed strongly either compared with fund category peers. BBH International Equity Fund (BBHEX) is rated 3 stars by Morningstar for risk-adjusted returns in the foreign stock category. That is based on average relative returns and below-average risk relative to category peers. The International Equity portfolio is up just 7.7% through July 29, trailing the MSCI EAFE index benchmark by a wide margin (by 5.7%) and ranking in the category's bottom decile (92nd percentile). The fund's trailing 5-year annualized loss of 4.5% is a full percentage point more than the MSCI EAFE benchmark and bad enough to rank in the third quartile of the foreign stock category, per Morningstar. BBH Inflation-Index Securities Fund (see chart above) has put up the strongest, most consistent returns relative to similar funds. However, as you can see, the inflation-indexed sector of the bond market has been hit hard in recent weeks as investors become more concerned about the threat of rising rates. Morningstar rates it five stars (highest) for risk-adjusted returns in relation to its category peers (i.e. intermediate-term government bond funds) but the rating looks in the rear-view mirror. Over the past 4 weeks, BBH Inflation-Indexed Securities Fund has fallen 4.1%, ranking in the 95th percentile in the intermediate-government bond category, per Morningstar. If you're concerned about rising interest rates, the BBH Tax-Free Short/Intermediate Fund will likely be less sensitive to interest rate movements than its intermediate-government sibling but since it invests in municipal debt securities, the portfolio may not be suitable for taxable bond investors. Conclusion Brown Brothers Harriman, like other banks and insurance companies made their foray into the mutual fund business in the 80s and 90s and since then have built up their mutual fund lineup. BBH Funds now consist of 10 mutual funds with different objectives and risk profiles. While Brown Brothers Harriman does a decent enough job of managing portfolio risk relative to similar funds, performance has been average (at best). BBH Inflation-Indexed Fund's returns have ranked in the top decile of the intermediate-term government category, but recent losses are a harbinger of things to come (in the event of rising rates). Some say the bull bond market may be over, others say we're in the late innings. Either way, this may not be the best time to consider an inflation-indexed product for investment, unless you are more worried about inflation than rate hikes. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ************** TRADERS CORNER ************** The Good, The Bad and The Ugly by Mark Phillips mphillips@OptionInvestor.com After a brief hiatus to clear my mind of some other topics that had been bouncing around in there in recent weeks, I think it's time for us to get back to the business of discussing the approach I've settled on for trading the e-mini index futures. Judging by the volume of email requests I've received over the past week, many of you are ready for me to get back on track with this discussion. We've covered many of the basic issues, along with my overall framework for making my entry/exit decisions in some of the foregoing discussion, and last time we discussed this topic, I showed the results of a rather successful trading day. My hope for the next installment was to show more of a contrast, because as we all know, showing winning trades one after the other doesn't really help anyone. We need to see how a given approach will perform in favorable and unfavorable conditions. Fortunately for our purposes, this week has already delivered plenty of both. As I've mentioned with each succeeding installment in this series, readers just joining us will need to catch up on what went before, using the links provided below. The Case For Futures http://www.OptionInvestor.com/traderscorner/tc_050503_1.asp Planning For The Future(s) http://www.OptionInvestor.com/traderscorner/tc_051203_1.asp Back To The Future(s) http://www.OptionInvestor.com/traderscorner/tc_060203_1.asp Getting Ready To Launch http://www.OptionInvestor.com/traderscorner/tc_060903_1.asp Painting A Picture http://www.OptionInvestor.com/traderscorner/tc_061603_1.asp Discipline Failure http://www.OptionInvestor.com/traderscorner/tc_063003_1.asp A Day In The Life http://www.OptionInvestor.com/traderscorner/tc_070903_1.asp So without further preamble, let's delve into the charts and see what we might have made of the past 3 trading sessions. Because I'm trying to cover a larger span of time in today's discussion, I'm going to try to be more frugal with the chart space, at least when discussing the 60-min/30-min charts. While I don't think it does much in the way of helping us to divine future market action right now, let's start with the daily chart of the ES contract to gain a perspective of the big picture. ES Daily Chart Believe it or not, I drew that wedge well over a week ago, before last Friday's euphoric ramp. I entered this week expecting it to provide both support and resistance, but I was actually a bit surprised to see how perfectly it capped the early rally attempt on Monday morning. But the simple fact remains that I entered the week with a bearish bias, despite the weak rebound in the daily Stochastics. In hindsight, it is clear that down was the right way to play it. For a bit more clarity as to the major turning points, let's drill down to the 60/30 minute charts. ES 60/30 Minute Chart Montage I've marked the clear bearish Stochastics crossovers with vertical red lines and the one counter-trend bullish signal with a cyan line. Even though the hourly chart didn't turn bearish until midday on Monday, we can see that it was looking toppy early in the day, with the 30-minute chart already tipping over. That confirmed the bearish view I had coming into Monday's open, and I focused the bulk of my attention on capturing the downside moves at least for Monday. Now that we've set the stage as to my overall expectations from the longer-term charts, it's time to delve into the 5-minute charts, which are my primary tool for entries and exits. ES 5 Minute Chart for Monday I've marked the entry signals as PT Short (Primary Trend Short) and CT Long (Counter Trend Long). In my estimation, only aggressive traders should consider the Counter Trend trades. They tend to be choppier and harder to trade, and frequently cover less distance. It didn't take long after the opening bell to get that first short entry as Stochs tipped over and price was rejected right at the top of that wedge near 1000. The move certainly didn't last long, with a triple bounce from the 992 area, followed quickly by a CT Long signal. A proactive exit could have been managed near 994, while a 3-point trailing stop would have had us out at 995. Not a stellar move, but good for 3-5 points. If taken, the CT long signal would have been a tough and volatile ride. If the stop survived the 11am ET dip (which I doubt), then the proper exit would have been on the break of the red ascending trendline. That trendline break was also the proper entry (near 996.50) for the second PT Short of the day. This one also quickly fell to 992 support and when that level held, a quick exit for +4-5 points was the proper course of action. Once again, relying on a 3-point trailing stop would have resulted in a gain of 1-2 points. By this time, the intraday trend is starting to feel choppy and rangebound, but I wouldn't rule out taking the aggressive CT long signal during the lunchtime lull. As luck would have it, that was actually a pretty decent trade considering it was counter trend. When price got back to 998 and failed to push any higher, that was a neon sign screaming exit here! Almost immediately thereafter, we had a new short signal near 997 and this one was very hard to manage better than a par result as support was found slightly higher near 993.50. Only a very agile trader could have harvested a gain here. By this point in the day, I didn't care what else transpired. I was done, having conclusively decided that the range wasn't going to break and I wanted to leave with my paltry gains intact. I've marked the chart above with then final two signals (a long and a short) of the day, and you can see for yourself that nothing else of note really was worth trading into the close. These tight-range days have been coming along with greater and greater frequency and I've been noticing that they almost always follow large range days like we had last Friday. It isn't a primary trade indication, but a pattern that we will do well to watch for. ES 5 Minute Chart for Tuesday After Monday's tight range day, I was looking for a bit of expansion of the range on Tuesday and I wasn't disappointed at all. The early short signal before the 10am worthless economic report was already working a bit from the 994 level before the release. The response to the report had gravity in full effect and before I could blink twice, I had been filled at my 984 (+10) profit target. That's a nice start to the day. Feeling a bit flush so early in the day, I actually decided to try playing the rebound and placed a bottom-fishing order in at 982. Nailed it exactly and then the confirmation of a bullish entry came from the Stochastics about 15 minutes later. The proper entry would have been near 984-985. Saddam rumors hit the tape before long and it was a rocket ride to the moon. Regardless of which entry was taken, another +10 was available as ES shot through 992 and then 995. Pride goeth before a fall and after two big wins before lunch, I got a bit too eager to short the next Stochastics rollover just after noon. That one came back in my face for a 3 point loss on the rebound, but there was another setup there just after 1:30pm ET and I was back short again from the 995 area. This one didn't quite deliver the 10 point gain of the morning's moves, but it was good for a +7.50 on a 3-point trailing stop at 988.50. With the final hour of trading already underway and lots of action having taken place already, this was not the place to be forcing more trades and I closed up shop for the day. All told, this was a very nice day, with a total net gain of +24.50. Remember what I said above about large range days being followed by small range, choppy sessions. I finished Tuesday's session with the expectation of less than ideal conditions on Wednesday and my gut told me to expect less than a 10-point range. ES 5 Minute Chart for Wednesday That large-small-large-small pattern certainly played out perfectly today, and I would have to label this session as UGLY. We have them from time to time and the best we can hope to do is survive them in order to be ready to capture the large moves that Tuesday's session offered up. But just because we have less than stellar expectations, doesn't mean we don't take the entries that are offered up. With the 60/30 minute charts still looking weak, my bias was still to the downside, but with the expectation of more muted moves. That means if I get stopped out prematurely on the first trade, I'll likely be more aggressive about harvesting gains on the next trade. Well, we started out with a nice short signal in the 989 area, which only ran to the 986 area before reversing. Best case is that an aggressive trader might have managed 2-3 points. I got 1.5. The CT long signal wasn't much better, as it topped out at 991. I didn't take that one as I only wanted the trades along the primary trend on what I expected to be a tough day. Next up was another short shortly after 11am ET, once again near 989. This one ran a bit further, but snapped back from 984 after a fakeout break of support. When 986 was hit on the way down, I got more aggressive with my stop, trailing by only 2 points, so I managed to exit at 986.25 for a slightly better 3 points. It was at the beginning of that last short trade that I drew the trendline above and when I noted that pattern of lower highs, I decided to pass on any further long entries for the remainder of the session. As it turns out, it was a good decision. I took one last short entry shortly after 1pm ET at 988 and covered aggressively at 985 for another +3. Net result out of that session was +7.5 and by the time I exited near 2pm, I was exhausted. That's what those choppy days will do to you, they wear you out! At that point, the best course of action (at least for me) was to close out the broker window, walk away and wait for tomorrow for better conditions to arrive. Days like today are not about making money, they're all about NOT LOSING! Can you see how having this structured, albeit simple, approach helps to keep me out of trouble, even on the days that don't have much to offer? Now what do we look for tomorrow? Well, the economic calendar is heating up, we just had a super tight range day and the wedge on the daily chart continues to narrow. I expect a healthier range, but by the closing bell, I think we'll still be mired within the confines of that wedge. I'm sure there are lots of questions, issues to be clarified, etc. that I've neglected to cover in this long series. I feel like I've given a pretty good description of how I'm trading the ES, with plenty of examples. But I also know that I may be too close to the trees to see the forest. So if there are some pertinent issues that you'd like me to expound on or things that I've neglected to cover, send those emails along. I'll be happy to continue discussing this topic as long as there is an interest, but I don't want to wear it out! Have a great week! Mark ************** FUTURES CORNER ************** Performance Report Part 3 In my first article on system development (http://www.OptionInvestor.com/futurescorner/fc_062903_01.asp) I discussed the 5 components needed to start developing a strategy. Then followed with a discussion of the Tradestation Performance Report using the Summary section to evaluate the ADX system we currently trade in the Market Monitor. (http://www.OptionInvestor.com/traderscorner/tc_070703_2.asp). In my next article (http://www.OptionInvestor.com/futurescorner/fc_071503_01.asp) I did an in-depth study of the Tradestation Performance Report, concentrating on the Summary section only, the most important section of the report. This article will now finish off the study with a discussion of the remaining Report sections; Trade Analysis, Trades List, Performance Graphs, and Trade Graphs. I have been using the ADX-20 system because I have extremely happy with it, not saying I am not happy with the ADX-5, but I have never seen results like this and wanted to make sure I was not fooling myself. AndI can't think of a better way to do an analysis than to have many other eyes keeping me honest. TRADE ANALYSIS section contains four parts; Time Averages, Outliers, Run-up/Drawdown and Efficiency Analysis. Here is the Trade Analysis of the ADX-20 system I am so proud of. Average Time in Trades - is the average time you spend in all trades, winning trades and losing trades. The ADX-20 system looks like you stay in winners longer than losers, 53 minutes to 43 minutes, this, in my opinion, is a desirable trait. I much prefer to spend my time in winning trades and get out of losers as fast as I can. Average Time Between Trades - is the average time you spend between all trades, winning trades and losing trades. As you can see we have quitea bit of time on our hands if this is the only system you are trading. But another thing to notice is that the time between losing trades is a great deal more than the time between winners, another desirable trait. It will also alert you start to take note of the system after 6 days for on average a trade could be setting up. Number of Outliers is the number of trades not within the normal bell curve of the profit loss. That is to say not within 3 standard deviations of the norm. Zeros in this row are what you would be looking for. Largest Profit/Loss are the same numbers from the summary. Largest Consecutive Profit/Loss. Your profit from the 7 consecutive winning trades was $2950.00. Your largest loss for the 1 consecutive losing trade was $550.00 Consecutive Winners and losers section is pretty interesting. Look at the 7 under the consecutive winners. This says the strategy had 7 consecutive winners in a row but the next column under Number of Series tells you that it happened twice. How cool! The Consecutive Losers doesn't really reveal much because we knew the most consecutive losers was one from the summary. This is telling me the strategy, from a psychological point of view, will be very easy to follow. TRADES LIST This section is fairly easy to figure out because it just lists all the trades the strategy generated. It lists the entry first and the exit underneath it. Type is a Buy, Sell, Sell Short or Buy to Cover Date/Time is the date time stamp of the opening and closing trade. Signal tells you if the trade was long or short then if the closing trade was a stop loss or hit the profit target. I have "named" my profit target P1. Price gives you the entry and exit price. Shares/Cntrcts - Profit/Loss is the number of shares and the profit or loss from each trade Gross Profit/Loss - Cum Profit/Loss In this strategy the Gross Profit/loss is always the Profit/Loss from the previous column because of the way the strategy is designed. The Cumulative Profit/Loss is each trade added to the previous trade. % Profit is the Gross Profit/Loss divided by the entry price. For example on the first trade the entry price was $888 and we lost $275, 275/888 = .31. This is not a revealing number in the ADX-20 because we take profits all at once not in portions. PERFORMANCE GRAPHS - Tradestation provides many graphs that provide a visual way to analyze and evaluate the performance of your strategy. Available graphs types include Equity, Trade, Efficiency and Drawdown/Run-up graphs. I will go over a few here. Equity Curve Line Graph Shows an overall view of a strategy's historical realized profit per trade. When comparing two strategies to see which is the better of the two, look to see which one has the smoother equity line consistently moving upwards. If you see one with large run ups then flat lining you may want to stay away from this kind of strategy. Monthly Net Profit Shows which month the strategy generated the most profit. Once again you are looking for relatively even gains in each month but more importantly no loses for a any one month. Maximum Favorable Excursion The term Maximum Favorable Excursion is used to describe the largest dollar movement that a trade could have gone in your favor before that trade was closed. One of the uses of this graph is to help you determine Profit Targets. The green triangle indicates winning trades and the red losing trades. A location along the x-axis shows how profitable the trade got and the location on the y-axis shows the final result of that trade, indicating whether it was a profitable or losing trade when the trade was closed. From this graph we will consider a profit target of $400 (magenta ellipse) and we can make the following observations: 1. All losing trades (red triangles) in the southeast quadrant could have been winning trades because they could have sold at $400.00. There are no losing trades in this quadrant. 2. All winning trades in the southeast quadrant could have been more profitable because they were sold at a profit less than $400.00, as you can see there are also not winning trades in this quadrant. 3. All winning trades in the Northeast Quadrant would have not reached their full potential because we took profits early. There were two trades that could have been more profitable. This graph is much more useful if you have many trades but with the small number of trades generated by Adx-20 and with the way we take profits the graph is of less value. Maximum Averse Excursion The term Maximum Averse Excursion is used to determine where to place a stop loss and is used to describe the largest dollar movement that a trade would have gone against you before the trade is stopped out. This graph is similar to the Maximum Favorable Excursion graph with the exception that the x-axis calculates the drawdown in dollar amount. From this graph we will consider a Stop loss of $300 (red ellipse) and we can make the following observations: 1. All losing trades (red triangles) in the Northeast quadrant of the graph could have resulted in lower losses because you would have sold when your loss reached $300. 2. All losing trades in the Southeast quadrant of the graph would have resulted in higher losses. 3. All winning trades (green triangles) in both the Northeast and Southeast quadrants would have become losing trades of which you have four. From this analysis I would probably move my stop loss out a little, maybe to $375. Doing this then you have "kept" two winning trades - the one at ~$275 and the one at $400 but you would have added one trade that resulted in higher losses. In addition to the Performance reports Tradestation also provides useful indicators which you can use to evaluate historical performance. For example the Strategy Equity indicator, similar to the Equity curve explained earlier, shows you if a strategy is generating consistent profits throughout the period tested. With the indicator plotted next to the chart you can see how this strategy performed with price movements. Well this is the end of Strategy testing and optimizing. Hope you have learned as much as I have. It has been a very worth while endeavor for me and I have very much enjoyed sharing it with you. Remember plan your trade and trade you plan. Jane ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ******************* 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. 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The Option Investor Newsletter Wednesday 07-30-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: NONE Dropped Calls: NONE Dropped Puts: LEH, XL Play of the Day: Put - MRK Spreads, Combinations & Premium-Selling Plays: Stocks Drift Lower As Investors Await Economic Data Watch List: Bulls Still Moving Select Stocks Updated on the site tonight: Market Posture: Bulls sing along, "Could you tell me how to get, how to get to Wa'all Street?" ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ Lehman Brothers - LEH - cls: 63.50 chng: +0.54 stop: 64.50 We knew there was a risk of LEH spiking higher on any sort of market strength but chose to lower the stop loss on LEH to $64.50 anyway. Shares had been coiling lower just above support for days without any sign of buyers. Oddly, LEH did just that - they spiked up towards the $65.00 mark without any significant news and certainly without participation in the XBD broker/dealer index or the broader markets. For those traders willing to hold on, we still think LEH looks weak and this failed rally may actually be another entry point for a move towards the 200-dma, just north of $60.00. However, we're going to call it quits and look for new plays elsewhere. Picked on July 20th at $65.18 Change since picked: -1.68 Earnings Date 09/18/03 (unconfirmed) Average Daily Volume = 2.86 mln --- XL Capital Ltd. - XL - close: 78.03 change: -0.02 stop: 79.50 As we previously discussed we're dropping XL as a play with their earnings expected after the bell tomorrow night. Estimates are for $1.94 a share and we really haven't heard one way or the other whether Wall Street expects them to hit, beat or miss. Most of the time it's not worth the risk to hold over the announcement. Typically, post-earnings surprises are bad but we've seen too many positive gaps higher and that has us sticking to our discipline of not holding over an announcement. Unfortunately, the chart looks pretty tempting for bearish positions. Shares have failed three times now under $80.00 in just the last three sessions. We'll certainly keep an eye on it. FYI: the company announced a quarterly cash dividend of about 50- cents a share for both class A and class B shares to be paid at the end of September. ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ********************* PLAY OF THE DAY - PUT ********************* Merck & Company - MRK - close: 55.46 change: +0.07 stop: 58.25 - Company Description - MRK is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures. Additionally, the company provides pharmaceutical benefit services through Merck-Medco Managed Care, LLC. The company's operations are managed principally on a products and services basis and are comprised of two business segments. Merck Pharmaceutical is involved in marketing products, while Merck Pharmaceuticals is focused on therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. The pharmaceutical benefit services provided by Merck-Medco include sales of prescription drugs through managed prescription drug programs as well as services through programs to manage patient health and drug utilization. (source: company press release) - Most Recent Update (Tuesday, July 29, 2003)- After topping out in the middle of June, the Pharmaceutical index (DRG.X) has been working lower in a very methodical and steady manner. After breaching the 50-dma a couple weeks ago, the downtrend only intensified and there are it looks like a test of the 200-dma ($308) and the year-long ascending trendline ($303) is in store sooner, rather than later. In the department of relative weakness though, MRK is really making a splash, leading the DRG index lower. Things started to get a bit ugly for the stock on Monday, when the bears managed to press the stock under its year-long trendline, but the bulls managed to save face a bit by pushing MRK up to close fractionally above the 200-dma ($56.60). That victory was short-lived on Tuesday though, with MRK falling more than 2%, solidifying the breakdown under the trendline with a close under the 200-dma. While there haven't been any significant news catalysts this week, the stock is still likely feeling the pain from a disappointing earnings report on July 21st. Obviously there were more than a few traders watching the stock today and they piled on to produce a daily volume tally that nearly doubled the 7.16 million share ADV. While we're looking for significantly more downside in the near- term, there are a couple of obstacles that the bears will need to overcome in the process. First up is the $55 level that managed to prop the stock up on Tuesday, and a quick look at the P&F chart explains why -- it is the site of the bullish support line. Aggressive traders might be tempted to enter the play on a decline under that level, but the more conservative approach might be to wait for a break under the $54 support area, which would also deliver a break of the bullish support line and generate a new P&F Sell signal. That breakdown should clear the way for MRK to work its way down towards our target of $50, which should be firm support. There appears to be solid resistance in the $56.50-57.00 area now, and a failed rebound in that area would make for the lowest-risk entry into the play, with a stop set at $58.25, just above the intraday resistance established last week. - Play of the Day Comments - We're listing MRK as the POD for Thursday due to its relative weakness today. The DRG drug index managed a small bounce and while MRK also ended the day in the green, its performance looks like another failed rally. This time at $56. We're still suggesting that most traders wait for a move under $55.00 before initiating new plays but the more aggressive traders can jump the gun as long as they're disciplined with their stops. Suggested Options: Short-term traders will want to focus on the August 55 Put, as it will provide the best return for a short-term play. Aggressive traders looking for a sustained move down towards our $50 target will want to utilize the September 50 contract, while more conservative long-term traders will want to focus on the September $55 strike. BUY PUT AUG-55 MRK-TK OI= 4672 at $1.00 SL=0.50 BUY PUT SEP-55 MRK-UK OI= 1565 at $2.05 SL=1.00 BUY PUT SEP-50 MRK-UJ OI= 1729 at $0.60 SL=0.30 Annotated chart: Picked on July 29th at $55.39 Change since picked: +0.07 Earnings Date 07/21/03 (confirmed) Average Daily Volume = 7.2 million Chart link: ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Stocks Drift Lower As Investors Await Economic Data By Ray Cummins The major equity averages retreated Wednesday as traders moved to the sidelines ahead of a flood of economic reports due out later in the week. The Dow Jones Industrial Average slid 4 points to 9,200, even as bellwether stocks such as Caterpillar (NYSE:CAT) and Walt Disney (NYSE:DIS) reached 52-week highs early in the session. The NASDAQ Composite slumped 9 points to 1,721 as weakness in semiconductor shares overcame strength in the networking segment. The Standard & Poor's 500 Index closed 1 point lower at 987 as investors sold for profits in airline, tobacco, gold and utility issues. Trading volume reached 1.4 billion on the NYSE and 1.5 billion on the technology exchange. Declining issues outpaced advancing shares by a small margin on both the Big Board and the NASDAQ. Treasury prices rallied, with the 10-year note up 31/32 to yield 4.31%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 7/29/03 *************** 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. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) 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 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 trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AMLN AUG 20 19.30 23.78 $0.70 8.47% 3.63% ELBO AUG 22 22.10 27.19 $0.40 4.23% 1.81% IVGN AUG 40 39.40 51.83 $0.60 3.97% 1.52% JCOM AUG 40 39.30 53.21 $0.70 5.19% 1.78% NFLX AUG 20 19.65 26.69 $0.35 4.91% 1.78% POWI AUG 22 22.20 28.92 $0.30 4.15% 1.35% ELBO AUG 22 22.20 27.19 $0.30 3.99% 1.35% FWHT AUG 17 17.00 20.96 $0.50 9.85% 2.94% GENZ AUG 42 41.85 51.94 $0.65 5.42% 1.55% MATK AUG 40 39.45 46.46 $0.55 4.50% 1.39% MEDI AUG 35 34.45 39.47 $0.55 4.76% 1.60% MOGN AUG 22 21.90 35.80 $0.60 9.51% 2.74% NFLX AUG 20 19.55 26.69 $0.45 8.23% 2.30% OVTI AUG 30 29.50 41.38 $0.50 6.01% 1.69% POWI AUG 22 22.15 28.92 $0.35 5.32% 1.58% SNDK AUG 40 39.45 56.75 $0.55 4.92% 1.39% UTSI AUG 30 29.50 43.35 $0.50 5.97% 1.69% ACDO AUG 22 21.50 25.44 $0.50 8.82% 2.33% CECO AUG 75 74.40 83.25 $0.60 3.01% 0.81% CYMI AUG 35 34.55 40.49 $0.45 5.27% 1.30% ICOS AUG 35 34.55 42.91 $0.45 5.26% 1.30% MEDI AUG 35 34.75 39.47 $0.25 2.95% 0.72% MEDI AUG 40 38.45 39.47 $1.02 7.71% 4.03% MOGN AUG 22 21.75 35.80 $0.75 13.72% 3.45% MNST AUG 20 19.65 24.78 $0.35 7.11% 1.78% OSIP AUG 25 24.60 32.25 $0.40 7.63% 1.63% UNTD AUG 25 24.40 30.19 $0.60 9.79% 2.46% UTSI AUG 35 34.65 43.35 $0.35 4.89% 1.01% ZRAN AUG 20 19.60 26.10 $0.40 8.71% 2.04% Interdigital Communications (NASDAQ:IDCC) has previously been closed to limit potential losses. Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield PPD AUG 27 28.10 21.75 $0.60 6.82% 2.14% INTU AUG 45 46.05 42.73 $1.05 6.80% 2.28% PHTN AUG 32 32.85 28.15 $0.35 6.22% 1.07% PPD AUG 27 27.85 21.75 $0.35 5.69% 1.26% BRCM AUG 27 27.80 21.90 $0.30 6.91% 1.08% QCOM AUG 40 40.40 38.13 $0.40 4.74% 0.99% QLGC AUG 50 50.70 44.51 $0.70 6.32% 1.38% Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status AGN 80.83 79.85 AUG 70 75 0.60 74.40 $0.60 Open CDWC 50.04 48.28 AUG 40 45 0.60 44.40 $0.60 Open ICST 34.20 30.60 AUG 25 30 0.55 29.45 $0.55 Open IACI 41.28 40.11 AUG 35 37 0.35 37.15 $0.35 Open IVGN 49.48 51.83 AUG 40 45 0.65 44.35 $0.65 Open MSTR 42.05 40.83 AUG 30 35 0.60 34.40 $0.60 Open EBAY 114.14 108.14 AUG 100 105 0.60 104.40 $0.60 Open EXPE 77.18 77.40 AUG 65 70 0.55 69.45 $0.55 Open GENZ 50.71 51.94 AUG 45 47 0.30 47.20 $0.30 Open Integrated Circuit Systems (NASDAQ:ICST) remains on the "watch" list and eBay (NASDAQ:EBAY) should also be monitored for signs of additional downside activity. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status ATK 51.37 55.10 AUG 60 55 0.50 55.50 $0.40 Open? AVE 52.20 53.39 AUG 60 55 0.65 55.65 $0.65 Open ATH 75.35 81.05 AUG 85 80 0.60 80.60 ($0.45) Open? JNJ 52.60 50.63 AUG 60 55 0.40 55.40 $0.40 Open CTX 74.29 74.88 AUG 85 80 0.55 80.55 $0.55 Open IGEN 37.78 56.50 AUG 47 45 0.40 45.40 ($2.10) Closed OEX 497.54 497.85 AUG 520 515 0.60 515.60 $0.60 Open The bearish spread in Igen (NASDAQ:IGEN) was closed this week after the firm agreed to sell Swiss pharmaceutical giant Roche the rights to its key blood-testing technology for $1.4 billion, which includes $47.25 per share of IGEN and stock in a company that will be spun off and directed by Igen's current management. Lockheed Martin (NYSE:LMT) has previously been closed to limit potential losses. Positions in Alliant Techsystems (NYSE:ATK) and Anthem (NYSE:ATH) should be closed on any further upside activity. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************** NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED 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. ************** CCMP - Cabot Microelectronics $61.11 *** Uptrend Resumes? *** 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 $61.11 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 55 UKR TK 1,596 0.55 54.45 5.5% 1.0% * SELL PUT AUG 60 UKR TL 492 1.80 58.20 13.6% 3.1% ************** CYMI - Cymer $39.75 *** Chip-Equipment Leader! *** Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the essential light source for deep ultraviolet photolithography systems. DUV lithography is a key technology that has allowed the semiconductor industry to meet the exact specifications and manufacturing requirements for volume production of advanced semiconductor chips. The firm's light sources are incorporated into step-and-repeat (steppers) and step-and-scan (scanners) photolithography systems for use in the manufacture of various semiconductors with critical feature sizes below 0.35 microns. Cymer's products consist of photolithography light sources, replacement parts and service. The firm maintains a worldwide service organization that supports its installed base of light sources. CYMI - Cymer $39.75 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 35 CQG TG 1,053 0.40 34.60 6.6% 1.2% * SELL PUT AUG 40 CQG TH 973 1.75 38.25 18.6% 4.6% ************** IMCL - ImClone $42.32 *** Pure Premium Selling! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL - ImClone $42.32 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 35 QCI TG 5,373 0.65 34.35 12.0% 1.9% * SELL PUT AUG 40 QCI TH 2,690 2.05 37.95 23.4% 5.4% ************** IVGN - Invitrogen $51.72 *** Consolidation Underway! *** Invitrogen (NASDAQ:IVGN) develops, manufactures and sells research tools in kit form and provides other research products, including informatics software to customers engaged in life sciences research and the commercial manufacture of genetically engineered products. The company supplies research kits and reagents that simplify and improve gene cloning, gene expression and gene analysis techniques. In addition, Invitrogen sells sera, cell and tissue culture media and reagents used in life sciences research, as well as in other processes for growing cells in the laboratory and producing major pharmaceuticals and other materials. IVGN - Invitrogen $51.72 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 47.5 IUV TW 156 0.55 46.95 6.2% 1.2% * SELL PUT AUG 50 IUV TJ 306 1.20 48.80 11.3% 2.5% ************** MATK - Martek Biosciences $49.76 *** A Big Day! *** Martek Biosciences (NASDAQ:MATK) develops and sells products made from microalgae. Microalgae are microplants. The firm is engaged in the commercial development of microalgae into a portfolio of high value products and new product candidates consisting of Nutritional Products, Advanced Detection Systems and Other Products, primarily Algal Genomics. Their nutritional products include nutritional oils for infant formula, dietary supplementation and other products. Advanced Detection Systems products include fluorescent dyes from various algae for use in scientific applications for detection of certain biological processes. MATK - Martek Biosciences $49.76 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 45 KQT TI 68 0.30 44.70 3.7% 0.7% TS SELL PUT AUG 50 KQT TJ 0 1.95 48.05 16.8% 4.1% ************** MNST - Monster Worldwide $23.42 *** Solid Earnings! *** Monster Worldwide (NASDAQ:MNST), formerly known as TMP Worldwide, is a global provider of career solutions. The company, through its flagship Interactive product, Monster (www.monster.com), is engaged in online career management. Monster Worldwide is also a worldwide recruitment advertising agency through its Advertising and Communications division and a yellow pages advertising agency through its Directional Marketing division. On March 31, 2003, the company completed the distribution of the common stock of Hudson Highland Group, previously reported as the eResourcing and Executive Search divisions of Monster Worldwide. MNST - Monster Worldwide $23.42 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 20 BSQ TD 84 0.35 19.65 10.6% 1.8% * SELL PUT AUG 22.5 BSQ TX 62 1.15 21.35 22.9% 5.4% ************** MSTR - MicroStrategy $42.30 *** Entry Point? *** MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly critical business intelligence software market. Large and small firms alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. The firm's business intelligence platform offers exceptional capabilities that provide organizations, in virtually all facets of their operations, with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. MSTR - MicroStrategy $42.30 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 35 EOU TG 416 0.40 34.60 7.5% 1.2% * SELL PUT AUG 40 EOU TH 157 1.50 38.50 17.6% 3.9% ************** OVTI - OmniVision $41.38 *** Near All-Time Highs! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI - OmniVision $41.38 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 35 UCM TG 2,377 0.50 34.50 8.9% 1.4% * SELL PUT AUG 40 UCM TH 1,818 1.65 38.35 18.6% 4.3% ************** SNDK - SanDisk $56.78 *** A New Multi-Year High! *** 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. SNDK - Sandisk $56.78 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 50 SWQ TJ 2,315 0.50 49.50 5.8% 1.0% * SELL PUT AUG 55 SWQ TK 2,428 1.75 53.25 14.7% 3.3% ************** UNTD - United Online $30.19 *** Earnings Speculation! *** United Online (NASDAQ:UNTD) is an Internet service provider offering consumers free and value-priced Internet access and e-mail. Its Internet access services are offered through its NetZero and Juno subsidiaries under their brands, and are available in more than 5,000 cities across the United States and Canada. In addition, the company offers marketers numerous online advertising products, as well as online market research and measurement services. As of June 30, 2002, the company had approximately 1.7 million subscribers to its pay Internet access services and approximately 4.8 million active users, including pay users. Active users include all pay users and those free users that have logged onto its services during the preceding 31-day period. UNTD - United Online $30.19 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT AUG 25 QAB TE 283 0.30 24.70 7.9% 1.2% * SELL PUT AUG 30 QAB TF 582 1.80 28.20 25.0% 6.4% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** CB - Chubb $61.90 *** Bullish Earnings Report! *** Chubb Corporation (NYSE:CB) is a holding company for a family of property and casualty insurance companies known informally as the Chubb Group of Insurance Companies. Chubb Group offers property and casualty insurance to businesses and individuals around the world. Chubb Commercial Insurance offers a range of commercial insurance products, including coverage for casualty, multiple peril, workers' compensation and property and marine. In 2000, the Corporation organized Chubb Financial Solutions to develop and provide customized risk-financing services through both the capital and insurance markets. CB - Chubb $61.90 PLAY (conservative - bullish/credit spread): BUY PUT AUG-55 CB-TK OI=914 ASK=$0.25 SELL PUT AUG-60 CB-TL OI=1502 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$59.60 ************** CEPH - Cephalon $48.70 *** On The Rebound! *** Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm dedicated to the discovery, development and marketing of products to treat sleep disorders, neurological disorders, cancer and pain. In addition to conducting a very active research and development program, the company markets three products in the United States and a number of products in various countries throughout Europe. Cephalon's United States products are comprised of Provigil, for the treatment of excessive daytime sleepiness associated with narcolepsy, Actiq for cancer pain management, and Gabitril for the treatment of partial seizures associated with epilepsy. CEPH - Cephalon $48.70 PLAY (less conservative - bullish/credit spread): BUY PUT AUG-40 CQE-TH OI=2032 ASK=$0.30 SELL PUT AUG-45 CQE-TI OI=2056 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$44.45 ************** EXPE - Expedia $76.67 *** Same Play -- Different Week! *** Expedia (NASDAQ:EXPE) is a provider of travel-planning services. The company's travel marketplace includes direct-to-consumer Websites offering travel-planning services located at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it. Expedia also provides travel-planning services through Voyages sncf.com, as part of a joint venture with the state-owned railway group in France. In addition, the company offers travel-planning services through its telephone call centers and through private label travel Websites through its WWTE business. WWTE is now a division of Travelscape, one of Expedia's primary subsidiaries. EXPE - Expedia $76.67 PLAY (less conservative - bullish/credit spread): BUY PUT AUG-65.00 UED-TM OI=1155 ASK=$0.35 SELL PUT AUG-70.00 UED-TN OI=1362 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$69.40 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option 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 options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very 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 price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond 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. *************** FRX - Forest Labs $47.52 *** Trading Range? *** Forest Laboratories (NYSE:FRX) develops, manufactures and sells both branded and generic forms of ethical drug products that require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter. The company's most important U.S. products consist of branded ethical drug specialties marketed directly, or "detailed," to physicians by its Forest Pharmaceuticals, Therapeutics and Specialty sales forces. The company's many products include those developed by Forest and those acquired from other pharmaceutical companies and integrated into Forest's marketing and distribution systems. Principal products include Celexa, an SSRI for the treatment of depression; the respiratory products Aerobid and Aerochamber; Tiazac, a once-daily diltiazem for the treatment of hypertension and angina; and Infasurf, a lung surfactant for the treatment and prevention of respiratory distress syndrome in premature infants. FRX - Forest Labs $47.52 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 52.5 FHA HX 2,801 0.45 52.95 5.9% 0.8% * SELL CALL AUG 50 FHA HJ 6,438 0.85 50.85 9.3% 1.7% ************** NVLS - Novellus Systems $34.74 *** Next Leg Down? *** 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 $34.74 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 37.5 NLQ HU 5,756 0.35 37.85 5.8% 0.9% * SELL CALL AUG 35 NLQ HG 4,095 1.20 36.20 15.4% 3.3% ************** QLGC - QLogic $43.19 *** Profit-Taking Continues! *** QLogic Corporation (NASDAQ:QLGC) designs and supplies storage network infrastructure components and software for server and storage subsystem manufacturers. The company's products are based on SCSI, iSCSI, Fibre Channel and Infiniband standards. The company is the only end-to-end supplier of Fibre Channel network infrastructure components that aid in the transfer and acquisition of data within the SAN. Their products include its SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool Kit management software. QLogic is the only HBA vendor that supports SCSI, Internet Protocol, Virtual Interface and FICON protocols with the same Fibre Channel HBA. In addition, the company designs and supplies controller chips used in a variety of hard drives and tape drives as well as enclosure management and baseboard management chip solutions that monitor the health of the physical environment within a server or storage enclosure. QLGC - QLogic $43.19 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 47.5 QLC HW 2,996 0.35 47.85 5.0% 0.7% * SELL CALL AUG 45 QLC HI 2,790 0.90 45.90 10.5% 2.0% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** APC - Anadarko Petroleum $42.70 *** A Key (Technical) Moment! *** Anadarko Petroleum (NYSE:APC), through RME Petroleum Company, RME Holding Company, Anadarko Canada Energy, Anadarko Canada Corporation, RME Land and Anadarko Algeria Company, is a global independent oil and gas exploration and production company. The The company's major areas of operations are located in the United States, primarily in Texas, Louisiana, the mid-continent region and the western states, Alaska and in the shallow and deep waters of the Gulf of Mexico, as well as in Canada and Algeria. APC is also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia, Congo and Gabon. APC - Anadarko Petroleum $42.70 PLAY (less conservative - bearish/credit spread): BUY CALL AUG-47.50 APC-HW OI=10301 ASK=$0.40 SELL CALL AUG-45.00 APC-HI OI=11918 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$45.30 ************** CHIR - Chiron $45.50 *** In A Trading Range? *** Chiron Corporation (NASDAQ:CHIR) is a global pharmaceutical firm that is focused on developing products for cancer and infectious disease. Chiron continues to build upon its cancer franchise, which has three dimensions, including immune system modulators, monoclonal antibodies and novel anti-cancer agents. In the area of infectious diseases, the company has a range of products. The company commercializes its products through three business units, which include biopharmaceuticals, vaccines and blood testing. Chiron Biopharmaceuticals discovers, develops, manufactures and markets a range of therapeutic products. The company's products include Betaseron, TOBI, Proleukin, PDGF for Regranex products and Procleix HIV-1/HCV Assay. CHIR - Chiron $45.50 PLAY (conservative - bearish/credit spread): BUY CALL AUG-50.00 CIQ-HJ OI=1257 ASK=$0.15 SELL CALL AUG-47.50 CIQ-HT OI=6840 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$47.75 ************** PG - Proctor & Gamble $87.75 *** Earnings Speculation! *** The Procter & Gamble Company (NYSE:PG) manufactures and markets more than 250 products to more than five billion consumers in 130 countries throughout the world. The company categorizes its business operations as follows: Baby, Feminine and Family Care, Fabric and Home Care, Beauty Care, Health Care, and Food and Beverage. P&G's quarterly earnings report is due 7/31/03. PG - Proctor & Gamble $87.75 PLAY (conservative - bearish/credit spread): BUY CALL AUG-95.00 PG-HS OI=3009 ASK=$0.10 SELL CALL AUG-90.00 PG-HR OI=8329 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$90.40 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Bulls Still Moving Select Stocks Magna Intl - MGA - close: 75.62 change: +0.55 WHAT TO WATCH: One stock hitting new 52-week highs is MGA. Shares have been on an impressive run since the March lows just above $50. The new breakout over $75 could have bulls looking for a run towards $80.00. Earnings are expected near Aug. 6th. Chart= --- MircoStrategy - MSTR - close: 42.30 change: +1.47 WHAT TO WATCH: MSTR smashed earnings yesterday evening, beating estimates of 21 cents by 18 cents or $0.39 a share (excluding charges). Today brought about some dueling broker comments on the stock but it looks like bulls won out. The stock opened down but bounced very strongly off its rising 50-dma. Traders who agree with the bullish outlook might use a move over the $44 level as a trigger to go long (or use the $43 level if you're really bullish). We will note that the low this morning printed a bearish sell signal on its P&F chart but it could be a bear trap. Chart= --- Alexander & Baldwin - ALEX - close: 28.68 change: +0.57 WHAT TO WATCH: ALEX would appear to be one of those lower volatility equities. Shares have been stuck in the $26.00 to $28.00 range for most of June and July. However, recent sessions have produced a strong breakout over the $28.00 mark on rising volume. We're not sure ALEX is a good candidate for a straight directional call play but covered calls or certain spreads might be worth looking into. Chart= --- Mercury Computer - MRCY - close: 20.76 change: +1.11 WHAT TO WATCH: Could someone know what MRCY's earnings are before the announcement tomorrow? Or is today's upside breakout over resistance at $20.00 just eager bulls placing their bets? Volume was very strong today as MRCY closed strongly above its simple 50-dma. The move also broke its long-term descending trendline of resistance. Should the company have solid earnings numbers to report we could certainly see some follow through. Chart= --- Kronos Inc - KRON - close: 55.25 change: +2.15 WHAT TO WATCH: This software stock is certainly out performing its peers. Any bulls who missed the previous rally from $50 to $60 are getting a second chance. The stock just bounced off the $50 mark a few days ago and it looks headed for a retest of $60.00 soon. Volume was pretty strong today. Chart= =================================== RADAR SCREEN - more stocks to watch =================================== INVX $14.29 - Hitting levels not seen since 2000, shares of INVX are steamrolling higher. Volume was huge today. It may be worth following up with some due diligence. FRK $49.00 - Also hitting new highs were shares of FRK. We're not suggesting traders chase the 5.3% move today but keep an eye on it for a possible trading opportunity. TRMB $27.29 - One of our personal favorites to watch, TRMB, a leader in GPS technology is nearing yearly highs. A breakout over $28 could be playable. ************** MARKET POSTURE ************** Bulls sing along, "Could you tell me how to get, how to get to Wa'all Street?" To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_073003.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $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. 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