The Option Investor Newsletter Wednesday 08-27-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Technology Crawls Higher Futures Wrap: Equities Drift, Gold Breaks Out Index Trader Wrap: See Note Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 08-27-2003 High Low Volume Advance/Decline DJIA 9333.79 - 6.66 9346.98 9306.49 1.28 bln 1673/1128 NASDAQ 1782.13 + 11.48 1783.12 1764.63 1.34 bln 1865/1128 S&P 100 498.73 + 1.07 500.02 492.75 Totals 3538/2256 S&P 500 996.79 + 0.06 998.05 993.33 RUS 2000 490.92 + 4.41 491.44 485.91 DJ TRANS 2632.63 - 4.07 2637.37 2622.90 VIX 20.34 + 0.01 21.07 20.28 VXN 30.05 + 0.71 31.52 29.41 Total Volume 2,794M Total UpVol 1,902M Total DnVol 824M 52wk Highs 368 52wk Lows 49 TRIN 0.92 PUT/CALL 1.08 ******************************************************************* Technology Crawls Higher by James Brown It was a lethargic day on Wall Street. Major market indices barely budged. A lack of economic reports today and potential apprehension for the reports coming out tomorrow and Friday could have put investors on the defensive. Of course that's assuming there were any investors paying attention with so many financial professionals on vacation. Volume continues to be light on Wall Street and it's only going to get lighter as we approaching the Labor Holiday weekend. Financials seemed to feel the brunt of the selling but the damage was meager for the BIX and BKX indices. Tech stocks took the opportunity to inch higher fueled by a round of upgrades for the semiconductor sector. The SOX index lead the way with a 2.95% gain closing just under 450. Bear Stearns, Lehman Brothers and Harris Nesbitt Gerard all upgraded specific chip stocks. Following the SOX higher was the DDX disk drive index, GHA hardware index, NWX networking index, GSO software index and even the INX Internet index. The Dow Jones Industrial Average was nearly split down the middle with 13 winners and 16 losers led lower by SBC Communications, Johnson and Johnson and 3M. The $INDU closed down less than 7 points near 9333. Meanwhile the NASDAQ Composite inched higher to close up about eleven and a half points at 1782. The S&P 500 remains almost unchanged at 996. Not helping the mood of the markets were small losses across the Pacific in the Asian exchanges but these were countered by small gains in their European counterparts. Market internals reflected a slightly different story with advancing issues outpacing decliners by 16 to 11 on the NYSE and 18 to 11 on the NASDAQ. New highs were growing again with 271 swallowing the 16 new lows between the two exchanges. Up volume bested down volume as well, indicating that despite recent statements from Wall Street pundits, the path of least resistance may be up. Optimists will note that we continue to see money move into small caps as the Russell 2000 index added another five points on top of its recent rebound. Chart of the Dow Jones Industrial Average: Chart of the NASDAQ Composite: It certainly felt like the market was asleep but technology bulls took advantage of the slumbering bears to drive all of the tech- related indices higher. Other indices making gains were the DFI defense index and the RLX retail index. Last night Sears came out with positive comments saying August sales were doing better than expected. Plus traders saw Dollar Tree (DLTR) add almost four percent after beating earnings estimates and raising guidance. However, probably the most impressive gain was the XAU gold & silver index. The XAU added 4.3 percent to close at 91.34. Aside from some intraday highs in September of 1999, today is the best closing high since April of 1998. If the XAU can close above 93.50 it will be the best close since October of 1997. With the markets in a lull before the holiday and the end of week economic reports financial media turned their spotlight on Richard Grasso, Chairman of the New York Stock Exchange. Grasso has been with the company for 36 years and just signed a new agreement to extend his contract by two more years to 2007 paying him a base salary of $1.4 million and an annual bonus of at least $1 million. No one argues that he is richly paid but what shocked and alarmed some investors and industry professionals was the $140 million that the NYSE just paid Grasso. The exchange said the $140 million was Grasso's accrued savings, retirement benefits and incentive awards. I imagine there are plenty of people in line to interview for that job when he decides to retire. Traders need to be careful as we endure Thursday and Friday's sessions. Tomorrow, before the bell, will be the weekly unemployment claims. Wall Street is looking for a slight increase to 390,000 and hopes if there is an upside surprise it remains below the 400,000 mark. We'll also get the Q2 GDP numbers. Actually, it's just the revision of the Q2 GDP numbers, which came in at +2.4%. That was a lot higher than the +1.4% expectation. There appears to be some disagreement on whether the revision will be up or down. Tomorrow will also reveal the latest help wanted index readings. Friday, if anyone is still paying attention and not packing the car for a weekend getaway, will produce the Personal Income and Spending numbers before the opening bell. During Friday's session we'll hear the Michigan Sentiment report and the Chicago PMI index result. There are not a lot of reasons to be buying stocks ahead of the weekend when most investors will be waiting to hear from these various economic reports. Trade carefully. ************ FUTURES WRAP ************ Equities Drift, Gold Breaks Out Jonathan Levinson Goldbugs had a perfect day, with gold breaking out of its multimonth pennant and closing near its highs, while the AMEX Goldbugs Index adding double digits to a 6 year closing high. Equities were mixed, with the ES closing lower by 0.25, NQ adding 12 and YM losing 7. Daily Pivots (generated with a pivot algorithm and unverified): 10 minute chart of the US Dollar Index The US Dollar Index recovered overnight from yesterday's steep selloff, but got sold again when Europe opened, bottoming just above 98.50 and spending the day edging higher toward 99.95 as of this writing. The bounce has taken the shape of a bear wedge projecting to a possible high of 99 currently. Daily chart of December gold The biggest action of the session was in precious metals, with the CRB holding above 241 on strength in gold, silver and platinum futures. The breakout took even goldbugs by surprise, with the upper descending trendline on the pennant we've been tracking for months was broken with authority. December gold moved quickly over 370 did not pull back below 371. The intraday high was 375.40, with the December contract nearly quadrupling yesterday's volume and spending most of the afternoon above 373, up 7.30 at 374.10 as of this writing. The HUI and XAU rallied as well, closing at their highs of the day, adding 11.14 and 3.76 respectively to close at 193.89 and 91.33. December silver was up 13.4 cents to 5.16. Daily chart of the ten year note yield The Treasury auction of 25B in 2 year notes generated a bid to cover ratio of 1.73, with the majority of bonds sold at the high yield of 2.04%. Treasury yields were higher across the curve after trading mixed near the open, finishing the day solidly in the green. The five year note yield gained 7.4 basis points, the ten year (TNX) +5 bps to close at 4.536%, and the thirty +3.3 bps to close at 5.31%. The green close kept the TNX above the secondary rising trendline, but not by much, and the upwardly drifting 10 day stochastic appears to be rolling over. If so, ten year treasuries could be finding support at a higher low. Daily NQ candles The NQ was the equity darling today, with the daily candle print back above the ascending trendline. The oscillator upphase has been threatening to follow those of the ES and YM, but gained some leeway with today's 12 point gain. While it's an encouraging development, the trendline has been exerting magnetic pull recently, and the daily oscillators remain in topping territory. While the NQ looks extended to me, this year has shown us that money can buy anything, including extended indices. The dollar was lower, gold was higher, and while treasuries bucked the trend, there was the treasury auction obfuscating our intermarket analysis. Bears are hungry for a pullback, but the NQ may well continue to deny it. 30 minute 20 day chart of the NQ Despite the bullish daily print, the 30 minute chart looks less bullish. The oscillators are maxxed out on this shorter cycle, and the 1320 level acted like a brick wall. Tomorrow AM's data could gap the NQ higher and cause the 300 minute stochastic to begin trending in overbought as the daily cycle marches higher, but again, the oscillators tell us that bulls bear the burden of proof for the time being. Daily ES candles The ES went nowhere today, and did so within a 5 point range. With the daily cycles and 30 minute clearly topped out, the technical bet is for downside from here. 996 acted like a magnet all afternoon. A trip to 983 would extend the trading range we've been following without significantly changing the technical picture, but today's failure below 998 dulled the outlook for ES bulls. 20 day 30 minute chart of the ES Note how, on the 30 minute Macd, the oscillator is rolling over from a lower high. The recent up-phase on the stochastic and Macd started from a higher low, however, and this sets the stage for more sideways trading as bulls and bears force the issue into a narrowing range. 150 tick chart of the ES Daily YM candles Like the ES, the YM had a narrow range, quiet day, dropping 7 points. The cyclical picture is the same as for the ES. 20 day 30 minute chart of the YM For tomorrow, we have numerous potentially market-moving economic data due. If not for the action in gold and the dollar during the past two days, I'd be much less cautious on the bear side than I am. A liquidity-driven flagpole rally, such as we've been conditioned to fear, could blow the cycle setup out the window in a small number of ticks. I don't see a long setup from here based on the charts I follow, which are weighted to the bearish side. ------------------------------------------------------------ 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. 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The Option Investor Newsletter Wednesday 08-27-2003 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: None New Call: CCMP Play of the Day: Call - SPW Spreads, Combinations & Premium-Selling Plays: Another "Ho-Hum" Session! Watch List: Three Techs & a Cyclical Updated on the site tonight: Market Posture: Mirror Image ------------------------------------------------------------ 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 ************ None ------------------------------------------------------------ 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: ------------------------------------------------------------ ******** NEW CALL ******** Cabot Microelect. - CCMP - close: 64.45 change: +1.52 stop: 61.50 Company Description: Cabot Microelectronics is a 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 flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. Why we like it: After last week's euphoric conclusion of the powerful rally in the Semiconductor sector (SOX.X), investors have been selling into strength producing the expected bout of profit taking. In reality, the profit taking was actually pretty mild and after yesterday's intraday dip back to the $425 level, the bulls went back to work. Despite the lackluster day in the rest of the market on Wednesday, the SOX gained 2.95% and closed just below $450, its best close since last June. CCMP has been a solid performer in recent months, building a steady pattern of higher highs and higher lows following the March lows. Since that low near $41, the stock has been advancing in an ascending channel, the bottom of which is near $62.50, with the top at $71. With solid resistance near $68.50, it was no great surprise to see the stock turned back from that level last week, especially in the wake of last Thursday's downgrade to Neutral from UBS. The resultant profit taking took CCMP back down to the bottom of the channel (also the site of the 20-dma, now at $63), where the bulls eagerly went on a dip-buying spree today. This looks like an ideal point for new bullish entries, as CCMP still has plenty of room to run to the upside before encountering the top of its channel. The only problem is that the latest bout of selling actually put the PnF chart on a Sell signal and we'll need to see a rally through $69 to negate that bearish factor. With that bearish development on the PnF chart, this is definitely a more aggressive play, but with sector strength in its favor, as well as strong support in the $62-63 area, the risk reward looks favorable. Targeting new entries on another rebound from the bottom of the channel will provide the best risk reward for an anticipated move to the top of the channel. Of course a push through today's intraday high ($64.45) can be used for aggressive entries into the play as well. Look for initial resistance in the $67.50-68.50 area (near the recent highs), but continued strength in the SOX should help to propel CCMP through that resistance and quite possibly as high as $75. Our initial target will be for a move to $71, with an aggressive target of $75. Set stops initially at $61, which is below both the 30-dma ($61.59) and yesterday's intraday low. Note that the 30-dma hasn't been touched since the end of May. Suggested Options: Shorter Term: The September 65 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 70 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the October 65 Call. BUY CALL SEP-65 UKR-IM OI=1329 at $2.65 SL=1.00 BUY CALL SEP-70 UKR-IN OI= 991 at $0.90 SL=0.40 BUY CALL OCT-65 UKR-JM OI= 454 at $4.40 SL=2.75 BUY CALL OCT-70 UKR-JN OI= 563 at $2.40 SL=1.25 Annotated Chart of CCMP: Picked on August 27th at $64.45 Change since picked: +0.00 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 881 K ********************** PLAY OF THE DAY - CALL ********************** SPX Corporation - SPW - close: 48.60 change: +0.93 stop: 46.75 Company Description: SPX Corporation is a global provider of technical products and systems, industrial products and services, flow technology and service solutions. The company offers networking and switching products, fire detection and building life-safety products, television and radio broadcast antennas and towers, life science products and services, transformers, dock products and systems, cooling towers, air filtration products, valves, back-flow protection and fluid handling devices and metering and mixing solutions. The company also provides specialty service tools, diagnostic systems, service equipment and technical information services. SPW services a broad array of customers in a variety of industries, including chemical processing, pharmaceuticals, infrastructure, mineral processing, petrochemical, telecommunications, financial services, transportation and power generation. (source: company press release) Most Recent Update (Tuesday, August 26, 2003): Believe it or not, bullish sentiment is still alive and well, and that is certainly seen by the pattern building on the daily chart of SPW. With the rebound from just above $47.50 this morning, we can see that the bulls are defending a steeper trendline than we had initially looked at. This one connects the 7/23 and 8/07 intraday lows and currently rests at $47.40, just below today's intraday low before the stock rebounded strongly into the afternoon to end the session with a 1.95% gain. The pattern of higher lows and higher highs is still being formed and traders that took advantage of Tuesday's dip to initiate new positions look to have caught a solid entry, albeit just a bit above our expected $47.00-47.50 rebound zone. Remember, there's still a lot of congestion near the $50 level (the primary reason that we haven't been advocating entries on a break above the recent highs), so buying dips still appears to be the best approach. Aggressive traders can consider new positions on a breakout over $50, but need to watch for a failed breakout. Next solid resistance comes in near $53. - Play of the Day Comments - Shares of SPW continue to stair-step their way higher and the stock just bounced from the $47.50 level. Moderate to aggressive traders can use current levels for an entry point while more conservative traders might want to wait for a move over $50.00 first. Suggested Options: Shorter Term: The September 47 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 50 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the October 47 Call. BUY CALL SEP-47 SPW-IW OI= 663 at $2.30 SL=1.15 BUY CALL SEP-50 SPW-IJ OI=3836 at $1.05 SL=0.50 BUY CALL OCT-47 SPW-JW OI= 6 at $3.30 SL=1.60 BUY CALL OCT-50 SPW-JJ OI=2754 at $1.95 SL=1.00 Annotated chart: Picked on August 14th at $48.14 Change since picked: +0.73 Earnings Date 10/27/03 (unconfirmed) Average Daily Volume = 896 K ------------------------------------------------------------ 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 ********************************************* Another "Ho-Hum" Session! By Ray Cummins U.S. stocks ended mixed Wednesday with the major equity averages trading in a small range amid a dearth of market-moving catalysts. The Dow Jones Industrial Average retreated 19 points to 9,320 on weakness in Alcoa (NYSE:AA), J.P. Morgan Chase (NYSE:JPM) and SBC Communications (NYSE:SBC). The NASDAQ rose 4 points to close at 1,775 as semiconductor, disk-drive and networking stocks added to recent gains. The Standard & Poor's 500 Index ended unchanged at 996 with oil service, retail, tobacco and gold issues among the upside movers while banking, home builders, chemical, and health provider shares endured limited selling pressure. Volume came in at 1.05 billion shares on the Big Board and 1.3 billion shares on the NASDAQ. Advancing stocks outnumbered decliners by a ratio of 5 to 3 on both the NYSE and the technology exchange. In the bond market, the 10-year note declined 14/32 to yield 4.53% while the 30-year government bond dropped 1/2 to yield 5.31%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 8/26/03 *************** 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 DRIV SEP 17 17.15 26.68 $0.35 4.88% 2.04% IMCL SEP 30 28.85 40.01 $1.15 8.88% 3.99% LLTC SEP 32 31.75 39.80 $0.75 4.40% 2.36% OVTI SEP 30 29.15 41.15 $0.85 6.18% 2.92% SINA SEP 22 21.90 31.20 $0.60 5.80% 2.74% ZRAN SEP 20 19.60 24.10 $0.40 4.92% 2.04% CBK SEP 35 34.55 41.10 $0.45 3.39% 1.30% IMCL SEP 30 29.45 40.01 $0.55 5.18% 1.87% LLTC SEP 32 32.00 39.80 $0.50 3.64% 1.56% NVLS SEP 30 29.55 39.64 $0.45 3.92% 1.52% OVTI SEP 30 29.35 41.15 $0.65 5.83% 2.21% PCLN SEP 25 24.65 36.28 $0.35 4.03% 1.42% PHTN SEP 22 22.10 29.73 $0.40 5.24% 1.81% RIMM SEP 20 19.60 27.66 $0.40 5.78% 2.04% URBN SEP 40 39.40 46.44 $0.60 3.78% 1.52% AEIS SEP 17 17.10 22.43 $0.40 5.97% 2.34% AEIS SEP 20 19.50 22.43 $0.50 7.31% 2.56% FLML SEP 17 17.00 21.30 $0.50 9.88% 2.94% IMCL SEP 35 34.50 40.01 $0.50 4.45% 1.45% JCOM SEP 50 49.40 58.75 $0.60 4.30% 1.21% MGAM SEP 22 22.20 26.19 $0.30 4.08% 1.35% NFLX SEP 22 22.25 29.79 $0.25 4.01% 1.12% NTES SEP 40 39.55 48.97 $0.45 4.13% 1.14% PHTN SEP 25 24.60 29.73 $0.40 5.15% 1.63% RIMM SEP 22 22.15 27.66 $0.35 5.48% 1.58% SINA SEP 25 24.70 31.20 $0.30 4.23% 1.21% ANPI SEP 35 34.55 43.79 $0.45 4.69% 1.30% Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield CVTX SEP 32 32.95 24.43 $0.35 5.65% 1.06% MEDI SEP 40 40.65 34.08 $0.65 4.68% 1.60% RJR SEP 35 35.55 33.08 $0.55 4.15% 1.55% CVTX SEP 30 30.45 24.43 $0.45 8.12% 1.48% Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status KSS 60.64 61.95 SEP 50 55 0.60 54.40 $0.60 Open WHR 66.05 68.68 SEP 55 60 0.60 59.40 $0.60 Open XAU 82.67 87.57 SEP 70 75 0.55 74.45 $0.55 Open APPX 43.86 47.54 SEP 30 35 0.55 34.45 $0.55 Open CHIR 46.33 49.95 SEP 40 42 0.25 42.25 $0.25 Open TIF 37.42 38.40 SEP 30 35 0.45 34.55 $0.45 Open AMZN 43.76 45.93 SEP 37 40 0.30 39.70 $0.30 Open KLAC 54.35 57.40 SEP 47 50 0.30 49.70 $0.30 Open RCII 75.80 77.68 SEP 65 70 0.60 69.40 $0.60 Open Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status UNH 48.79 49.24 SEP 57 55 0.30 55.30 $0.30 Open WLP 76.49 76.28 SEP 90 85 0.50 85.50 $0.50 Open CTX 73.74 77.23 SEP 85 80 0.65 80.65 $0.65 Open NBIX 49.52 51.90 SEP 60 55 0.60 55.60 $0.60 Open LLY 61.61 64.56 SEP 70 65 0.55 65.55 $0.55 Open? MRK 52.12 50.30 SEP 60 55 0.55 55.55 $0.55 Open Eli Lilly (NYSE:LLY) is on the early-exit list after this week's recovery rally and the position should be closed on any further upside activity. Synthetic Positions ******************* No Open Positions Debit Straddles *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ABC 60.00 57.65 NOV 60 60 7.25 7.00 Open 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. ************** AEIS - Advanced Energy $23.22 *** The Rally Continues! *** Advanced Energy (NASDAQ:AEIS) is a leader in the development and support of technologies for critical high-technology manufacturing processes used in the production of semiconductors, flat panel displays, data storage products, compact discs, digital video discs, architectural glass, and other advanced product applications. Leveraging a diverse product portfolio and technology leadership, the firm creates solutions that maximize process impact, improve productivity and lower cost of ownership for its customers. This portfolio includes a comprehensive line of technology solutions in power, flow, thermal management, plasma and ion beam sources, and integrated process monitoring and control for original equipment manufacturers and end-users around the world. AEIS - Advanced Energy $23.22 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 20 OEQ UD 39 0.25 19.75 5.0% 1.3% * SELL PUT SEP 22.5 OEQ UX 44 1.05 21.45 13.8% 4.9% ************** BRKS - Brooks Automation $24.51 *** On The Move! *** Brooks Automation (NASDAQ:BRKS) is a supplier of automation products and solutions for the global semiconductor and related industries, such as the data storage, flat-panel display and other precision electronics manufacturing industries. The firm operates in the cluster-tool, vacuum-processing environment and in integrated factory automation software applications. Its offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the movement and management of wafers and reticles in the wafer fabrication facility. Through an investment and acquisition program, Brooks has emerged as a supplier of factory and equipment automation solutions for semiconductor manufacturers and original equipment manufacturers. The company operates in three segments: equipment automation, factory automation hardware and factory automation software. BRKS - Brooks Automation $24.51 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 20 BQE UD 20 0.25 19.75 5.7% 1.3% * SELL PUT SEP 22.5 BQE UX 110 0.70 21.80 10.4% 3.2% ************** FLML - Flamel Technologies $26.95 *** Bristol-Meyers Deal! *** Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company engaged mainly in the development of two polymer-based delivery technologies for medical applications. The company's Micro-pump technology is a multi-particulate technology for oral ingestion of small molecule drugs with applications in controlled release, tastemasking and bioavailability enhancement. The company has three major products based on its Micropump technology: Asacard, a controlled-release formulation of aspirin for the treatment of cardiovascular disease; Metformin XL, a controlled-release form of Metformin that is in development for use for the treatment of Type II diabetes, and Genvir, a controlled-release acyclovir for the treatment of genital herpes. In addition, FLML has developed new herbicide delivery systems and has patented a biomaterial, ColCys. FLML - Flamel Technologies $26.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 22.5 FLU UX 100 0.60 21.90 11.0% 2.7% * SELL PUT SEP 25 FLU UE 30 1.40 23.60 17.3% 5.9% ************** LLTC - Linear Technology $41.17 *** New Trading Range? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $41.17 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 37.5 LLQ UU 1,840 0.35 37.15 3.4% 0.9% TS SELL PUT SEP 40 LLQ UH 930 0.95 39.05 7.4% 2.4% ************** OSIP - OSI Pharmaceuticals $36.87 *** New 52-Week High! *** OSI Pharmaceuticals (NASDAQ:OSIP) is a biotechnology firm focused on the discovery, development and commercialization of oncology products that both extend life and improve the quality of life for cancer patients worldwide. The company has established a balanced pipeline of oncology drug candidates that includes both next-generation cytotoxic chemotherapy agents and novel mechanism based, gene-targeted therapies. The company's most advanced drug candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor of the epidermal growth factor receptor (HER1/EGFR). The protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is over-expressed or mutated in many major solid tumors. OSIP - OSI Pharmaceuticals $36.87 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 30 GHU UF 1,430 0.35 29.65 5.4% 1.2% * SELL PUT SEP 35 GHU UG 319 1.45 33.55 12.8% 4.3% ************** NFLX - Netflix $32.37 *** New All-Time High! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX - Netflix $32.37 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 27.5 QNQ UY 398 0.45 27.05 6.7% 1.7% * SELL PUT SEP 30 QNQ UF 1,461 1.25 28.75 13.4% 4.3% ************** NTES - NetEase.com $48.92 *** Premium-Selling Only! *** NetEase.com (NASDAQ:NTES) is a China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. The NetEase Web sites, operated by a company affiliate, organize and provide access to 18 content channels through distribution arrangements with more than one hundred international and domestic content providers. In addition, the NetEase Internet sites offer a variety of products and services, including Instant Messaging (Popo), Dating, Love, Alumni and Personal Home Page. These products and services enable users to communicate about interests and areas of expertise. At the end of March 2003, the number of registered users of NetEase Web sites reached 114 million with the average number of daily page views over 370 million. NTES - NetEase.com $48.92 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 40 NQG UH 2,949 0.40 39.60 4.6% 1.0% * SELL PUT SEP 45 NQG UI 2,401 1.50 43.50 11.1% 3.4% ************** NVLS - Novellus Systems $40.07 *** Chip Sector Strength! *** 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 $40.07 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 35 NLQ UG 6,193 0.25 34.75 2.9% 0.7% TS SELL PUT SEP 37.5 NLQ UU 4,775 0.65 36.85 6.0% 1.8% * SELL PUT SEP 40 NLQ UH 5,683 1.40 38.60 10.5% 3.6% ************** PHTN - Photon $31.41 *** Next Leg Up? *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon $31.41 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 27.5 PDU UY 213 0.35 27.15 4.9% 1.3% * SELL PUT SEP 30 PDU UF 74 0.90 29.10 9.5% 3.1% ************** QCOM - Qualcomm $41.00 *** Entry Point? *** Qualcomm (NASDAQ:QCOM) is a developer and supplier of code division multiple access (CDMA)-based integrated circuits and system software for wireless voice and data communications and global positioning system (GPS) products. Qualcomm offers complete system solutions, including software and integrated circuits for wireless handsets and infrastructure equipment. This complete system solution approach provides customers with advanced wireless technology and enhanced component integration and interoperability, as well as reduced time to market. QCOM - Qualcomm $41.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 37.5 AAW UU 8,289 0.35 37.15 3.3% 0.9% TS SELL PUT SEP 40 AAW UH 4,831 0.95 39.05 7.4% 2.4% ************** RCII - Rent A Center $78.44 *** 5-for-2 Split Coming! *** Rent-A-Center (NASDAQ:RCII) is a primary store operator in the rent-to-own industry. Rent-A-Center operates approximately 3,000 company-owned stores in 50 states, the District of Columbia and Puerto Rico. The company's subsidiary, ColorTyme, is a national franchisor of rent-to-own stores. ColorTyme has over 300 stores in 42 states, 330 of which operated under the ColorTyme name and 12 stores of which operated under the Rent-A-Center name. The company's stores offer popular consumer products, such as home electronics, appliances, computers and furniture, and accessories under flexible rental purchase agreements that typically allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period. These unique agreements cater to customers who only have a temporary need, or who simply desire to rent rather than purchase, the merchandise. Rent-A-Center is planning a 5-for-2 stock split on 9/2/2003. RCII - Rent A Center $78.44 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 70 RQG UN 259 0.65 69.35 3.5% 0.9% TS SELL PUT SEP 75 RQG UO 114 1.70 73.30 7.3% 2.3% ************** 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. *************** BBY - Best Buy $51.45 *** Bullish Break-Out! *** Best Buy (NYSE:BBY) is America's leading specialty retailer of consumer electronics, personal computers, entertainment software and appliances. The company's subsidiaries operate retail stores and/or Web sites under the names: Best Buy (BestBuy.com), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com), and Magnolia Hi-Fi (MagnoliaHiFi.com). The company's many subsidiaries reach consumers through nearly 700 retail stores in the United States and Canada. Best Buy's quarterly earnings report is due 9/17/03. BBY - Best Buy $51.45 PLAY (very conservative - bullish/credit spread): BUY PUT SEP-42.50 BBY-UV OI=6950 ASK=$0.30 SELL PUT SEP-45.00 BBY-UI OI=6081 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.20-$0.30 POTENTIAL PROFIT(max)=8% B/E=$44.80 ************** MUR - Murphy Oil $53.62 *** Oil Sector *** Murphy Oil Corporation (NYSE:MUR) is a worldwide oil and gas exploration and production company with refining and marketing operations in the United States and the United Kingdom. The firm's operations are classified into two business activities: Exploration and Production; and Refining and Marketing. Murphy's principal exploration and production activities are conducted in the United States, Ecuador and Malaysia by wholly owned Murphy Exploration & Production Company and its subsidiaries; in western Canada and offshore eastern Canada by wholly owned Murphy Oil and its subsidiaries; and in the U.K. North Sea and Atlantic Margin by wholly owned Murphy Petroleum Limited. Murphy Oil USA, Inc., a wholly owned subsidiary, owns and operates two refineries in the United States and markets refined products through a network of retail gasoline stations and branded and unbranded wholesale customers. MUR - Murphy Oil $53.62 PLAY (conservative - bullish/credit spread): BUY PUT SEP-45.00 MUR-UI OI=258 ASK=$0.25 SELL PUT SEP-50.00 MUR-UJ OI=1578 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$49.50 ************** VIP - Vimpel Communications $54.95 *** Terrific Telecom! *** Vimpel Communications (NYSE:VIP) is an established provider of telecommunications services in Russia, operating under the Bee Line family of brand names. VimpelCom's license portfolio covers approximately 92% of Russia's population (134 million people), including the City of Moscow and the Moscow Region. VimpelCom introduced two digital cellular communications standards to Russia and built a dual band GSM-900/1800 cellular network. The company also led the development and emergence of the mass consumer market for wireless communications in Russia by introducing a prepaid product solution. VimpelCom offers various technologies, such as wireless application protocol and BeeOnline, a multi-access web portal that provides a multitude of wireless information and entertainment services, including location-based features. The company is due to report earnings on 8/28/03. VIP - Vimpel-Communications $54.95 PLAY (conservative - bullish/credit spread): BUY PUT SEP-45.00 VIP-UI OI=112 ASK=$0.25 SELL PUT SEP-50.00 VIP-UJ OI=31 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$49.50 ************** 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. *************** ACDO - Accredo Health $23.06 *** Earnings Speculation! *** Accredo Health (NASDAQ:ACDO) provides specialized contract pharmacy services on behalf of biopharmaceutical manufacturers to patients with chronic diseases. The company's services help simplify the difficult and often challenging medication process for patients with a chronic disease and help ensure that patients receive and take their medication as prescribed. The company's services benefit biopharmaceutical manufacturers by accelerating patient acceptance of new drugs, facilitating patient compliance with the prescribed treatment and capturing valuable clinical information about a new drug's effectiveness. The company's services include contract pharmacy services, clinical services, reimbursement services and delivery services. The company is expected to announce quarterly earnings during the first week in September. ACDO - Accredo Health $23.06 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 25 DZU IE 1,138 0.75 25.75 11.8% 2.9% * SELL CALL SEP 22.5 DZU IX 1,024 1.60 24.10 17.8% 6.6% ************** APC - Anadarko Petroleum $42.70 *** Failed Rally? *** 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 (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 45 APC II 13,478 0.55 45.55 4.5% 1.2% * SELL CALL SEP 42.5 APC IV 6,403 1.35 43.85 9.2% 3.1% ************** 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. ************** APOL - Apollo Group $60.52 *** More Earnings Speculation! *** Apollo Group (NASDAQ:APOL) provides higher education to working adults. The company operates through its subsidiaries, The University of Phoenix, Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International University. The company offers its many programs and services at 65 campuses and 111 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. The company's earnings report is due Thursday morning; 8/28/2003. APOL - Apollo Group $60.52 PLAY (less conservative - bearish/credit spread): BUY CALL SEP-70.00 OAQ-IN OI=646 ASK=$0.20 SELL CALL SEP-65.00 OAQ-IM OI=1721 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$65.60 ************** INTU - Intuit $45.94 *** Stuck In A Trading Range? *** Intuit (NYSE:INTU) is a provider of business tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals. The company's principal products and services include Quicken, QuickBooks, Quicken TurboTax, ProSeries, Lacerte and Quicken Loans. Intuit offers products and services in five principal business divisions, which include Small Business, Tax, Personal Finance, Quicken Loans and Global Business. INTU - Intuit $45.94 PLAY (moderately aggressive - bearish/credit spread): BUY CALL SEP-50.00 IQU-IJ OI=2113 ASK=$0.15 SELL CALL SEP-47.50 IQU-IW OI=1928 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=21% B/E=$47.95 ************** KBH - KB Home $56.31 *** Sector Consolidation *** KB Home (NYSE:KBH) is a diversified homebuilder with operations in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. KB Home builds homes that cater primarily to first-time and first move-up homebuyers, usually in medium-sized developments close to major metropolitan areas. The firm, through its majority owned subsidiary Kaufman & Broad, also has operations in France. Kaufman builds single-family homes and high-density residential properties such as condominium complexes and commercial projects. During the fiscal year ended November 30, 2002, the firm delivered 25,452 units and operated an average of 330 active communities. The company also provides mortgage banking services through its subsidiary, KB Home Mortgage Company. The company's quarterly earnings report is due 9/16/03. KBH - KB Home $56.31 PLAY (conservative - bearish/credit spread): BUY CALL SEP-65.00 KBH-IM OI=420 ASK=$0.20 SELL CALL SEP-60.00 KBH-IL OI=1345 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$60.45 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Three Techs & a Cyclical KLA-Tencor - KLAC - close: 58.51 change: +1.11 WHAT TO WATCH: There were several brokerage upgrades for individual chip stocks today and the SOX hit new relative highs after adding almost three percent. Lending its support to the move was KLAC, up 1.93% on the session. The bounce from $56 looks buyable but the stock has previous resistance at $60. It's a tough call to go one way or the other. Keep an eye on that $60 mark. Chart= --- Electronic Arts - ERTS - close: 86.98 change: -1.63 WHAT TO WATCH: Keep an eye on ERTS. The GSO software index is near new 52-week highs but ERTS is slipping back from its own new highs. Shares are up very strongly the last few months and it's a prime candidate for profit taking if only it would roll over. Watch for a bounce from $86 for its next move higher or nimble traders can try and catch a breakdown from $86 to $82. Chart= --- Adobe Systems - ADBE - close: 38.19 change: +0.05 WHAT TO WATCH: We're not making any recommendations on ADBE yet but it looks like one to watch. Bears can look at the stock and see the big move from $32 to $38 with strong resistance at $40.00. A failure at $40 and it might make a nice put play. Bulls are looking at the strong rally and hoping for a breakout over tough historical resistance at $40. The stock is certainly short-term overbought so it could just churn sideways but the trend of higher lows is certainly positive. Chart= --- Whirlpool - WHR - close: 69.89 change: +1.21 WHAT TO WATCH: We had a lot of tech stocks on the list tonight so we added WHR. Could this stock be riding a late wave of new home sales? Shares look very extended from their May lows near $51 but show no signs of slowing down. A move over historical resistance at $70 could set up for another leg higher towards congestion at $75 or even old highs near $80. If you're looking for a cyclical stock to watch put this one on your list. 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