The Option Investor Newsletter Monday 11-17-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Terrorism Spooks Global Markets Futures Wrap: Let the Opex Games Begin Index Trader Wrap: Indices finish lower, but off their lows Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 11-17-2003 High Low Volume Advance/Decline DJIA 9710.83 - 57.85 9765.64 9629.87 1.62 bln 794/2030 NASDAQ 1909.61 - 20.65 1919.23 1890.72 1.84 bln 965/2126 S&P 100 516.23 - 2.78 519.01 511.74 Totals 1759/4156 S&P 500 1043.63 - 6.72 1050.35 1035.28 RUS 2000 526.21 - 6.75 532.96 521.51 DJ TRANS 2893.13 - 34.51 2926.59 2874.64 VIX 18.60 + 1.66 19.36 18.04 VXO 18.82 + 1.19 20.27 18.24 VXN 27.81 + 1.65 28.56 26.96 Total Volume 3,923M Total UpVol 3,045M Total DnVol 800M 52wk Highs 269 52wk Lows 42 TRIN 1.94 PUT/CALL 0.84 ******************************************************************* Terrorism Spooks Global Markets by James Brown Monday proved to be another rough day for investors around the globe. Asian and European exchanges swooned and U.S. averages joined the retreat with an extremely broad-based sell-off that left no survivors. Not one U.S. sector index closed in the green today. The catalyst for the declines, or as some market pundits might call an excuse to take profits, are renewed concerns that Al Qaeda is still threat. The terrorist network took credit for two synagogue bombings in Istanbul, Turkey over the weekend and threatened to bomb Tokyo if Japan sends troops to Iraq. Last week OptionInvestor.com reported on the Al Qaeda threat to launch a new attack in the U.S. during the Muslim holy month of Ramadan. Ramadan, the fourth pillar of Islamic belief, is a month-long fast (during daylight hours). This year it began on October 27th, 2003 and should end around November 27th. Major news media failed to carry the threat story last week and they still remain cautious on highlighting the threat today. Either they don't see it as credible or they don't want to raise a panic. The U.S. department of Homeland Defense has kept the risk level unchanged at elevated (yellow). Japan's stock market didn't take the threat to bomb Tokyo lightly. The NIKKEI index dove 3.74 percent or 380 points to close under the 10,000 mark for the first time in three months. The selling in Japanese stocks was exacerbated by concerns that their banking system continues to defy improvement despite the government's actions. The Hong Kong Hang Seng index joined its neighbor with a 206-point decline to close at 11,997. Meanwhile European stocks were walloped one day before President Bush is set to appear in London for the first formal visit by a U.S. President. The English FTSE index lost 1.32% to close at 4338 but the German DAX lead the decliners down 3.24% to 3674. Here at home stocks started the day with early weakness that eventually brought the S&P 500, the Dow Jones Industrials and the NASDAQ Composite down to their respective simple 50-dma(s). Yet by 2:00 PM ET the worse was behind us and traders began to buy the dip. By the end of the day the DJIA and the NASDAQ had cut their losses in half to close down 57 and 20 points, respectively. Not all averages were so fortunate. Several sector indices broke their 50-dma, technically a bearish development. The heaviest selling was in gold stocks, airlines and technology (Internet, hardware and disk drives). The selling in gold stocks was probably due to the failed rally in December gold futures. Gold shot up to $399.90 but couldn't break the $400 barrier. By the close, gold futures had lost $6.50 to close at $391.50 an ounce. The XAU gold index lost 2.13 percent. The XAL airlines fell almost three percent, which is most likely attributed to terrorism jitters. The group has been a big winner for investors so the urge to take money off the table is rather strong. It is that very urge to harvest gains that many market commentators say is the real culprit behind today's losses. The S&P 500, the most common barometer and measure for the markets, was up 17 percent year-to-date last week and up about 26 percent from its March lows. Many a mutual fund manager is looking at 20 percent gains in their portfolio and could be thinking to quit now and lock in a very good year after three years of losses. Speaking of losses, there were certainly a lot of them today. Declining stocks outnumbered advancing stocks 20 to 8 on the NYSE and 21 to 10 on the NASDAQ. More telling was how down volume was five times up volume on the NYSE and three times up volume on the NASDAQ. Chart of the DJIA: Chart of the NASDAQ: The economic calendar this week is devoid of any major reports and littered with second or third tier news. This morning unveiled a positive surprise as the Empire State Index jumped to a record 41.0 in November compared to what most had been expecting as a loss towards the 31 level. Obviously the news failed to fuel any buying but it is one more mile market on the road to economic recovery. Meanwhile the flight to quality in U.S. bonds continued today, stretching the bond rally to four days in a row. Terrorism concerns, if they continue, should fuel additional "safety" buying for U.S. debt. As bonds rise their yields fall. The bump today pushed the 10-year yield down to 4.188 percent. Wall Street continues to hear from late cycle earnings announcements and two big caps making headlines were LOW and TOY. Home improvement and building supplies center Lowe's Companies (LOW) announced Q3 earnings of 56 cents a share, three cents better than estimates. Revenues also topped analysts' forecasts at $7.92 billion for the quarter. The company is seen moving in on larger rival Home Depot's (HD) turf and stealing market share. The stock failed to move much on the report and LOW's guided inline for the fourth quarter. Home Depot is due to announce its own earnings tomorrow before the opening bell. Estimates are for 46 cents a share. Shares of HD did react poorly to LOW's earnings report, dropping nearly 2 percent on the session. Or maybe it was just the widespread selling across the markets. Or maybe it was a comment from a Morgan Stanley strategist suggesting traders short HD and try and cover near the $30 level. Whatever the case, HD, as a Dow component, could be a stock to watch tomorrow after their morning report. Contributing to the negative market action was Toys 'R Us (TOY), who's 12.24 percent drop to close under its simple 200-dma was the biggest percentage decliner in the S&P 500. The company severely missed its Q3 earnings numbers today. Analysts had been looking for a loss of 10 cents. TOY turned in a loss of 18 cents a share. Management commented on the growing competition from Wal-Mart, which investors fear the company is losing to. In their press release TOY stated they plan to close 146 freestanding Kids 'R Us and 36 freestanding Imaginarium stores along with 3 distribution centers that support these stores. "The majority of these facilities are expected to close on or before January 31, 2004." You know what that means, right? If they plan to close all of these before the end of January, not only will we probably see some huge sales during the holiday shopping season but the after-Christmas clearance sales at these locations could turn into an "everything must go" mob scene. Now it wouldn't be a Monday without some merger news. Today's merger springs from the insurance sector. St. Paul Cos. (SPC) has announced their plans to acquire their larger rival Travelers Property Casualty Corp (NYSE: TAPa & TAPb) for $16.4 billion in stock. Investors rewarded SPC with a 2.63% gain in its stock price since the company is paying zero premium for Traveler's stock. Together they will become St. Paul Travelers Cos and will be the second biggest property insurer in the country behind AIG. Drum roll please... remember on Friday that the SEC teased the market with a "big announcement" concerning action against a major Wall Street broker? That news sent the XBD broker dealer index to a 4% loss on Friday as everyone wondered who was to be fined and how big would the fine be? Ta da! The SEC announced a $50 million fine against Morgan Stanley (MWD) who was charged with failing to disclose incentive payments it was receiving from various mutual funds for pushing their products on MWD clients. Considering that the company brings in a net income close to $3.5 billion a year, the $50 million fine seems a little anti- climatic. Now maybe the fine fits the scope of the alleged "crime" but shares of MWD rose 9 cents by Monday's close. Schwab, Bear Stearns and Putnam also made minor headlines. Schwab reportedly sent an email to all of its 16,000 employees stating they had uncovered 18 trades that were "problematic". Two employees were fired after the company retrieved deleted emails pertaining to the issue. Bear Stearns also fired six employees last week over the growing mutual fund probes. Meanwhile Putnam Investments, the lead pig in this scandal so far, reported that it has lost some $16 billion in assets under management due to withdrawals, leaving it with $256 billion. Tomorrow could be interesting. The major U.S. averages have all bounced from their simple 50-dma(s). This normally sounds like a buying opportunity and the afternoon rebound today could easily continue into Tuesday's session. The real question is how long will it last? Tuesday will bring more earnings, the CPI report, and potentially more headlines from a number of ongoing analysts conferences. ------------------------------------------------------------ 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: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************ FUTURES WRAP ************ Let the Opex Games Begin Jonathan Levinson We had classic options expiration action today, with the shorts blown out on the opening bounce, followed by a relentless stairstep south to kill the dippers, followed by a ferocious end- of-day ramp to wipe out anyone left standing. The indices finished within points of the opening gap down, and so anyone trying either a buy and hold or short and hold intraday either got stopped out or finished nearly flat. Bonds advanced, gold and silver got sold, and the US Dollar Index bounced. 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 bounced from 91, but didn’t get far despite the sharp uplegs. I will expect bounces until the 90-91 level falls, but in the meantime the dollar action is providing plenty of excitement in the currency and commodity markets. Gold, silver and the commodities index (CRB) got sold aggressively. Daily chart of December gold I've sacrificed candle clarity in favor of a broader focus with 11 months' worth of data to put today's sharp selloff in perspective. We saw an overnight high of 399.80 for the December gold contract, with an intraday low of 386.10 to close at 390.60. The price trend is up, and the oscillator phase is also bullish, but 390-410 is a significant resistance level, and I don't expect it to give up easily. I suspect that it will take a US Dollar Index below 90 to get the breakout for which gold bulls are hoping. 382, followed by 378 and 372 are immediate support below. HUI dropped 4.08 to close at 221.86, XAU –2.18 to 100.20, and silver dropped .175 to close at 5.24, with a low of 5.122 intraday. Daily chart of the ten year note yield Bonds delivered again today. I can't help but wonder if the Fed, whose impotence at propping up treasuries has been demonstrated lately with comments from the likes of Bernanke himself getting faded by the bond market, isn't more sympathetic to an equities... correction, to shepherd defensive money into bonds. The ten year yield gapped lower again today, closing down 4.5 basis points at 4.188%. The oscillators are in a fresh downphase, and 4.1% is the next downside support. Daily NQ candles The NQ closed less than 10 points below its gap down open, despite a steady grind south until 1:45PM and a pathetic attempt to bounce until 3PM. What appeared to be another leg to the so- far feeble bounce took off to return to within 5 points of the pre-cash opening range. The move bottomed at 1380 before bouncing at secondary trendline support. The break below 1405 is clearly a failure of the minor bear wedge, bringing in a downside projection of 1300. However, the trendline at 1385 will have to break before serious technical damage such as to threaten the current price uptrend can occur. The oscillators are lined up to the downside, synchronously with the weekly (not shown). 30 minute 20 day chart of the NQ The drop of the past two days ended this afternoon, with the 300 minute stochastic on the 30 minute candle chart taking its time along the bottom, just as it did on the last trough last Monday. The upphase will be fighting the downphases on the daily and weekly charts, and so I expect to see bulls having difficulty at each resistance level. 1405 is the first such spot, followed by 1415. The bounce looks like bull wedge breakout with an upside target of 1448, but if today's persistent weakness is any indication, I doubt if we'll see it. Daily ES candles The daily ES bounced at the 50 day EMA after falling below the 1048 wedge support on the opening gap down. 1028 ES is the lower rising trendline and Bollinger support, while a return to the scene of the crime rally will encounter resistance at 1050. The price trend remains up, and the doji hammer printed today portends further upside followthrough tomorrow. However, the selling was strong and steady, and so long as the 1060-64 level remains intact, it should be merely corrective within the ongoing daily cycle downphase. 20 day 30 minute chart of the ES As with the NQ, the ES has that potential bull flag breakout lined up with the 30 minute cycle upphase now in progress. The upphase is merely another representation of the doji hammer on the daily candle print. Failed support becomes resistance, however, and, particularly with November options expiring at the end of this week, we have the perfect setup for rangebound chop. The 30 minute upphase is countertrend to the daily and weekly downphases, and the net effect should ideally be either a lower high or a sideways move. Note that a net 8.25B in Fed intervention money was added today, with negative closes for equities and a positive close for bonds. Even with all of this liquidity added, there was still a large herd of sellers knocking back the bids. The VXO jumped, challenging 20 but closing at a very respectable 18.82. 150-tick ES The two day 150-tick chart of the ES shows an already-overbought market on the short cycle oscillators. Bulls are clearly faced with an uphill battle for the 30 minute cycle upphase. Daily YM candles Same setup on the YM, which also bounced sharply from its 50 day EMA. Bulls need to recover the broken support line immediately to spare a potentially deep correction on the current daily cycle downphase. 20 day 30 minute chart of the YM Bonds were bid and metals sold, with equities unable to do more than pare their losses despite a large injection of liquidity from the Fed. I do not expect to see the rally highs revisited, given the current oscillator setup and the fact that it's opex week. The abrupt disappearance of the bulls today was surprising as we waited for the 30 minute upphase to get going. If that rocket launch on the YM was just Fed money hitting the tape, then we could see the selling resume tomorrow. However, the 30 minute upphase has a ways to go, and, given that the daily and weekly oscillators are lined up to the downside, the top of the remaining upphase should be a choice spot for new shorts. We'll be watching for it live in the Futures Monitor – see you there! ------------------------------------------------------------ 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: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** INDEX TRADER SUMMARY ******************** Indices finish lower, but off their lows Not one of the equity sectors we follow in our U.S. Market Watch finished today's trade in positive territory as a weekend terrorist attack in Turkey set a negative tone for global equity markets and had the major indices here in the U.S. continuing Friday's slide lower, after many of the major indices had traded new 52-week highs late last week. Economic data released today, while generally better than economists' forecast proved to sway some investors into buying late in the session, as the broader S&P 500 Index (SPX.X) 1,043.63 -0.63% finished its full session lower by 6.7 points, after trading as low as 1,035.28 just after the lunch hour. In what would have to be described as a more defensive session largely tied to this weekends acts of terrorism, the U.S. Dollar Index (dx00y) 91.61 +0.18% managed a 0.17-point gain and was able to hold above its multi-year lows 91.01, while Treasury bonds found some defensive buying that held to the close, with the 10- year Treasury Bond's YIELD ($TNX.X) falling 4.5 basis points to 4.188%. Some comments from the bond pits had traders citing short covering, as today's economic data was generally viewed as positive. One dealer was quoted as saying today's trade in the bond market was "counterintuitive, it has to be ongoing short- covering, outside the flight to quality action overnight." Some players were bemoaning the lack of liquidity and logic of late, while others believe the bond "rally has to fade; it is losing steam," acknowledging "they are still oddly strong. There is no rationale here." The "lack of rationale" in the bond market was directly tied to today's release of the November New York Empire State Index reading of 41.00, which showed manufacturing activity much more robust than the 28.0 forecast of economists, as well as some sign that business' were turning a little more optimistic on the economy as business inventories rose 0.3% in September, where economists' had forecasted inventories to remain flat. While the rise in inventories might raise some eyebrows of concern that demand was lagging, September sales showed a 0.6% gain after slipping -0.3% in August. While we might have looked for selling in Treasuries based on the stronger NY Empire State Index, the "flight to quality" trade in bonds becomes even more prevalent when we consider the October Treasury budget range up $69.5 billion of red ink and was $15.4 billion larger than a year ago. The two positives that could possibly have been taken away from this data was that the $69.5 billion deficit was not as large as economists' forecast for $71.0 billion, and that tax receipts in October of $135.8 billion were above the $124.5 billion for October 2002. I'm not trying to paint an overly optimistic view of the Treasury budget data. But when we consider what the Federal Government does have control over, it might be reasonable for economists or traders/investors to think that receipts, or revenue derived from taxes, is a much larger wild card and dependent on the economy than outlays, or spending, due to government programs. Still, the increasing budget deficit remains one of the main points of concern, or items most often discussed for the U.S. dollar's weakness versus major foreign currencies and with the Office of Management and Budget forecasting a fiscal 2004 deficit of $475 billion (September 2004), today's gain in Treasuries, which are backed by the full faith of the U.S. Government, give today's trade and gains in Treasuries a defensive look. If there was one sign of a technical breakdown that I saw in today's trade, it was Monday's trade in Japan's Nikke-225 ($NIKK) 9,786 -3.74%, where near-term technical support above 10,100 was broken and longer-term bullish support to 9,800 was tested by the close. In a recent November 11, 2003 Index Trader Wrap http://members.OptionInvestor.com/Itrader/marketwrap/iw_111103_1.ASP we reviewed the Nikkei-225's point and figure chart, and I dare say that today's break below the 10,100 level was also a contributing negative for today's trade here in the U.S., and has be taking on a more defensive posture toward the major indices in the U.S. near-term, where I think we need to continue to follow the $NIKK at this longer-term support trend, with near-term resistance building at 10,150, and intermediate-term resistance back near 10,650. Once we review the Nikkei-225 here tonight, It would be my thought that the WEEKLY R1s in this week's pivot matrix, become rather formidable resistance for the U.S. Indices. Tonight, I've quickly calculated what would be the $NIKK's MONTHLY pivot matrix levels, and what really stick out at me is the $NIKK's MONTHLY Pivot, which is right at the apex of the bullish triangle we had been monitoring as somewhat of a mid-point for the $NIKK. With the $NIKK seeing trade at and below its MONTHLY S1, I'm more cautious toward the U.S. major indices, as I do think the weakness in the Nikkei-225 ($NIKK) will have some negative impact on global markets. Nikkei-225 Index ($NIKK) - 50-point box Since our last update (11/11/03) the $NIKK did find some buyers up to the 10,400 level, fell back to 10,200 in Friday's session, but showed a rather significant break of what I considered to be important "near-term support" with today's trade at 10,100. Make no mistake that the U.S. market indices have shown relative strength versus the $NIKK in recent months, but the $NIKK is an index I thought we should keep a close eye on near-term, when the dollar had been weaker against the yen. While it generally accepted that Japan's economy is dependent on its exports to the U.S., and other global economies, today's breaking of 10,150 support has me alert that further weakness most likely impact the U.S. indices, as I think was the case early this morning. With the $NIKK now making a lower low from its October (Red A) lows, I view 10,650 as more formidable resistance. This is pretty close to not only the apex of the bullish triangle we had discussed as being somewhat of a gravitational point several weeks ago, that may have been the mid-point of a developing range, but would also be a November MONTHLY Pivot. I have NOT been tracking trade in the $NIKK as it relates to DAILY/WEEKLY/MONTHLY pivot analysis, but place the longer-term MONTHLY levels on the $NIKK chart so that we might begin to get a better "feel" or observation as to further test the thought that the $NIKK's trade may have impact (positive/negative) on the major U.S. indices. As we quickly review our Pivot Analysis Matrix for the major indices here in the U.S., we will note that today's trade did see the MONTHLY Pivots traded in INDU, DIA, OEX, NDX and QQQ. Only the SPX 1,043.63 -0.63% and SPY $104.93 -0.5% did NOT see trade at their MONTHLY Pivots. The S&P Banks Index (BIX.X) 329.19 - 0.23% did not trade its MONTHLY Pivot either, and I would not expect the BIX.X to trade its MONTHLY Pivot of 321.97, unless the MAJOR indexes were trading their MONTHLY R1s, similar to the Nikkei-225 ($NIKK) did today. Pivot Analysis Matrix - One technical scenario for bulls to look for a bullish trade setup tomorrow is for the $NIKK to FIRM in Tuesday's trade, but look for a reversal of this afternoon's late recouping of losses to find the SPX fulfill a test of its MONTHLY Pivot, like the other major indices did and a rebound to build into week's end and option expiration near WEEKLY R1. I've tried to place two different UPSIDE Nikkei-225 levels for a "dead cat bounce" in the $NIKK, with the 10,500 level being more of a round number level of resistance, where I would expect some bulls that have now seen a break below 10,000, to be more eager sellers on a bounce back to the 10,500 level, which after a TEST of WEEKLY S2's (see SPX WEEKLY S2 and MONTHLY Pivot overlap) a bounce back to WEEKLY R1's in the major U.S. Indices becomes a bull's exit point. After seeing the Nikkei-225 Index ($NIKK) break below the 10,100 support level, its is also a bounce back to the WEEKLY R1's in the major U.S. Indices, where I would look for a BEARISH entry point. My ONLY caveat for a bearish trade at WEEKLY R1, is that I would much prefer some near-term weakness to the WEEKLY S2's, otherwise, after seeing a 52-week high in the SPX Friday morning, I would have to assess upside risk to WEEKLY R2. I can't say that I follow Japan's economy as economists' and market analysts' comments regarding bullish and bearish scenarios as closely as I do U.S. economists/analysts comments, with which I TEST those comments against the technicals in the market, but one comment I have read out of Japan, is that most analysts in that region didn't think the $NIKK would "unravel" below 10,000, but would more than likely develop a range of trade either side of the 10,000 mark, until more clarity was given to the Japanese economy, and strength/weakness of the yen versus the dollar. Dow Industrials (INDU) Chart - Daily Interval For those technicians that track relative strength of one security against the other, you will see how the INDU and the $NIKK seem to trade off with each other as it relates to relative strength. In late October, the INDU gave a relative strength buy signal versus the $NIKK and would currently be considered a stronger major index, or market, when compared to the $NIKK. As such, we would look for some INDU leadership to the upside, but to get the move, it is my thought that the $NIKK needs to firm at current levels, at a MINIMUM. I've added the INDU's MONTHLY S1, where under EQUAL relative strength, gives us the impression of how the Nikkei's trader from here could play a role in how the INDU trades. Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" status at 80.00%. S&P 500 Index (SPX.X) Chart - Daily Intervals The SPX did break below some relatively important near-term support at the 1,047 level today, and while a couple of late buy program premium alerts, which were first seen at 1,040 did have the SPX recovering into the close, I would monitor the 1,040 level early tomorrow for support, but after seeing continued willing seller back near 1,061, would prefer to see a test of WEEKLY S2 and the 1,032 area, then look for a good rebound to build into the week's end toward 1,062. Today's trade saw a net loss of 5 stocks to point and figure sell signals as the broad S&P 500 Bullish % ($BPSPX) fell 1% to 79.80%. Still "bull confirmed" and would take a reversing lower reading of 76% to achieve a "bull correction" status. The narrower S&P 100 Bullish % ($BPOEX) saw a net loss of 1 stock to a point and figure sell signal and has the bullish % slipping to 79%. Still "bull correction" status. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals I didn't even attempt to profile a QQQ trade (bullish or bearish) today. Would not rule out a QQQ decline to $33.67, that finds a more attractive bullish trade setup for "one last run" back to $36.00. I say "one last run" as I've been waiting for "one last run" in the QQQ for several months. What has me getting a little more willing to take a shot at a QQQ chart back near $36.00 in coming sessions is the NASDAQ-100 Bullish % ($BPNDX), which did see a net loss of 2 stocks to point and figure sell signals in today's trade, and has the bullish % falling to 70%. Still "bear confirmed" and $36.00 looking a little more formidable as market participants seem to be showing conviction with their selling near that level. Jeff Bailey ------------------------------------------------------------ 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. 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The Option Investor Newsletter Monday 11-17-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: DGX, NFLX Dropped Calls: None Dropped Puts: None Play of the Day: Call - DGX Watch List: See Note Updated on the site tonight: Market Posture: Red Claw Marks Found on Wall Street ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** DGX - call Adjust from $65.50 up to $67.50 NFLX - put Adjust from $51.01 down to $49.50 ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************** PLAY OF THE DAY - CALL ********************** Quest Diagnostics - DGX - cls: 71.33 chng: +1.13 stop: 67.50*new* Company Description: Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Why we like it: Wasting no time, our DGX play pushed up through that key $70 level at the open on Friday, triggering our play to live status. With a lack of strength in the rest of the market though, DGX had no success in building on that early move and spent the remainder of the session chopping sideways in a very narrow range. But at the end of the day (despite the broad market losses), DGX held above $70 on above average volume and we'll take that as a continuation of the breakout. Traders that wanted to enter on strength got their opportunity on Friday and may get another opportunity to add to positions on a break above Friday's range early next week. At this point, the better entry point appears to be on a pullback near the $68 support (former resistance) and rebound. Once DGX gets moving to the upside, the $75 level should be a reasonable initial target, and then we can re-evaluate the potential for higher levels. Maintain stops at $65.50 for now. Why This is our Play of the Day After trading below the $70 resistance level for more than a year, there was a fair amount of energy released when DGX cleared that level late last week. With every major sector closing in the red on Monday, DGX kept right on going, tacking on 1.6% and closing very near its high of the day. Adding to the stock's bullish tone was the above average volume, which along with the close near the day's high, indicates more upside to follow. Our initial target of $75 will be a good place for conservative traders to harvest some gains and at this rate, we could see that before the week is out. Intraday dips that find buying support above this morning's low ($69.42) look attractive for new entries. Support near $68 should be firming up now, with the 10-dma ($67.97) and 20-dma ($67.40) rising to meet that support (broken resistance) level. This gives us the freedom to reduce our risk in the play by raising our stop to $67.50. With price now up against the upper Bollinger band (which is pointing down), now would not be the time to chase the stock higher with momentum entries -- wait for the pullback. Suggested Options: Aggressive short-term traders can use the November 70 strike, but need to be careful with less than a week until November expiration. Our preferred option is the December 70 strike, which gives a nice balance due to being in the money and having plenty of time until expiration. Traders looking for even more insulation against time decay can look out to the January strike. ! Alert - November options expire this week! BUY CALL NOV-70 DGX-KN OI=1994 at $1.80 SL=0.60 BUY CALL DEC-70 DGX-LN OI=1046 at $3.30 SL=1.75 BUY CALL DEC-75 DGX-LO OI= 459 at $1.10 SL=0.50 BUY CALL JAN-75 DGX-AO OI= 242 at $1.60 SL=0.75 Annotated Chart of DGX: Picked on November 13th at $69.46 Change since picked: +1.87 Earnings Date 1/20/04 (unconfirmed) Average Daily Volume = 869 K ------------------------------------------------------------ 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: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** Watch List ********** We're sorry. There will be no OptionInvestor.com watch list tonight. 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