The Option Investor Newsletter Thursday 11-06-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: New Highs Before New Jobs Futures Markets: Unidirectional Market Index Trader Wrap: 100K could equate to 10K Market Sentiment: The Markets Wait Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-06-2003 High Low Volume Advance/Decline DJIA 9856.97 + 36.10 9870.60 9773.12 1.77 bln 1848/1341 NASDAQ 1976.37 + 17.00 1977.91 1953.34 2.14 bln 1782/1325 S&P 100 523.84 + 3.59 524.27 518.14 Totals 3630/2666 S&P 500 1058.05 + 6.24 1058.94 1046.93 W5000 10324.30 + 61.20 10330.54 10220.74 RUS 2000 542.94 + 4.03 542.95 537.08 DJ TRANS 2985.49 + 52.80 2985.49 2924.50 VIX 16.74 - 0.12 17.37 16.62 VXO VIX-O 17.58 + 0.02 18.60 17.58 VXN 25.35 + 0.15 26.14 25.27 Total Volume 4,279M Total UpVol 2,910M Total DnVol 1,322M 52wk Highs 854 52wk Lows 23 TRIN 0.77 NAZTRIN 0.63 PUT/CALL 0.77 ************************************************************ New Highs Before New Jobs Bullishness breaking out all over on positive economic news and hopes for good news tomorrow. The Nasdaq led the day on the strength of Cisco earnings and it rescued the Dow from a sure sell off. Traders bought the rumor of a good Jobs report tomorrow morning and the indexes closed near the highs of the day. Dow Chart Nasdaq Chart Starting the day off was the Chain Store Sales for October at +3.2% and nearly half the +5.9% rate for September. The same store sales rates across various retailers painted a picture of weather related slowness with warmer weather delaying the purchase of winter clothes. Halloween goods were reportedly strong but seasonal apparel was weak. The Bank of Tokyo is currently projecting a rebound to +5% growth in November and +4% in December as the economy continues to recover and comparisons with a weak 2002 become easier. The biggest surprise for the day was the huge drop in the Jobless Claims. The claims for last week dropped -43,000 from the prior week which was revised up to 391K just as we expected. The very unexpected drop was well below the consensus estimates of 376,000. This dropped the four-week moving average to 380,000 and its lowest level since Jan 2001. Any level under 400,000 signifies a stabilizing labor market and a number under 350,000 indicates a recovering labor market. Continuing claims have also fallen below 3.6 million for the last three weeks. This huge drop in claims is similar to the drop in 1992 when the economy was recovering from that recession and the Iraq war. Hopefully this is the start of a new trend. You know I cannot let this extreme deviation from the norm pass without expressing doubts about the numbers. Of the 52 states/territories that report claims ONLY SEVEN actually reported a drop in claims. 45 reported a rise in claims. Initially I immediately thought California must have had an impact on the drop due to the fires but they actually reported an increase of +13,539 for the week. I cannot find anything that would explain the drop given the state ratios but I would still be skeptical until next weeks revision. The market was also skeptical. There was a very small spike on the announcement which immediately sold off and no gains for the entire morning. Other bullish data that was also ignored was the Productivity for Q3 which increased at a whopping +8.1%. This was the biggest jump since Q1-2001. Helping fuel this gain was an increase in the hours worked. This increase in productivity was also due to the continued trimming of the work force. Fewer workers, longer hours, restructured manufacturing plants and more orders produced more output. The constant pressure to raise earnings in a down economy has forced employers to do more with less. The faster the order demand increases the more productivity will jump as the basic lines are in place and capacity utilization is still only in the 75% range. Last night Cisco beat estimates and soared in after hours trading. Overnight the futures sold off substantially from those highs after the Nikkei dropped -285 points despite the reasonably good tech news. After the very good Jobless Claims and high Productivity numbers this morning there was no bounce at the open and the Dow sank to support at 9780 right out of the gate. Traders were in shock again. Just like the very bad Layoff report earlier in the week they just did not know what to do with the numbers. If they were ready to sell good news it was more good news than they were ready to accept. The Dow hugged support at 9780 until just after noon and actually absorbed a very large amount of selling in that range. The volume was very strong until about 11:30 as the battle for control was fought and then it just suddenly stopped. The markets remained soft but slowly saw a pickup in the buying as the afternoon progressed as bulls bought the jobs rumor and shorts covered just in case the rumor was true. The rumor is of course the Nonfarm Payrolls on Friday. The consensus estimates run from +50,000 to +63,000 jobs. The whisper numbers run from +125,000 to a whopping +200,000 jobs. Helping to fuel this rumor were comments from both Greenspan and Bernanke on jobs growth. Sound familiar? Remember last month when five Fed heads hit the airwaves the day before the Payroll report with strong comments on the jobless recovery? The various comments led investors to believe that the jobs number was going to be a disaster and everyone was shorting heavily ahead of the number. The actual number was for a gain of +57,000 jobs and the market exploded on short covering after the news. Of course the Fed heads already knew the number when they went on their speaking binge. It was a perfect setup and the markets fell for it completely. Using the same thought process we discussed on the monitor today what we should expect after the Greenspan/Bernanke two step on jobs. Adding in the -43,000 drop in jobless claims and traders were thinking moon shot. First, the Jobless Claims were for last week and are only an advance number and will not be a factor in the payroll number. The payroll number is based on a survey done around the third week of the month. The jobless claims were in the 391,000 range for that week. This produces a potential for a disappointment on Friday. The +57,000 gain last month was the first gain in seven months and well over the consensus estimate of -25,000. Now, since the dynamic duo knew the outcome before they started speaking today were they trying to give investors hope because the number is going to disappoint or were they just trying to jump on the popularity wagon to push a positive release to even better heights? We will not know until tomorrow but the markets are setup for a potential disappointment if the consensus numbers are not beaten. Still what will a disappointment mean to the markets. With the rally on the bad layoff news this week it appears the markets are bad news driven more than good. We sold off on the good Jobless and Productivity and rallied on the layoffs. Everyone believes there is a recovery in progress and every piece of bad news we get now will just keep the Fed on the sidelines longer. It is a bad news/good news joke in progress. Despite the positive reports this morning the Fed Funds futures are still not predicting any change until May. This and the "considerable period" comments from the Fed have taken the risk out of the bond market for the near term and should continue to fuel the recovery. The first quarter will see another round of tax checks to help the consumer sector and that should be the final shot that the Fed will ignore before the rate hike cycle begins. If they could I am sure they would like to wait until Q3-2004 and give the home builder sector one more massive injection of liquidity before the lid slams shut. The Fed Funds rate is not the real controlling factor for consumer interest but the bond market controls that sector. The bond rates are already rising and that will put pressure on the recovery but they cannot get too far ahead with the Fed funds at one percent. A bigger challenge to the market this month is the mutual fund trading scandal. Every day the number of funds under investigation grows and now the investigation is moving into the brokers who recommended those funds. The NASD said today they had found problems with a dozen major brokers and were expanding their probe. The evidence of the impact of the scandal came in the cash flow numbers today. Remember two weeks ago when TrimTabs was saying that October could go down as a record month for inflows with an estimated $30 billion? Surprise, October flows slowed dramatically with the advent of the probes and the current tally shows October ending with only $17 billion in inflows. That $13 billion drop from the estimates could easily have been a result of offsetting outflows or simply a hesitance to put more money into funds that may be guilty. Two weeks ago funds saw $4 billion in inflows, last week only $1.2 billion. If the spigot is tightening until the scandal is over then we could be in for a long dry spell. There are rumors of an impending settlement with funds but we are far too early in the process to know how each fund may be impacted by the settlement. It could literally be in the billions and it could cause some funds significant cash flow problems. I think this may be the sleeping giant that could awaken to bite us. We got some more good news today from the Semiconductor Industry Association. They upgraded their estimates for revenue growth for 2003 to +15.8% and to +19.4% for 2004. To put this into perspective the 2002 growth was only +1.3%. This is good news for tech stocks and chips in general as it means the top line is increasing. This helped push the Nasdaq to close at 1976 and only a stones throw from 2000. This was another new 52-week high for the index. The semiconductor index hit a new high of 525 on the news. The stage is set for Friday. Dow 10,000 and Nasdaq 2,000 are just one strong move above us. A blowout Jobs number could cause massive short covering and bullish buying and we could easily hit those numbers at the open. EXCEPT that this would be too easy. There was some short covering into the close but it was limited. Very few people appear to be either short or concerned about being short. The Jobless Claims this morning should have sent the indexes to news highs at the open and it fizzled well before the open. Blowout good news could actually have a reverse impact on the markets. If jobs suddenly rocketed to +200K as some whisper numbers expect then bonds would get killed as well as stocks based on an acceleration of the rate hike time table. You saw it this morning. Great news and no positive market reaction. That leaves us with a quandary. If the number is good and the market sells off do we buy the dip? Worked every week since March. If the number is bad do we buy the dip? I believe that whatever happens the indexes are still shooting for the 10000/2000 mark and traders will find some way to justify buying stocks this close to the psychological target. This could actually be investor suicide but bulls are not interested in that concept. The general consensus among traders (not investors) is the plan to short 10K/2K with both hands. Regardless of what scenario pushes it to that level the plan is no secret. Now, we all know what happens when the entire trading community agrees on a single plan? Disaster. It could be a monster bear trap. The Fed has already shown that is has no fear of doing whatever is required to juice the markets. If ever there was an opportunity to catch traders off guard this could be it. They could be feeding the market just enough to keep the bullishness going until we get to that level. Once all the bears load up on shorts the Fed could trigger a massive support program and we blow out the top to new highs well over 10K. I know there are a lot of readers that think this is heresy. However one of the Fed mandates is to power the economy and one way to do that is the juice the markets. Governments buying securities happens all the time and it would be no stretch of the imagination to have Greenspan strike a deal with an Asian country that is hoarding dollars. They could easily put those dollars to work in our markets when signaled and actually make a profit on the deal. The Fed intervenes in markets for them on request so turnabout is fair play. Obviously this is just speculation but there have been so many unexplained buy programs at key turning points in the past that it would be easier to believe this scenario than one where millions of investors suddenly decided to invest their life savings in the market at the same exact moment. Don't fight the Fed. That axiom did not just appear over night. It has been around far longer than most of us have been trading. The bottom line tonight is uncertainty. Nobody knows what will happen at the open but I would expect the better odds are for a sell the news event than an explosion on good news. Either way if we do not have a big market move by noon trading will probably go dormant and attention will shift to the Richmond and Kansas City Fed reports on Monday. We are at the highs and earnings are over. The VXO is still around 17.50. Funds are in trouble and traders could be disappointed by the Jobs report. Tomorrow may be a tossup but next week could be a challenge. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** Unidirectional Market Jonathan Levinson Equities went higher today, as if such were still reportable news in what has become a market that goes but one way. Treasuries sold off, gold corrected, and the US Dollar Index rose. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. 10 minute chart of the US Dollar Index The US Dollar Index set a higher low, approaching 94 in a steep ascending triangle. The move off the lows has been sharp and is accelerating, and it will take some steep selling tomorrow to avoid a weekly candle print confirming last week's reversal. Gold and the CRB declined. Daily chart of December gold December gold sold off with the dollar's rise on the 8:30 AM release of very encouraging employment data. It appears that a pugilistic and possibly violent resolution of what now appear to be intractable differences of fact and opinion between Elaine Chao and John Challenger is imminent. That said, gold appears to be coiling into a wedge, and if the weakness in gold equities is any indication, the break should be to the south, with HUI dropping 5.04 to close at 207.05, XAU –1.83 to 94.97. Unlike equities, it appears that mining stocks are not aggressively defended, and so while my bullishness in commodities is exceeded only by my bearishness for broad equities at these levels, I'd not be surprised to see the Dow and particularly the trashiest of the Nasdaq issues outperform the HUI in the coming sessions. Daily chart of the ten year note yield A flight from quality would not be complete without a selloff in treasuries, and so the TNX added 6.8 bps to close at 4.418%, right on the upper pennant resistance line. A breakout will do it, and a gap up on bullish 8:30 economic data would certainly do the trick. Ben Bernanke, the inflationist architect of the current Alice-in-Repoland environment for bonds and most egregiously, equities, attempted to talk down the yield today, praising the decreasingly-jobless recovery and noting that the Fed should keep rates low. He was, unfortunately, shown an utter lack of respect from the treasury market, and despite his bullish words for bonds, the selling actually picked up in ten year note futures. Daily NQ candles The NQ had a good day, adding another notch to its strengthening daily cycle upphase. Traders' disbelief became extremely overbought as a routine, textbook intraday cycle downphase was Steve-McQueened into a long-tailed doji hammer. The move was sufficiently sharp to not permit any candle body to draw on the daily chart, but if you squint, a long green slash is apparent. The rally only grew in strength as the session progressed, booming into the cash close to turn all the indices positive, with the ES outpacing the NQ. While the chart pattern is clearly a bearish ascending wedge that should, by all rules of logic, geometry and decency, break to the downside, it appears that the holy grails of Dow 10,000 and Nasdaq 2,000 have been legislated onto the tape. For this reason, I will cite those levels as next resistance, and name no others. In all seriousness, the rally is difficult to explain, given that it launched countercyclically to those oscillators that had carried the price thus far. The secondary launch could have been short covering except that it was so solid and steady, and focused lopsidedly in the ES and YM issues. As well, it launched from just past 2:30PM. Was it the Fed's repo money landing in the pits? I only know that I saw no particular reason for so sharp a spike to occur at the instant that it did. 30 minute 20 day chart of the NQ The aborted downphase is visible here on the 30 minute NQ chart, following a truncated upphase. That early end to the CSCO upphase would normally be quite bearish, but apparently not so today. I've identified two critical levels to watch for tomorrow at 1448 and 1450-3, with this general area forming the possible neckline of a massive reverse head and shoulders. A break above that level could imply an approximately 105 point rally, which would be the reverse head and shoulders projection from a neckline at that level. I note further that, by hook or by crook, today's buying brought the 30 minute and daily cycle oscillators into upside harmony, with only the overbought intraday oscillators as potential cycle resistance. Daily ES candles The daily ES is looking bullish in the extreme, but always within that bear wedge formation. It's difficult to take that seriously, as much of the 2003 rally has been erected on bear wedges, each break of which fulfilling only partially before the next flagpole rally off Fibonacci support. Nonetheless, 1064 is "resistance", with support at 1043. Easier to watch Dow 10,000, however. 20 day 30 minute chart of the ES The 30 minute ES displays the same reverse head and shoulders neckline, potentially between 1060 and 1064, projecting roughly 50 ES points higher if it plays out. However, we see here that a head and shoulders has yet to be invalidated, with the afternoon strength merely distorting the right shoulder, but not yet canceling it out. The lopsided strength that favored YM and ES reflects itself here in a toppier 300 minute stochastic, but it too has room to run to the upside in gear with the upphasing daily cycle above. 150-tick ES Not all was lost for the bears, with the VXO advancing all of .02 to close at 17.58. I don't believe that my use of the term "mania" would be excessive to describe the persistence of the VXO below 19, as caution appears to have been not just thrown to the wind but launched into deep space. The volatility indices continue to indict the waves of buying, but the intraday 150-tick ES chart shows a steady sequence of failed head and shoulders patterns all the way up to the day highs. Citing the VXO these days makes me feel like a grade-school crossing guard at a NASCAR speedway. Daily YM candles YM resembles ES most closely here, nothing further to add. 20 day 30 minute chart of the YM For the past weeks, conventional technical analysis has served to keep traders out of trouble, but one has had to be very quick to take profits when they appear. With the VXO this low and memories of March 2000 fresh in our minds, it's awfully difficult to enthusiastically buy dips, whether it's to go long or cover shorts. Yet the relentlessness of the bids is a sight to behold, and one that makes some of us question our assumptions about technicals and fundamentals. It's obvious that there's great downside risk at current levels- perhaps too obvious. But the VXO and Investor's Intelligence and other sentiment data reveal an absence of bears, an absence of caution, and a proliferation of bullish optimism that is difficult to reconcile with either history or current news. The trend remains up. That means that bearish trades, however clever or compelling they may seem, are against the trend. I believe that a correction is coming, but I see that price keeps going up. Where it will go after the bulls capture the proverbial flag at Dow 10,000 / Naz 2,000 is anyone's guess. I guess Down! with an exclamation point, but the charts will tell us. They are telling us Up now. If anyone doubts it, then they must have missed the wave of bids right at the high of the day on ES, sustaining the price above my upper Keltner Band on the wide, generous setting that I use. The high of the day was held above that band near half an hour cumulatively this afternoon. Short covering or Fed robot jamming, it makes no difference. I doubt that tomorrow will be boring, and so as traders we'll have all we need. It's looking like bonds are vulnerable to a gap down and equities to a gap up. See you at the bell. ************************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 ************************************************************** ******************** INDEX TRADER SUMMARY ******************** 100K could equate to 10K After a surprising 57,000 gain in new jobs for September, bulls staged another late session rally to push the indices back near or to new 52-week closing highs ahead of tomorrow's October nonfarm payrolls data, where economists look for the economy to have added an additional 65,000 workers to corporate payrolls. With the Dow Industrials (INDU) 9,856.97 +0.36% just 143.03 points from the psychological 10,000 level, a nice round 100,000 nonfarm payrolls number might be what it takes to get the Dow back to 10,000. The S&P Retail Index (RLX.X) 386.45 +0.78% shrugged off some mixed October retail sales numbers earlier this morning. Sector analysts said much of the weaker numbers were attributed to record high temperatures, with the wild fires in Southern California keeping shoppers out of the mall. Ross Stores (NASDAQ:ROSS) $53.75 +3.12% is reported to derive nearly 20% of its sales in Southern California markets, but still managed to close at a new 52-week high and today's 8th-best performer in the NASDAQ-100 Index (NDX.X) 1,440.08 +0.73%. James Brown compiled some of today's same store sales data for various retailers and posted them in the Market Monitor. Various October Same Store Sales reports While investors poured through some of the October sales comparisons, transportation bulls were hauling away profits. The economically sensitive Dow Transportation Average (TRAN) 2,985.49 +1.79% shifted into higher gear today, despite oil prices still hovering at the $30.00 per barrel level. Market as well as economic theory is that transports and deeper cyclicals will lead an economic advance. Theory also says that job growth is the last economic indicator to show improvement when an economy recovers and has tomorrow's nonfarm payrolls data being closely monitored. Dow Transportation Average (TRAN) - Weekly Interval Fasten your seatbelts and hold on for the ride. While Cisco's (NASDAQ:CSCO) $22.90 +5.04% grabbed headlines, it was the Dow Transportation Average (TRAN) that took today's top spot among sector winners. While I'm sure there's some shorts getting steamrolled in the transports, today's gains from a very economically sensitive sector could be the breakthrough sector to monitor in coming sessions if the major indices are going to make bold moves higher. A quick check of Dorsey/Wright and Associates' sector bullish % shows the Transport/Non Air Bullish % (BPTRAN) "bull confirmed" at 85.37%. It would take a reading of 82% to reverse lower to "bull correction" status. In August of 1997, this sector bullish % reached 90% before reversing lower. The PnF chart shows the bullish % recently reaching 88%. Very BULLISH, but VERY overbought longer-term. S&P 500 Index Chart - Weekly Intervals Market theory is that the transports and deeper cyclical stocks will lead an advance. By taking retracement on the SPX from the benchmark weeks of 12/31/00 and 09/16/01, it sure looks like the TRAN has been a steadier, if not stronger performer and has been showing leadership. We should probably keep tabs on the TRAN as it approaches what looks to be a past zone of resistance. I would think if the TRAN can tear down the wall, it should lead to gains in the SPX. I marked some past relative weekly lows on the SPX at 1,049 and 1,074, where for some reason, buyers were able to get a short- term bounce. The thought is, that these levels should provide some type of resistance. The 1,049 level is broken, and 1,074 level looks to be in play, perhaps corollary with TRAN 3,050. Pivot Matrix - After seeing a stop loss triggered by 2-cent in a profiled SPY on October 24 by 2-cents, I may have smashed my trading terminals if the QQQ had traded my bullish stop of $34.33 by today's close. Ooooeeee! I looks like there's a lot of correlative resistance levels stacked higher, but by golly, if the transports can smash through the 3,000 level (on a strong nonfarm number) then the major indices, should be able to break above their WEEKLY R1's and challenge their WEEKLY R2's into the weekend. Let us not forget though, at 10:00 AM EST, September wholesale inventories will be released. Economists' expect inventories to rise 0.2% after a decline of 0.2% in August. Traders and investors should remember that a DECLINE in inventories is viewed as positive (demand pulling inventory off the shelf), and a RISE in inventories more negative (not enough demand for product). Then at 03:00 PM EST, September consumer credit is expected to come in at $5.3 billion, down from August's $8.2 billion. As we begin looking at some of the major indices, a quick check of S&P futures (sp03z) shows today's settlement at 1,058.50 and above our bullish bias level of 1,051.20. Today's 1,058.50 settlement is a 52-week settlement high. S&P 100 Index Chart - Daily Intervals A bull's hopes for a bullish session were in the gutter early this morning as Cisco's earnings and positive economic data didn't seem to be catching hold. But when the lunchtime crowd returned and the major indices had clawed back to unchanged levels, bulls looked to be grazing ahead of tomorrow's nonfarm payrolls data. I've always felt the MARKET always knows the news before it is announced, and it just doesn't make sense that the transports would be at the top of the sector's winner list, if there wasn't some type of good news coming. I've placed what I think would be TRAN equivalents on the OEX chart at its WEEKLY R1 and WEEKLY R2 levels. Today's trade saw no net change in the S&P 100 Bullish % ($BPOEX) and status remains "bull correction" status at 79%. The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 1 stock to a point and figure buy signal. Still "bull confirmed" at 80.6%. Dow Industrials Chart - Daily Intervals "I think I can, I think I can, I think I can" said the little train that could. Heavyweight Procter & Gamble (NYSE:PG) $97.56 +0.25% is still close to the $100.00 level, where a trade there might help the INDU reach the 10,000 level. When we look at the Dow's bar chart, we have never seen a "spike" high on a relative high be broken back to the upside without a nice pullback. So far, the INDU hasn't had a "nice" pullback and a break to new highs would be DIVERGENCE from the past, and I think be a signal that 10,000 is in the cards. Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" at 80%. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals It is impossible to say for sure, but some of my "short-covering" stock, or stocks I think should find support from short covering bears did not perform well today. I'm left with the impression that today's buying was largely from bulls, not bears. It may take a strong nonfarm payrolls number to get the QQQ above $36.15 and have shorts panicking for a QQQ rally to the $36.65 level. Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Still "Bear correction" status at 74%. Jeff Bailey ************************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 ************************************************************** **************** MARKET SENTIMENT **************** The Markets Wait - J. Brown The sentiment will be brief tonight because investors are all waiting on one thing - the Jobs report tomorrow. Or more specifically the non-farm payrolls report. The general estimate is for an increase of 67,000 jobs but several big analyst firms have estimates in the 120,000 to 125,000 range. There is even a whisper number closer to 200,000. Should the report disappoint it could be very painful for the bulls. Jim does an excellent job discussing the jobs report in his wrap tonight. The CSCO report last night had set up tech traders with expectations for a rally today so the early morning weakness came as a surprise. Yet by the close most stocks were higher with the heaviest buying in technology (software, semiconductors, biotech) and the heaviest selling in gold. The market internals were pretty bullish and are much more revealing than the closing numbers on the DJIA or the COMPX. Advancing issues outpaced decliners 17 to 11 on the NYSE and 17 to 12 on the NASDAQ. Up volume was about double down volume on the NYSE and the NASDAQ. Total volume was decent. Trade carefully. There are a lot of traders just waiting for the indices to hit the psychological markers at 10,000 and 2,000 on the Dow and NASDAQ. Whether that proves to be a top or the beginning to our next surge higher is up for grabs but I'd be extra cautious about betting on the bulls. They're looking mighty tired. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9896 52-week Low : 7197 Current : 9856 Moving Averages: (Simple) 10-dma: 9767 50-dma: 9604 200-dma: 8855 S&P 500 ($SPX) 52-week High: 1061 52-week Low : 768 Current : 1058 Moving Averages: (Simple) 10-dma: 1047 50-dma: 1030 200-dma: 950 Nasdaq-100 ($NDX) 52-week High: 1445 52-week Low : 795 Current : 1440 Moving Averages: (Simple) 10-dma: 1416 50-dma: 1380 200-dma: 1196 ----------------------------------------------------------------- There is little change here. The fear indices were little changed as the broader markets crawled higher. CBOE Market Volatility Index (VIX) = 16.74 -0.12 CBOE Mkt Volatility old VIX (VXO) = 17.58 +0.02 Nasdaq Volatility Index (VXN) = 25.35 +0.15 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.77 669,108 512,323 Equity Only 0.61 548,140 336,513 OEX 1.03 15,694 16,108 QQQ 0.73 22,150 16,076 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.7 + 0 Bull Confirmed NASDAQ-100 74.0 - 2 Bear Correction Dow Indust. 80.0 + 0 Bull Correction S&P 500 80.6 + 1 Bull Confirmed S&P 100 79.0 + 0 Bull Correction 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-dma: 1.08 10-dma: 1.06 21-dma: 1.06 55-dma: 1.10 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 1704 1782 Decliners 1101 1261 New Highs 291 296 New Lows 14 12 Up Volume 1115M 1426M Down Vol. 591M 646M Total Vol. 1725M 2086M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/28/03 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 It's been a long week since last we looked at the COT data and we're still not seeing any big moves by the Commercial traders. The same holds true for small traders but they did reduce some of their short positions. Commercials Long Short Net % Of OI 10/07/03 390,232 402,964 (12,732) (1.6%) 10/14/03 391,972 410,299 (18,327) (2.3%) 10/21/03 394,176 411,246 (17,070) (2.1%) 10/28/03 391,596 412,498 (20,902) (2.6%) 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 10/07/03 138,644 88,018 50,626 22.3% 10/14/03 133,940 86,418 47,522 21.6% 10/21/03 136,643 88,290 48,343 21.5% 10/28/03 137,791 76,791 61,000 28.4% 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 Hmm... we are seeing some movement in the e-minis. Commercials have upped their short positions by 24K contracts. Small Traders may have gotten the hint too. Short interest is up but the real change is the 45K drop in long contracts. Commercials Long Short Net % Of OI 10/07/03 212,273 225,377 (13,104) ( 3.0%) 10/14/03 221,897 233,066 (11,169) ( 2.5%) 10/21/03 226,985 236,906 ( 9,921) ( 2.2%) 10/28/03 220,171 260,644 (40,473) ( 8.4%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 10/07/03 134,990 63,560 71,430 36.0% 10/14/03 161,208 59,213 101,995 46.3% 10/21/03 168,236 56,564 111,672 49.7% 10/28/03 123,569 59,742 63,827 34.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 This time it's the Small Traders making a move in the NDX futures. Long contracts are up nearly a third to more than 21K. Commercials are still comatose but the trend is growing slowly more bearish with a small bump in short positions. Commercials Long Short Net % of OI 10/07/03 33,253 40,861 ( 7,608) (10.3%) 10/14/03 34,639 41,880 ( 7,241) ( 9.5%) 10/21/03 36,314 43,305 ( 6,991) ( 8.8%) 10/28/03 36,168 46,272 (10,104) (12.3%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 10/07/03 18,182 9,688 8,494 30.5% 10/14/03 16,822 9,046 7,776 30.1% 10/21/03 16,917 9,750 7,167 26.9% 10/28/03 21,640 8,830 12,810 42.0% 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 There is very little change here for the Small Trader but Commercial Traders have upped both their longs and their shorts. Commercials Long Short Net % of OI 10/07/03 16,277 9,528 6,749 26.2% 10/14/03 16,595 9,433 7,162 27.5% 10/21/03 16,876 9,037 7,839 30.3% 10/28/03 20,504 11,366 9,138 28.7% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 10/07/03 7,392 7,910 ( 518) ( 3.4%) 10/14/03 6,427 8,495 (2,068) (13.9%) 10/21/03 5,392 8,842 (3,450) (23.1%) 10/28/03 5,295 8,864 (3,569) (25.2%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************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. 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The Option Investor Newsletter Thursday 11-06-2003 Copyright 2003, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: APA, COO, FD, JBL, JCI, LOW, QLGC, VRTS New Calls Plays: PGR Put Play Updates: JBLU New Put Plays: ATH **************** 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: ***** None 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 ******************** Apache Corp. - APA - close: 70.00 change: +0.70 stop: 66.25 It didn't get off to the bullish start we were hoping for, dropping sharply early in the week, but APA is playing catchup now, with energy prices bouncing back. After dipping below both the midline of its rising channel and the 50-dma (now at $69.18), the stock was defended by the bulls and has had a nice upward move over the past couple sessions, coming to rest tonight right at $70 and just below our entry trigger of $70.50. Despite the delay of a few days, our action plan remains the same. Once APA trades that level, it will be above the recent intraday resistance and above the 30-dma ($70.12), which is the last of its moving averages currently posing as resistance. The best entry will likely to be to enter on the initial breakout, providing that it doesn't occur on a gap. Our initial target for the play will be $73, which would constitute a retest of the recent highs. But we're expecting to see the stock maintain its pattern of higher highs and higher lows, and that means we ought to see a run towards the top of the channel at $76. Maintain stops at $66.25 for now. Picked on November 2nd at $69.72 Change since picked: +0.28 Earnings Date 1/22/04 (unconfirmed) Average Daily Volume = 1.37 mln Chart = --- Cooper Cos - COO - close: 43.95 chg: +0.20 stop: 41.75 *new* Bulls continue to experience a slow drift higher in shares of COO but we have yet to see the stock break out above resistance at $45.00. We are encouraged by the bounce from $43.00 but do not suggest new bullish positions until COO can show more strength. Short-term traders can plan on exiting when the stock hits our initial target at $45.00. We are inching our stop up to 41.75, just under the 50-dma. Picked on October 12 at $41.40 Change since picked: + 2.55 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand Chart = --- Federated Dep Store - FD - cls: 48.26 chng: +1.21 stop: 46.30*new* After more than a week of failed attempts, FD finally broke out over the $48 resistance level on Thursday, playing a bit of catchup with the overall Retail index (RLX.X), which is continuing to channel its way higher. When we initiated coverage of FD, we were looking for a rally to the $50 level ahead of the company's earnings report on November 12th, and with today's breakout, it looks like we just might get there. With only 3 more trading days until we need to drop the play ahead of earnings, only aggressive traders should be considering new positions. FD is not a fast-moving stock and as we move into the final stretch, our focus needs to turn to managing exits for optimum profitability. Conservative traders should be looking to harvest gains into further strength in the $49-50 area, and we got really close to that today, printing an intraday high of $48.90. As we get closer to both our profit target and the temporal end of the play, it is time to get more aggressive with our stop, being less willing to give back our hard-won gains. Raise stops to $46.30 tonight, which is just below the intraday lows of the past 8 sessions. Picked on October 9th at $45.60 Change since picked: +2.66 Earnings Date 11/12/03 (confirmed) Average Daily Volume = 1.88 mln Chart = --- Jabil Circuit - JBL - close: 30.93 chg: +0.81 stop: 27.99 *new* Our new call play from Tuesday experienced some profit taking the following session but dip buyers stepped in to defend the stock near the $29.50 level. By the closing bell it was back above the $30 mark. The positive market environment today allowed JBL to power higher with another 2.68% gain. We're very encouraged by the strong volume on the last three sessions. More conservative traders may want to place there stop under the $29.00 level, which should now act as support. We're going to inch ours up to 27.99. Keep an eye on the SOX. The chip sector has been very strong but looks over due for some profit taking. Picked on November 04 at $30.11 Change since picked: + 0.82 Earnings Date 09/18/03 (confirmed) Average Daily Volume: 1.4 million Chart = --- Johnson Controls - JCI - cls: 108.86 chg: -0.94 stop: 104.99 After surging higher on Tuesday above the $110 level we're seeing some mild profit taking in JCI the last two sessions. The stock is confidently in its up trend but traders may want to wait and see if shares bounce from the $107.50-108.00 region. This may be the next entry point for short-term bulls. There is no new news and we are leaving our stop loss unchanged at 104.99. Picked on October 30 at $107.07 Change since picked: + 1.79 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = --- Lowe's Companies - LOW - close: 59.17 change: +0.37 stop: 58.00 LOW started out the week on a high note, tagging a fresh all-time high over $60. Since then it has been a bit of a rough road as the stock has suffered a bit of profit taking. The start of today's session did not look encouraging, with the stock falling as low as $58.10 by midday. Fortunately, the bulls were waiting and pounced on the perceived bargain just above our $58 stop. That was the dip-buying opportunity for those that chose to take it and now we'll see if there are new highs in store. Remember we're following the rising channel as our guide for an upside price target and with the top of that channel now just over $62, that would make a good level for conservative traders to harvest some gains. Picked on October 23rd at $58.65 Change since picked: +0.52 Earnings Date 11/17/04 (unconfirmed) Average Daily Volume = 3.85 mln Chart = --- QLogic Corp. - QLGC - close: 57.70 change: -0.73 stop: 55.50 Still see-sawing its way higher, QLGC has solidified its breakout over the $56 level and has spent this week tracing out a pattern of higher lows and higher highs. The $58.00-58.50 area is still presenting some resistance to the bulls' progress, but with the continued strength in the Semiconductor index (SOX.X) and the NASDAQ Composite making consistent progress on its way to 2000, we're still looking for QLGC to make a run into the $60-61 area. A foray into that zone should be used for locking in gains in the play. Intraday dips near $57 can be used for aggressive entries, but after the sharp rise in the past couple weeks, such a strategy does carry increased risk. To mitigate that risk somewhat, we're using a tighter stop at $55.50, just under the intraday lows of the past week and the 10-dma ($56.17). Picked on October 21st at $54.21 Change since picked: +3.50 Earnings Date 1/14/04 (unconfirmed) Average Daily Volume = 4.46 mln Chart = --- Veritas Software -VRTS - cls: 38.61 chng: +0.25 stop: 35.50*new* Traders wondering if VRTS was ever going to follow through on its breakout over the $37 level got their answer yesterday as the stock powered higher and closed above $38 for the first time since April of 2002. There's still a fair amount of resistance all the way up the chart, but it looks like the bulls are intent on taking the stock up to the $40 level. And if they're able to crest that obstacle, we'll be looking for a potential run towards $45, which should be strong resistance. VRTS has been finding intraday support at the 10-dma ($36.95) over the past two weeks, so an intraday dip and rebound from that average looks like the ideal entry setup. Each breakout to new highs has been followed by a brief pullback to confirm old resistance as new support, so we're not enthusiastic about taking momentum entries on this play. Note that we've raised our stop to $35.50 tonight, which is below what should be strong support now, as well as below last week's intraday dip to $35.95 and the 20-dma ($35.85). Picked on October 28th at $37.27 Change since picked: +1.34 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 6.14 mln Chart = ************** NEW CALL PLAYS ************** Progressive - PGR - close: 76.01 chg: +0.83 stop: 72.75 Company Description: The Progressive group of insurance companies ranks third in the nation for auto insurance based on premiums written, offering its products by phone at 1-800-PROGRESSIVE, online at progressive.com and through more than 30,000 independent insurance agencies. (source: company press release) Why We Like It: In our search for profitable bullish play candidates we've had our eyes on PGR for a while. The stock has slowly been consolidating higher under resistance near $76.00-76.20 and today's action looks like it is finally ready to hit new highs. The stock has been out performing its peers per the IUX insurance index and we really like the trend of higher lows. The stock's P&F chart also shows a bullish catapult breakout pattern that further solidifies the bullish bias. The company recently announced earnings on October 22nd and beat estimates by 8 cents. PGR's earnings announcement ended the mid- October down turn and ignited the two-week rally from the $71 level. A few days after PGR's earnings announcement Warren Buffett was interviewed and he said there weren't many opportunities in stocks, bonds or corporate debt these days but he was encouraged by signs in the insurance sector. He specifically complimented PGR for its "strong systems". Whether or not you agree or disagree with Buffett doesn't matter here. He is a very long-term investor. We're short-term trading. The short-term outlook for PGR looks bullish but we're going to protect ourselves and only go long the insurance stock on a fresh breakout. We will use a TRIGGER at 76.25 to open the play. Once initiated we'll start with a stop loss at 72.75, just under the simple 50-dma. Suggested Options: Short-term traders can choose from the November or December options while longer-term traders can look over the February or May strikes. We like the 75's and 80's. Keep in mind that the Novembers only have two weeks left and the 80s are a bit risky. BUY CALL NOV 75 PGR-KO OI= 831 at $1.95 SL=1.00 BUY CALL NOV 80 PGR-KP OI= 266 at $0.25 SL= -- BUY CALL DEC 75 PGR-LO OI= 28 at $3.00 SL=1.50 BUY CALL DEC 80 PGR-LP OI= 14 at $0.85 SL= -- Annotated Chart: Picked on November xx at $xx.xx Change since picked: + 0.00 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 654 thousand Chart = ************************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 ******************* JetBlue Airways - JBLU - cls: 55.20 chg: -0.44 stop: 58.51 *new* The XAL airlines index has been trading sideways the past couple of sessions and JBLU is following suit. The very narrow range could merely be a consolidation of the recent declines before its next leg down but traders should be careful. We're lowering our stop loss to 58.51 but conservative traders could eye the simple 10-dma (56.74) for stop guidance. We're a little surprised that the airlines didn't move higher today, especially JBLU after positive traffic numbers. JBLU said October traffic rose 62.7% with load factor, or percentage of seats filled, rising to 85.5%. Momentum traders may want to use a trigger under $54 to launch any new bearish positions. Meanwhile a failed rally under the 10-dma should appeal to more nimble traders. Picked on November 02 at $57.67 Change since picked: - 2.47 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 1.5 million Chart = ************* NEW PUT PLAYS ************* Anthem, Inc. - ATH - close: 72.54 change: -0.89 stop: 70.05 Company Description: Anthem is a health benefits company serving over 7 million members, primarily in Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Colorado and Nevada. The company owns the exclusive right to market its products and services using the Blue Cross Blue Shield (BCBS) names in these states under license agreements with the Blue Cross Blue Shield Association. ATH's product portfolio includes a diversified mix of managed care products, including health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans, as well as traditional indemnity products. The company's managed care plans and products are designed to encourage providers and members to select cost-effective healthcare by utilizing the full range of its medical management services. Why we like it: While the Health Care index (HMO.X) has been steadily marching higher with the rest of the market and is currently just below its all-time highs, ATH has been lagging badly in recent weeks. After dropping sharply from the $82 level in early August and then traded sideways below $75 resistance right up until a bull- trap breakout ahead of earnings on 10/27. While the numbers came in as expected, there was no upside guidance and that combined with news that the company would be acquiring WLP didn't sit well with investors, sending the stock reeling over the next week. Both the drop in early August and the one following earnings bounced from just above $66. While the August bounce had some life in it, this one is already rolling over and it looks like the bears will be victorious. The line in the sand will be that $66 support -- if it gives way, then we ought to see significantly lower levels in the not-too-distant future. The PnF chart is already on a big Sell signal, with a bearish price target of $56, and the trade at $67 actually punctured the bullish support line. A trade below $66 will solidify that breakdown, so we're using a trigger of $66 on the play. Aggressive traders can enter on the initial break, while those using a more cautious approach can look for a failed rebound below $68.50, which should now be very solid resistance. There may be some mild support found near $63.50, but we expect that to be short-lived. We're targeting a drop to stronger support near $60. With the 10-dma ($69.45) diving to meet price action, momentum is definitely on the bears' side right now. We're setting our stop initially at $70.05, which is just above recent resistance, the 10-dma and the 200-dma ($70.00). Suggested Options: Aggressive short-term traders will want to focus on the November 65 Put, as it will provide the best return for a short-term play. Longer term traders will want to look to the December 65 Put, as it should provide ample time for ATH to move in our favor without time decay becoming a major factor. BUY PUT NOV-70 ATH-WN OI= 540 at $3.40 SL=1.75 BUY PUT NOV-65 ATH-WM OI=2085 at $0.80 SL=0.40 BUY PUT DEC-65 ATH-XM OI=2447 at $1.85 SL=0.90 Annotated Chart of ATH: Picked on November 6th at $67.22 Change since picked: +0.00 Earnings Date 1/26/04 (unconfirmed) Average Daily Volume = 1.63 mln 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: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Thursday 11-06-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: CALL - VRTS Traders Corner: Trust Allah, But Tie Up Your Camel ********************** PLAY OF THE DAY - CALL ********************** Veritas Software -VRTS - close: 38.61 change: +0.25 stop: 35.50 -Company Description- As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. VRTS provides products for most popular operating systems, including UNIX and Windows NT, as well as a full range of services to assist its customers in planning and implementing their storage management solutions. - Most Recent Update (Thursday, Nov 6, 2003)- Traders wondering if VRTS was ever going to follow through on its breakout over the $37 level got their answer yesterday as the stock powered higher and closed above $38 for the first time since April of 2002. There's still a fair amount of resistance all the way up the chart, but it looks like the bulls are intent on taking the stock up to the $40 level. And if they're able to crest that obstacle, we'll be looking for a potential run towards $45, which should be strong resistance. VRTS has been finding intraday support at the 10-dma ($36.95) over the past two weeks, so an intraday dip and rebound from that average looks like the ideal entry setup. Each breakout to new highs has been followed by a brief pullback to confirm old resistance as new support, so we're not enthusiastic about taking momentum entries on this play. Note that we've raised our stop to $35.50 tonight, which is below what should be strong support now, as well as below last week's intraday dip to $35.95 and the 20-dma ($35.85). - Play of the Day Comments - We're going to try again. VRTS hit some early morning profit taking on Thursday but by midday had already started its rebound. Volume has been stronger on the rallies than the declines and if the jobs report doesn't crater the markets then VRTS could surge higher into the weekend. - Suggested Options - Shorter Term: The November 35 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 40 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 December 35 Call. BUY CALL NOV-35 VIV-KG OI=15983 at $4.00 SL=2.20 BUY CALL NOV-40 VIV-KH OI= 6992 at $0.85 SL= -- BUY CALL DEC-35 VIV-LG OI= 1425 at $4.80 SL=2.50 BUY CALL DEC-40 VIV-LH OI= 5883 at $1.60 SL=0.80 Annotated Chart: Picked on October 28th at $37.27 Change since picked: +1.34 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 6.21 mln Chart = ************************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 ************************************************************** ************** TRADERS CORNER ************** Trust Allah, But Tie Up Your Camel By Mike Parnos, Investing With Attitude The mutual fund industry is under attack. Brokers and fund managers are being charged with illegal trading practices – and this is probably just the tip of the iceberg. It's like the cockroach theory. If you see one cockroach, you know there are hundreds of others lurking nearby. And these cockroaches are absconding with your money. Where's a good exterminator when you need one? With new allegedly illegal trading and accounting practices being exposed on a weekly basis, investors are heading for the hills. Someone yelled "fire" and mutual fund dollars are heading for the exits by the millions. More millions will surely follow. Where do these millions go? Into the bank, or brokerage account of Mr. or Mrs. middle America? And what do Mr. & Mrs. Middle America have in common? They're struggling with the timeless question: Who Do You Trust? Unfortunately, we live in a society where most people take as little responsibility as possible. So, they search for someone they can trust to do all the tasks they don't want to, or don't have the time to, do themselves. There's the kid who cuts the lawn. He's OK. After all, how much damage can he do? There's the guy who makes their pizza. He's got a recipe and all he has to do is count out and place the pepperoni. Not much risk there. The same can be said for dealing with your dry-cleaning an oil change and maybe the guy who fixes your toilet. It seems that Mr. and Mrs. Middle America have yet to learn to prioritize. Curiously, they place the management of their financial future into the same category as fixing their toilet. They accord it the same amount of thought. They want the best plumber the Yellow Pages can cough up. But, if their toilet explodes, you can run to Home Depot, with $100, and be back with a new toilet in an hour. If you suffer severe financial losses in a mutual fund or with a mediocre advisor (salesman), you can't run to the bank and, for $100, come home with a new portfolio in perfect working order. There's no simple solution, but it seems to me like Mr. & Mrs. Middle America should spend a lot less time in front of the boob tube and more time learning about money. There are hundreds of books that go into great detail on how and where to invest, diversify your investments, etc. For those who are a few sandwiches short of a picnic, these books are written in lay terms that even Bart Simpson can understand. It just takes some effort. Considering what's at stake, it seems to be well worth the daily sacrifice of a few "Seinfeld" reruns to study a little and eventually put your financial house in order – and safe. What do you do in the meantime? CDs, Treasuries, etc. are safe. They won't make you a fortune, but it's safer than arbitrarily giving it to fund managers, brokers and advisors with mail-order diplomas displayed prominently on their cubicle wall. So, the bottom line is: Trust Allah, but tie up your camel. The view is a lot better riding ON the camel than walking BEHIND it. You Can Lead A Camel To Water . . . How do options relate to keeping your investments safe? CPTI students know from past columns that protective puts are just one of the effective methods. But you'd be surprised how many investors/traders, even after being taught how to insure their investments, don't put the knowledge to good use. Over the years I've taught students various protective strategies only to have them abandon the conservative approach and jump on the momentum train. Some got off in time while others were still on board when the market derailed, which falls into the category of TS. Don't come to me for sympathy. I learned a lot of lessons the hard (expensive) way. CPTI students are here to learn. I certainly don't have all the answers – far from it. But all we can do is know how to limit our exposure and give ourselves a good chance to make a profit – and we have to do it one trade at a time. _________________________________________________________________ NOVEMBER AND ONGOING POSITIONS Position #1 – SPX Iron Condor – Trading @ 1058.05 We sold 10 contracts of November SPX 985 puts and bought 10 contracts of November SPX 975 puts for a credit of $1.10 ($1,100). Then we sold 7 contracts of November SPX 1075 calls and bought 7 contracts of November SPX 1090 calls for a credit of $1.50 ($1,050) and a total net credit of $2,150. We've created a maximum profit range of 985 to 1075. With two weeks left, anything can happen. A pullback would be nice. Position #2 – AFCI Iron Condor – Position closed for $700 loss. Que sera, sera. Position #3 – OEX Iron Condor (By Request) – 523.84 We sold 10 contracts of the OEX November 490 puts and bought 10 contracts of the OEX November 480 puts for a credit of about $.90. Then, sold 10 contracts of the OEX November 545 calls and buy 10 contracts of the OEX November 555 calls for a credit of about another $.90. Our total net credit will be about $1.80. Our maximum profit range is 490 to 545. Position #4 – BBH – Siamese Condor - $128.93 Sell 10 contracts of the BBH November $130 puts and 10 contracts of the BBH November $130 calls for about $8.50. Then, buy 10 contracts of BBH November $140 calls and 10 contracts of the BBH November $120 puts for about $2.40. The net credit should be about $6.10. Our profit range is $123.90 to $136.10 and those are also our exit parameters. The closer BBH finishes to $130, the more we can make. Looking very good. Position #5 – QQQ Put Calendar Spread – Trading @ $35.93 We decided to risk a buck. Since many folks think the market is due to correct. We created a cheap play that will let us take advantage of a nice down move. Meanwhile, we will continue to sell against the January put while we wait. We bought 10 contracts of January 04 QQQ $32 puts and sold 10 contracts of October 03 QQQ $32 puts for a total debit of $1.00 ($1,000). The October $32 puts expired worthless and we rolled out to the November $32 and took in a $.30 credit. We now have a new cost basis of $.70. OEX – Bearish Calendar Spread – OEX @ $523.84 We own 8 contracts of OEX November 470 puts @ $10.60 and sold 8 contracts of OEX September 470 puts @ $2.20 for a total debit of $8.40. The Sept. 470 puts obviously expired worthless. We sold the October 490 puts, took in another $3.10 and those also expired worthless. On Thursday we sold the November 485 puts for $2.60. Our cost basis is now $2.70. QQQ ITM Strangle – Ongoing Long Term -- $35.93 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. Then we sold 10 contracts of the QQQ Oct. 33 puts and 10 contracts of the QQQ Oct. 34 calls for a total credit of $1,900. We bought back our $33 puts and $34 calls and rolled out to November $34 puts and $34 calls, taking in another $1.15 ($1,150). So far, so good, but, again, a pullback would be nice. HPQ (Hewlett Packard) Bear-Put Spread – HPQ at $23.48 This is a directional bet. We anticipate HPQ may return to the $15 range. We own 10 contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10 contracts of the HPQ Feb. 2004 $15 puts @ $.40. Total debit of $1.85. Potential max profit of $3.15. This is a long-term position – thank goodness. __________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ___________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************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. 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