The Option Investor Newsletter Tuesday 08-05-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Close, Very Close Futures Markets: The Airball Zone Index Trader Wrap: See Note Market Sentiment: Personal Indicators Weekly Fund Screen: What Have You Done For Me Lately? Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 08-05-2003 High Low Volume Advance/Decline DJIA 9036.32 -149.70 9187.73 9034.57 1.55 bln 1020/2197 NASDAQ 1673.50 - 40.60 1711.11 1671.04 1.72 bln 1086/2130 S&P 100 486.66 - 8.84 496.03 486.52 Totals 2806/4327 S&P 500 965.46 - 17.36 982.82 964.97 W5000 9306.25 -158.00 9464.20 9302.01 RUS 2000 457.45 - 7.32 464.77 457.08 DJ TRANS 2544.59 - 30.50 2577.53 2540.29 VIX 24.11 + 1.46 24.12 22.66 VXN 34.23 + 1.58 34.82 33.37 Total Volume 3,562M Total UpVol 695M Total DnVol 2,828M 52wk Highs 213 52wk Lows 110 TRIN 2.34 NAZTRIN 1.76 PUT/CALL 0.95 ************************************************************ Close, Very Close The markets ignored positive economic data and plunged to end very close to major support levels. Bonds fell and yields rose after a lackluster treasury auction and there are two more days of auctions to come. Cisco disappoints after the close and warns that while business is not getting worse it is also not getting any better. Are we having fun yet? Dow Chart Nasdaq Chart S&P Chart The morning started out well with Chain Store Sales rebounding from last weeks drop by +0.8%. Tax rebate checks are making it to the stores and six southern states had tax holidays to boost spending. The results were excellent and with school starting early the shoppers were out in force. Considering average selling prices have dropped -4% due to heavy discounting this means sales were actually heavier than reported. Inventory is being pushed out the doors and retailers are starting to breathe easier. Also beating estimates by a mile was the ISM Services Index which soared to 65.1 when estimates were only 58. This was the highest level since the index began and the biggest jump in six years. This represents a 10-point increase in just two months. New orders jumped to 66.9 from 57.5 but prices fell to 50.6 from 51.4 and employment barely budged to 50.7 from 50.3. The services numbers are not normally market movers due to the manufacturing ISM, which comes out a week earlier. The numbers today were no different. We had a spike on the report but that spike was quickly sold and we ended much lower. The only negative report of the day came from the Challenger Layoff report, which saw a spike in announced layoffs for July to 85,117 from 59,720 in June. The two-month decline ended with a steep jump. The continued need to cut costs to preserve earnings and higher productivity is taking its toll. However, the current level for all 2003 is 12% less than the same level at this point in 2002. Analysts tried to spin it as positive by pointing to the much higher levels earlier in the year when layoffs averaged over 100,000. I agree it was higher but I think the dip corresponds to the "expected" post war bounce which did not really appear. If employers held off cutting employees in case there was a bounce they could be feeling the pain of higher payrolls now without higher profits. Hurting the markets at the open was a strong warning by Costco which said lower margins due to falling prices and higher costs would depress earnings for the current quarter. They did say sales were improving but had been below plan for the last two months. The stock was knocked for a -6.90 loss to $30.06 and represented investor feelings about companies unable to squeeze any more earnings out of their turnip. Last night the Semiconductor Billings report showed that they rose +0.3% in June. April was revised down to 1% from 2%. The analysts tried to spin this minor gain as positive, the fourth consecutive month of gains, but they neglected to mention that it was also the smallest gain for those same four months. Flash memory chips continue to supply the gains. The SOX was not impressed and closed with a -12 point drop to 383. Also helping contribute to the market slide was the financial sector which is getting killed on the bond action. The $BKX.x has dropped from 903 to 856 in only 3 days. The rebound from yesterday was almost completely retraced and we are nearing two month lows. With nearly 50% of the S&P either techs (27%) or financials (22%) it is not surprising that it closed at two month lows as well. The 50 DMA at 986 is well above the 965 close. With the futures trading at 959 overnight it appears the cash index will test the July intraday low at 962.10 at the open. After the close Cisco reported earnings that were inline with estimates but they had to stretch to do it. Cisco reported that they bought back 424 million shares, 83 million in the last quarter, which reduced their shares outstanding by -3.7%. They also said they had $5.2 billion left in the current buyback program. Without the share repurchase the EPS would have been closer to +13 cents. There were several other warning signs. Inventory rose to $873 million from $765 million. Gross margins which had been expected to rise to 71% remained level at 70% and Cisco said they would be dropping to 67-69% going forward. Last quarter Cisco earned $982 million on revenue of $4.7 billion. In the same quarter last year Cisco earned $772 million on sales of $4.48 billion. There has been no top line growth in a year and earnings have come primarily from cost savings. Cisco said expenses could rise +2-3% in the current quarter. That is a disguised way of saying that earnings may fall over the next quarter. Sales declined over the prior quarter by -2.6%. The company said it continued to see weak demand and has yet to see a material increase in IT spending. John Chambers tried to spin the results but analysts continue to focus on terms like "continues to be a challenging environment" and "Cisco will continue to curtail costs by keeping a flat headcount." Analysts said that last statement was an implied reduction in force due to attrition and other factors. Cisco basically said on the conference call that they do not see the business environment getting any worse but they also do not see it getting any better. Cisco was trading down -$1.30 in after hours. Cisco's cash flow, which Chambers normally touts as a measure of true strength fell to $1.55 billion from $1.61 billion for the same quarter in 2002. Cash on hand dropped nearly a billion dollars. Accounts receivable rose to 26 days compared to 21 days in 2002 and 23 days last quarter. Every item is just slightly worse than it was before. Not bad, just slightly worse, but analysts feel that the cracks in the armor are beginning to show. The bond market took yet another hit today. The government auctioned off $24 billion in three year notes at a yield of 2.422%. The bid-to-cover ratio, a measure of demand, came in weaker than expected at 1.32 vs the 1.96 ratio of the last sale in May. There will be another $18 billion of 5-year notes on Wednesday and another $18 billion of 10-year notes on Thursday. This is not good news for the bond market despite the fact the auction was expected for weeks. Considering the selling in the bond market over the last six weeks, the lack of interest in government paper and the potential for several hundred billion more over the next several months the outlook for rates is not good. Once the auction was over the 10-year yield soared to close near the high of the day at 4.44%. The stock market is not happy about this complete retracement of the Monday bond bounce. It appears it was an oversold reaction to the 100-year storm as Franklin Raines, the FNM CEO, called it. The rumors are still flying that a big bond house is in trouble and part of the Monday bounce was relief that there was no failure announcement over the weekend. With yields soaring and the market dropping, anyone in trouble last week is likely in worse trouble today. The remaining auctions this week are expected to drive prices down and yields up even further. The one-day reprieve for the homebuilders disappeared as they returned to close near the lows for the week. It was not a good day for the markets despite the good economic news. The Dow closed at 9036, just slightly over the critical 9000 level and well under its 50 DMA at 9100. The Nasdaq closed at 1673 and only +5 points over the 50 DMA at 1668. This was the lowest close for the Nasdaq since July 3rd. The S&P took the biggest hit with a close at 965 and well below its 50 DMA at 986. Other than the psychological support at 950 the next major support level would be the 200 DMA at 940. For the broadest market view the Wilshire-5000 closed at 9306. The 9300 level on the $TMW.x is directly equivalent to Dow 9000 and it was the lowest close for the Wilshire since early July. Wilshire Chart To put it bluntly, if the Dow closes under 9000, the Wilshire under 9300 and the S&P under 960 then the trend is over. The constant rally by the markets in the face of bad news appears to be over. They cannot even rally them on good news this week. The implications are serious. I said on Sunday I was long term bullish and short term bearish. My short term was two weeks and it appears to be acting as expected. I have running email conversations with a great many traders and market analysts and almost without exception they are expecting a short term drop. That may be a strong contrarian indicator in itself. As traders we should look at it as a long term buying opportunity developing not the end of the world. This is just a normal profit taking cycle and a normal first week of August. It is accelerated by the bond fiasco. It is also accelerated by the options expiration next week and the extreme bullish move since March. Even rumors about Saddam failed to bounce the market this week. If we break Dow 9000 then my July target of 8500 still stands as a worst case scenario. If you are short I would be looking at the 200 DMA at 8730 as decent support and an initial exit. Plan accordingly. If the army of short term bearish traders I communicate with are a bullish contrarian indicator then I have the perfect contrarian bearish indicator. Ralph Acompora said on TV tonight that we are in a cyclical bull market that should last through 2004 and the Dow could make a new all time high. For those with short memories the Dow's high was 11,750 in Jan-2000, roughly +2750 points above our current level and a +30% increase from here. I hope he is right but considering Cisco's earnings tonight I just think it might take a little longer and start from a little lower. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** The Airball Zone Jonathan Levinson A moderately bearish day for treasuries and equities degenerated into a last-minute sell-a-thon in equities commencing after the 3PM EST close of the treasury market. Less liquidity equaled fewer bids, and the action of the tape reflected that. Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 991 975 967 951 943 YM03U 8990 8961 8906 8877 8822 NQ03U 1216 1209 1195 1188 1174 10 minute chart of the US Dollar Index The US Dollar Index got sold heavily at 10AM, on what I'm guessing was the poor employment data from the Challenger Report. The Fed's small 250M net addition with its 5.50B overnight repo refunding 5.25B was too small to make any difference there. The equities selloff at the close took the US Dollar Index down with it, below support to 95.95 as of this writing. Daily chart of December gold The pullback in the US Dollar Index brought it back to yesterday's levels until the selling frenzy at the cash close, and consequently the move in gold was unimpressive in either direction, as the December contract posted an inside day on volume of 243 contracts. That said, the action was encouraging for gold bulls, given the clear sell signals on the oscillators and the proximity to the lower ascending support line. In a downphase, every positive day is a good day, and December gold closed higher by 1.70 at 352.60. The precious metals indices were mixed, HUI closing +.05 at 165.26, XAU -.33 to 80.91. The CRB was modestly lower, dropping .70 to 234.83, with crude oil, heating oil and lean hogs leading the advancers. Gold was up 2.50 at 343.40 in the evening session as of this writing. Daily chart of the ten year note yield There was significant action in treasuries today. Marketwatch reported that the auction of 24B in 3 year treasury notes at 2.422% yield saw weaker than expected demand, with the bid to cover ratio 1.32 compared with last May's 1.96. Treasuries opened stronger but sold off into the close, closing near their highs of the day with the five year note yield closing up 14.5 basis points at 3.29%, the TNX up 12.1 bps to 4.441% and the TYX up 9.5 bps to 5.383%. Tomorrow we have 18B each of 5 year notes, and another 18B of 10-year notes on Thursday to be auctioned. On the basis of our liquidity thesis, I expect these auctions to drain the financial markets further, which should continue to pressure bonds, commodities, and equities. Furthermore, given the weaker-than-expected demand, the selloff in bonds over the past weeks appears to have been timely- imagine how much weaker demand would have been without the multi- week rally in yields. Daily NQ candles Bonds sold off, and so did equities. The NQ did what bears have been waiting over four months to see- it broke down solidly below its rising daily trendline, closing at the lows of the day on heavy volume. The selling aborted the tentative stochastic up- phase and confirmed the Macd downphase, with the closing print challenging the lower Bollinger band and the 50 day EMA. I see no fundamental reason for a bounce tomorrow other than the Bollinger band violation, particularly given the liquidity drains implied by the bond auctions scheduled for tomorrow and Thursday. 30 minute 20 day chart of the NQ The breakdown would have been textbook except for the throw-over yesterday back above the trendline. The action of the past two days was sufficient to bludgeon active traders, but the outcome is clear enough, with the Nasdaq futures now below the rising trendline, joining the ES. That said, the selling frenzy sets the NQ up for a technical bounce on the basis of the Bollinger band violations and oversold short cycle oscillators. This bounce need not come at all, but traders need to be alert to the possibility. As the longer cycles on the daily chart continue lower, those longer cycles can force the shorter cycles to trend in oversold territory as the downphase plays out. Daily ES candles The S&P futures sunk decisively below support, and the S1 value of 951 generated by the pivot calculator looks like a reasonable support target to me, coinciding with Fibonacci support off the rally high. The cyclical picture on the ES is the same as that on the NQ, except that it's weaker, as we've been seeing for weeks. 20 day 30 minute chart of the ES Once again, the ferocity of the selling sets us up for a technical bounce, but only the intraday oscillators below are actually oversold and trending. Not even the 300 minute stochastic above is indicating a bottom. 951 ES could do it for the time being, however. 150-tick ES This 150-tick view of the ES, along with my trendline assumptions entered throughout the session, says it all. What was a run-of- the-mill tricky session turned into a rout. Note the trending oscillators. Daily YM candles The YM is set up the same as the NQ, posting its first decisive trendline break since the spring rally began. 20 day 30 minute chart of the YM There's really nothing to add. We've been following the overbought bullish percent indices, breadth and sentiment indicators for months now. The rampant bullishness that has characterized this year's trading may be gearing up for its date with gravity. The tests of the S1 equity values will go a long way to clarifying the mid-term picture. In treasuries, the Fed's silence continues to shock me, as the exact opposite scenario as that described as "desirable" by the Chairman and Governor Bernanke continues to progress. At what point will the run in yields get arrested? See you at the bell! ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_080503_1.asp ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** **************** MARKET SENTIMENT **************** Personal Indicators Jonathan Levinson The spectacular sell off into the close following weeks of seemingly endless range bound trading has toppled a number of indicators and done severe technical damage to the charts. It's an excellent opportunity to reflect on our own reactions to the tape and the effectiveness of our trades. While each indicator provides an accurate snapshot of a different facet of the market, and combinations thereof provide a broader- but-still-partial picture of same, the live tape presents a real-time challenge to traders. The indicators dance and change at often inconstant rates, leaving it up to traders to interpret their messages and make often huge decisions on the fly. The task is too complex for most traders to reduce to a consistently reliable mechanical system, although many do. For this reason, the richest traders, institutions, rely increasingly on robots to do their trading, seeking an edge in increasing complexity. For most of us, however, we operate live and rely on "gut" feel and experience to guide our trades. For this reason, it is essential to be consistent, and to know when we're not "in the zone." The range bound trading of the past weeks has been treacherous, with huge, sudden moves often separated by days of slow, minute range bound action. A steady, detached view of the tape and its indicators is a prerequisite to consistent, safe and successful trades, as is a rapid awareness of when one's not in that state. As we see what appears this afternoon from many indicators to be the confirmation of a new downtrend, we should be attentive to our own internal indicators. It's likely that there will be bigger swings and shorter-duration ranges as volatility climbs and the bulls awaken from their pleasant reverie. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9361 52-week Low : 7197 Current : 9036 Moving Averages: (Simple) 10-dma: 9187 50-dma: 9099 200-dma: 8537 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 965 Moving Averages: (Simple) 10-dma: 986 50-dma: 986 200-dma: 911 Nasdaq-100 ($NDX) 52-week High: 1316 52-week Low : 795 Current : 1229 Moving Averages: (Simple) 10-dma: 1265 50-dma: 1238 200-dma: 1091 ----------------------------------------------------------------- Is this it? After months of floating aimlessly above the 20 level are we finally seeing a move and some follow through in the VIX? Traditionally drops toward the 20 level (and under) in the VIX signal market tops. The reversals aren't usually immediate and we've seen the same here. However, the sharp move higher in the value of the VIX suggest that traders are more willing to pay higher premiums on put options, which indicates a rise in fear. A move over 25.00 could be significant in that it would mark definite change in investor psychology. CBOE Market Volatility Index (VIX) = 24.11 +1.46 Nasdaq-100 Volatility Index (VXN) = 34.23 +1.58 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.95 526,874 501,760 Equity Only 0.81 409,330 331,713 OEX 0.66 34,593 22,974 QQQ 1.65 44,430 73,175 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 68.4 - 1 Bull Confirmed NASDAQ-100 70.0 - 5 Bull Confirmed Dow Indust. 80.0 + 5 Bull Correction S&P 500 74.8 - 1 Bull Correction S&P 100 81.0 - 1 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.22 10-Day Arms Index 1.13 21-Day Arms Index 1.05 55-Day Arms Index 1.14 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 847 999 Decliners 1971 2038 New Highs 45 79 New Lows 69 10 Up Volume 240M 389M Down Vol. 1257M 1337M Total Vol. 1518M 1736 M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/29/03 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 Still looking at a lack of major change in the large S&P futures contracts. Commercial traders and small traders have yet to make any big moves lately. Commercials Long Short Net % Of OI 07/08/03 415,053 453,720 (38,667) (4.5%) 07/15/03 414,020 453,033 (39,013) (4.5%) 07/22/03 411,206 442,131 (30,925) (3.6%) 07/29/03 405,429 445,114 (39,685) (4.7%) 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 07/08/03 152,239 74,749 77,490 34.2% 07/15/03 148,716 70,279 78,437 35.8% 07/22/03 155,891 76,466 79,425 34.2% 07/29/03 155,216 73,030 82,186 36.0% 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 Quite the opposite of the large S&P futures above, we're seeing some big differences in the e-mini positions. Commercial traders have turned very bullish while the small traders is increasing their net bearish positions. These are new milestones for both. Commercials Long Short Net % Of OI 07/08/03 192,815 224,124 (31,309) ( 7.5%) 07/15/03 214,274 218,765 ( 4,491) ( 1.0%) 07/22/03 249,392 249,386 6 0.0% 07/29/03 272,659 216,166 56,493 11.6% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 56,493 - 07/29/03 Small Traders Long Short Net % of OI 07/08/03 56,394 72,090 (15,696) (12.2%) 07/15/03 45,372 54,654 (9,282) (9.3%) 07/22/03 45,945 76,071 (30,126) (24.7%) 07/29/03 44,437 93,144 (48,707) (35.4%) Most bearish reading of the year: (48,707) - 07/29/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is very little change in positions for either the small trader or the commercials. Commercials Long Short Net % of OI 07/08/03 30,489 48,311 (17,822) (22.6%) 07/15/03 28,467 49,154 (20,687) (26.7%) 07/22/03 32,502 48,139 (15,637) (19.4%) 07/29/03 31,456 50,294 (18,838) (23.0%) 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 07/08/03 26,136 9,035 17,101 48.6% 07/15/03 26,489 8,004 18,485 53.6% 07/22/03 27,321 8,844 18,477 51.1% 07/29/03 25,691 7,810 17,881 53.4% 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 It's the same story here. Maybe it's the summer doldrums that's leaving the size of futures positions in a very sideways trend. Commercials Long Short Net % of OI 07/08/03 20,752 11,860 8,892 27.3% 07/15/03 21,607 7,855 13,752 46.7% 07/22/03 22,198 8,176 14,022 46.2% 07/29/03 23,696 9,572 14,124 42.5% 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 07/08/03 5,005 8,093 (3,088) (23.6%) 07/15/03 5,475 9,717 (4,242) (27.9%) 07/22/03 6,110 10,898 (4,788) (28.2%) 07/29/03 5,744 11,601 (5,857) (33.8%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** WEEKLY FUND SCREEN ****************** What Have You Done For Me Lately? This week, we see which mutual funds have produced the highest total returns for investors since mid-year in seven broad fund types: S&P 500, growth, value, core, mixed, global, and sector. Not all equity funds have been able to build on their superior performances of the second quarter 2003, with the stock market as measured by the S&P 500 index up less than one percent on a quarter-to-date basis through August 4, 2003. In each broad fund type, we'll give you our pick based on fund returns, risks, expenses, management and other factors, giving greater importance to each fund's long-term investment results. We want funds that have performed well lately, but also have a strong long-term record of performance relative to their peers. To perform this exercise, we start with the Fund Finder tool at www.nytimes.com (see Mutual Fund section). We like the way the fund universe is divided here, giving us the seven broad equity fund types that we'll use in this week's fund screen. Then, we will take the fund symbols and load them into Morningstar.com's Fund Compare tool online so we can compare and evaluate the top performers in each fund category using current data and ratings. Screening/Evaluation Process The first thing we did was identify the highest performing funds in each fund category. For load funds, we used the fund's class A shares, which come with front-end loads but tend to have lower operating expenses. Some of the fund symbols are "institutional" class shares, so they may not be offered in the retail market or the retail shares may have higher costs/expenses associated with them. We'll find out for sure when we load these symbols in the Morningstar.com Fund Compare tool online. QTD Return %: S&P 500 Index Funds (Aug-04) + 1.1% Oppenheimer/Mercury Advisors S&P 500 Index Y (OSPYX) + 0.9% Delaware S&P 500 Index (DSPNX) + 0.8% Cigna S&P 500 Index Retail (CINRX) + 0.8% American AAdvantage S&P 500 Index (AAFPX) QTD Return %: Growth Funds (Aug-04) +16.5% Henlopen Fund (HENLX) +11.2% Oberweis Emerging Growth (OBEGX) +10.9% Kopp Emerging Growth A (KOPPX) +10.6% Oberweis Micro Cap (OBMCX) QTD Return %: Value Funds (Aug-04) +11.2% Davis Park Series/Ameristock Focused Value (AMFVX) +10.5% RBB Fund/Schneider Small Cap Value (SCMVX) + 9.0% Hotchkis & Wiley All Cap Value A (HWAAX) + 8.4% Advisor Series/Al Frank Fund (VALUX) QTD Return %: Core Funds (Aug-04) +10.9% Corbin Small-Cap Value (CORBX) +10.4% Pacific Advisors Small Cap A (PASMX) + 9.6% Reynolds Fund (REYFX) + 9.4% Bhirud/Apex Mid Cap Growth (BMCGX) QTD Return %: Mixed Funds (Aug-04) +14.3% ProFunds Rising Rates Opportunity Inv (RRPIX) +11.3% Rydex Juno Inv (RYJUX) +11.1% Ariston Convertible Securities (CNCVX) + 3.9% Oppenheimer Global Growth & Income A (OPGIX) QTD Return %: Global Funds (Aug-04) +14.0% Dreyfus Premier Greater China A () +13.4% Eaton Vance Asian Small Companies A (EVASX) +13.0% Alliance Greater China 97 A (GCHAX) +11.9% Fidelity Korea T (FAKTX) QTD Return %: Sector Funds (Aug-04) +28.6% American Heritage (AHERX) +23.1% ProFunds Semiconductor UltraSector Inv (SMPIX) +16.8% Matthews Asian Technology (MATFX) +14.9% Firsthand Technology Value (TVFQX) We then compared and contrasted the four funds in each fund type using Morningstar.com's Fund Compare tool on the basis of return and risk, portfolio characteristics and management, and expenses. We employed Morningstar.com's Fund Score tool too to see how the four funds scored on different selection criterion. In the next section, we tell you which fund we feel is your best bet in each fund category. Our Favorite Funds Of the four funds in the S&P 500 Index Fund Group, Delaware 500 Index Fund is your best bet, but the ticker symbol displayed is for the fund's institutional class shares, so it's not truly an option. While it is true that these four funds have beaten the Vanguard 500 Index Fund (VFINX) and similar funds since June 30, none are ahead of the Vanguard 500 Index Fund on a year-to-date return basis through August 4, 2003. So, in this group we make an exception. We think your best bet in this group remains the Vanguard 500 Index Fund (VFINX), with its 1.49% yield and 0.18% expense ratio. The fund's 10-year average annual return (10.2%) has beaten five out of six funds in the Morningstar large-blend category. It's a proven winner, appropriate as a "core" equity investment. All four funds in the Growth Fund Group are categorized in the small-cap growth style box, per Morningstar, so they invest in emerging growth companies in pursuit of maximum capital growth. In this group, we think your best bet is Henlopen Fund (HENLX), which has shown in the past as well as present that it can run with the pack in up markets, capturing excess returns for risk- tolerant investors. The fund's trailing 4-week, 3-month, year- to-date and 1-year returns through August 4 rank in the top 10% of the Morningstar small-growth category as does its long-term returns. For the trailing 10-year period through July 31, the Henlopen Fund has produced an annualized total return of 14.0%, ranking in the category's top 7 percent. If you can tolerate a higher level of risk, Henlopen makes for a fine supporting-role player. In the Value Fund Group, we like Hotchkis & Wiley All Cap Value Fund Class A (HWAAX) a multi-cap value fund that has gotten off to great start. Hotchkis & Wiley is a leading value investment manager whose domestic equity strategies are best characterized as "bottom-up" and emphasizing financial strength, high current yields and low price-to-earnings ratios. While this fund has a brief investment history, the firm has built a solid reputation over time. Since the fund's inception on December 31, 2003, it has increased in value by 36.5%, including a 28.5% return in Q2 and a quarter-to-date return through August 4 of 8.95% (say 9%). Your best bet in the Core Fund Group might be the Reynolds Fund (REYFX) but only if you are making a pure up-market play. This fund's aggressive multi-cap core style can produce greater than average returns in up markets, but can also produce higher than average losses in down markets. The fund's trailing return for the 3-month period (31.5%), year-to-date period (67.4%) and one- year period (52.1%) all rank in the top 1% of the "large-growth" category, per Morningstar. Lipper calls Reynolds Fund a multi- cap core stock fund. Since June 30, the fund is up 9.6 percent. ProFunds Rising Rates Opportunity Fund Inv (RRPIX) could be your best bet in the Mixed Fund Group. The flexible portfolio seeks investment results that correspond to 125% of the inverse of the daily price movement of the most recently issued 30-year Treasury Bond. If you believe the economy will be expanding from here and interest rates will therefore, be rising, this fund may be a wise investment for the next 3-5 years. If your bond fund investments are of the intermediate-term or long-term variety, you can use it as a hedge against rising interest rates, since gains on the fund will offset losses on your other holdings, should rates increase. Since June 30, 2003, ProFunds Rising Rates Opportunity Fund is up an equity-style 14.3 percent. In the Global Fund Group, your best bet may be Eaton Vance Asian Small Companies Fund A (EVASX) which invests assets in different countries in the Pacific region, rather than invest primarily in a single country such as China or Korea. However, the fund does invest primarily in small company stocks, so it's appropriate as supporting role player. Since 2001, the fund has been producing strong relative returns for pacific region investors, ranking in the top quintile of the Morningstar Pacific/Asia Stock ex. Japan category. On a quarter-to-date basis through August 4, 2003, it has produced a 13.3% total return for investors, while providing some decent diversification against a U.S. equity portfolio. In the last group, the Sector Fund Group, we favor the Firsthand Funds Technology Value Fund (TVFQX) for its value-based approach to technology investing. It invests primarily in common stocks of companies in the "electronic" and "medical technology" fields which the Silicon-Valley firm believes to be undervalued and have potential for capital appreciation. This fund may be appropriate for tech bargain hunters with high tolerance for risk/volatility. Since June 30, the fund has risen 14.9 percent as tech investors look for values in the beaten-down sector. Conclusion This week, we profiled funds that have led their respective fund types on a quarter-to-date return basis through August 4, and we like now for various reasons. Just like athletes, investors are often looking at what funds have done for them lately. With the strong returns of the second quarter, many mutual fund investors are expecting big returns again in the third quarter. The funds we identified this week are building on their superior return in the second quarter. They may be ones to watch in Q3. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** 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: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 08-05-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: AZO, FDX, GDW Dropped Puts: None Call Play Updates: KSS, LLL, PCAR New Calls Plays: None Put Play Updates: ATH, BDK, FITB, FRE, HD, MRK, PGR New Put Plays: BBY, IBM **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** AutoZone, Inc. - AZO - close: 80.03 change: -2.11 stop: 80.50 The verdict is in and AZO's breakout over the $80 level appears to have failed. After several failed attempts to reach the $85 level last week, the stock began to weaken on what initially appeared to be simple profit taking. Yesterday's rebound from the 10-dma looked like it might hold, but that possibility was negated with the sharp drop through that average this morning and it only got worse from there. AZO is resting precariously above its 20-dma ($79.92) and its 50-dma ($79.58), but that looks like weak support at best. Our stop was violated in the late afternoon and that closes the play for a fractional loss. With broad market sentiment turning decidedly more bearish, we'll chalk this one up as a failure and make room for fresh candidates. Picked on July 27th at $80.17 Change since picked: -0.14 Earnings Date 09/26/03 (unconfirmed) Average Daily Volume = 1.29 mln --- Fedex Corp - FDX - close: 64.01 change: -0.69 stop: 62.99 We're choosing to close FDX early for a couple of reasons. Number one, the performance in the Dow Jones Transportation average is anything but bullish. The $TRAN lost another 1.21% today and closed below what should have been support at 2550 after failing below support of 2600 just a few sessions ago. The MACD on the $TRAN just produced a new bearish sell signal from an overbought condition. Thus, with the $TRAN as the backdrop our observation of a steady trend of lower highs in shares of FDX is not encouraging. The company's freight manager did come out with some positive comments today saying FDX's freight division should see growing revenues but the growth would be slower. Those traders not willing to call it quits just yet might want to consider inching up their stop loss under the simple 50-dma currently near $63.50. P&F chart fans will note that FDX has not yet violated its current triple-top buy signal. Picked on July 20 at $65.32 Change since picked: -1.31 Earnings Date 09/23/03 (unconfirmed) Average Daily Volume: 1.70 million Chart = --- Golden West Fincl. - GDW - cls: 82.25 chg: -0.95 stop: 81.60 This could be trouble. The deterioration in the banking indices (BKX & BIX) could spell bad news for the broader markets. It was the financial sector that helped lead everyone higher and the recent technical breakdown has been confirmed with additional selling today. Our call play on GDW has not yet been stopped out but we don't feel like waiting around for a retest of $80.00 to tell us what we already know. Investors are taking profits and support at the 50-dma is being broken left and right across different sectors. GDW's simple 50-dma is currently at $81.75 but we're going to exit now and cut our losses early. P&F chart readers will note that GDW's bullish triangle breakout has now rolled over into a three-box reversal. Picked on July 27 at $85.66 Change since picked: -3.41 Earnings Date 07/21/03 (confirmed) Average Daily Volume: 581 thousand Chart = PUTS: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Kohl's Corporation - KSS - close: 58.80 change: -1.37 stop: 57.25 After 3 failed attempts to break through resistance, KSS finally succumbed to the bears' assault on Tuesday, sliding back under $59. Price weakness continued down to just above $58 before the stock caught a rebound from the 10-dma ($58.32). Unfortunately, KSS couldn't make much headway after that rebound with both the broad market and the Retail index (RLX.X) breaking down. The action in the RLX was particularly bearish, as it continued its breakdown from the rising channel and closed under the 50-dma ($329.77) for the first time since March 13th. This is precisely why we initiated coverage of KSS with a trigger just over the recent highs. We're still waiting for that trigger ($60.60) to be hit, so if the stock succumbs to the weakness all around it then there's no harm done. But if it can break out despite all the bearish influences, then it will confirm the relative strength we've been focused on. If our $57.25 stop is hit, then we'll be dropping the play anyways. Wait for the breakout! Picked on July 31st at $59.35 Change since picked: -0.55 Earnings Date 08/14/03 (unconfirmed) Average Daily Volume = 4.57 mln --- L-3 Communications -LLL - close: 48.02 change: -1.57 stop: 47.25 That doesn't look good at all! After more than a week of failing to break out over the $50 resistance level, shares of LLL got hit with a serious bout of selling on Tuesday, knocking the stock right back to the top of its July 28th gap. Adding to the bearish tone, the stock ended at its low of the day, breaking the 10-dma ($48.45) in the process and looks like it will break into that gap tomorrow. The Defense index (DFI.X) got hit for nearly a 2% loss on the day as well, breaking its 20-dma ($559) and closing at the low of the day. Clearly, this is not the setup we want to see and we are not recommending new entries at this time. Aggressive traders can consider entering on a solid rebound, but will want to see LLL back over its 10-dma and the DFI index back over the 20-dma before doing so. The best approach for new entries is still to wait for LLL to finally break out with a trade over $50.50, but tonight such a setup looks far away. If our stop at $47.25 (just below the bottom of the gap) is taken out, then we'll know for certain that we chose poorly. Picked on August 3rd at $49.90 Change since picked: -1.88 Earnings Date 10/22/03 (unconfirmed) Average Daily Volume = 962 K --- PACCAR - PCAR - close: 77.18 change: -1.17 stop: 72.99 Shares of PCAR may not have stood out among the declining stocks today (there were so many) but its relative strength over the last several sessions should have. The stock rallied up to the $79.73 level on Monday before pulling back. Today's profit taking of 1.5% is mild. We knew that the $80 mark could be resistance so the price action is not unexpected. Traders can use the current weakness to their advantage. Look for a pull back to support between $74.00 and $75.00. A bounce in this region would be an attractive entry point for PCAR's next leg higher. Speaking of which Prudential just raised their price target on PCAR today from $72 to $87 on strong data indicating improvement in the truck market. Picked on July 31 at $77.24 Change since picked: -0.06 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.15 million Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Anthem Inc. - ATH - close: 72.26 chg: -1.99 stop: 75.50 *new* Our new put play from Sunday is off to a good start this week. Shares dipped towards their simple 100-dma on Monday before rebounding back from its lows with the rest of the market. Unfortunately for shareholders the stock turned around again Tuesday morning producing a fresh failed rally under the $75.00 level and confirming the technical break of support at $75.00. As we mentioned earlier our first target is $70.00 but some indicators suggest a potential move to the $67.50 level near its simple 200-dma. We are lowering our stop to $75.50. Picked on August 3rd at $74.49 Change since picked: -2.23 Earnings Date 07/31/03 (confirmed) Average Daily Volume: 1.1 million Chart = --- Black & Decker - BDK - cls: 38.46 chg: -1.04 stop: 41.01 *new* And it's off to the races for the bears in BDK. Shares have been cascading lower on strong volume lending some conviction to the move. OptionInvestor.com was triggered short when BDK traded at $39.99 on Monday but more aggressive traders who took our alternative entry at a failed rally of $41.00 are looking pretty good today. While we are very encouraged by the follow through on the technical breakdown the stock is now somewhat overdue for a bounce and the $38.00 level is a logical place to expect one. We're not necessarily against adding new positions at current levels but we wouldn't mind waiting for a bounce and a new failed rally (maybe near the $40 mark) either. The move under $40 is a major break in support on both BDK's daily and weekly charts. Remember our profit target is the $35.00 level but don't let that stop you from harvesting profits should you feel the urge. We're lowering our stop loss to $41.01 but tighter stops near $40 would work as well. Picked on August 4 at $39.99 Change since picked: -1.53 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 731 thousand Chart = --- Fifth Third Bancorp - FITB - cls: 52.77 chg: -1.19 stop: 55.01 *new* So far so good. Our bearish play in shares of FITB was a little slow off the start but it's finally working out. FITB has been under performing its peers for weeks now and when the banking indices started to crack on Friday we saw similar cracks in FITB. Now that support has been broken we can start to plan our exit strategy. Originally we pointed to the $51.00-$50.00 area as our profit target. The $50 level is strong psychological support as well as historical support/resistance. However, FITB's P&F chart shows rising support at $51.00. We're not quite sure where we want to exit just yet and might ponder exiting half near $51.00 and the other half (of our hypothetical position) near $50.00. Let's call it $51.25 and $50.25 just for kicks and to get the jump on other traders looking at the same levels. We are going to lower our stop loss to $55.01 but $54.40 might work out as well. Picked on July 17th at $55.26 Change since picked: -2.49 Earnings Date 07/15/03 (confirmed) Average Daily Volume = 2.4 million Chart link: --- Freddie Mac - FRE - close: 48.75 change: +0.45 stop: 50.25 We've been expecting a decent oversold bounce from FRE ever since the stock solidly broke below the $50 level last week. That seems to have been what transpired on Tuesday, as the stock managed to eke out a 45 cent gain while the rest of the market got pummeled under significant support levels. This rebound does nothing to change our outlook though, as FRE remains well below its 10-dma ($49.59), which has been acting as consistent resistance for the past 3 weeks. Aggressive traders can consider new entries on a rejection from below the 10-dma, looking for the stock to finally break $48 and make strides towards our eventual target of $45. The one note of caution comes from the daily Stochastics and MACD oscillators, which appear to be trying to put in a bottom. The more conservative approach for new entries may be to wait for a break below $47.75 (just below yesterday's intraday low) before playing. Picked on July 22nd at $50.33 Change since picked: -1.58 Earnings Date 07/15/03 (confirmed) Average Daily Volume = 7.43 mln --- The Home Depot - HD - close: 30.30 change: -0.65 stop: 31.35*new* In a market filled with irrational and reactive spikes and plunges, our HD play has been the paragon of consistency. Posting a consistent series of lower highs and lower lows over the past few weeks, the stock is very near our initial target of $30. As mentioned on Monday in the Market Monitor, conservative traders should be taking advantage of the current weakness to lock in gains in anticipation of a near-term bounce. Of course, an argument can be made that yesterday's rebound off the lows was that rebound, but we're not sure. You'll never go broke harvesting gains. We're still looking for HD to drop into and fill its mid-May gap down to the $28 level, but it may not happen until after a stronger oversold bounce than what we saw yesterday. Because of the risk of a bounce, we aren't recommending new entries at current levels. We'll continue to ratchet our stop down, keeping it just above the 10-dma ($31.35), which has continued to provide firm resistance during this downward move. Lower stops to $31.35 tonight. Picked on July 10th at $32.43 Change since picked: -2.13 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 9.67 mln --- Merck & Co. - MRK - close: 53.51 change: -0.62 stop: 55.75*new* News this morning that MRK would be spinning off its Medco unit in a tax-free dividend to shareholders on August 19th gave the stock a bit of a boost this morning, but broken support turned out to be strong resistance. After failing to reach the $55 level the stock began to weaken in the early afternoon and picked up speed into the close, ending at a new multi-month low of $53.51. That failed rebound may be the best entry point we see for awhile, as the stock finally closed below the 38% retracement ($53.88) of the rally off the July-2002 lows and the 50% retracement ($50.95) appears to be the next target for the bears. Successive failed bounces below $55 still look attractive for new entries, while momentum traders should be able to take advantage of a breakdown under $53.25 (yesterday's intraday low) as an entry point. Our target remains the $50-51 area, with support likely to come from that 50% retracement, which is just above the bottom put in during March. Lower stops to $55.75 (just above the 10-dma). Picked on July 29th at $55.39 Change since picked: -1.88 Earnings Date 10/20/03 (unconfirmed) Average Daily Volume = 6.34 mln --- Progressive Corp - PGR - close: 64.56 chg: -0.64 stop: 67.26 Is this it? Have we finally witnessed the break in support for shares of PGR? The last two and half weeks have been frustrating for bears as the stock would not close below support of $65.00. However, we suspected the breakdown was imminent as the trend of lower highs continued to press down on buyers chewing up demand. We did get some help in the IUX insurance index which spent the last few sessions completing its rollover from the 281-282 level and dropped to support and its 50-dma near 270. Further weakness from here in the IUX could have the index retesting the 260 mark for support. Looking back to PGR, this has been the move we've been waiting for. Conservative traders, momentum traders, patient traders who didn't jump in today can begin to evaluate their entries. Our first target is the $60.00 level near its 200-dma. Feel free to tighten your stop should you feel the need. Picked on July 23 at $65.22 Change since picked: -0.66 Earnings Date 07/16/03 (confirmed) Average Daily Volume: 941 thousand Chart = ************* NEW PUT PLAYS ************* Best Buy Company - BBY - close: 40.18 change: -1.83 stop: 43.05 Company Description: Best Buy a specialty retailer of name-brand consumer electronics, home office equipment, entertainment software and appliances. The company provides a broad selection of models within each product line in order to provide the customer with a meaningful assortment, offering more than 5800 products, not counting entertainment software titles. Growing its store count by 15% in fiscal year 2000, brought the grand total to more than 4000 in 41 states by year end. Why we like it: Throughout its rally off the March lows, the Retail index (RLX.X) has been powered higher by strong stocks like BBY. But over the past few weeks, that strength has been fading, with the first clue being the RLX breaking below the bottom of its 4-month ascending channel last Friday. Monday's trade saw more weakness followed by an encouraging rebound from the 50-dma ($329.77), but any enthusiasm behind that rebound quickly faded on Tuesday, as the RLX logged a 1.94% loss and closed below the 50-dma for the first time since early March. The picture is much the same for shares of BBY, as the stock had managed to rally above strong resistance at $45 in early July, but that bullishness has been steadily fading in recent weeks. After rebounding from critical support near $41 twice in the past couple weeks, the stock was sold hard on Tuesday, breaking that support, and solidifying the breakdown under the 50-dma (currently $42.85). While there is some mild support at $40, the next serious support appears near $37.00-37.50, which was resistance in mid-May. Even that support should fail though if the breakdown in the RLX continues and BBY continues to see increasing selling volume like that seen over the past week. There are a couple ways to play this one. Momentum traders can take advantage of a break below $40 to jump into the play, while more conservative traders can look for a rebound from that level, ideally setting up an entry on a rollover below $42, which should be strong resistance now. Once below $40, our initial target will be for a drop to $37, at which point conservative traders will want to harvest partial gains in anticipation of an oversold rebound. So long as that rebound fails below $40, we can use the subsequent rollover to enter for the next leg of the decline down to our final destination of $35. Our stop will initially be set at $43.05, which is just above the 50-dma, as well as yesterday's intraday high. Monitor the RLX index for confirmation of continued weakness before playing. Suggested Options: Aggressive short-term traders will want to focus on the August 40 Put, as it will provide the best return for a short-term play. With August contracts expiring next week though, conservative traders will want to utilize the September 40 contract, which provides greater insulation from the spectre of time decay. BUY PUT AUG-40 BBY-TH OI=2962 at $1.25 SL=0.60 BUY PUT SEP-40 BBY-UH OI=4927 at $3.00 SL=1.50 BUY PUT SEP-37 BBY-UU OI=5783 at $1.85 SL=0.90 Annotated Chart of BBY: Picked on July 10th at $40.18 Change since picked: +0.00 Earnings Date 09/17/03 (unconfirmed) Average Daily Volume = 9.61 mln --- Intl Business Mach - IBM - cls: 79.85 chg: -1.28 stop: 82.51 Company Description: Big Blue is being heralded as the world's largest technology company. Considering their massive hardware and software business across the globe it's not surprising. However, IBM's services and consulting business is growing by leaps and bounds and is a major source of revenues. Why We Like It: Go with the flow. That's our motto today. If the Industrials are going to give up 150 points and the tech sector is going to be targeted for additional profit taking then we'll pick a stock bound to be affected by both. IBM certainly qualifies. Shares of the stock lost another 1.57 percent in today's session but that by itself is not noteworthy. No. We've had Big Blue on our watch list and radar screens for a couple of weeks looking to see if support at the $80 mark would hold. Given the markets late afternoon push lower the answer would be no. Furthermore not only did IBM break the $80 level of support but the last three weeks have been a series of lower highs as investors sold at key inflection points forming new resistance along the way down ($84.00, $82.50, $81.00, and its 200-dma all look like short-term overhead resistance). So what's wrong with Big Blue? In reality it may not be IBM itself. That's not to say investors are happy with it. Earnings came out in mid-July and the company only reported in-line. There was no upside surprise, no big positive spin about future quarters. Wall Street did seem impressed that IBM was able to beat analysts' expectations on the quarterly revenue numbers but certain divisions in the company seemed to stumble. IBM even added that it continued to see customers delay orders in Q2. Investors could be painting IBM with the same broad strokes affecting the tech sectors. The NASDAQ lost more than two percent today and closed below the 1700 level of support. Closer to home the GHA hardware index dropped almost 3.25 percent and traded down towards the 200 level. Most indicators would suggest that IBM has more weakness ahead of it. Daily and weekly chart oscillators are all bearish, albeit some are pinned in oversold territory. The stock's point-and- figure chart, a sign of supply and demand, has tested and broken key bullish support. While there does appear to be some potential support near $78.00 we're betting that IBM can trade towards the $75.00 level. We're going to initiate the play with a stop loss at $82.51, which is above the 200-dma. Suggested Options: Our preference will be for the September and October puts. The 80 and 75 strikes look like a good bet. BUY PUT SEP 80 IBM-UP OI= 5786 at $3.00 SL=1.65 BUY PUT SEP 75 IBM-UO OI= 5619 at $1.20 SL=0.65 BUY PUT OCT 80 IBM-VP OI=23302 at $4.10 SL=2.00 BUY PUT OCT 75 IBM-VO OI=15264 at $2.25 SL=1.15 Annotated Chart of IBM Picked on August 5 at $79.85 Change since picked: -0.00 Earnings Date 07/16/03 (confirmed) Average Daily Volume: 8.2 million Chart = ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 08-05-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: Go With The Flow (IBM) ********************** PLAY OF THE DAY - CALL ********************** Intl Business Mach - IBM - cls: 79.85 chg: -1.28 stop: 82.51 Company Description: Big Blue is being heralded as the world's largest technology company. Considering their massive hardware and software business across the globe it's not surprising. However, IBM's services and consulting business is growing by leaps and bounds and is a major source of revenues. Why We Like It: Go with the flow. That's our motto today. If the Industrials are going to give up 150 points and the tech sector is going to be targeted for additional profit taking then we'll pick a stock bound to be affected by both. IBM certainly qualifies. Shares of the stock lost another 1.57 percent in today's session but that by itself is not noteworthy. No. We've had Big Blue on our watch list and radar screens for a couple of weeks looking to see if support at the $80 mark would hold. Given the markets late afternoon push lower the answer would be no. Furthermore not only did IBM break the $80 level of support but the last three weeks have been a series of lower highs as investors sold at key inflection points forming new resistance along the way down ($84.00, $82.50, $81.00, and its 200-dma all look like short-term overhead resistance). So what's wrong with Big Blue? In reality it may not be IBM itself. That's not to say investors are happy with it. Earnings came out in mid-July and the company only reported in-line. There was no upside surprise, no big positive spin about future quarters. Wall Street did seem impressed that IBM was able to beat analysts' expectations on the quarterly revenue numbers but certain divisions in the company seemed to stumble. IBM even added that it continued to see customers delay orders in Q2. Investors could be painting IBM with the same broad strokes affecting the tech sectors. The NASDAQ lost more than two percent today and closed below the 1700 level of support. Closer to home the GHA hardware index dropped almost 3.25 percent and traded down towards the 200 level. Most indicators would suggest that IBM has more weakness ahead of it. Daily and weekly chart oscillators are all bearish, albeit some are pinned in oversold territory. The stock's point-and- figure chart, a sign of supply and demand, has tested and broken key bullish support. While there does appear to be some potential support near $78.00 we're betting that IBM can trade towards the $75.00 level. We're going to initiate the play with a stop loss at $82.51, which is above the 200-dma. Suggested Options: Our preference will be for the September and October puts. The 80 and 75 strikes look like a good bet. BUY PUT SEP 80 IBM-UP OI= 5786 at $3.00 SL=1.65 BUY PUT SEP 75 IBM-UO OI= 5619 at $1.20 SL=0.65 BUY PUT OCT 80 IBM-VP OI=23302 at $4.10 SL=2.00 BUY PUT OCT 75 IBM-VO OI=15264 at $2.25 SL=1.15 Annotated Chart of IBM Picked on August 5 at $79.85 Change since picked: -0.00 Earnings Date 07/16/03 (confirmed) Average Daily Volume: 8.2 million Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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