The Option Investor Newsletter Thursday 12-04-2003 Copyright 2003, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Warning Season Begins Futures Markets: The Strong Dollar Index Trader Wrap: Intel gives Wall Street the good news and bad news Market Sentiment: Late Day Turn Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 12-04-2003 High Low Volume Advance/Decline DJIA 9930.82 + 57.40 9933.86 9865.78 1.84 bln 1563/1620 NASDAQ 1968.80 + 8.60 1971.25 1942.67 2.11 bln 1436/1748 S&P 100 527.56 + 3.14 528.01 524.42 Totals 2999/3368 S&P 500 1069.72 + 4.99 1070.37 1063.15 W5000 10431.96 + 29.60 10437.68 10362.72 RUS 2000 544.15 - 1.04 545.89 537.23 DJ TRANS 2938.02 - 1.50 2944.22 2914.20 VIX 16.30 - 0.33 16.83 16.29 VXO (VIX-O)16.56 + 0.26 17.37 16.50 VXN 26.81 - 0.53 27.45 26.70 Total Volume 4,264M Total UpVol 2,195M Total DnVol 2,018M 52wk Highs 444 52wk Lows 25 TRIN 1.05 NAZTRIN 1.11 PUT/CALL 0.72 ************************************************************ Warning Season Begins It was a strange day in the markets with the opening bounce fading midday and taking the indexes down to initial support before a series of buy programs in the last hour rescued the bulls from a dismal fate. That rescue ran into trouble after the close with warnings from two companies that tanked the futures in the overnight session. Dow Chart Nasdaq Chart Russell-2000 Chart The bad news started early with a jump in Jobless Claims by +11,000 to 365,000 and an upward revision to last weeks numbers to +354,000. It was not a material bounce but we all know how traders count on new trends continuing. The two consecutive weeks of declines gave traders hope and the return to early November levels weakened those hopes. If the Nonfarm Payroll report was not tomorrow I do not think traders would have been so nervous. Continuing claims also rose to 3.38 million. Actually the internal numbers were great. 47 states and territories reported a drop in claims while only six reported increases. The overall decline in claims may have unintended consequences. It appears now that lawmakers will NOT vote for a fourth extension of benefits and that means over a million more workers will no longer have any unemployment income. This could further depress the retail sector as those on the bubble tighten their wallets even further. Also depressing sentiment was the lighter than expected Retail Sales for November. The monthly sales came in at +3.6% and slightly below already lowered estimates. The Discount stores, Wholesale Clubs and Drug Stores were the only real gainers. Apparel and Footwear lost ground from October. Estimates for December are for a +4% to +4.5% gain and while this is up from November it is still below the late summer months in the 5.5% range. Only a few stores said the post Thanksgiving sales were strong. Wal-Mart specifically did NOT mention post holiday sales and DID say sales in early November were stronger. Read between the lines and you can probably decide that last weekend was a disappointment for them. Complicating the situation was the fact that last November was the weakest month of the year for chain stores with December the second worst. This makes the comparisons much easier for the current period and they were only able to grow +3.6%. Does not look good for the retail sector. The Retail Index was down nearly -6% from the Dec-2nd high to today's lows. They did benefit from the end of day buy programs and bounced nearly +10 points off the 365.46 low. Also, more than half of retailers MISSED their November projections. The retailers said sales were slower due to lower inventory levels, fewer sale items and smaller promotions. Sounds like the retailers saw the decline coming. Leading the decline in the retail sector were WMT, HD, LOW, JCP, FD and ANN. Going against the trend was Target which gained nearly $1 on its results. National Semi announced earnings this morning and said profit was up tenfold on lower costs and strong sales from North America and the Asia Pacific region. Wall Street was expecting 32 cents and NSM posted 36 cents. NSM said they expected 4Q revenue to rise +3% to +5%. Suddenly traders were shocked back to reality and the stock dropped over -$3 on the news. Great sales, great profit but only +4% growth? Traders dropped it like a hot skillet and despite an end of day rebound it closed under $42 and well under yesterday's nearly $45 high. This put even more focus on Intel and their mid quarter update after the close. Intel shocked investors after the close and the shock could carry over to Friday's open. They raised their revenue range to $8.5B-$8.7B from $8.1B-$8.7B. ($8.4B avg to $8.6B) This is not what shocked investors because everyone had already expected them to raise the range. Many had hoped they would raise the upper end but Intel is smarter than that. They give the wide range in their first estimate and then adjust it to the center as the quarter progresses. What shocked analysts was the announcement of a $600 million charge for unsold inventory and good will in their wireless communications and flash memory business. They said growth in that business was less than previously expected. The charge will lower their earnings by six cents for the 4Q. Andy Bryant said they were seeing "normal" seasonal growth with good demand for processors. Analysts never want to hear that growth is normal. Intel dropped -$1 in after hours and all the other chip stocks followed suit. The problem is the perception of the charge. Intel would want you to believe it was "not normal business" and therefore their -6 cent earnings drop would not be a warning but an adjustment. Some analysts differ on that view. Since Intel is a chip company and that is a large portion of their business they feel at least a portion of the charge is "normal course" and represents a warning. Either way Intel still said the microprocessor business was still strong and strong enough to raise estimates slightly. With the NSM slow growth comments and the INTC earnings charge there is a good chance the semi sector will not be a leader to the upside on Friday. Another tech stock held an analyst update on Thursday but failed to update anything. IBM spent a considerable amount of time bragging on IBM and trying to suggest there was a tech revolution underway but in the end they never gave any revenue or earnings guidance. It was a pep rally for analysts and nothing of substance. This suggests this thought process. If they had any good news they would have wanted to give it. Companies only disguise the bad news. IBM rarely updates guidance in these analyst meetings so we really can't draw too any negative conclusions despite thinking about them. IBM did rise +1.12 after the dog and pony show. Jet Blue warned after the close saying that the airline industry was faced with a challenging revenue environment. They said capacity additions by the major carriers were producing lower fares and more vacant seats. Western routes were said to be under the greatest strain. Airlines have been under pressure from rising fuel costs and there are starting to be rumors of lower than expected bookings for the coming holiday travel season. This warning came after Raymond James cut Southwest Airlines (LUV) neutral from buy saying that drops in November airfares could continue into December. The Nortel CEO said that they expected to see some growth in the telecom sector in 2004 but they did not expect it to be strong. He said there was "no spending boom" in the near future. He also said prospects for Nortel's optical division were weak. NT dropped about 20 cents on the news to $4.40. Considering the downplay I thought this was a positive sign that investors had already priced in the bad news. Despite all the bad news the markets crawled out of the gates and picked up speed around 10:AM. The Dow moved over the critical 9900 level and reached initial resistance from yesterday at 9925 before stalling. For two hours the Dow struggled to cling to 9925 while the Nasdaq was heading lower. The Dow finally collapsed around 1:PM and fell to support at 9875. This was not a big drop but the fall from 9925 represented a lower high and the beginning of a potential roll over. The 9875 level was support Wednesday morning again Wednesday afternoon at the close. It began as support again this morning so the afternoon retest was a critical fourth test of support. The Nasdaq touched 2000 right on schedule on Wednesday and almost immediately started down as expected. It fell to a low of 1942 on Thursday, -59 points from the Wednesday high. That 1945 level was initial support and provided a resting place for over an hour before the rebound began. At exactly 3:PM we saw the first of three broad based buy programs hit the market and A/D line gained +1600 issues over the next hour. The rebound caught everyone by surprise and the speed of the program spikes left most speechless and stopped out of their shorts. The Nasdaq rebounded to early morning resistance at 1970, still well off the 2000 highs from Wednesday but +28 points off the lows and back in positive territory. There was speculation it was short covering before the Intel update and the Jobs Report on Friday. I don't buy this based on the three distinct buy programs and the breadth of each. I suspect it was funds putting November month end money to work ahead of any potential Santa Claus rally. There was also a rumor at 2:55 that MSFT was going to announce a huge share buyback and raise their dividend. MSFT stock jumped +2% in the last hour of trading and a new high for the month. The Dow was the real winner in terms of gains. The rebound off the 9875 support propelled it to a 9934 close and only 8 points below its intraday 19-month high of 9942 from Wednesday. While the Dow failed to touch 10,000 when the Nasdaq hit 2K it was now poised to make another try on Friday. I saw "was" because there are three big hurdles in its path. The first hurdle was the Intel earnings warning. Even if it was not a warning it was less than exciting for traders who were expecting just a boost in estimates. The S&P futures fell almost immediately to 1065.50, about -4 points off the close. The Nasdaq futures fell -10 points. Those levels have eased some as the dip buyers speculate on the morning Jobs report. The second hurdle is the Jobs report itself. The whisper number is about +200,000 jobs and the official estimates are for a gain of +140,000. This sets up the market for a potential disappointment much like the Jobless Claims today. Even if we get another gain in jobs of say +50K or so it will still be less than expected and not a vertical ramp into a wonderland of full employment. With the expectations so high we run the risk of any number being sold as already priced into the market. A really good number would be seen as negative because of the Fed meeting on Tuesday. It would be seen as accelerating the Fed's decision to raise rates or at least change their bias to raising rates. This is where a good number can be bad and a bad number can be good. Lately the good news has been sold as readily as the bad news so the bottom line is that flipping a coin for direction would have a better chance of success than guessing this outcome. The third hurdle is the continuing flood of terror alerts. It seems like every Thr/Fri we get another round of warnings about potential impending attacks. Tonight was no exception. I know that we have had a hundred warnings to every real event but they keep filling the airwaves with them because they are breaking news. Whether they come to pass or not there is always the fear by fund managers that months of gains could be wiped out on any real event only days before 2003 closes. This has got to be weighing on many managers and with the recent market weakness and the weekend approaching there may not be any incentive to be bullish Friday morning. I told you on Tuesday I expected a continued bounce this week to 9900/2000 and both occurred. I predicted a sell off in the Nasdaq once that 2000 level was touched and it played out as expected. I suggested that we would then see a dip into next week in preparation for any potential Santa Claus rally. The bounce back to 9934 at the close leaves us right on the verge of either a test of 10,000 before the decline begins or looking at an opening drop on the Intel news, or both. We have seen some serious selling in the Russell-2000 yesterday and today. The buy programs at the close erased an eight point drop on the Russell and brought it back to the 545 level but still down for the day. The Russell tends to be a leading indicator for fund movement. When they decide to exit many funds dump the smaller and less liquid small caps first. The -12 point drop from yesterday's highs, (-20 at the lows for today), is a significant drop. However, one funds exit could be another's entrance. We will not know until real support is violated at 520 and that is several days away even in a directional market. This is just something else to keep your eye on. One measure of market internal strength is the new 52-week highs. I mention this often because it shows the breadth of the market leaders. A decline in the new highs means the leaders are losing support. On a day where the Dow closed at a new two-year high you would expect the new individual highs to be strong. Beginning with Monday the new highs across all markets were 1254, 1113, 902 and today only 444. To put that in perspective the Dow failed to break 9900 on Monday or Tuesday but new highs were over 1100 each day. Yesterday and today when the Nasdaq and Dow hit new highs the individual stock highs were dropping drastically. The new highs today were only 1/3 of the new highs on Monday. Does that indicate continued bullish internals to you? The market direction for Friday will be determined by the Jobs Report, fear of the Fed and whatever damage is remaining from the Intel news tonight. The Nikkei opened down nearly -70 points but recovered to even in the first hour. No obvious indication of Intel concern there. If I were flat tonight I would find it very hard to go long on Friday. With very strong resistance at 10,000 just ahead and known resistance at Nasdaq 2000 I just do not see a compelling reason to buy stocks. Odds are much better we can buy them cheaper next week as warning season accelerates. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor *************** FUTURES MARKETS *************** The Strong Dollar Jonathan Levinson John Snow was talking up the administration's commitment to a "strong dollar" again today as the USD Index hit a new multiyear low at 89.25. Gold and silver pulled back slightly, while the CRB, treasuries and equities advanced. 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 Currency traders should be practicing up on an Xbox or Gamecube over the holidays to hone up for days like today. The range was 75 bps wide, and saw coordinated moves in USD:JPY, USD:EUR and USD:CDN. The CRB rose .75 to 258.51, though it might have been different without the 10+% upmove from Natural Gas. Heating oil, sugar and platinum futures were the other leaders. Daily chart of February gold Gold was higher on the initial dollar weakness, but pulled back into light negative territory between 403 and 404 for the balance of the session, closing at 403.60, –1.20 for the day. HUI and XAU were notably weaker, but closed above their lows, down 8.86 at 245.65 and –2.89 at 109.32 respectively. The move in gold did not rattle the current uptrend, but suggests a possible bear wedge above 380. The first sign of trouble will be a break below 400, which targets next support at 390, 385 and finally 379 as the bear wedge downside target. Daily chart of the ten year note yield Treasuries rose more strongly than the Fed's net 1.5B addition via overnight repos would suggest, dropping 4.1 basis points to a closing yield of 4.369%. The move was mostly sideways on the daily chart, still indecisive within the crisscrossing trendlines. The daily uptrend in the yield continues to advance, but the series of doji candle tops and the slight hesitation on the oscillators appears to be giving bond bears pause. Daily NQ candles The NQ was all over the map today, printing a lower high and lower but closing at 1032.50, above yesterday's low. The outcome would have been dramatically different but for a nearly vertical buying explosion in the last hour launching from a short cycle bottom and blowing effortlessly through upside resistance. The market's reaction to the INTC announcement was negative as of this writing, and the move was either short covering or intervention, or a combination of both. In any event, the upside explosion lined up the short, 30 minute and daily cycles to the upside with the expected result. 30 minute 20 day chart of the NQ The 3PM ramp broke the NQ upward from a steep bullish descending wedge below the broken trendline of the bearish ascending wedge that broke yesterday. The failure at the 1435.50 high lined up with Fibonacci resistance and price confluence on the 30 minute chart, and the failure there was textbook. Whether this uncertain 30 minute cycle upphase gets past the descending oscillator trendline will be seen either overnight or with tomorrow's employment report. Note that the NQ had been underperforming the other indices to such a degree today that the small bull wedge never even developed on the ES or the YM. Daily ES candles The daily ES fell lower today but was also rescued by the 3:00AM buying spree. The daily cycle upphase hesitated today on the lower high and lower low, and unless strong buying comes in tomorrow, it will begin to weaken, setting up yesterday's high as possibly The high for this cycle. 1062-64 was as firm as we anticipated, but it was tested today, whereas yesterday's low was 1064.25. Once again, if not for the last hour's sharp ramp, the daily chart would look importantly different tonight. 20 day 30 minute chart of the ES As of this writing the ES was trading 1066.75, well off its close near 1070. On the 30 minute chart, the bounce came from price confluence at previous support below the then-52 week highs at 1065. The move off the lows was sufficiently sharp to set the oscillators up for a large bearish oscillator divergence if the price fails to advance above 1072 tomorrow, as they have not had a chance to "catch up" to the sudden price move. A return-to-the- scene-of-the-crime rally would see 1074 tested, at which point the 30 minute cycle will be overbought. While the sharp closing move is easy to doubt, the intraday and daily cycle oscillators are currently in gear to the upside. Technically, the market is set up to go higher, but I expect heavy resistance all the way to 1074. 150-tick ES As Jim pointed out in the Futures Monitor, the 3PM move was comprised of 3 buy programs. Whether it was intervention or a private buy program, the result was the same. Keltner resistance was tested twice, and while the short cycle upphase is not yet over, it should be by tomorrow morning at the cash open. Daily YM candles Nothing to add on YM, except that it was the strongest of the indices again, barely touching negative territory at the lows. 20 day 30 minute chart of the YM The US Dollar Index is certainly growing extended to the downside, although the fact that John Snow was talking it up today inspires little confidence in its strength. The combined strength in equities and treasuries went beyond the Fed's modest open market operations, and we'll be watching closely tomorrow to see whether this represents a new trend developing from that of the previous weeks during which they've traded inversely. While this shakes out, traders should keep an eye on the prices, but focus more keenly on the charts they're trading. Intermarket relationships are wonderful tools, but only when they're clear. I believe that the bulls' best chance to blow the roof off the highs will come with tomorrow's employment report, but I also believe it will fail. Bear in mind that that's my personal view, and for the moment it's not aligned with the status of the oscillators I follow. As a technician, I'm breaking my own rule, but as a trader, I just don't trust the current low-volatility, high-optimism environment. Everyone expects to see Dow 10,000 again. The VXO says that everyone is bullish. I see the risk of some continued upside, but the downside from here looks far more enticing to me. See you tomorrow morning. ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************** INDEX TRADER SUMMARY ******************** Intel gives Wall Street the good news and bad news Aside from the smaller capitalized Russell 2000 Index (RUT.X) 544.15 -0.19%, which finished down 1-point in today's trade, the major indices battle back from a late lunchtime low to finish in positive territory, with the Dow Industrials (INDU) 9,930.82 +0.58% gaining 57 points to close within 70-points of the 10,000 level. While bulls staged a late session rally ahead of tonight's mid- quarter update from chipmaker Intel (NASDAQ:INTC) $33.54 +0.59%, tonight's after-hours trade hints that some of today's modest gains may be given back at the opening of tomorrow's trade. As part of it mid-quarter update, Intel (INTC) give investors some good news and bad news. Intel's CFO Andy Bryant said seasonal growth on top of a strong third quarter, with good demand for its processors and steady demand for its networking chips has the company narrowing its predicted revenue guidance to between $8.5 billion and $8.7 billion compared with prior guidance of $8.1-$8.7 billion, and that gross margins are now predicted at around 62% compared with the company's prior goal of 60%. While the revenue guidance was at the high end of recently revised upward consensus for $8.55 billion, Intel surprised Wall Street when it said it would take a $600 million charge, equating to $0.06 per share in Q4 for goodwill impairment related to its Wireless Communications and Computing Group. Intel said the $600 million charge relates to its $1.6 million purchase in 1999 of DSP Communications, a maker of chipsets used in cellular baseband stations. Intel determined the amount of its charge as part of its annual accounting review that examines discounted cash flows, near- and long-term growth assumptions, and asset values. Mr. Bryant said current asset values of what it acquired from DSP, its expectations for cellular baseband chipset demand and long-term projections led to the current write-down. Intel also said the company's struggles this year with its flash memory chips business had a role in the write-down. The wireless communications group is represented primarily by flash memory chips, but also consists of application processors and cellular baseband chipsets for cell phones and handheld devices. During the previous quarter, the segment posted an operating loss of $124 million and revenue of $450 million. In after-hours trade, INTC fell to $32.47, down 3.2% from regular session close. Another tech bellwether had IBM (NYSE:IBM) $91.42 edging lower to $91.04 in tonight's late session trade, most likely in sympathy with Intel. At Big Blue's security analyst meeting, held shortly before the closing bell, CFO John Joyce and other IBM executives discussed how they believe IBM can provide the expertise and technology necessary in an environment where customers' business value is expected to drive demand for more efficient technology offerings. In particular, Joyce said IBM believes that demand for business solutions will soon grow twice as fast as the rest of the information-technology industry. IBM did not give any insight or forecasts regarding its current quarterly earnings or revenue estimates. Shares of IBM slipped 32 cents to $91.10 in after-hours action. While I expected a little more volatility for the major indices than we saw today, I think today's report from the Labor Department that weekly jobless claims rose by 11,000 to 365,000, which was a disappointment to economists' forecast of 355,000 along with some dollar volatility had traders sitting on their hands in the first part of today's trade. The U.S. dollar was up 0.2% versus the euro at $1.2082, rebounding from a new all-time low of around $1.2158 reached in intraday trading. Profit-taking in the euro emerged, sending the dollar up to an intraday high of around $1.2030, after a newspaper report said European policy makers were studying capital controls as a means to stem the rise in the euro. Meanwhile, the European Central Bank left interest rates unchanged, as expected. Against the yen, the dollar was down 0.1% at 108.20. The U.S. Dollar Index (dx00y) 89.70 +0.22% had the 6 foreign currency weighted dollar (euro and yen most heavily weighted) higher by its close, after trading a new low of 89.24 earlier this morning, with today's lifting of steel import tariffs also adding to the dollar's volatility. I wanted to take a moment to quickly discuss today's 03:15 mentioning and early Market Monitor profiling of a QQQ bullish trade, and show an intra-day chart of the QQQ. I think this is a good lead in, for tomorrow's trade as it relates to tonight's news and after hours trade from Intel, and may give traders a key index to monitor early tomorrow morning. NASDAQ-100 Tracking Stock (QQQ) Chart - 10-minute intervals After the close I put together chart of the QQQ with our WEEKLY pivot levels (S1-R1) on the 10-minute time interval, which gives us a full week of trade on the chart. I wanted to show the POTENTIAL reverse head/shoulder bottom chart that might be developing. I wanted to show the above chart, so that traders that may have taken a bullish trade in the QQQ near the $35.40 level not "freak out" tomorrow morning, should the QQQ open lower. In tonight's after-hours trade, which I don't necessarily feel is indicative of a true market response, the QQQ did fall to as low as $35.25 on the Intel news. Still, the POTENTIAL head/shoulder pattern is in play, and would only be violated on a break below the left shoulder of $35.25, which interestingly enough is pretty close to tomorrow's DAILY R1 of $35.25 (I've placed the 5 DAILY levels in brown on the above chart). I received a couple of excellent questions as to why I'd profile a bullish trade in the QQQ at $35.39, if a reverse head/shoulder pattern wouldn't develop until a right shoulder formed back near $35.27. This is a fair question, but after seeing the rather quick snap back when the QQQ traded its $35.14 WEEKLY Pivot, I also had to weigh the thought that maybe, just maybe, the market knew something "for certain" that I didn't know in regards to the Intel (INTC) mid-quarter update, that had buyers looking firm near the $35.14 level. Not to mention our longer-term upward trend from the March lows. While we did some work on the Q's in this morning's Market Monitor with our 5-minute retracement technique, and added together some prior intra-day observations that had me thinking earlier this morning the Q's might gravitate back toward the $35.65 level ahead of the INTC mid-quarter call, I must admit, that after seeing a trade at the WEEKLY Pivot today, I was starting to doubt that early morning analysis. I do think though, if the QQQ gets above the $35.72 ascending neckline on the potential reverse head/shoulder pattern, then a bull's target of $35.99 may indeed be achievable, with DAILY R2 still higher at $36.10. That's not to say a move back above $35.80 and WEEKLY R1 is going to be a breeze, if tested, but if some short-term bears see the reverse h/s pattern outlined above and begin to panic a little, I'm going to then advise traders in the market monitor, to begin raising stops to profitability on a WEEKLY R1 test, and be ready to sell our target of $35.99. As I type, it looks like QQQ last tick in extended hours is $35.42. Let's take a quick look at the pivot matrix, as there are two levels of support that really look to be holding tough, and will most likely be a levels to monitor for support tomorrow, with a slightly negative tone in tonight's after hours. Pivot Analysis Matrix - In PINK I've made note of what I feel to be rather important levels of support, and my current thoughts are rather bullish, despite tonight's after-hours news. In the above QQQ chart, we noted the test of WEEKLY Pivot in the QQQ, which also correlated with the MONTHLY Pivot. On first test, there was certainly buyers on the first test, and that's a good sign near term. What has me rather bullish is the rather strong bid holding in some of the larger caps of the S&P 100 Index (OEX.X) 527.56, which for a third-straight session has shows solid support at the 524.50 level and WEEKLY R1. While resistance certainly looks formidable at the overlapping MONTHLY R1 and WEEKLY R2, the ability to hold and not cave in, even at today's post-lunchtime lows looks promising for the bulls. I'll also note that while Intel is a Dow component, its lower share price may not have as much negative impact on the INDU as we might first thing, and with the INDU so near the 10,000, the market's willingness to bid the INDU higher into the Intel mid- quarter update, where there would still have been some hesitancy, is perhaps hint that there's still some believers in Dow 10,000. S&P 100 Index (OEX.X) Chart - Daily Interval While I do not want to forecast a trade at Dow 10,000 tomorrow, the OEX gives a good look for a support level at the 525 area holding pretty firm, despite some intra-day adversity the past three session, where on Tuesday and Wednesday, early gains were reversed lower to the close, but buyers stood firm as the OEX has started to creep above its October-November highs. We might tie in an OEX 530 with a trade at Dow 10,000. Just as we know there are some buyers at 525, there were definitely sellers yesterday at 528.50, which was correlative with the NASDAQ Composite (COMPX) 1,968 +0.43% trade at 2,000.00. S&P 500 Index Chart - Daily Intervals Today's trade has the SPX starting to look a little more sloppy at WEEKLY R1 than the narrower OEX. It is this observation that has me putting some importance on the NDX/QQQ (as more of a technology observation) and the OEX WEEKLY R1 (large cap, maybe not as much tech volatility). Yesterday's observations of heavy buy program premium alerts near the 1,071 level, that really couldn't get bullish move going above that level will have me monitoring any similar trade tomorrow, should we see the SPX try and test the 1,071 area again. I do think there were some hedged put on yesterday and as noted this morning, they can come off as quickly as they went on. SPX trader most likely has to use the QQQ MONTHLY/WEEKLY Pivot support observation and OEX WEEKLY R1 support observation to get a better feel for SPX support right now. Dow Industrials Chart (INDU) - Daily Interval From what I read in the "bears den" yesterday, the Dow shouldn't have done what it did today. First sign of weakness is below 9,832, but INDU looks to have some momentum from that MACD. In a trending higher market, MACD tends to overrule Stochastics. I think it can, I think it can, I think it can. Jeff Bailey ------------------------------------------------------------ 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 ------------------------------------------------------------ **************** MARKET SENTIMENT **************** Late Day Turn - J. Brown Bears seemed almost gleeful at the intraday weakness today but victory was snatched from their jaws with a late day turnaround that pushed the DJIA back to 9930 and the NASDAQ back to 1968. Market internals were mixed but generally bearish. Advancing stocks slipped below declining stocks 1393 to 1410 on the NYSE and 14 to 16 on the NASDAQ. Up volume tripped below down volume on the NYSE by a close margin but out paced down volume on the NASDAQ. Airlines and Gold stocks suffered the heaviest selling while investors found strength in Oil Service stocks and Natural Gas issues. Odds are good that Airlines stocks (XAL) will see new weakness tomorrow. After the bell JetBlue Airways (JBLU) warned and lowered its margins for the current quarter. Meanwhile chip stocks might lead the way lower for tech tomorrow as investors were not happy with Intel's mid-quarter update tonight. The SOX index had pulled back to the 500 level and bounced but we wouldn't be surprised to see it test its 50-dma soon near 485. Investor sentiment is certainly mixed. The early holiday cheer on December 1st has faded replaced by concerns that retailers may not be doing as well as expected. Wal-Mart continues to see declines on extremely high share volume. Tech-retailer Best Buy helped lead the decliners behind Abercrombie & Fitch, who had reported a 13% decline in November same-store sales. The big focus tomorrow will be the employment report. Will the small up tick in the ISM employment component translate into new jobs overall? And how will these numbers affect the Fed's decision next Tuesday on interest rates? These are the questions currently on investors' minds. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9933 52-week Low : 7197 Current : 9930 Moving Averages: (Simple) 10-dma: 9787 50-dma: 9700 200-dma: 9027 S&P 500 ($SPX) 52-week High: 1071 52-week Low : 768 Current : 1069 Moving Averages: (Simple) 10-dma: 1056 50-dma: 1042 200-dma: 970 Nasdaq-100 ($NDX) 52-week High: 1453 52-week Low : 795 Current : 1432 Moving Averages: (Simple) 10-dma: 1414 50-dma: 1398 200-dma: 1237 ----------------------------------------------------------------- Without any follow through on the recent selling these "fear" indices remain near extreme lows. We're still susceptible to stronger declines. CBOE Market Volatility Index (VIX) = 16.30 -0.33 CBOE Mkt Volatility old VIX (VXO) = 16.56 +0.26 Nasdaq Volatility Index (VXN) = 26.81 -0.53 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.72 682,634 489,126 Equity Only 0.57 584,895 330,837 OEX 0.79 21,062 16,645 QQQ 1.13 25,084 28,372 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.8 + 0 Bull Confirmed NASDAQ-100 74.0 - 1 Bear Correction Dow Indust. 80.0 + 0 Bull Correction S&P 500 81.8 + 0 Bull Confirmed S&P 100 80.0 + 1 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: 0.95 10-dma: 0.96 21-dma: 1.12 55-dma: 1.12 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 1393 1418 Decliners 1410 1651 New Highs 199 182 New Lows 10 12 Up Volume 872M 1075M Down Vol. 920M 972M Total Vol. 1806M 2082M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/18/03 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 Will it never end? The commercial traders refuse to move any positions or make any more big bets in the full S&P futures contracts. They've been oscillating in the current range for weeks. Small traders have bumped up both their short and long positions but they remain relatively equidistance from each other. Commercials Long Short Net % Of OI 10/28/03 391,596 412,498 (20,902) (2.6%) 11/04/03 391,079 415,136 (24,057) (3.0%) 11/11/03 389,965 415,259 (25,294) (3.1%) 11/18/03 393,893 414,442 (20,549) (2.5%) 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 10/28/03 137,791 76,791 61,000 28.4% 11/04/03 137,829 78,206 59,623 27.6% 11/11/03 136,072 74,249 61,823 29.4% 11/18/03 147,842 80,047 67,795 29.7% 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 The e-minis are seeing some action. Commercials upped their short positions but not by too much. Small traders also raised their short positions by 10K contracts (almost 20% of outstanding shorts). Commercials Long Short Net % Of OI 10/28/03 220,171 260,644 (40,473) ( 8.4%) 11/04/03 242,409 270,785 (28,376) ( 5.5%) 11/11/03 249,864 258,503 ( 8,639) ( 1.7%) 11/18/03 249,286 264,083 (14,797) ( 2.9%) 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 10/28/03 123,569 59,742 63,827 34.8% 11/04/03 135,525 63,006 72,519 36.5% 11/11/03 94,649 51,815 42,834 29.2% 11/18/03 95,119 61,975 33,144 21.1% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders are still stuck in limbo with outstanding longs and shorts in NDX futures barely budging the last few weeks. Meanwhile small traders have turned more bullish with a nice jump in outstanding long positions. Commercials Long Short Net % of OI 10/28/03 36,168 46,272 (10,104) (12.3%) 11/04/03 34,159 48,293 (14,134) (17.1%) 11/11/03 35,889 49,201 (13,312) (15.6%) 11/18/03 35,608 49,689 (14,081) (16.5%) 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 10/28/03 21,640 8,830 12,810 42.0% 11/04/03 24,132 9,703 14,429 42.6% 11/11/03 26,212 10,730 15,482 41.9% 11/18/03 32,034 10,356 21,678 51.3% 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 Ditto here as well...commercials are not making any new big bets and keeping the number of long and short contracts relatively unchanged. Small traders appeared to have scaled back on longs and inched up their shorts. Commercials Long Short Net % of OI 10/28/03 20,504 11,366 9,138 28.7% 11/04/03 21,756 11,903 9,853 29.3% 11/11/03 20,209 11,660 8,549 26.8% 11/18/03 20,746 11,080 9,666 30.4% 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 10/28/03 5,295 8,864 (3,569) (25.2%) 11/04/03 5,099 9,160 (4,061) (28.5%) 11/11/03 6,105 8,201 (2,096) (14.7%) 11/18/03 5,655 8,607 (2,952) (20.7%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ------------------------------------------------------------ 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! 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The Option Investor Newsletter Thursday 12-04-2003 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: AMZN, BCR, DGX, DHR, HOV, PGR, UTX, ZMH New Calls Plays: None Put Play Updates: KSS, NUE New Put Plays: PNRA, THO **************** 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 ------------------------------------------------------------ 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 UPDATES - CALLS ******************** Amazon.com - AMZN - close: 51.80 chg: +0.29 stop: 48.99 NASDAQ 2000 sparked some profit taking in technology stocks and the Internet sector was not spared. Fortunately, buyers bought the dip today and AMZN bounced from the 50.75 level. This might be a new bullish entry point but we're cautious. We suggest waiting for a bounce back above the 52.50 level before evaluating new positions. The bad news is AMZN still has to deal with its 50-dma again. Picked on November 30 at $53.97 Change since picked: - 2.17 Earnings Date 10/21/03 (confirmed) Average Daily Volume: 10.7 million Chart = --- C R Bard - BCR - close: 77.28 change: -0.17 stop: 74.99 Headlines remain a little scarce for BCR but we're not complaining. The stock has weathered the recent selling pretty well. Shares have managed to close above the $77 level the last three days in a row. Currently, we are still UNTRIGGERED and until BCR trades at or above 78.01 we're just spectators. More aggressive players can look for a dip and bounce from the $76 level as a potential entry point, should it appear. Picked on December 02 at $xx.xx Change since picked: + 0.00 Earnings Date 10/15/03 (confirmed) Average Daily Volume: 322 thousand Chart = --- Quest Diagnostics - DGX - cls: 72.53 chng: -0.52 stop: 72.00 This is the moment of truth for our DGX play, which finally succumbed to some profit taking over the past couple days. After reaching an intraday high of $74.99 on Tuesday and then $74.98 yesterday, it became clear that the bulls would need to get a running start to push through the $75 resistance level and the stock began to pull back. Thursday's drop almost did the play in though, as our $72 stop was tested on two separate occasions, with an intraday low of $72.04. The stock rebounded into the close, but it is still in a precarious position. Our profit target is still at $75-76, so conservative traders should have harvested some gains on the dual test of that level earlier in the week. Aggressive traders can attempt to buy the dip here in anticipation of another run at resistance but must rigidly adhere to that $72 stop. With daily Stochastics already heading south, our inclination would be to harvest gains on a failure of this bounce, rather than looking to squeeze a bit more out of the play. Picked on November 13th at $69.46 Change since picked: +3.07 Earnings Date 1/20/04 (unconfirmed) Average Daily Volume = 882 K Chart = --- Danaher Corp - DHR - close: 84.16 chg: +0.68 stop: 82.49 *new* We don't have much to say on the DHR play. Shares continue to trend towards $85 with successive higher lows. Its MACD technical indicator just produced a fresh buy signal. The afternoon bounce today does look inviting. Buyers could look at new positions here but the stock is close to the $85 level, which is the next hurdle of resistance so it's not the best entry point. We are going to inch up our stop loss to $82.49. Picked on November 23 at $81.95 Change since picked: + 1.04 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 829 thousand Chart = --- Hovnanian Enterprises - HOV - cls: 94.91 chg: +1.07 stop: 92.94*new* The relative strength in shares of HOV is amazing. The DJUSHB home construction index did suffer some very mild profit taking the last three days and slipped back to the 600 level this afternoon before bouncing. HOV followed suit and slipped to the $93 region before buyers bought the dip again. On Tuesday we struggled with the urge to close the play near $95 and take our profits home or leave the play open with a tighter stop. We still struggle with that decision today, especially given the recent weakness in the market indices. However, HOV's ability to retain its gains is enough for us to keep the play open. Part of HOV's strength today may be due to the press release it published this morning. HOV announced that the dollar value for its net contracts in November 2003 were up 65% from the previous year. HOV saw the strongest growth in the Northeast and Southwest with 130% and 157% contract growth for each region, respectively. We are NOT suggesting new positions and we are raising our stop loss less than 50 cents to $92.94. ! Don't forget. HOV is due to announce earnings on Tuesday. While there is the potential for the company to announce a split with their earnings we do not plan to hold over the event. Currently, our trading plan is to end the play at tomorrow's (Friday's) closing bell. Proceed according to your risk tolerance. Picked on November 21 at $85.51 Change since picked: + 9.40 Earnings Date 12/09/03 (confirmed) Average Daily Volume: 827 thousand Chart = --- Progressive - PGR - close: 79.50 chg: +0.82 stop: 77.95 *new* The painfully slow climb higher continues for PGR. The recent market weakness pulled PGR back to its simple 10-dma but it did not break. Buyers bought the dip today but couldn't push PGR back above the $80 mark, so we have little reason to cheer. We did note a Forbes article by Laszlo Birinyi Jr. who recommended PGR and commented on its low valuation at just 16 times trailing earnings. We are not recommending new positions until we see another strong, confident close over $80. In the mean time we'll inch up our stop just a tad to $77.95. Picked on November 07 at $76.25 Change since picked: + 3.25 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 654 thousand Chart = --- United Tech. - UTX - cls: 87.95 chng: +0.68 stop: 85.70*new* Our UTX play has been a real performer this week, consistently pushing higher in lock-step with the gains in the DOW. While today's intraday high of $88.09 didn't quite reach the high of $88.33 posted yesterday, the stock did manage a new closing high and appears poised to finally break out over that level of resistance, which is also the midline of the rising channel the stock has been riding since March. A pullback that finds support above $86.50 can be used for new entries, while more aggressive players can enter on a breakout over Wednesday's intraday high. Remember, we're targeting a rally to the top of the channel as the point where we want to harvest gains, and the top of that channel has now risen to $91.90. That gives a bit more upside to the play, with our official target now moving up to the $91-92 area. Note that we're trimming our risk again tonight by ratcheting our stop up to $85.70, keeping it just below the 20- dma ($85.72). Picked on November 23rd at $83.90 Change since picked: +4.05 Earnings Date 1/15/04 (unconfirmed) Average Daily Volume = 1.84 mln Chart = --- Zimmer Holdings - ZMH - close: 66.15 chg: -1.35 stop: 64.49*new* ZMH managed to trade sideways Tues-Wednesday of this week but profit taking finally hit this morning. Fortunately, buyers bought the dip at $65.29. We had mentioned that a pull back might be the next best entry point and we got it. Now we just need to see some follow through on the afternoon bounce today. We are going to inch up our stop loss about half a point to $64.49. Picked on November 30 at $65.92 Change since picked: + 0.23 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 1.8 million Chart = ************** NEW CALL PLAYS ************** None ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************* PLAY UPDATES - PUTS ******************* Kohl's Corporation - KSS - cls: 46.96 chng: +1.67 stop: 49.25*new* Once they pulled the plug on that $48 support level, shares of KSS really got moving to the downside. Tuesday's plunge was just the beginning, as yesterday, we saw the stock fall all the way to the $44.50 level before finding a bit of a bounce into the end of the day. Recalling that our initial target on the play was the $44-45 area, conservative traders should have been harvesting some gains on that drop. Perhaps it was some pre-emptive selling ahead of today's announced same store sales for November that caused the drop, because when the report came out, the stock gapped higher and ran as high as $47.54 before dropping and then rebounding into the close. The company said their same store sales fell 4.4% (worse than the 3.1% consensus drop), but still retained an optimistic outlook due to a solid start to the holiday shopping season. That leaves us with somewhat of a mixed picture, which was reflected in the price action today. KSS remains below solid resistance at $48, which is now reinforced by the 10-dma ($48.12). A failed rebound below that level can be used for fresh entries, looking for a return back to the $44-45 area, as the stock is likely to continue to feel pressure from weakness in the overall Retail sector (RLX.X). We're lowering our stop to $49.25 tonight, which will be above the 20-dma ($49.41) by tomorrow. Picked on November 18th at $48.75 Change since picked: -1.79 Earnings Date 2/12/04 (unconfirmed) Average Daily Volume = 4.24 mln Chart = --- Nucor Corp. - NUE - close: 52.20 change: +0.35 stop: 55.00*new* As expected, the Bush administration lifted the tariffs on steel imports 16 months ahead of schedule and it is a safe bet that it was anticipation of this event that drove shares of NUE sharply lower earlier this week. While the company's management tried to put a happy face on it, thanking the administration for their firm commitment to aggressively attack illegal trace practices, there was clearly disappointment felt at the domestic steel manufacturers. Investors took advantage of the opportunity to try to get a rally going off the 50-dma ($51.84), but there wasn't much life to it, as stiff resistance was found near the $52.50 area, the site of the break below the bottom of the expanding wedge shown on Tuesday. Look for strong resistance in the $52.50-53.50 area to set up a rollover, which we can use for more conservative entry points. Traders looking to enter on further weakness will need to wait for a break below the 50-dma and yesterday's $51.66 intraday low. If NUE has a real shot at achieving our $47-48 downside target, then the stock shouldn't be able to get above the dual resistance of the 10-dma ($54.32) and 20-dma ($54.30), so we're lowering our stop to $55.00 tonight. Picked on December 2nd at $52.66 Change since picked: -0.46 Earnings Date 1/22/04 (unconfirmed) Average Daily Volume = 677 K Chart = ************* NEW PUT PLAYS ************* Panera Bread Co. - PNRA - close: 36.50 change: -1.60 stop: 39.75 Company Description: Panera Brea Company, through its wholly owned subsidiary Panera LLC, operates bakery-cafes under the names Panera Bread and Saint Louis Bread Company. As of the end of 2001, the company had a total of 110 company-owned bakery-cafes and 259 franchise- operated units. The company specializes in meeting four consumer dining needs (breakfast, lunch, daytime and take home bread) through the provision of high quality food, including fresh baked goods, made-to-order sandwiches on fresh-baked bread, soups, salads, and custom roasted coffees. Why we like it: It wasn't that long ago that PNRA could seemingly do no wrong, as shares of the company charged to new all-time highs in September. There were investors that saw the company as the next Starbucks or Krispy Kreme. But Americans are coming to terms with the fact that they don't eat well and are getting fatter by the week. Enter the Atkins diet, which has gained newfound popularity, in large part due to its effectiveness. New Atkins-type diet plans, books and the like have sprung up to service this demand. The problem is that starch and carbohydrates are to be avoided. That leaves purveyors of yummy breads and other baked goods watching their business shrink. That reality is seen most clearly in the price action of PNRA, which has been in a solid downtrend since the major selloff in late October. Lower highs and lower lows have been the pattern and today's violation of the 200-dma looks pretty convincing, especially when we note that it came on volume that nearly doubled the ADV. A quick look at the PnF chart shows that the supply/demand picture has now turned decidedly in favor of the bears, with the current Sell signal giving a bearish price target of $26. The combination of the 200-dma ($37.88), 10-dma ($38.38) and broken support at $38, should provide strong resistance. A rollover below that level on any rebound attempt would make for a solid bearish entry point. Traders more interested in entering on further weakness can use a drop below $36 to enter the play. Note however that PNRA is sitting right on strong support in the $35-36 area, so attempting to enter on the breakdown does carry greater risk. Once that support breaks, we can target a drop to $32 support and then possibly a continued slide to stronger support at $30. We're initiating coverage with our stop set at $39.75, just above last week's high, as well as the 20-dma ($39.44). Suggested Options: Aggressive short-term traders can use the December 35 Put, while those with a more conservative approach will want to use the January 35 put. Our preferred option is the January 35 strike, as it provides ample time until expiration. BUY PUT DEC-40 UPA-XH OI=369 at $3.80 SL=1.75 BUY PUT DEC-35 UPA-XG OI=734 at $0.70 SL=0.40 BUY PUT JAN-35*UPA-MJ OI= 32 at $1.45 SL=0.75 Annotated Chart of PNRA: Picked on December 24th at $36.50 Change since picked: +0.00 Earnings Date 1/29/04 (unconfirmed) Average Daily Volume = 766 K Chart = ---- Thor Industries - THO - close: 53.25 chg: -1.70 stop: 56.01 Company Description: Based in Jackson Center, Ohio, Thor Industries is the largest producer of small to mid-sized recreational vehicles (RVs) and buses. Trailers, fifth wheels and motor homes including all the parts and accessories can be found in THO's product line. The company has plenty of subsidiaries like Airstream, Dutchmen Manufacturing, Four Winds, Keystone RV Co, Komfort, Thor America and more. (source: company press release) Why We Like It: Our put play in THO is mainly a technical play. Shares are breaking support on high volume declines. That's never a good sign and usually means there's more weakness to follow. However, we are going to use a TRIGGER to open the play because the stock still has one more support level to break and investors may begin to overlook the recent earnings announcement. Actually, it was the earnings announcement on December 1st that started the recent slide but the numbers are a little confusing. Back in November THO pre-announced strong earnings claiming that this last quarter would be a record-breaker for sales. Revenues were up 20%. Yet when the company announced they turned in 83 cents a share compared to Thomson First Call estimates of 91 cents. Investors didn't like the different and the selling began. We're going to use a TRIGGER at $51.99 to open the play. Until THO trades at or below this level we're just spectators. Fortunately, THO's P&F chart looks pretty bearish. A move under the $52 mark and the next support level appears to be the $44-45 region. Coincidentally, the simple 200-dma is approaching $44. If we're triggered our target will be $45.00 with a stop loss at 56.01. Suggested Options: January options are a little thin but December options only have two weeks left. Our preferred option is the January 55 put. BUY PUT DEC 55 THO-XK OI=261 at $3.30 SL=1.65 -2 weeks left- BUY PUT JAN 55*THO-MK OI= 1 at $4.30 SL=2.15 BUY PUT MAR 55 THO-OK OI=189 at $5.90 SL=3.25 BUY PUT MAR 50 THO-OJ OI=103 at $3.40 SL=1.70 Annotated Chart: Picked on December 04 at $xx.xx Change since picked: + 0.00 Earnings Date 12/01/03 (confirmed) Average Daily Volume: 236 thousand Chart = ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** 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 12-04-2003 Copyright 2003, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: PUT - PNRA Traders Corner: All Choked Up -- Adjusting The Strangle Hold ********************* PLAY OF THE DAY - PUT ********************* Panera Bread Co. - PNRA - close: 36.50 change: -1.60 stop: 39.75 Company Description: Panera Brea Company, through its wholly owned subsidiary Panera LLC, operates bakery-cafes under the names Panera Bread and Saint Louis Bread Company. As of the end of 2001, the company had a total of 110 company-owned bakery-cafes and 259 franchise- operated units. The company specializes in meeting four consumer dining needs (breakfast, lunch, daytime and take home bread) through the provision of high quality food, including fresh baked goods, made-to-order sandwiches on fresh-baked bread, soups, salads, and custom roasted coffees. Why we like it: It wasn't that long ago that PNRA could seemingly do no wrong, as shares of the company charged to new all-time highs in September. There were investors that saw the company as the next Starbucks or Krispy Kreme. But Americans are coming to terms with the fact that they don't eat well and are getting fatter by the week. Enter the Atkins diet, which has gained newfound popularity, in large part due to its effectiveness. New Atkins-type diet plans, books and the like have sprung up to service this demand. The problem is that starch and carbohydrates are to be avoided. That leaves purveyors of yummy breads and other baked goods watching their business shrink. That reality is seen most clearly in the price action of PNRA, which has been in a solid downtrend since the major selloff in late October. Lower highs and lower lows have been the pattern and today's violation of the 200-dma looks pretty convincing, especially when we note that it came on volume that nearly doubled the ADV. A quick look at the PnF chart shows that the supply/demand picture has now turned decidedly in favor of the bears, with the current Sell signal giving a bearish price target of $26. The combination of the 200-dma ($37.88), 10-dma ($38.38) and broken support at $38, should provide strong resistance. A rollover below that level on any rebound attempt would make for a solid bearish entry point. Traders more interested in entering on further weakness can use a drop below $36 to enter the play. Note however that PNRA is sitting right on strong support in the $35-36 area, so attempting to enter on the breakdown does carry greater risk. Once that support breaks, we can target a drop to $32 support and then possibly a continued slide to stronger support at $30. We're initiating coverage with our stop set at $39.75, just above last week's high, as well as the 20-dma ($39.44). Suggested Options: Aggressive short-term traders can use the December 35 Put, while those with a more conservative approach will want to use the January 35 put. Our preferred option is the January 35 strike, as it provides ample time until expiration. BUY PUT DEC-40 UPA-XH OI=369 at $3.80 SL=1.75 BUY PUT DEC-35 UPA-XG OI=734 at $0.70 SL=0.40 BUY PUT JAN-35*UPA-MJ OI= 32 at $1.45 SL=0.75 Annotated Chart of PNRA: Picked on December 24th at $36.50 Change since picked: +0.00 Earnings Date 1/29/04 (unconfirmed) Average Daily Volume = 766 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 ------------------------------------------------------------ ************** TRADERS CORNER ************** All Choked Up -- Adjusting The Strangle Hold By Mike Parnos, Investing With Attitude Senator Joseph Lieberman got down on the floor and did a dozen pushups for the MSNBC cameras. He was demonstrating his physical prowess at his advanced age. BFD. Lieberman is taking on the junk food industry in the battle against obesity. I don't like his chances. Hey! Obesity is the American way. Where would we get our instant gratification if it weren't for Quarter Pounders, Fritos, Twinkies, Hagen Daaz, and Krispy Kreme donuts? The companies that manufacture these items are the foundation of the American economy. Let Lieberman do his push-ups, pull-ups, and sit-ups while the rest of us get fed up. I doubt I'd want to live 10 years longer if my diet consisted of bran and soy products. Supermarkets would be half the size and so would our taste buds. Why would we even need taste buds if everything tasted like shredded wheat? I challenge Lieberman to get up off the couch, get to the kitchen, defrost a lasagna TV dinner, shave, shower, answer three e-mails, and get back to the couch – all during a three-minute commercial brake. That's a future Olympic event – and I've been training for it my whole adult life. When they call, I'm ready. When I go, I want to choke on an M&M as a sundae topping. And speaking of choking, let's take a closer look at our QQQ in-the- money Strangle strategy. (How's that for a segue?) The ITM Strangle is rapidly becoming a favorite CPTI student strategy. It's a great hands-off strategy, but the monthly adjustments need thought and some TLC. _________________________________________________________________ Mike, I opened up a QQQ strangle similar to yours this month. Just checking to see if I am on correct path. I sold Dec. 35 calls and puts against 2005 $29 call and $39 put for a credit of $1.95. My thoughts are to let it rest until the QQQs hit $37 on a closing basis. If they do, adjust by buying back Dec. short options and selling Dec. $36 calls and puts. If it stays in range of $34-$37 let time decay work. They question is - does one just leave it until expiration or should there be adjustments pre-planned during the month. I used the 1.90 credit and added to each side as spot to adjust. Obviously the LEAPS should be adjusted if a new trading range is established, correct? Anyway, I'm just updating my written game plan, and seeing if my mind is on right path. Thanks for all the work you put into your column. Terry Hi Terry, You seem to have a pretty good grasp of the strategy. The only thing that's tough to figure out are the adjustments -- and those are a judgment call. So far (2+ months), I've been letting the short options run their course and waiting until expiration week before rolling. Fortunately, they've bounced around and ended up within a point or two of where we sold them. The problem is what to do if the QQQs run to 37 or 38 or higher -- and when to admit that it's time to move to a new range. It's easy to talk ourselves into believing that the market will bounce back down -- because that's what we may want to happen. It's a fine line. At $38, we would have to buy back the short $35 for maybe $3.10. The problem is that when we roll out, where do we roll out to? We don't want to give up that $3.10 it just cost us, so perhaps we just sell the $35 again for the following month. Already being $3 in the money, we may only be able to sell the $35 for $3.25 -- or a time value credit of only about $.15. Then, there's the question of where to sell the new short put. To get the most premium we'd have to sell it close to or at the money ($38) when we'd get perhaps $1.00. You bring up an interesting alternative – adjusting a short position within the originally sold option cycle. If you did that, you would want to adjust both positions (the calls and the puts). As of right now, it might cost you $.70 to roll up the calls one point (to $36), but you could take in $.25-.30 to roll up the puts and help defray the cost. The end cost is about $.45. These numbers will obviously vary -- depending on when, during the option cycle, you decide to roll up (or down, as the case may be). If the QQQs remain up, rolling up now would make the monthly adjustment of the short options (now at $36) a little easier. However, if the market reverses back down, you may have spent the $.45 for nothing. If it goes down more than a few points, you may find yourself at a disadvantage. ______________________________________________________________ DECEMBER CPTI PORTFOLIO POSITIONS SPX Iron Condor – 1069.72 We sold 7 contracts of December 1085 SPX calls and bought 17 contracts of December 1100 calls for net credit of about $1.75 ($1,225). Then, sold 7 contracts of December 1005 SPX puts and bought 7 contracts of December 990 puts for net credit of about $1.40 ($980). Total credit $2,330. Maximum profit range of 990 to 1075. Max profit potential of $2,330. BBH -- Baby Iron Condor - $130.24 BBH looks to be in a trading range. To take advantage of this range we sold 10 contracts of the Dec. BBH $130 calls and bought 10 of the Dec. $140 calls for a credit of about $2.00. Then, we sold 10 contracts of the Dec. BBH $125 puts and bought the $115 puts for a credit of about $1.85. Total credit and maximum potential profit of $3.85 if BBH finishes between $125 and $130. Safety range and suggested bailout points would be $121.15 and $133.85. Maximum potential profit of $3,850. OEX Credit Spread Boogie – 527.56 We sold 2 December OEX 520 calls @ $9.00 We bought 2 December OEX 545 calls @ $1.55 Total credit and potential maximum profit of $7.45 ($1,490). Exposure $17.55 ($3,510). Maintenance $25.00 ($5,000). NDX Iron Condor – 1432.38 Here's an index we haven't traded before. The NDX mirrors the NASDAQ 100 stocks, just like the QQQs. We sold the December NDX 1325 puts and buy the December NDX 1300 puts, taking in about $1.70. Then, we sold the December NDX 1525 calls and buy the December 1550 calls for a credit of about $1.00. Total credit: $2.70. Maximum profit range of 1325 to 1525. _____________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $35.65 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. We're going to make money by selling near term puts and calls every month. Here's what we've done so far – all in 10 contract quantities. October: Sold Oct. $33 puts and Oct. $34 calls -- total credit of $1,900. November: Sold Nov. $34 puts and calls – total credit of $1,150. December: Sold Dec. $34 puts and calls – total credit of $1,500. Note: Each month, near expiration, we buy back the expiring options and sell options for the next option cycle. We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! QQQ Put Calendar Spread – Ongoing -- Trading @ $35.65 We created a cheap play that will let us take advantage of a nice down move. Meanwhile, we sell against the January puts while we wait. Bought 10 January 04 QQQ $32 puts and sold 10 October 03 QQQ $32 puts for a total debit of $1.00 ($1,000). We rolled out to the November $32 and took in a $.30 credit and then rolled to the December $32 puts for another credit of $.40. Our cost basis is now only $.30. ______________________________________________________________ I'd Like Mine Well Done . . . What is a cannibal's favorite TV show? A celebrity roast. _____________________________________________________________ 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. ------------------------------------------------------------ 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. 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