The Option Investor Newsletter Sunday 01-11-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Bears Confused By Facts Futures Market: Extremes Index Trader Wrap: Correction Editor's Plays: Finally Some Weakness Market Sentiment: 1,000 Jobs Ask the Analyst: The Trap! Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 01-09 WE 01-02 WE 12-26 WE 12-19 DOW 10458.89 + 49.04 10409.8 + 85.18 10324.6 + 46.45 +236.06 Nasdaq 2086.92 + 80.24 2006.68 + 33.54 1973.14 + 22.12 + 2.02 S&P-100 556.55 + 6.56 549.99 + 7.21 542.78 + 2.52 + 8.48 S&P-500 1121.86 + 13.38 1108.48 + 12.21 1096.27 + 7.61 + 14.52 W5000 10929.00 +151.14 10777.9 +115.48 10662.4 + 82.96 +114.94 RUT 575.20 + 14.35 560.85 + 5.75 555.10 + 8.22 - 0.71 TRAN 2988.94 - 19.22 3008.16 + 8.49 2999.67 + 12.24 + 4.02 VIX 16.75 - 1.47 18.22 + 0.83 17.39 + 0.97 + 0.01 VXO 15.94 - 2.00 17.94 + 1.36 16.58 + 0.53 + 0.10 VXN 23.01 - 1.50 24.51 + 0.56 23.95 - 0.94 - 0.97 TRIN 1.63 1.01 0.79 1.02 Put/Call 0.65 0.76 0.86 0.80 ****************************************************************** Bears Confused By Facts by Jim Brown The Jobs Report on Friday confused the bears but failed to sway the bulls. The terror threat level was lowered and a doctor with an MBA was the first wannabe cut by Donald Trump. The Martian Lander phoned home that it was locked in its room and Bush is sending men to Mars to help out. Pete Rose admitted he bet on baseball and Brittany Spears is single again. The Nasdaq set a new two-year high. Sounds like a normal week in the markets. Can't wait to see what next week brings. Dow Chart Nasdaq Chart There is no way to sugar coat it the Jobs Report was ugly enough to stop a clock. Just a clock, not the stock market. There was no good news unless you count the fact the headline number was barely positive at +1000 jobs. I am betting it gets revised down to negative next month. There were only an additional 20 jobs created for each state for December. The official consensus estimates were +127,000 to +150,000. The whisper numbers were as high as +300,000. Sure looks like a lot of analysts were on drugs when they did their research. The Jobs numbers were actually worse than it seems. The Nov numbers were revised down to 43,000 from 57,000 and the Oct numbers were revised to 100,000 from 137,000. The bottom line was a drop in jobs of -51,000 over the prior 60 days and almost zero job creation in December if the meager +1000 stands. The unemployment rate fell to 5.7% but not because people found jobs but because 309,000 workers gave up looking during the month. Household employment also fell -54,000 after big gains in November according to a different jobs survey. Weak manufacturing payrolls continue to be the burden. Levi Strauss closed its last American plant this week completing a move of its entire manufacturing process overseas. According to one analyst 630,000 apparel manufacturing jobs are going to be moved overseas in 2004 based on known announcements. 1300 apparel plants in the U.S. are scheduled to be closed. Over 170,000 workers in India are now employed in call centers that were exclusively U.S. jobs two years ago. Over 200,000 IT services jobs were moved to India over the last twelve months. This is just the tip of the iceberg. It is no surprise to many that the jobs numbers remain weak. The drop in jobs was the second monthly drop and with historical trends suggesting January will be weak the odds are good that string will stretch to three. Job creation was also weak in the ISM Services report earlier in the week and with services a leading indicator for manufacturing that suggests we are in for some rough going. The manufacturing work week fell to 40.7 hours and a further drop will force GDP revisions for the 1Q and we have not even seen the first estimate yet. Hours for the production workweek fell to 33.7. Average hours worked fell to 98.8 in December. Used as a proxy for GDP this number for the quarter only rose +2.18% suggesting the GDP will be lighter than expected. The Jobs report was the weakest report since July when the economy lost -57,000 jobs. According to almost every real economic analyst and the Fed the economy is not expected to produce a sustained monthly pace of +150,000 jobs until 2005. Why then did the majority of the street analysts think we were going over 200,000 on Friday. It boils down to hype. The bullish sentiment was so strong that everybody starts exaggerating to move out of the crowd. The first guy says 150K, the second 160K, and so on. By the time it makes the rounds the first guy is thinking he missed something and raises his estimates again thereby starting the process all over. Economic Bubblemania. Why is this important? New jobs produce new consumers. A drop in jobs removes consumers from the economy. Sure they continue to buy food and pay rent in some form but they are not out buying HDTVs from Gateway, Harley motorcycles, 2004 cars from GM or houses from Ryland. According to the Jobs report 309,000 workers chose a lower standard of living in December by dropping out of the workforce. That translates directly to a drop in sales at Wal-Mart and Target each month it occurs. Actually I am wrong. It probably helps Wal-Mart and hurts ANN, GPS, SAKS, BBY and JWN. Wal-Mart gains a new part time welcome greeter and they spend their meager paycheck in the store. Jobs produce consumers, consumers produce earnings. Ten Year Note Yields The best thing from the Jobs report was the certainty that the Fed is on hold for probably all of 2004. This will keep them from making changes for the next three months and once past the May-4th meeting the political implications will keep them from raising the rest of the year. Yields on the ten-year notes fell to 4.08% and a three month low. (red candle on the chart above) The drop on the yields was the biggest move since September. This is good for the economy and for the interest sensitive sectors. Homebuilder stocks were mixed on the news despite a glowing guidance statement from Pulte Homes (NYSE:PHM) saying their orders soared +31% in the 4Q to over 8,000 units. The reaction to the sector was mixed because they applauded the drop in rates but worried if unemployment will become a bigger sales issue. Money does not appear to be a problem for the markets. The mutual fund cash flows soared to +$3.8 billion for the week ended on Wednesday and stretched the string of positive weeks to nine. This is the longest positive inflow streak in three years. According to reports nearly $20 billion flowed into money market funds in December, not stock funds. This would suggest there is plenty of liquidity available but most investors were not ready to plunge into the stock market. This suggests there are plenty of buyers at the right price. Helping the markets in late morning was a change in the threat level from orange to yellow. The markets celebrated for about 20 min then went back to business as usual. The change did not affect all sectors or geographic locations but Tom Ridge would not say who or what was staying on orange. Despite the bad jobs numbers the market barely even blinked. The indexes had the obligatory gap down open but the Nasdaq roared right back to set yet another new high at 2113. The rise in techs dragged the Wilshire 5000 to 11018 and a new high but the broader index rose reluctantly, kicking and screaming. The Dow never regained yesterday's highs and struggled to break 10550 all day but was never successful. About 1:30 the Nasdaq recovered from some profit taking at the morning highs and managed one more upward push to set the 2113 high before the selling began. The Dow and Wilshire succumbed to the selling pressure and finally stop the Nasdaq advance. Once the momentum changed it began to pick up speed and the Dow finally cracked the 10520, 10500 and 10475 intraday support from earlier in the week and closed down -133. The Dow has stair stepped up in 20 point increments for the last week but before that we were moving up in 100 point sprints. Support levels for Monday begin at 10450 with good support at 10400. Below 10400 it begins to thin out to about 10000 where the 50DMA comes into play. The Nasdaq has support at 2075 but if that breaks we could get to a gap fill at 2000 rather quickly if the selling continued. The Wilshire has decent support in the 10800 range and very good support at 10400. The charts below show the Dow with two very good indicators. Each is suggesting that we could see some weakness ahead. In contrast the Nasdaq chart shows the MACD still rising and still below previous highs. Dow Daily Chart with RSI Dow Daily Chart with MACD Nasdaq Daily Chart with RSI Nasdaq Daily Chart with MACD The first week of 2004 was a banner week. At the highs Friday the Nasdaq was up +5% and the Dow +1% for the year. The Nasdaq is rallying off six-year lows not seen since July of 1996 and has gained +1000 points in the last 15 months. The Dow has gained +3200 points from the March lows just nine months ago. The stall at the 2002 highs has been expected. The biggest surprise has been the strength of the rally to this point. A Dow drop of -133 and a Nasdaq close -26 points off its highs is nothing. This was simply a one-day profit taking event prompted by the strong gains for the week and the bad Jobs report. This should not be interpreted as a correction or the beginning of a bear market. There is so much bullish sentiment under the market that any further drops are not likely to be swift or sharp. What we had on Friday was a normal event on bad data. If it continues next week then it could morph into something worse but regardless of the depth it is still a buying opportunity. Next week we begin the Q4 earnings announcement cycle. We have seen a pickup in guidance announcements last week and they went both ways, positive and negative. Dow component Alcoa released earnings Thursday night and on the surface the news was good. After closer examination there were a number of unusual items and a benefit from a lower than expected tax rate. What started out as a good report turned into an earnings miss and the stock dropped about -5% Friday morning. Alcoa will not be the only company that does live up to expectations. Next week the releases pick up speed and importance. Wednesday begins the tech parade with AAPL, LLTC, PLNR, QLGC, TER, YHOO and INTC. Thursday we have JNPR, SUNW, ASML, CREE, DGII, EXTR, FCS, RMBS, TMTA and VNWK. Friday we get GE. This list of earnings reporters is far from complete but the ones I listed should give us a pretty good idea how the rest of the month will go. If we see several of the techs going soft on guidance then we could see additional weakness in the markets. If they beat the estimates and raise guidance then the Nasdaq could retest the Friday highs. Because of the very strong gains in the last six days strong expectations have been priced into the market. Just like the strong expectations were priced into the Jobs report a disappointment in these earnings could be a challenge. Traders will be looking at the economic reports for next week for confirmation that the recovery is still alive. We start on Monday with the Kansas Fed Manufacturing Survey. Tuesday is the Richmond Fed Survey. Wednesday the PPI and the Fed Beige Book. Thursday we get the CPI, NY Manufacturing Survey, the Philly Fed Survey and the MAPI Survey for Q4. Friday has Business Inventories, Consumer Sentiment and Industrial Production. Make no mistake this is a very full week. Wednesday is the key day with two Fed surveys out of the way, the Beige book, AAPL, YHOO, QLGC and INTC earnings. This is an information overload day and what happens on Thursday will be a direct result. Nobody expects YHOO or INTC to miss earnings so the key is always the guidance. The risk is a simple guidance affirmation. If they do not guide higher in some form we could see trouble. So far in 2004 the techs have led the league in base hits and home runs. Gains have been astronomical in SUNW +18%, JNPR +19%, RMBS +16%, TMTA +22%, JDSU +23% and TLAB +20% to just name a few. The valuation calls are already beginning. For instance Morgan Stanley downgraded Lucent on Friday saying the gains were overdone. With techs only expected to gain +22% overall in 2004 there is obviously a disconnect. All the predicting and forecasting is over and next week is where the rubber meets the road. Earnings are generally expected to come in at +22% for the 4Q with Thomson Financial suggesting they could be as high as +28%. This is huge if it really comes to pass. It would be the best earnings quarter since 1993. The stage is set and the curtain is rising. All we need is for the stars to give the performance of the decade. Can they do it? Can they meet these very strong expectations? Check back next week and we will see how many are nominated for Oscars and how many were booted off the stage. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Extremes Jonathan Levinson Extreme became moreso on Friday with the release of disappointing economic data at 8:30AM, with the US Dollar Index diving to 85 support, silver, various foreign currency pairs and the CRB breaking to new multiyear highs, gold bouncing to the top of its rising wedge, and the NQ setting new highs for the year. The ES and YM were the laggards, with the YM leading the afternoon selloff. Treasuries broke strongly to the upside 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 markets and the press continue to do their best to ignore the diving US Dollar Index, and until today, the lower dollar has spelled higher equities and commodities valued in those dollars. Friday's news saw commodities continue higher, and for much of the session the NQ followed suit, but the afternoon break reversed the move in equities, with all of the major indices closing in the red. The CRB added 1.56 to close at 267.77, led by cocoa, silver and sugar futures. Daily chart of February gold February gold futures added 2.60 to finish at 426.60, putting in a higher low and higher high and adding .61% for the day. The XAU rose 1.44% to close at 110.54, HUI +1.93% to 248.74. March silver broke its recent highs, jumping 4.13% to close at 6.506. The move in gold flipped the trending daily cycle oscillators back up, with price testing rising bear wedge resistance at 428. I continue to expect trend corrections from all of the very extended charts I'm following, and gold is no exception despite my fundamental bullishness on it and commodities in general. If the dollar bounces, we should expect gold to correct. Goldbugs need to see the week's high above 431 broken on a closing basis to invalidate the bear wedge currently in play. Support has risen to the 421 area, with Friday's intraday low at 421.50. Daily chart of the ten year note yield Bonds spiked higher very quickly on Friday, launching on the 8:30 releases and driving the 10-year treasury note yield (TNX) down an impressive 16.3 bps (-3.84%) to close at 4.086%. Support was found at the lower Bollinger band, but the closing print was below price confluence, with the next stop at round number support of 4%. With the daily cycle downphase barely getting started here, I expect to see that level fail as well on this cycle. Daily NQ candles The NQ dived on the early morning news and then managed to bounce to new rally highs in what proved to be one of the great bear traps of recent memories. The afternoon selloff did not take out the earlier lows, but saw large upward moves in all of the volatility indices as selling picked up. The rejection of the new highs left a doji reversal with the morning selloff having exceed Thursday's low to the downside. But looking at the daily chart, the steep upward trend was never tested, let alone broken, and bears need to see a break below 1510 on Monday, preferably, to begin discussing a possible correction. It is very, very early to even consider a trend change, even though that's what it feels like at every subsequent failed high. The daily cycle oscillators left off with a bearish kiss on the 10 day stochastics, and any further downside should be sufficient to print the first sell signal of the anticipated daily cycle downphase. 30 minute 20 day chart of the NQ Again, it's looking like 1510 is the level to watch, and with price confluence between 1495-1500, bears are looking at more of a shake than anything else on the 30 minute charts. The 30 minute cycle oscillated some more today, but the most recent failure from a lower oscillator high against the higher price high should yield more selling to come on this downphase. NQ's 72% or 11 point drop to 1520 was 25 points below the intraday high. The low at 1514.50 is first support, and the first sign of trouble for bulls comes below 1510. The low volatility seen this week has resulted in very tight ranges and frequent oscillator reversals. For this reason, while my gut feels quite bearish, I will not be inclined to trust these 30 minute signals until price support fails. I'm looking for a break of 1510 for starters, but confluence at 1496 looks like the more important level. Daily ES candles The ES dropped 9.50 to close at 1120, closing below Thursday's low. The daily cycle oscillators are more bearish than those of the NQ, but again, even the briefest of glances reveals a healthy, steep uptrend. We've seen outside key reversals fail numerous times, and I'm waiting for a break below 1105 ES to consider a short term end to this leg of the bull run. A typical Bollinger band correction would have the midpoint, roughly coinciding with the 22 EMA at 1100 (in this case, closer to 1096 price confluence). A failure of that level would imply a test of 1077 and possibly 1060 support. 20 day 30 minute chart of the ES The break below the rising trendline did not violate the overall rising trend on the 30 minute chart, but it's a start. Friday was the first session in recent memory that did not see the indices close at the top of a steep panicked short covering rally. The bearish oscillator divergences yielded a steep plunge, but with the oscillators in gear to the downside and the daily cycles verging on sell signals, any further downside should be sufficient to motivate longer term bulls to take profits. The VXO closed higher by 10.24% on Friday, indicating a concerted move for the exits. A break below 1096-1100 should be sufficient to kick off the daily cycle downphase, and should line up with a further expansion of volatility. 150-tick ES The intraday ES, with a volume-by-price levels included, shows confluence resistance at the 1121.25 S2 level, with next resistance in the 1127 area. The short cycles were downtrending at the close, looking for a bounce on Monday. If a bounce doesn't come, then the 30 minute cycle is dominant, and the likelihood of a test of 1096-1100 will increase. Daily YM candles The YM printed a bearish engulfing candle on Friday, coming to rest on rising channel support at 10440. The first sell signal printed on the 10 day stochastic, but this is unreliable for the moment because it's been trending. Another down day will confirm the sell on the Macd and break back into the rising price channel targeting 10300 as the upsloping lower support target. 20 day 30 minute chart of the YM The 30 minute YM shows a head and shoulders neckline at 10450, broken on a closing basis and implying a potential target of 10300 again. The oversold short cycle oscillators are again looking for an opening bounce, but if it is weak, then the 30 minute cycle downphase should take us to lower lows once it ends. Friday was an important day, because it saw equities correct for the first time in weeks despite a declining dollar. I believe that the falling dollar will eventually impact bonds and equity prices negatively, but the strong bid in treasuries, presumably defensive based on the Friday morning employment disappointment, defers this shift for the time being. With commodities including crude oil, on the rise and bonds being bought, equities are looking vulnerable hear, but traders must remain disciplined on the bear side until the uptrends have been broken. ******************** INDEX TRADER SUMMARY ******************** Correction Jonathan Levinson A wide ranging session completed a wide ranging week, with the Dow falling 133 points or 1.3% to close at 10,458.89, the SPX dropping 10 points or .9% to close at 1121.86, and the Nasdaq losing 13.33 points or .6% to close at 2,086. For the week, the Dow was up .5%, the SPX 1.2% and the Nasdaq 4%. The steady grind higher saw new record lows in the Nasdaq-based volatility indices, with the QQV (NDX volatility) reaching the low 19's and the VXN (Nasdaq volatility) the low 21's. On Friday, the Nasdaq was the strongest index, and the afternoon selloff saw the QQV rise to close higher by 6.82% at 21.14 while the VXN rose 5.12% to 23.01. Compare this for the VXO (OEX volatility), which rose 10.24% to close at 15.94, and the VIX (SPX volatility) up 7.3%. Volatility tends move inversely to price in a rather close relationship, and the record lows printed for the Nasdaq caught a great many bears off guard. Amid stories of central bank intervention (notably, the Bank of Japan) and multiyear lows on the US Dollar Index, bears were caught in short squeezes that brought new rally highs across the indices. If the past year has taught technical traders anything, it has been that trends continue until they end, and that bear wedges can carry for a long, long time. The rallies this week saw the upper rising wedge resistance on the weekly Nasdaq tested but not broken on a closing basis, while the Dow wedge remains broken to the upside from the December leg of the rally. Weekly COMPX candles The weekly chart of the Nasdaq shows rising wedge trendline support coinciding with price confluence at the psychologically- significant 2000 level. Weekly Bollinger band resistance is at 2052, and remains violated as of Friday. This indicator is telling us the obvious, that a correction is due. A retracement to 2000 would be shallow correction, and support in the 1880-1900 area should be firm. The important question is whether the trending oscillators on this timeframe will commence an actual downphase or merely continue to fade hesitantly lower, teasing us with a seemingly endless bearish divergence as price rises. A close below 2000 would give us a clear sell signal on this timeframe, and would imply a downward bias for at least several weeks. Weekly INDU candles The 10 week stochastic on the Dow left off on a bearish kiss, and a down week next week would be sufficient to generate a sell signal on this timeframe. Note the trendline support at the apex of the failed bear wedge at 10200 and 9950. Bears should not be thinking anything more than "correction" above these levels. As traders, profits are profits, and buying support or selling resistance is a matter of indifference in pursuing our goal. However, it helps to be on the right side of the market, and if the weekly cycle rolls over, that side should be down. Next week is shaping up to be key on that basis. Daily OEX candles The OEX dropped 1.12% or 6.33 points to close at 556.55 on Friday. The move left a bearish engulfing print below Thursday's low, with heavy NYSE volume following heavy volume at the year high on Thursday. The daily cycle gave its first tentative indication of rolling over. First trendline support lines up with Fibonacci support at 546. Given the test of Bollinger resistance through the duration of the throwover above the channel resistance line, even the most bullish OEX trader would not be surprised by a revisit to 546. We will have to evaluate the daily cycle oscillators at that level, but if the OEX bounces from there, then I'll be expecting higher highs for the year. Support below 546 is at 535, 528 and 525. 20 day 30 minute chart of the OEX The 30 minute cycle oscillator rolled over from a lower high against Thursday's closing spike high, and this bearish divergence usually precedes a sharp drop. With the S&P futures closing at their session low on Friday, we can expect selling to continue on Monday. By the time the OEX reaches rising trendline support at 555, the 30 minute cycle should be at or near oversold territory, and a bounce will be likely. If that bounce occurs, then bears will look for a lower high to confirm the daily cycle downturn. If it simply falls through 555, then bulls have a potential problem and will look for next support in that 546 area. Daily QQQ candles A bad intraday tick has sliced up the daily QQQ charts. QQQ lost 14.9 cents or .39% and closed at 37.83 on Friday. Support is now at 37.10, and given the rollover in the 10 day stochastic, a down Monday will confirm the new daily cycle downphase on QQQ. Below 37.10, support is at 36.80, 36.60, and 36. 20 day 30 minute chart of the QQQ The afternoon selloff on Friday caused a sharp break on the 30 minute chart oscillators from deep within oversold, but the rising trend since mid-December has been very strong. This week saw much heavier volume than was seen for the last two weeks of December, and so long as the bulls hold 36, the uptrend should be safe. Below that level, the lighter support from December could result in an acceleration of the selling. ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Finally Some Weakness The game plan for this week was to fill out the rest of the put play by purchasing 3 more contracts at the open on Monday. The gap up by the Dow sent the premium to 90 cents making our average cost $1.19. The Dow rally to new highs tanked the premium the rest of the week and it traded as low as 55 cents. There is no stop loss on this play and we are in it until the bitter end. Fortunately the Dow was the weakest of the major indexes on Friday and ended up gaining only +43 points for the entire week. With six weeks to go on the February option we have plenty of time. Current support is 10400 followed by 10300. Should those levels break it could be a quick ride to 10000. I had several hateful emails this week suggesting that the original target for the play of 9700 was totally unreasonable to put it mildly. Remember, when the play started on Dec-21st the Dow was only 10250 and I did not in my wildest dreams expect 10600. The original play only suggested optimistic entry points to 10400. Not very optimistic in retrospect. This was the risk paragraph: I am not putting a stop loss on this trade so don't buy more than you can afford to lose. If we blow out the top we may not get back to 10000 before the premium decays. With the average January drop at -750 points a bounce to 10500-10600 would nearly negate the play potential. This is very unlikely considering the current over extension but anything is possible. Currently the Dow is at 10458 and I do not expect it to drop back to 9700 unless somebody big really screws up their earnings. The 50 DMA is currently 10013 and rising. This has been very strong support for the last 9 months. Eventually it will fail but I do not expect that until April. The recommended option was the Feb-100 put. (DJV-NV) An at the money option today would be worth around $2.00. This suggests that selling the puts at Dow 10000 would net something in the $1.75-$1.85 range depending on the time it took to get there and the premium decay during that process. I am going to change the target to Dow 10000. While 9700 is still possible it is not likely. At least not before any time premium decays. On the Market Monitor on Tuesday I suggested adding to your current position when the Dow was at 10550 using the DJV-NX $102 strikes for $1.05. I know from emails that several of you did. Congratulations! Those should be very profitable at Dow 10000. Those are still only $1.20 today if you want to increase your position. Every play is always a risk and should not be entered unless you are ready for the consequences. In the end everyone is responsible for their own trades and their own accounts. I still have faith that the January dip will appear but that faith and $5 will only get you a bad cup of Starbucks coffee. I personally doubled down on Tuesday with the $102 puts. No more coffee for me if we go bust. DJX Chart - Daily Initial play description December 21st http://members.OptionInvestor.com/editorplays/edply_122103_1.asp ******************************** Play Recaps Priceline.com (PCLN) Put play $18.05 http://members.OptionInvestor.com/editorplays/edply_121403_1.asp Powerball Sold Too Soon It is amazing what a strong tech week can do. I know I closed the Powerball section last week with the profit sitting at only +36%. This was down from +94% the day after Thanksgiving. The rally over the last week sent several of the components soaring and value returned. I had to resurrect the section one more time to show the results. Definitely sold too soon. Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** 1,000 Jobs - J. Brown If you were amazed by the non-stop climb in the major indices over the last several weeks then you're probably awestruck today. The fact there the markets only produced minor losses after such a HUGE jobs miss is simply incredible. Economists had been expecting, on average, a gain of 150,000 new jobs for the economy in December. The whisper number was even higher! Yet the truth was nowhere close to that figure. Only 1,000 new jobs were created. It will be interesting to see what direction this number is revised in a few weeks. Part of the bullish argument here is that such a low number merely reinforces the Fed's concerns over a weak labor market and strengthens the belief that they will remain on the sidelines (from raising interest rates) for some time to come. There is a growing chorus for no change until 2005. Furthermore, such a strong lack of hiring suggests that employers are squeezing every ounce of productivity gains from their current workforce. That means more profits for corporations and merely fans the flames for Q4 earnings expectations. From this angle one might see how the market was just ho-hum over the news. However, the real concern is whether or not the current economic recovery will slip from "self-sustaining" back into needing fresh stimulus. Then there is always the political fallout. If the economy doesn't start producing more jobs and quickly it becomes a major stumbling block for the current administration and that casts even more uncertainty over the upcoming election. Lest we forget, markets hate uncertainty. Technical indicators could also come into play. We saw the volatility indices all reach new lows this Thursday as the markets were peaking. Needless to say they are screaming "market top" but then they've been doing that for a while now. However, this time the major indices do look extremely overbought and in need of a correction. Plus the ARMS index moving averages are all approaching bearish reversal levels. How fortunate that we're at a key turning point as we approach Q4 earnings. I believe the real question this week will be investor reaction to earnings. Expectations are so high that it may be impossible to satisfy them. Instead of driving stock prices higher, investors may use strong earnings reports as an excuse to "sell the news". ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10592 52-week Low : 7416 Current : 10458 Moving Averages: (Simple) 10-dma: 10472 50-dma: 10013 200-dma: 9305 S&P 500 ($SPX) 52-week High: 1131 52-week Low : 788 Current : 1121 Moving Averages: (Simple) 10-dma: 1116 50-dma: 1071 200-dma: 999 Nasdaq-100 ($NDX) 52-week High: 1541 52-week Low : 795 Current : 1520 Moving Averages: (Simple) 10-dma: 1487 50-dma: 1430 200-dma: 1288 ----------------------------------------------------------------- Finally we are beginning to see the volatility indices act somewhat "normal". The markets hit some selling pressure on Friday and option premiums inflated enough to send the VIX VXO and VXN higher. CBOE Market Volatility Index (VIX) = 16.75 +1.14 CBOE Mkt Volatility old VIX (VXO) = 15.94 +1.48 Nasdaq Volatility Index (VXN) = 23.01 +1.12 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.65 1,116,174 723,463 Equity Only 0.45 942,691 420,871 OEX 1.35 30,880 41,808 QQQ 1.13 70,198 79,199 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 77.7 + 0 Bull Confirmed NASDAQ-100 80.0 + 0 Bull Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 87.0 + 0 Bull Confirmed S&P 100 85.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.98 10-dma: 0.90 21-dma: 0.93 55-dma: 1.06 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 1317 1236 Decliners 1544 1848 New Highs 270 216 New Lows 8 4 Up Volume 760M 1228M Down Vol. 1373M 1198M Total Vol. 2148M 2445M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/06/04 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 Oh no... the commercial traders are back to their old pattern of doing just about nothing. We see little change in small traders' positions either. Commercials Long Short Net % Of OI 12/09/03 396,882 420,859 23,977 2.9% 12/16/03 448,103 460,670 12,567 1.4% 12/22/03 400,066 405,240 (5,174) (0.6%) 01/06/04 403,721 408,729 (5,008) (0.6%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 12/09/03 172,178 99,484 72,694 26.8% 12/16/03 172,947 113,704 59,243 20.7% 12/22/03 147,537 81,596 65,941 28.8% 01/06/04 142,844 83,518 59,326 26.2 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 Ah...we are seeing some movement here. Commercials are upping their long and short positions but they've turned more bullish than the previous week. Small traders also increased positions on both sides of the fence but they remain optimistic. Commercials Long Short Net % Of OI 12/09/03 294,006 288,385 5,621 1.0% 12/16/03 330,273 361,316 (31,043) (4.5%) 12/22/03 128,801 213,021 (84,220) (24.6%) 01/06/04 175,489 240,865 (65,376) (15.7%) 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 12/09/03 142,173 76,171 66,002 30.2% 12/16/03 177,193 73,694 103,499 41.3% 12/22/03 125,248 43,482 81,766 48.5% 01/06/04 139,433 51,909 87,524 45.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is little change in commercial traders' positions this week. Meanwhile small traders have turned very bearish with a sharp reduction in outstanding long contracts. Commercials Long Short Net % of OI 12/09/03 39,612 51,443 (11,831) (13.0%) 12/16/03 61,343 73,153 (11,810) ( 8.8% 12/22/03 40,277 36,452 3,825 5.0% 01/06/04 42,892 37,801 5,091 6.3% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 12/09/03 25,842 10,228 15,614 43.3% 12/16/03 28,676 15,197 13,479 30.7% 12/22/03 22,656 14,544 8,112 21.8% 01/06/04 8,035 17,911 ( 9,876) (38.1%) 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 Par for the course, commercial traders are not altering their bets this week. Looks like small traders are following suit. Commercials Long Short Net % of OI 12/09/03 20,378 11,934 8,444 26.1% 12/16/03 23,509 13,880 9,629 25.8% 12/22/03 14,088 9,998 4,090 17.0% 01/06/04 15,697 9,497 6,200 24.6% 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 12/09/03 6,858 12,006 (5,148) (27.3%) 12/16/03 9,497 19,633 (10,136) (34.8%) 12/22/03 6,915 8,983 ( 2,068) (13.0%) 01/06/04 5,713 8,105 ( 2,392) (17.3%) Most bearish reading of the year: (10,136) - 12/16/03 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** The Trap! Could you please explain again, but somewhat more clearly your comments in today's update as it relates to the "trick" or trap created by market makers, as we all are not institutional traders. I will try and explain some of the comments I made in the Friday, January 09, 2004 03:15 PM EST update, as it relates to a "trap" that may have been developing in Friday's trade, where you the trader must judge for yourself if you think it is possible. You must keep and open mind. You must have no bias. You must NOT believe in conspiracy theory that the MARKET is out to get you. You must also get in the mindset that YOU are out to WIN at almost any cost. You are ruthless, and anyone that messes with you must be prepared to pay the consequences. You must also believe that your identity is protected, and no one will every know that it was you that made a mistake when you admit you were wrong. You are the most feared bounty hunter in the world, there is no equal. Are you in that mindset? Good. You are now a market maker on the NASDAQ, or a specialist on the NYSE. You own the trade! You are king of the markets, and often times, you can dictate intra- day trade, as you may have larger capital reserves than the bulk market participants and have knowledge of where other buyers and sellers exist. The following is today's 03:15 PM EST Update at OptionInvestor.com, where earlier in the session, I made a quick attempt to alert traders that a "trap" might have taken place in the NASDAQ-100 Tracking Stock (AMEX:QQQ). I should add, the only way I'm familiar with "traps" is I've been sucker more than a few times, and after repetition of losing money in a trade, I know earlier than later when I've been trapped. 03:15 PM EST Update - Partial Reprint (OptionInvestor.com) Traders should be on the alert, and make sure that their bullish enthusiasm didn't get out of hand earlier this afternoon, especially in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $37.93 -0.1%, as some things I'm seeing this afternoon look, and have the smell, that bears and bulls may have been "sucked in" at today's highs. The major indices have seen a rather notable reversal back to their lows of the session with the recently weaker Dow Industrials (INDU) 10,480 -1.1% making a new low and pacing a late session decline. One thing I alerted traders to, which I think is a "trick" by QQQ market makers, is that today's trade may hint of a near-term reversal, where a relative near-term high may be found in the coming weeks. Time will tell, but this is a "trick" I've seen before, which can suck in an undisciplined trader, and the QQQ, a popular security among traders, is perhaps the perfect place to be alert to such trick. NASDAQ-100 Tracking Stock - 5-minute intervals At approximately 02:40 PM EST, I alerted traders in the Market Monitor to be alert for a potential decline as a very suspicious intra-day head/shoulders top appeared in the QQQ. Traders that may have observed the MONTHLY R2 of $38.25, which when broken to the upside, may well have "sucked in" some overly aggressive bulls, but also had some overly short bears, seeing yet another 52-week high, finally calling it quits. Then... suddenly, without notice, a bullish session turns south. What strikes me as this being a "trick" by extremely astute institutional traders is this morning, in pre-market trade, the QQQ found opening support right at our DAILY S1 of $37.71, but when I slapped a retracement on the intra-day chart (above) to project a head/shoulder top price objective, I became very suspicious that the downside price object at approximately $37.70 was found. While I tried to put on a day trade short for entry at $38.20, stop $38.25, target $37.72, the up-ticks did not come. This trade alert was later cancelled. My main note to traders and investors alike, is that today's trade does look to be "manipulated," but traders should honor near-term stops, as this type of action can become more difficult to interpret as it may well be an artificial trade, where some institutional traders are pushing things around, trying to influence other traders investors, only to fulfill the institutional traders needs. Stay disciplined, and honor targets and stops! Jeff Bailey OptionInvestor.com and premierinvestor.net subscriber might also want to review their Friday morning 09:00 AM EST updates, when I updated traders in their QQQ bullish swing trade to adjust their stop loss based on the morning market conditions, but until stopped out, continue to target the $38.20-$38.25 area as their bullish target to take profits. It is days like Friday, when it can often times be very beneficial for traders and INVESTORS to be disciplined with their profit targets, and stops. (This trade was stopped out for a profit not long after the market opened for trade). Now that you have a background as to an observation I made in Friday's trade, I also want INVESTORS to view the above chart as if it were a DAILY bar chart, or WEEKLY bar chart, as the pattern recognition may come in handy some day in the future. Since YOU have kept an open mind, I will also let you know that traps aren't just created at a "top," but also at a "bottom." The terms "top" and "bottom" are placed in quotes, as I am by no means implying that Friday's trade is the sign of a top. Remember.... It is impossible to identify a true top, until a lower high and lower low is established. "Traps," as I call them, aren't just found/recognized intra-day. They can also be identified by INVESTORS to be alert to a reversal of trend, where the lower high and lower low is then recognized. Here's an explanation of how an intra-day "trap" can be developed by a market maker. We're going to do some role play, and YOU are going to be the market maker, and I'm going to be a market participant that believes I'm smarter than the market, and I've been shorting the QQQ, and built a rather nice bearish position in my account. I'm SHORT (sell short) 1,000,000 shares of the QQQ at $36.00 and YOU were the market maker that bought my 1,000,000 shares. You are the market maker or specialist. YOU know at the end of each day how many shares of the QQQ you bought from sellers (supply) and how many shares you sold to buyers (demand). This knowledge is what institutional traders refer to as "order flow," and is what gives market makers and specialists an advantage over you and I. Your ONLY job is to provide liquidity for the markets, try and make a buck or two for your firm, and make sure you don't lose money. You are ruthless, and within legal limits, will do whatever it takes to make money, not lose it. In a way, it's analogous to playing the card game of poker, where the opponent knows what cards we hold, while we're not certain what cards our opponent (market maker or specialist) is holding. To be the market maker, you must become the market maker! Background: The QQQ recently broke above $36.00 and your order flow has been strong, with the number of buyers (demand) outnumbering sellers (supply) be a hefty margin. This demand outstripping supply has price rising in the QQQ. You, the market maker, KNOWS that short interest (number of shares that are currently held in short accounts) is at record highs, and the markets are at 52-week highs. You know that when any security is able to achieve a 52- week high, the odds are high that demand is firmly in control, and at 52-week highs, every share short is now at a loss and assessing further upside losses to infinity. In essence at Thursday's closing 52-week high of $38.00, had the bulk of bulls holding winning trades, and bears holding losing trades. Here we go..... The market is now aware that the economy did not generate as many new jobs as economists had forecasted. For months, some have been saying the market's rise was incorrect, as the economy was not generating new jobs. The rise in the QQQ from $24 to $36 was outrageous and unwarranted. The recent 2- week's further rise from $36-$38 even furthered the case that bulls were incorrect. Jeff Participant: I am short 1,000,000 shares of QQQ at $36.00 on 12/24/03, no stop and believe non-farm payrolls will be negative, and I have been listening repeated negative commentary/analysis that $36.00 is solid resistance. I have such conviction in this belief, that I truly feel I am smarter than the market, and hold the winning hand. However, on January 8, 2004, at 04:15 PM EST, the QQQ has closed at $38.00, I'm holding $2,000,000.00 worth of losses, and begin to understand that I may be wrong, and the MARKET might be right. On January 9, 2004, I learn that December non-farm payrolls were not as strong as expected, and after suffering through $2,000,000.00 worth of losses, I'm about to be proven correct! The QQQ is going to fall and I will be rich! Market Maker (YOU): You know short interest is at record highs, and I'm short 1,000,000 at $36.00. You're ruthless, and its time to teach Jeff Participant and other like him, that it's a low odds probability trade to be shorting stocks in upward trends, at 52-week highs, not be trading stops, and trading what you believe, with no regard to what you've actually been observing. Jeff Participant: I can't wait to see today's carnage. I think the QQQ is going to easily fall to $37.00. This is going to be great. Heck... if I weren't already down $2 million and close to a margin call, I'd short another million shares and show them bulls they didn't know what they were doing. It's going to be a bloodbath. The QQQ is trading $37.70 pre-market. Markets open for trade, QQQ falls to an early morning low of $37.59, at 10:50 AM EST, the QQQ trades $38.01 and ANOTHER 52- week high! Jeff Participant: "Oh know... what's going on here?" Maybe I wasn't right... oh no... margin call. Oh... I hope $38.00 is resistance, why didn't I close out at that 52-week high of $36.19 when I had the chance? Oh please, oh please let $38.00 be resistance. Market Maker (YOU): This Jeff P trader, short 1,000,000 is screwed, but also sweating. He's still not covering. He hasn't been looking at the charts, he's been trading his convictions, not his observations. He's too busy thinking he's right. I don't have a share of stock for this clown, he'll surely pay up at $38.25. Let him sweat. So... Market Maker (YOU), comes in and starts buying QQQ, 30,000 at $38.02.... 50,000 at $38.05.... 50,000 $38.10.... (big grin on your face), traders see this happening and jump all over it and pick up their pace of buying (bulls buying and shorts covering creates double the demand). It's a new 52-week high, there's little overhead supply, it's easy money to $38.25. Jeff Participant: Oh goodness me.... OptionInvestor.com told me this morning at 09:00 AM EST that there may still be upside in the QQQ to $38.20-$38.25, I'm going to hang on some more... its only another $0.20-$0.25 away (I've been doing this now for several days of $0.20-$0.25 and building losses, day after day). Now... the QQQ is trading $38.25, then backs off to $38.19. Jeff Participant: Yes! OptionInvestor.com was right.... even though an analyst was bullish the QQQ, his target was $38.25. He's so smart! I'm right! This is the top! And here is how the Market Maker, or specialist can influence trade, and build the trap. Market Maker (YOU): This Jeff P character still doesn't get it. Here, I'll trick, or influence Jeff P into covering that 1,000,000 short. Market Maker (YOU) comes in and takes down (buys) 900,000 shares QQQ with a buy market to $35.27 order and drives QQQ higher.... above $38.25. The Market Maker (YOU) are now net long 2,030,000 shares, supply at 52-week high is limited, but bears are emotional, they hadn't planned for this. Building the trap - Influencing traders to act as you want The first thought of most investors/traders, especially those that have been bearish despite the MARKETS making new highs (you know this to be true, otherwise short interest wouldn't be at record levels) is that Friday's weaker than expected non-farm payrolls data would have the markets falling sharply at the open. As the session unfolded, some investors/traders became surprised. I (Jeff Bailey) didn't know for certain that the QQQ would trade $38.25 on Friday. If I did, I wouldn't have had traders/investor use a protective stop at $37.64. However, I have been noting the upward trend (the trend is your friend, trade it) and high level of short interest, where bears were underwater. Jeff Participant: Argh! I can't take it anymore! Get me out! Get me out. $38.30, I'll pay, I'll pay!!! (Jeff P and most likely several hundred bears like him). Certainly there were some traders/investors that have been sitting, watching, not believing and also decide to get back in, but it has been BEARS that have felt the greater pain/losses. Market Maker (YOU): Now you've got the move going, and here comes yet another round of buying as another level the QQQ shouldn't have traded gets taken out to the upside. Market Maker (YOU) sell long 1,000,000 shares at $38.30 that you bought from Jeff P at $36, as Jeff P gladly pays up at a price I never thought the QQQ could trade (valuations, economy, weak dollar, terrorism, Michael Jackson). Now Market Maker (YOU) are still net long 1,030,000 shares. But you still sense from order flow (trying to buy 1,000 shares at bid and maybe only getting 500, while selling 1,000 at offer and no problem getting filled as you provide liquidity to markets), that sellers are few, as some begin to learn/realize it might not be smart to try and short at 52-week highs. There's still a few Jeff Ps out there looking for cover. There's also some overly aggressive bulls that are willing to get on the bullish. The TRAP. Step #2 Market Maker (YOU): Market Makers know one thing for sure. You can't make price fall by shorting. You make price fall by selling long at the bid of other buyers to get a move lower. Remember, the Market Maker is ruthless, and YOU are here to make money. Point (A): Now the Market Maker (YOU) begins selling the offer, ,but instead of selling long your remaining 1,030,000 shares, you begin shorting as there is still plenty of willing buyers and supply is limited. You start selling short at the offer, 10,000 shares at a time, and begin sensing order flow. You can afford to do this as you've booked a nice gain on 1 million shares you bought lower at $36 from Jeff P and you're still long 1,030,000 shares at 52-week highs. You short 10,000 $38.32, 10,000 at $38.34, (no fills at $38.36), 10,000 at $38.32 and eventually are short by the time you get to Point (B) where by now, what first took about 4-seconds to short 10,000, is taking minutes and you begin to sense that buy side order flow is beginning to dry up. Point (B): Market Maker (YOU) now hold a net long position of 1,030,000 shares, and a net short position of 3,000,000 and order flow is at the offer is almost non-existent. The trap is set, and its time to see if the trap works! For simplicity sake, we won't count shares, but Market Maker (YOU) now limits your offer size to 1,000 shares and as you get filled, back off to $38.25 and spring your surprise. Market Maker (YOU) show BIG OFFER of 99,999,999. (Market participants see that and think, BIG SELLER RUN FOR YOUR LIVES!) Point (C): Market Maker (YOU) having sensed buy side order flow has dried up, begin aggressively selling your 1,030,000 shares in the long position, hammering the bids, aggressively, relentlessly, ruthlessly as if YOU want out and something's wrong. Again, YOU are trying to influence the move lower as buy side order flow had dried up. Sell long 100,000 shares at $38.20... 300,000 at $38.15, 630,000 shares to $38,00 (other sellers join in, momentum bulls above $38.25 start bailing) and the trap looks to be unfolding. The Trap Unfolds - As trader begins to recognize pattern Suddenly, a head/shoulder pattern is realized. Will this bring the decline that that has been set up, or created the trap? I quickly anchored a retracement at the high, and fit 38.2% at the potential neckline. If neckline broken, most likely a trap. Suspicious how fitted technique had 100% back near $37.74 Now the Market Maker (YOU) are 0 shares net long and net short 3 million shares at higher levels. Systematically, and with no emotion, bid 100,000 at $37.95... filled, another 100,000 at $37,90..... filled, and down the scale YOU bid. Panic erupts and the head/shoulder pattern erupts. BEARS once again convinced the top has been found and leapfrog each other lower at the bid, looking for up-ticks. Market Maker (YOU) bids 300,000 at $37.90 filled in seconds, 600,000 at $37.83... filled.... 700,000 at $37.83 ... filled. Bid another 700,000 at $37.71 filled on 300,000 and later filled another 400,000. The end... Note: In GREEN text in upper right hand corner, it is important for traders like you and I, to be careful of trying to anticipate a "right shoulder" in a head/shoulder top pattern. A market maker or specialist has a much better sense of order flow than you or I would have. If market maker or specialist is unaware of a still looming BIG buyer, the right shoulder fails, and another large move higher can be found, as both the BIG buyer and the market maker challenge each other to get long. As such, traders should follow the pattern with a stop just above the right shoulder. I've always wondered why, or how a MARKET knows what level to open for trading at, under "good news" or "bad news" conditions. The open is often found at a computer derived pivot analysis level, closest to the prior day's close. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- MTB M&T Bank Corp Mon, Jan 12 -----N/A----- 1.40 MDC M.D.C Hldg Mon, Jan 12 After the Bell 2.06 MTG MGIC Investment Corp. Mon, Jan 12 Before the Bell 0.95 STI SunTrust Mon, Jan 12 Before the Bell 1.19 ------------------------- TUESDAY ------------------------------ ACN Accenture Tue, Jan 13 Before the Bell 0.28 AMB AMB Property Corp Tue, Jan 13 After the Bell 0.58 ASO AmSouth BanCorp Tue, Jan 13 Before the Bell 0.45 ARA ARACRUZ CELULOSE S A Tue, Jan 13 -----N/A----- 0.55 BBT BB&T Corp Tue, Jan 13 Before the Bell 0.69 FNFG 1st Niagara Finl Grp Tue, Jan 13 Before the Bell 0.15 LALW .OB Laidlaw Intl, Inc.Tue, Jan 13 After the Bell 0.18 PLT Plantronics, Inc. Tue, Jan 13 After the Bell 0.28 STT State Street Corp Tue, Jan 13 Before the Bell 0.65 ------------------------ WEDNESDAY ----------------------------- AAPL Apple Computer, Inc. Wed, Jan 14 After the Bell 0.14 CYN City National Corp Wed, Jan 14 After the Bell 1.05 DAL DELTA AIR LINE INC DELWed, Jan 14 Before the Bell -1.66 DNA Genentech, Inc. Wed, Jan 14 After the Bell 0.25 INTC Intel Corp Wed, Jan 14 -----N/A----- 0.25 LLTC Linear Technology Wed, Jan 14 After the Bell 0.23 MI Marshall & Ilsley Wed, Jan 14 Before the Bell 0.62 NCC National City Wed, Jan 14 After the Bell 0.66 PKX POSCO Wed, Jan 14 -----N/A----- N/A PCP Precision Castparts Wed, Jan 14 -----N/A----- 0.62 QLGC QLogic Wed, Jan 14 After the Bell 0.37 RJF Raymond James Wed, Jan 14 After the Bell 0.50 TER Teradyne Inc. Wed, Jan 14 After the Bell 0.00 YHOO Yahoo, Inc. Wed, Jan 14 After the Bell 0.11 ------------------------- THUSDAY ----------------------------- AGI Alliance Gaming Corp. Thu, Jan 15 -----N/A----- 0.27 ASML ASML Hldg NV Thu, Jan 15 -----N/A----- 0.00 BAC Bank of America Corp Thu, Jan 15 Before the Bell 1.78 BRO Brown & Brown Thu, Jan 15 Before the Bell 0.37 CATY Cathay General BancorpThu, Jan 15 -----N/A----- 0.72 CBCF Citizens Bank Thu, Jan 15 -----N/A----- 0.42 CLC CLARCOR Inc. Thu, Jan 15 -----N/A----- 0.59 CMA Comerica Inc Thu, Jan 15 Before the Bell 0.88 CBH Commerce Bancorp, Inc.Thu, Jan 15 Before the Bell 0.69 CFBX Community 1st Bnkshrs Thu, Jan 15 Before the Bell 0.49 CREE Cree Inc. Thu, Jan 15 After the Bell 0.15 EXTR Extreme Networks Thu, Jan 15 Before the Bell -0.03 FCS Fairchild Semi Intl Thu, Jan 15 After the Bell 0.10 FITB Fifth Third Bancorp Thu, Jan 15 Before the Bell 0.79 FMER FirstMerit Thu, Jan 15 Before the Bell 0.21 FBF FleetBoston Finl Corp Thu, Jan 15 Before the Bell 0.64 HIB Hibernia Corp. Thu, Jan 15 Before the Bell 0.45 JNPR Juniper Networks Thu, Jan 15 -----N/A----- 0.05 MOLX Molex Inc. Thu, Jan 15 -----N/A----- 0.19 NCF Natl Commerce Finl CrpThu, Jan 15 After the Bell 0.43 NAP National Processing Thu, Jan 15 Before the Bell 0.28 NFB North Fork Bancorp Thu, Jan 15 Before the Bell 0.64 PBCT People's Bank Thu, Jan 15 -----N/A----- 0.24 RDC Rowan Co, Inc. Thu, Jan 15 Before the Bell 0.07 SLM SLM Corp Thu, Jan 15 Before the Bell 0.49 SUNW Sun Microsystems Thu, Jan 15 -----N/A----- -0.05 TCB TCF Finl Corp Thu, Jan 15 Before the Bell 0.88 UCBH UCBH Hldg, Inc. Thu, Jan 15 After the Bell 0.35 UPC Union Planters Corp Thu, Jan 15 Before the Bell 0.52 VLY Valley Natl Bancorp Thu, Jan 15 Before the Bell 0.40 WB Wachovia Corp Thu, Jan 15 -----N/A----- 0.88 ------------------------- FRIDAY ------------------------------- ABT Abbott Labs Fri, Jan 16 Before the Bell 0.65 DSL Downey Finl Corp. Fri, Jan 16 Before the Bell 0.94 HBAN Huntington Bancshares Fri, Jan 16 Before the Bell 0.38 KEY KeyCorp Fri, Jan 16 Before the Bell 0.53 RF Regions Finl Corp. Fri, Jan 16 Before the Bell 0.73 WL Wilmington Trust Fri, Jan 16 Before the Bell 0.54 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable NRGY Inergy GP, LLC 2:1 Jan 12th Jan 13th HRBT Hudson River Bancorp, Inc 2:1 Jan 15th Jan 16th TARR Tarragon Realty Investors 5:4 Jan 15th Jan 16th FRK Florida Rock Industries 3:2 Jan 16th Jan 19th SWWC Southwest Water Company 2:1 Jan 20th Jan 21st PHS PacifiCare Health Systems 5:4 Jan 20th Jan 21st MRX Medicis Pharmaceutical 3:2 Jan 23rd Jan 26th -------------------------- Economic Reports This Week -------------------------- This week the Q4 earnings season reaches full force and will continue for the next two or three weeks as announcements come fast and furious. We also have a very full week with nearly 18 economic reports. ============================================================== -For- ---------------- Monday, 01/12/04 ---------------- None ----------------- Tuesday, 01/13/04 ----------------- Export Prices ex-ag. (BB) Dec Forecast: N/A Previous: 0.2% Import Prices ex-oil (BB) Dec Forecast: N/A Previous: 0.3% ------------------- Wednesday, 01/14/04 ------------------- Trade Balance (BB) Nov Forecast: -$42.0B Previous: -$41.8B PPI (BB) Dec Forecast: 0.2% Previous: -0.3% Core PPI (BB) Dec Forecast: 0.1% Previous: -0.1% Fed's Beige Book (DM) ------------------ Thursday, 01/15/04 ------------------ Initial Claims (BB) 01/09 Forecast: 351K Previous: 353K CPI (BB) Dec Forecast: 0.2% Previous: -0.2% Core CPI (BB) Dec Forecast: 0.1% Previous: -0.1% NY Empire State Index (BB) Jan Forecast: 37.8 Previous: 37.4 Retail Sales (BB) Dec Forecast: 0.7% Previous: 0.9% Retail Sales ex-auto (BB) Dec Forecast: 0.4% Previous: 0.4% Philadelphia Fed (DM) Jan Forecast: 30.0 Previous: 32.1 Treasury Budget (DM) Dec Forecast: -$12.0B Previous: $4.7B ---------------- Friday, 01/16/04 ---------------- Business Inventories (BB) Nov Forecast: 0.2% Previous: 0.4% Industrial Production (DM) Dec Forecast: 0.7% Previous: 0.9% Capacity Utilization (DM) Dec Forecast: 76.1% Previous: 75.7% Mich Sentiment-Prel. (DM) Nov Forecast: 94.0 Previous: 92.6 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 01-11-2004 Sunday 2 of 5 In Section Two: Watch List: Another Mixed Bag Play of the Day: See Note Dropped Calls: UTSI Dropped Puts: WHR ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Another Mixed Bag ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Biosite - BSTE - close: 29.90 change: +1.09 WHAT TO WATCH: BSTE might just be a defensive play. If the markets pull back investors will be taking profits out of their current positions and looking for beaten down stocks to play a rebound. Shares have been consolidating in the $25-30 range for three months now and the worst is probably behind it. We'd consider new longs over the $30.50-31.00 level and target the 200-dma just under $40.00. Chart= --- Allergan - AGN - close: 80.68 change: +1.68 WHAT TO WATCH: Shares of AGN have been very strong this past week. Shares shot higher, breaking resistance at $78 on rising volume. The stock ran straight to long-term resistance at $82 before paring its gains. Bulls traders willing to follow this drug stock might want to consider a bounce from the $78 level or a breakout above $82.00 as potential entries. The $90 mark looks like a good target. Earnings are in late January. Chart= --- Krispy Kreme Doughnuts - KKD - close: 36.30 change: -0.14 WHAT TO WATCH: The recent consolidation in shares of KKD have begun to narrow. There is strong support at the $36.00 mark but selling pressure is creating a trend of lower highs. Whomever is buying the stock at $36 may eventually run out of money. A breakdown here could portend a move to the top of the gap last May and it wouldn't surprise us to see KKD fill that gap. That means bears could probably target the $32 level. Chart= --- Fedex Corp - FDX - close: 65.04 change: -1.34 WHAT TO WATCH: We've had our eye on FDX for a while. The stock's decline has begun to pick up speed and volume has been strong the entire week. On Friday the stock broke through its simple 200-dma, which should have been support. FDX did manage to hold at the $65 mark but it may be a temporary respite. The weekly chart suggests FDX might trade to the $60 level but shares are currently oversold and overdue for a bounce. Chart= --- Silicon Labs - SLAB - close: 48.81 change: +1.98 WHAT TO WATCH: The rebound in shares of chip stock SLAB look tempting. Volume was strong on Friday as SLAB gapped up and over its simple 50-dma. The rally failed at resistance of $50.00 but that provides a good trigger point for interested bulls. However, the play is not without caution. SLAB's P&F chart shows the stock running straight to resistance and stalling and the first test of resistance on the P&F chart can be painful for the bulls. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- RIMM $76.25 +4.85 - Let's all bow our heads and offer a moment of silence for the bears who were caught in the explosion of RIMM's share price. Traders are buying every dip. BAC $78.35 -0.70 - BAC appears to be forming a wide descending channel. Share just failed for the third time at its declining trendline, forming a new lower high. The stock does have potential support at its 50 and 200-dma but bears could be targeting a move to 72.50. ADVP $50.50 -0.90 - We almost added ADVP to the put list this weekend. Unfortunately, the company is being acquired by CMX and shares of ADVP will trade in conjunction with CMX's. Watch for a breakdown under the $50 mark for ADVP (or the 200-dma for CMX). ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** THE PLAY OF THE DAY ******************** OptionInvestor.com is constantly trying to adjust and tweak our newsletters and website to provide the best possible product. One such improvement is the introduction of a daily watch list in place of a daily "play of the day". Instead of just one "play" for tomorrow, we'll provide several trading ideas for your perusal. The Watch List can be found directly above this note. ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ UTStarcom Inc - UTSI - close: 37.40 change: -3.94 stop: 37.85 Well UTSI didn't work out very well. An unexpected announcement that the company plans to sell 12.1 million shares of stock to Bank of America threw a wrench in our play. The amount of new stock is more than 10% of the current number of outstanding shares. This forced the company to readjust their earnings numbers lower and investors did not like the news. We are stopped out at $37.85. Picked on January 06 at $40.71 Change since picked: - 3.31 Earnings Date 01/22/03 (confirmed) Average Daily Volume: 3.0 million Chart = PUTS ^^^^ Whirlpool Corporation - WHR - cls: 73.31 chng: +0.53 stop: 73.50 Defying the odds, shares of WHR shrugged off the negative housing news earlier in the week and the dismal jobs data on Friday only added to the bullish enthusiasm, driving the stock through the $73.50 resistance level and triggering our stop. It was an aggressive play, attempting to play the downside from the top of the recent range, but a tight stop kept the damage manageable. Despite pulling back under our stop at the close on Friday, WHR demonstrated far more strength than we expected to see, and that alone is enough reason to pull the plug. If holding open positions, look to exit on any weakness early on Monday. Picked on January 4th at $71.18 Change since picked: +2.13 Earnings Date 2/05/04 (unconfirmed) Average Daily Volume = 588 K *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** 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 Sunday 01-11-2004 Sunday 3 of 5 In Section Three: Current Calls: DGX, DLX, GD, GILD, MXIM, YHOO New Calls: STJ Current Put Plays: CFC New Puts: ADBE, DIA ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Quest Diagnostic - DGX - close: 73.07 chg: +0.04 stop: 69.99 *new* Company Description: Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable physicians, hospitals, managed care organizations and other healthcare professionals to make decisions to improve health. The company offers the broadest access to diagnostic laboratory services through its national network of laboratories and patient service centers. Quest Diagnostics is the leading provider of esoteric testing, including gene-based medical testing, and empowers healthcare organizations and clinicians with state-of-the-art connectivity solutions that improve practice management. (source: company press release) Why We Like It: It has been very quiet for DGX the last couple of weeks. There has been very little news and the stock has virtually churned sideways over the same period. It is that latter observation that concerns us. DGX is still very much inside its wide rising channel but the stock is falling behind the major averages, which were hitting new highs as of Thursday's session. An opportunity to play the rising channel is still present but the daily chart and some of DGX's technical oscillators are suggesting another dip in price soon. Be on your guard. A strong bounce in the 71.50-72.00 region might be playable but if DGX trades below its simple 50-dma the bulls could be in trouble. We're very hesitant to add new long plays here and we're going to raise our stop loss to 69.99. In the mean time keep your ears open. Quest is to have President and COO Surya Mohaptra speak at the 22nd Annual JPMorgan Healthcare conference on Monday, January 12th in San Francisco, California. Suggested Options: We're cautious on new plays but bullish traders can probably best play DGX with February strikes. Our suggested option is the Feb.70's. ! January options expire this Friday! BUY CALL FEB 70*DGX-BN OI=1492 at $4.50 SL=2.25 BUY CALL FEB 75 DGX-BO OI= 599 at $1.50 SL=0.75 BUY CALL MAY 75 DGX-EO OI=2006 at $3.20 SL=1.65 Annotated chart of DGX Picked on December 30 at $72.95 Change since picked: + 0.12 Earnings Date 01/27/03 (unconfirmed) Average Daily Volume: 836 thousand Chart = --- Deluxe Corp. - DLX - close: 42.03 change: -0.49 stop: 40.50 Company Description: Deluxe Corporation provides personal and business checks, business forms, labels, personalized stamps, fraud prevention services and customer retention programs to banks, credit unions, financial services companies, consumers and small businesses. The company reaches clients and customers through a number of distribution channels, including the Internet, direct mail, the telephone and a nationwide sales force. Why we like it: Traders that thought they missed their entry point on our DLX play as the stock neared the $43 level on Wednesday are getting another chance. After a very convincing breakout over the $41.80 H&S neckline, the stock found resistance at the 200-dma and is pulling back to test that breakout level as new support. Friday's bearish candle doesn't look encouraging for the bulls, but it does fit within the recent trading pattern, where the stock breaks out and then retraces to test the level of that breakout as new support. If that pattern holds, we'll want to look for a rebound in the $41.50-41.75 area as the ideal entry point. Due to the slow manner in which the stock moves, and with overhead resistance near $44, we aren't advocating breakout entries on this play. Either enter on the pullback or leave it alone. Remember that our eventual target for the play is the $45 level. Maintain stops at $40.50, just under the most recent lows, as well as the 20-dma ($40.91) and 50-dma ($40.68). Suggested Options: Shorter Term: The April 40 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. While January strikes are available, with expiration only a week away, that seems too risky a selection, given the stock's slow moving nature. Longer Term: While we've listed a February strike, it currently has low open interest. Until some open interest builds, longer- term traders should focus their attention on the April strikes. Our preferred option is the April $40 strike, which is in the money and has plenty of time until expiration. ! Alert - January options expire this Friday! BUY CALL FEB-40 DLX-BH OI= 20 at $2.60 SL=1.25 BUY CALL APR-40*DLX-DH OI=119 at $3.10 SL=1.50 BUY CALL APR-45 DLX-DI OI=135 at $0.80 SL=0.40 Annotated Chart of DLX: Picked on January 6th at $42.30 Change since picked: -0.27 Earnings Date N/A Average Daily Volume = 337 K --- General Dynamics - GD - close: 92.20 chg: -0.34 stop: 88.50 *new* Company Description: General Dynamics, headquartered in Falls Church, Va., employs approximately 66,900 people worldwide and anticipates 2003 revenues of $16.1 billion. The company has leading market positions in mission-critical information systems and technologies, land and amphibious combat systems, shipbuilding and marine systems, and business aviation. (source: company press release) Why We Like It: The headlines for GD remain quiet but we were surprised with a mid-week rally for the stock and the defensive sector. Last Sunday we mentioned our expectation for a dip and while shares began to drift lower Monday and Tuesday the stock reversed course on Wednesday-Thursday. More importantly for us GD has broken through resistance in the 90-91 range and should have clear sailing toward its next hurdle in the 96 region. The second wind to GD's December-born rally has extended its P&F breakout and raised its vertical price target to $136; but that's a long-term target and we'd be happy with a move to $95-96. So how do traders play GD now? This new breakout looks buyable. The initial thrust was accompanied by strong volume. However, there's no rush to commit money now. The major indices look very extended and might pull back next week. That means traders might get another opportunity to buy GD closer to the $90 level. In the mean time we're going to inch our stop up again this time to Tuesday's low of $88.50. Suggested Options: January options expire soon so February strikes are probably our best bet. We're now suggesting the February 90s as the best play. ! January options expire this Friday! BUY CALL FEB 85 GD-BQ OI=1016 at $7.70 SL=4.50 BUY CALL FEB 90 GD-BR OI= 918 at $3.90 SL=2.00 BUY CALL FEB 95 GD-BS OI= 224 at $1.40 SL=0.75 Annotated Chart: Picked on December 21 at $88.78 Change since picked: + 3.42 Earnings Date 01/21/04 (unconfirmed) Average Daily Volume: 1.0 million Chart = --- Gilead Sciences - GILD - close: 62.39 change: +1.05 stop: 57.75 Company Description: Gilead Sciences, Inc. is a biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases worldwide. The company has seven commercially available products. Its research and clinical programs are focused on anti- infectives, including anti-virals and anti-fungals. GILD endeavors to grow its existing portfolio of products through proprietary clinical development programs, internal discovery programs and an active product acquisition and in-licensing strategy. Products include Viread, Emtriva, AmBisome, Hepsera, Tamiflu, DaunoXome and Vistide. Why we like it: The lack of excitement that had kept GILD trading in a sedate downward drift came to an abrupt halt on Wednesday with bullish comments out from Merrill Lynch before the open. That launched the stock strongly through the top of its neutral wedge pattern, giving us the breakout that we've been waiting for. After a mild pullback on Thursday, the bulls took another run at the upside, tagging $63.90 before succumbing to broad market weakness. Relative to the Biotechnology index (BTK.X), which gained a paltry 0.3%, GILD's 1.7% advance looks absolutely stellar. Adding to the bullish picture is the fact that volume was solidly above the ADV. As noted earlier in the week, the bottom of the September gap (just below $64) was expected to provide some token resistance and that's what we saw on Friday with the reversal from the highs. But GILD still looks strong, and appears to have the strength to run at least to the top of that gap near $66. So pullbacks that find support above the top of the wedge (now at $60) can be used for new entries, while momentum traders can enter on a breakout over $64. Accepting that there needs to be some consolidation of last week's rally, we'll give the stock some room to breathe, leaving our stop at $57.75. Suggested Options: Shorter Term: The February 60 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the February 65 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders looking for more insulation from time decay will want to use the May 65 Call. Our preferred option is the February $60 strike. ! Alert - January options expire this Friday! BUY CALL JAN-60 GDQ-AL OI=7430 at $2.80 SL=1.50 BUY CALL FEB-60*GDQ-BL OI=8517 at $4.50 SL=2.75 BUY CALL FEB-65 GDQ-BM OI=5298 at $2.00 SL=1.00 BUY CALL MAY-65 GDQ-EM OI= 750 at $4.20 SL=2.50 Annotated Chart of GILD: Picked on December 21st at $59.40 Change since picked: +2.99 Earnings Date 1/29/04 (unconfirmed) Average Daily Volume = 3.73 mln --- Maxim Integrated - MXIM - cls: 54.04 chg: -0.27 stop: 50.95 *new* Company Description: Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing. (source: company press release) Why We Like It: It was a good week for the semiconductor sector. A strong upgrade for chip giant Intel mid-week helped push the SOX to new year and a half highs. Investors didn't let the opportunity go to waste on MXIM either and sent the stock toward its own new highs. Overall nothing has changed. Investors are still very excited about the prospect for another banner year for chip sales. Estimates range for global chip sales to rise from 17% to 20% in 2004. Analysts have begun to raise capex spending for chip makers with at least one analyst estimating capex to soar 40% this year. Should this occur investors might feel encouraged by the show of faith from chip makers to invest that much cash in new equipment. Shares of MXIM have put together a very strong rally this last week on rising volume. That's exactly what the bulls want to see. Even so, short-term traders may want to consider scalping some profits now because MXIM began to fade on Friday after hitting the $55 mark. We'd expect a small dip towards the $53.00-52.50 levels. New entries can be considered there. We're going to raise our stop loss to 50.95, which is just below its rising 10-dma. Coincidentally, MXIM's point-and-figure chart vertical count suggests a long-term price target of $71. Suggested Options: There is only one week left for January options so our preference is the February or May strikes. Our favorite is the February 50's. ! January options expire this Friday! BUY CALL FEB 50*XIQ-BJ OI=2284 at $5.30 SL=3.00 BUY CALL FEB 55 XIQ-BK OI=2039 at $2.20 SL=1.10 BUY CALL MAY 55 XIQ-EK OI= 919 at $4.20 SL=2.20 Annotated Chart: Picked on January 06 at $51.89 Change since picked: + 2.16 Earnings Date 02/05/04 (unconfirmed) Average Daily Volume: 5.4 million Chart = --- Yahoo! - YHOO - close: 48.12 change: -0.46 stop: 46.25 *new* Company Description: Yahoo! Inc. is a leading provider of comprehensive online products and services to consumers and businesses worldwide. Yahoo! is the No. 1 Internet brand globally and the most trafficked Internet destination worldwide. Headquartered in Sunnyvale, Calif., Yahoo!'s global network includes 25 world properties and is available in 13 languages. (source: company press release) Why We Like It: Decisions, decisions...this is a tough call on YHOO. The stock has done very well this year as investors ramp up the stock price ahead of its Q4 earnings announcement. We had always planned to exit before YHOO announces earnings but that's not until this Wednesday, January 14th (after the closing bell). The major indices look VERY overbought, tired, exhausted, etc. We could easily see a pull back next week. The main question next week is will investors send stocks higher on strong earnings numbers or just sell the news? We could exit here at $48.00 in YHOO and that's not a bad move. In fact we'd probably suggest it. However, we're going to roll the dice and keep the play open through Tuesday. Our plan is to close YHOO as of Tuesday's close assuming we don't get stopped out. Speaking of stops we're going to raise our stop loss to 46.25, just under its 10-dma. We are not suggesting new entries at this time. Suggested Options: With just three days before YHOO announces we are not suggesting new entries. Annotated chart of YHOO: Picked on December 24 at $45.01 Change since picked: + 3.11 Earnings Date 01/14/03 (unconfirmed) Average Daily Volume: 12.3 million Chart = ************** NEW CALL PLAYS ************** Saint Jude Medical - STJ - close: 63.34 change: +0.34 stop: 59.99 Company Description: St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design, manufacture and distribution of innovative medical devices of the highest quality, offering physicians, patients and payers unmatched clinical performance and demonstrated economic value. (source: company press release) Why We Like It: On your mark. Get set. Go! Well, STJ isn't quite yet at the "go" stage but it is in its sprinter stance and ready to run. All we're waiting on now is the starting gun. Over the last seven months shares of STJ have been consolidating its Thanksgiving 2002 to June 2003 gains in a large cup-and-handle formation. The "cup" ended when shares peaked in late November 2003 and the handle looks ready to produce the traditional breakout this pattern typically produces. Contributing to investor enthusiasm for the stock was news in late December that STJ had filed its most recent clinical data from its Rhythm ICD study with the FDA. STJ is hoping for an FDA approval of its Epic HF implantable heart-failure device this coming May. Once approved it will be able to compete with the like of Medtronic and Guidance. The stock has also produced some good news this last week. A J.P.Morgan analyst picked STJ as one of its two top stocks for 2004 in the medical device field. A Reuters article also revealed that the JPM analyst believes STJ is a takeover candidate in 2004 and Boston Scientific and Johnson & Johnson are top contenders to acquire the company. We are going to play STJ with a TRIGGER to go long at $64.01. The $64 level is strong resistance and shares have failed there twice in the last several weeks. A move over $64.00 could be the breakout we're looking for from this cup-and-handle pattern. We'll start the play with a stop loss at 59.99 and an initial target of $70.00. Suggested Options: We like the February and April 60s and 65s. Our favorite is the February 60s. BUY CALL FEB 60*STJ-BL OI= 83 at $4.70 SL=2.35 BUY CALL FEB 65 STJ-BM OI= 899 at $1.75 SL=0.90 BUY CALL APR 65 STJ-DM OI= 362 at $3.10 SL=1.65 Annotated chart: Picked on January 11 at $xx.xx <-- see Trigger Change since picked: + 0.00 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.4 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Countrywide Financial - CFC - cls: 72.04 chng: +1.09 stop: 75.00 Company Description: Countrywide Financial Corporation is a holding company that, through its subsidiaries, is engaged primarily in the residential mortgage banking business, as well as in other financial services that are in large part related to the residential mortgage market. Primarily through its principal subsidiary, Countrywide Home Loans, Inc. (CHL), Countrywide is engaged in the residential mortgage banking business, which entails the origination, purchase, sale and servicing of residential mortgage loans. The company offers property and casualty insurance, as well as life and disability insurance, both as an underwriter and as an independent agent. Through its banking segment, it operates a nationally chartered bank that primarily invests in residential mortgage loans and prime home equity lines of credit sourced through its mortgage banking operation. Why we like it: This is precisely why we used a trigger. After teasing us on Thursday with a hint of a breakdown below strong support near $70 in the wake of the severe weakness in the Housing sector, CFC caught a bounce at the open on Friday and then proceeded to trade in a very narrow range. We set our trigger at $69.70 (just below Thursday's low) so that the stock would have to demonstrate proven weakness before triggering the play to live status. Friday's rebound at the open negated any chance of an entry point, so we remain on the sidelines for now. Once our trigger is satisfied, momentum traders can enter on that initial breakdown, while more cautious players will want to wait for a failed rebound below the $72.50-73.50 resistance zone. CFC should not be able to push through its 10-dma ($74.24), as it has been consistent resistance for the past few weeks. Since that average will be below $74 on Monday, it should be safe to lower our stop to $74 this weekend. Suggested Options: Conservative short-term traders can use the February 75 Put, while those with a more aggressive approach will want to use the February 70 put. Traders looking for greater insulation from time decay will want to look to the April strike. The February $70 strike is our preferred option. ! Alert - January options expire this Friday! BUY PUT FEB-75 CFC-NO OI=1485 at $5.40 SL=3.50 BUY PUT FEB-70*CFC-NN OI=2064 at $2.90 SL=1.50 BUY PUT APR-70 CFC-PN OI= 162 at $4.50 SL=2.75 Annotated Chart of CFC: Picked on January 8th at $70.95 Change since picked: +1.09 Earnings Date 1/27/04 (confirmed) Average Daily Volume = 1.79 mln ************* NEW PUT PLAYS ************* Adobe Systems - ADBE - close: 37.12 change: -0.88 stop: 40.00 Company Description: A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. Why we like it: Despite the NASDAQ surging to new 2-year highs last week, shares of ADBE have really been stuck in a rut since early November when the stock dropped back sharply from the $46 level. Since then, consistent support has been found in the $37.50-38.00 area, but that doesn't change the fact that it has been trading very poorly relative to its peers. A quick look at the Software index (GSO.X) confirms the picture of weakness for ADBE, as the GSO tagged a new 52-week high on Friday. Not only is ADBE not keeping up with its peers, but it suffered a significant breakdown on Friday, dropping through the $37.50 support level and closing just above $37. But perhaps more importantly, the stock also broke below the 200-dma ($37.29) at the close, something that hasn't happened since last February. The PnF chart confirms the bearish picture, as Friday's drop finally solidified the break of the bullish support line at $38 with a print at $37. ADBE was already on a PnF Sell signal with a $32 price target. Turning back to the daily chart, we can see that $32 is a significant support level, having held up the stock throughout the June-August period. There's the potential for some short- term support to be found near $35 and then at $33 on the way to our $32 target, but with the trend so clearly to the downside, any bounces from support should just be a prelude to another entry point. An initial bounce into the $38-39 area will provide a slightly better entry, but there's nothing wrong with entering near current levels now that we've gotten a solid breakdown. Set stops at $40, which is above the top of the range from last week, as well as the clustered 10-dma, 20-dma and 30-dma. Suggested Options: Aggressive short-term traders can use the February 35 Put, while those with a more conservative approach will want to use the February 40 put. With January options expiring next week, we haven't even listed any front month strikes. Instead, we've provided an April option for those looking for greater insulation from time decay. The February $40 strike is our preferred option. ! Alert - January options expire this Friday! BUY PUT FEB-40*AEQ-NH OI= 796 at $3.70 SL=2.25 BUY PUT FEB-35 AEQ-NG OI= 779 at $1.00 SL=0.50 BUY PUT APR-35 AEQ-PG OI=2393 at $1.95 SL=1.00 Annotated Chart of ADBE: Picked on January 11th at $37.12 Change since picked: +0.00 Earnings Date 3/11/04 (unconfirmed) Average Daily Volume = 3.24 mln ---- Diamonds Trust - DIA - cls: 104.69 chng: -1.32 stop: 106.25 Company Description: DIAMONDS represent ownership in the DIAMONDS, Trust Series 1, a unit investment trust established to accumulate and hold a portfolio of the equity securities that comprise the Dow Jones Industrial Average. DIAMONDS seek investment results that, before expenses, generally correspond to the price and yield performance of the DJIA. There is no assurance that the price and yield performance of the DJIA can be fully matched. Why we like it: Following a relentless 1000-point rally from the 9600 level in late November, the DIA finally showed tentative signs of weakness on Friday, and it's about time. While the reaction was a bit delayed, a part of the afternoon weakness was undoubtedly due to the abysmal employment numbers that were much worse than expectations. After an initial gap down and then sideways drift through much of the day, the sellers finally won the tug of war and sent the DIA plunging to a 1.24% loss, closing near the low of the day. Volume was strong at more than 9 million shares and price closed below the 10-dma ($104.86) for the first time since this 7-week rally began in late November. Adding to the forecast for more downside is the fact that daily Stochastics and MACD oscillators are tipping over in early Sell signals. We're not looking for a collapse in the DIA over the near-term, but it looks like some long-overdue profit-taking is starting to get underway. We'll target a drop to the $100-101 area, which is roughly equivalent to the 62% ($99.80) and 50% ($100.99) retracements of the rally over the past several weeks, as well as the site of the 50-dma ($100.33). The best part is that we can very clearly control our risk with a stop just over $106. That is the site of major resistance, both from a horizontal and long- term descending trendline standpoint and it looks like last week's foray up to that level resulted in an island reversal, a bearish formation. There is now intraday resistance in the $105.00-105.50 area, so we can use another rally failure near there as a high-odds entry point. Traders looking for proof of weakness before playing will want to wait for a drop under Friday's low with a trade at $104.60. Set stops initially at $106.25 Suggested Options: With strikes at one point intervals, the DIA gives us plenty of choices, from in the money to out of the money. Due to January expiration next week, we haven't bothered to list any January strikes. Aggressive traders can consider the $103 or even the $102 strike, while those with a more cautious approach can select either the $104 or $105 strikes. Our preferred option is the $104 strike. ! Alert - January options expire this Friday! BUY PUT FEB-105 DIA-NA OI=3963 at $2.25 SL=1.10 BUY PUT FEB-104*DIA-NZ OI=5042 at $1.90 SL=1.00 BUY PUT FEB-103 DIA-NY OI=7656 at $1.45 SL=0.75 BUY PUT FEB-102 DIA-NX OI=1464 at $1.25 SL=0.60 Annotated Chart of DIA: Picked on January 8th at $104.69 Change since picked: +0.00 Earnings Date N/A Average Daily Volume = 5.67 mln ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 01-11-2004 Sunday 4 of 5 In Section Four: Leaps: Let The Selloff Begin! Traders Corner: Build Your Ark Before It Gets Too Deep Futures Corner: Was That THE Top? ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Let The Selloff Begin! By Mark Phillips mphillips@OptionInvestor.com It looked like more of the same last week. Monday's sharp rally right out of the gate erased the prior Friday's selloff and put the broad market right back at new highs. Sideways action throughout most of the week and then a push up to very strong resistance on Thursday set the stage for Friday's selloff should any bad news appear. And did it ever! I don't think the bulk of market participants really grasped the enormity of the poor jobs report, with only 1000 new jobs create vs. expectations of 148,000 and a whisper number as high as 250,000. It was a dose of economic reality that I doubt has really sunk in yet. Friday's selloff was reassuring to me, not because I want the market to decline, but because I feel it needs to. Following 7 weeks of marching straight up the charts, it needs to come down significantly, just to preserve the normal cycle of rally, decline, repeat. Regular readers know I think there needs to be substantial downside in this market from current levels and I see new lows before we see new highs. That said, I don't think this decline (if indeed that is what started on Friday) is the beginning of a major selloff. As stated several times in recent commentary, I just have a strong feeling that there will be a concerted effort to hold things together (read: no big selloffs) through the November election. With all the bullish percents still in Bull Confirmed and only a one day decline to the bears' credit, we're clearly WAY premature in calling this the beginning of a significant selloff. But with price reversing from very strong resistance, particularly on the DOW and NASDAQ, this does appear to be the place to put out some bearish positions, looking to see just how much retracement is in store. All of the volatility indices (VIX/VXO/VXN) set new closing lows last week and to call them low would be a huge understatement. That said, I think we can all agree that there's nothing to preclude them from continuing to drop. It is my sincere hope that we're going to see more normal market action return in the immediate future and by that I mean normal oscillations between overbought and oversold, intraday ranges exceeding the choppy, tight-range garbage of the past few months and more to the point, technical indicators helping to guide us in determining what to expect from price action. Friday's afternoon drop was a good start, but until there is some follow-through and we see some support levels broken, it is entirely possible that all we saw was a Friday afternoon selloff, just like we saw last week and to a lesser extent, the week before. Volume levels have come back to normal, the market is grossly overbought and due for a significant pullback, at a minimum. Whether that comes to pass or not remains to be seen and I certainly can't predict. But I do view this as an ideal point to be putting out some bearish positions. Risk is easy to control with stops just above last week's highs and the potential for a significant decline (ideally near the 200-dmas) is very real, resulting in favorable risk-reward ratios. Just make sure to keep your position sizes under control. There's what the market should do and what it is actually going to do. Lately, those two cases have been mutually exclusive and nobody can say whether that irritating trend has come to an end or if it just paused for a breather on Friday. After dropping our DJX play last weekend, I was a bit irritated at having missed the whole rally following the surge into the mid- June highs and decided to see how well a Call play would have fared if I had just held my nose, closed my eyes and bought the breakout. I found the results rather interesting. At the time (mid-June) the DJX was trading near $93, so my choice would have been the December-04 $96 Call (DJV-LR). The option closed on 6/17/03 at $3.20 and when I brought up a chart of the option, I was pretty astounded by what I saw. From mid-June until the second week of December (let's call it 6 months), price vacillated between a low of $1.65 and a high of $3.90. During that period of time, the DJX pulled back to $90 and then steadily advanced to $100. A $7 advance, with a maximum gain of only $0.70!! This is what happens in a creeping price move, when volatility continues to collapse. Remember back in mid-June, the VIX was still above 20 and by early December, it had fallen to 16! So even if we had picked the right direction, we still would not have experienced any significant price gains until the DJX broke ABOVE $100, which throughout most of the summer and fall, I viewed as an extreme upside possibility. Of course, we now know that the lion's share of the price advance in the DOW has been due to the decline in the dollar, which has fallen to levels I really didn't expect to see so soon either. It just goes to prove that the market takes great pleasure in doing what we don't believe is possible! I bring this example to everyone's attention to help us all with our education in the constantly changing world of option trading. We actually tried a bearish play on the DJX during that time period and lost due to the continued creeping rally. But at the same time, we can see that a bullish position trade would not have done us any good either. Buy and hold for a 6 month period in a steadily rising market would have resulted in par to slight gains. Is it any wonder that it's been tough to make a buck by buying and holding options over the past several months? This (along with our very disappointing WMT play) are the clearest examples I've ever seen in my trading career that show the deleterious effect of steadily declining volatility. The dollar continues to drill to new lows and at some point, I believe this decline will cause a different reaction in the equity markets, with foreign investors realizing that it no longer makes sense to hold rising stocks, when the price gains are completely wiped out (or more) by the fall in the local currency. But when that shift in sentiment occurs is anyone's guess. For now, our best course of action is to play what the market gives us, and this certainly looks like the right place to be trying to game the downside. Now let's turn our attention to the individual plays we're covering, because it was another very busy week. Portfolio: WMT - Just to cause us a Maalox moment, WMT got a big surge upwards on Thursday in response to the company's same store sales (up 4.3% vs. 3.3% consensus). The stock surged through our $54 stop, but proving there is plenty of supply, the stock reversed from its opening high and dropped to close just above $53. Fortunately, we use closing stops here, and the play stayed alive for one more day. The negative impact to the market of the Jobs Report on Friday exerted further pressure on the stock, resulting in another solid drop heading into the weekend. The stock is still performing well for us and looks like it could finally break down to $50 or lower over the next week or two, pressured by the expected decline in the overall market. Unfortunately, our LEAPS are not performing well, due to the pricing irregularity that we've mentioned here on several occasions. I'm still suggesting that a drop into the $48-50 target area should be used to exit the play so that we can get out with at least a minor gain. Maintain stops at $54 just in case the breakdown does not occur. SBUX - Although it continues to amaze me, I'm certainly not going to argue with the continued rise in shares of SBUX. The stock managed to tag the $34.50 level on Tuesday, following Monday's report of an 11% rise in same store sales and the company raising the EPS target for 2004 from $0.83-0.85 to $0.84-0.87. Sell the news was the result and by the end of the week, the stock was back near the $33 level. That still keeps shares well inside the aggressive ascending channel that began in June. Part of the weakness late in the week was likely due to a downgrade from RBC Capital Markets, but the firm also raised their price target to $34. I still view SBUX as having more upside in the next several months, with $37 quite achievable and I wouldn't be at all surprised to see $40 by year's end. Note that $40 corresponds to the top of the longer-term channel that the stock broke above back in October and has used as a price magnet ever since. It won't get there in a hurry, but seems to have a nice steady trend in place. I'm maintaining a liberal stop at $28 for now. QQQ - I'm sure I don't have to tell you that I was a bit surprised at the ease with which the NASDAQ pushed through the 2000 level last week and rallied right through 2100 on Friday. That had the QQQ surging through our $38 stop and I had resigned myself to having to write a drop this weekend. But it seems that a bit of rationality came into play towards the end of the day, as the poor jobs data began to sink in. The QQQ fell to close just below that stop and kept the play alive for one more week. Is this the beginning of the long-awaited profit taking? I wish I knew. But from a risk-reward standpoint, I certainly view this as a very attractive entry point. I like it so well, that I added to my own position and I'm going to do something that I normally avoid -- I'm raising the stop slightly to $38.50, which is just above Friday's intraday high. Following the breakout over $36, we'll now have to contend with that level as support on the way down and the real test will come at $35, which is the site of the rising trendline connecting the lows from September, November and December. If that trendline is broken, then we'll have a real shot at the 200-dma, currently at $32.03. DJX - From Portfolio to Drop to Watch List and back to the Portfolio. It has been a busy 2 weeks for our attempt to pick a top in the DJX, but I think we may have gotten it right this time. Full details below. SMH - Well, I thought I was exercising enough patience! No sooner did we fill on the Portfolio position than the SMH lit its after- burners, contributing mightily to the strength in the NASDAQ last week. Rather than rolling over from the $42-43 area, SMH powered right through and by midday was above our $45 stop and threatening to have us close it out this weekend. But a nice little selloff at the end of the day pushed the price back under $45, keeping the play alive. There wasn't enough weakness shown to convince me of a top in place, but I sure do like the prospects for new entries taken at current levels. As with our QQQ play, I'm going to bend the rules and raise the stop to $46 this weekend. We'll need to see a break of $39 support to really show us there's some downside potential and then we can look for a more extended decline towards the $35 level, which should coincide with the 200-dma. Watch List: NEM - As long as the dollar continues to decline, our prospects for a meaningful decline in gold and gold stocks is slim at best. That said, I can't make a case for entries near current levels without a more significant pullback first. NEM is where we want to be when that pullback and entry setup materializes, but for now we must continue to watch from the sidelines. The XAU index needs to come back down to the $100-102 area at a minimum and that ought to pressure shares of NEM down to at least $44, and preferably down to our targeted entry zone at $40-42. QCOM - Watching the rise in QCOM these past several weeks has truly been disheartening. We just barely missed the entry back in November and since then, QCOM has rallied my more than $15, tagging a high of $59.99 on Friday. Last week's action propelled the stock through its 200-week moving average and the stock is truly extended up here. There's nothing to do now but to wait and see how far back it drops when the profit taking does occur. Wireless stocks are very strong right now, but chasing this sort of strength is not conducive to capital growth. I'm leaving QCOM on the Watch List for now, but it remains on HOLD until we can get a decent pullback. EK - That's what we were waiting for and EK tapped our $27 entry target on Friday before pulling back slightly. EK moves to the Portfolio this weekend. HD - So far, so good. HD has held up rather well over the past week, especially in light of the extreme volatility in the Housing sector. Based on the earnings warning from RYL, I think it is safe to say that the demand for homes is shrinking, pressured by the end of the refinancing boom. That slowdown will translate directly into problems for HD as well, as home improvement projects get put on hold or cancelled due to less disposable income with which to execute those projects. Friday's employment report doesn't bode well for the industry either, with new jobs clearly not being created fast enough to sustain an economic recovery. All we need is one more push upwards near the top of the descending channel (currently $38.45) and we'll have a solid entry in our hands. Once filled, we'll look for an initial decline down to the $32 support area, with potential for further weakness down to the $28 level. SNDK - Finally breaking out of its recent consolidation, shares of SNDK managed to reach up near $70 on Friday before commencing their pullback. The 50-dma is falling to provide resistance and this is where we just need to be patient. It is too difficult to manage risk with new positions in the $60-70 area, so we just need to wait for the expected pullback near the 200-dma. It isn't likely to happen without the broad Technology market seeing some concerted weakness, so we need to watch for that as our catalyst. SNDK has the potential to break above the $100 level in the year ahead, as consumers continue to gobble up those nifty little memory cards. But right now does not seem the time to get aggressive with entries. I'm raising our entry target slightly to $52 this weekend, as the 200-dma has risen to that level, crossing slightly above the 50% retracement at $51.84. But raising the target significantly does not seem prudent until we see how much profit taking is in store for the broad market. Radar Screen: GENZ - Indeed, GENZ did find some resistance near $50 last week and dropped back slightly. But there certainly wasn't enough weakness to prompt us to want to rush a play here. It is that $52 level that I think is critical, so let's just see if GENZ can reach it and how shares respond when it is touched. Closing Thoughts: Following the shockingly poor jobs data on Friday, we were treated to the best selloff in the broad market that we've seen since this rally got started 7 weeks ago. Whether it is the beginning of a more significant decline or just a head fake is unknowable at this time. What we do know is that volatility levels are very low and we've just had a very large "January effect/Santa Claus" rally and now we'll see if the typical January selloff arrives on schedule as well. My advice is to lean to the downside for now, adding to positions as market action proves that we're on the right side of the action. Remember, we're unlikely to see a waterfall decline like we've seen in recent years unless there is a significant exogenous event. We're playing for a moderate decline and then we'll look to switch sides and play the upside in anticipation of more bullish action leading up to the election in November. Have a great week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: SBUX 11/24/03 '05 $ 30 ZOS-AF $ 4.30 $ 5.50 +27.91% $ 28.00 '06 $ 30 WSP-AF $ 6.40 $ 7.30 +14.06% $ 28.00 Puts: WMT 10/03/03 '05 $ 55 ZWT-MK $ 5.10 $ 5.70 +11.76% $ 54.00 '06 $ 55 WWT-MK $ 7.20 $ 7.00 - 2.78% $ 54.00 QQQ 12/09/03 '05 $ 32 ZWQ-MF $ 2.65 $ 1.20 -54.72% $ 38.50 '06 $ 32 WD -MF $ 3.70 $ 2.20 -40.54% $ 38.50 SMH 12/30/03 '05 $ 40 ZTO-MH $ 4.90 $ 3.80 -22.45% $ 46.00 '06 $ 40 YRH-MH $ 6.60 $ 5.70 -13.64% $ 46.00 DIA 01/05/03 '04 $100 DJV-XV $ 4.50 $ 4.20 - 6.67% $107.00 '05 $100 YDK-XV $ 6.80 $ 6.40 - 5.89% $107.00 EK 01/09/03 '05 $ 25 ZEK-ME $ 2.60 $ 2.60 0.00% $ 31.00 '06 $ 25 WEK-ME $ 3.70 $ 3.70 0.00% $ 31.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 10/05/03 $40-42 JAN-2005 $ 40 ZIE-AH CC JAN-2005 $ 35 ZIE-AG JAN-2006 $ 40 WIE-AH CC JAN-2006 $ 35 WIE-AG QCOM 11/16/03 HOLD JAN-2005 $ 50 ZLU-AJ CC JAN-2005 $ 45 ZLU-AI JAN-2006 $ 50 WLU-AJ CC JAN-2006 $ 45 WLU-AI SNDK 12/21/03 $50-51 JAN-2005 $ 45 XWS-AK CC JAN-2005 $ 40 XWS-AJ JAN-2006 $ 45 YSD-AK CC JAN-2006 $ 40 YSD-AJ PUTS: HD 12/21/03 $37-38 JAN-2005 $ 35 ZHD-MG JAN-2006 $ 35 WHD-MG New Portfolio Plays DJX - Dow Jones Industrials $104.59 **Put Play** Expecting that the much-anticipated top was close at hand, I rotated our DJX play right back onto the Watch List last weekend, fresh from being stopped our of our prior bearish play the week before. It's no secret that I was surprised to see the DJX be able to charge up to the $106 level, but that's precisely what happened late last week. After plowing through first the $102 and then $104 resistance levels, the index was definitely up on stilts and just needed the right catalyst to push it over the edge. Friday's dismal showing from the Jobs Report seems to have been that catalyst and the index suffered its biggest one-day loss since this rally began near the $96 level. Just a normal dose of profit taking should drop the DJX back down to the $100-101 area, which is the site of the 50-dma ($100.08). Should the selling actually pick up some momentum, we could see the $96-97 area tested, and we'll consider it a real gift to see those levels again in the next couple months. As stated last weekend, we were looking for another surge over $105 for entry into the play and Monday's action served that up with a close at $105.44. Traders that waited for the breakdown under $105 on Friday, they actually got a better entry due to lower volatility levels depressing the option prices. We'll set an initial stop at $107, which is just above the 2002 highs and should not be touched if there is any downside potential in the index. All right, it's confession time. I erred last weekend when I listed the $100 strikes for the DJX play. Fortunately, an astute reader (thanks Kathy!) was kind enough to ask why I did what I did. Normally, we select LEAPS that are one strike out of the money, as that normally corresponds to a delta of about 50 (LEAPS have higher deltas ATM than near-term options due to the additional time value). What I should have done last week was select the $104 put LEAPS, rather than the $100 strike. The DJX options are listed in $4 increments. Since we were targeting an entry above $105, the strike just out of the money would have been the $104. Normally, I just would have made a correction this weekend, clearing up any confusion. But with our DJX play making the move to the Portfolio this weekend, I need to stick with the listed strike as a matter of consistency and integrity. For traders that have not entered the play, my suggestion would be to use the $104 strike. If already in the play, I would not suggest making a switch to the $104 strike, as time decay really won't be a factor for several months. Hopefully that provides clarity rather than confusion, but if you have any questions don't hesitate to drop me an email. BUY LEAP DEC-2004 $100 DJV-XV $4.50 BUY LEAP DEC-2005 $100 YDK-XV $6.80 EK - Eastman Kodak $26.90 **Put Play** As one of the most beaten down stocks in the DOW over the past year, 2 years, 3 years - you get the picture - EK is long overdue for some upside action and it finally materialized over the past couple weeks. Helped along by the continued strong action in the broad market, EK broke out of its bull-flag pattern and by Friday managed to touch our $27 entry target before weakening ever so slightly into the close. I really couldn't have asked for a better entry point, especially with weekly Stochastics nearing overbought and offering the potential for bearish divergence. So long as we get a sell signal on the weekly Stochastics before price moves through the September high just over $30, that divergence will be confirmed and will give us very good odds of the stock falling to test and possibly break its recent lows in the vicinity of $20.50. Looking at the PnF chart, we can see that EK is still on a Sell signal and the bearish price target is $17, so there is definitely potential for lower levels ahead. Price action has recently reversed into a column of X and it would take a trade at $31 to generate a new buy signal and negate that bearish price target. So we'll set a liberal stop for the play at $31 and let gravity do its work as investors once again focus on the economic reality that this shrinking company is not the bargain they're hoping it is. Entries look good all the way up to the $28-29 area, so more patient traders may be able to gain an even better entry in the weeks ahead if the stock manages to push through the 200-dma. BUY LEAP JAN-2005 $25 ZEK-ME $2.60 BUY LEAP JAN-2006 $25 WEK-ME $3.70 New Watchlist Plays None Drops None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** Build Your Ark Before It Gets Too Deep By Mike Parnos, Investing With Attitude God told Noah it was going to rain. We don't know if he told him in person or sent an email – but, one way or the other, the news leaked out. Fortunately, as the story goes, the ark didn't leak and mankind (and animal-kind) was saved. Isn't that sweet? We all like stories with happy endings. For those of us who use neutral trading strategies, it's been pouring all month – and our index prices have been rising with the tide. This wasn't an umbrella and galoshes kind of rain. This was torrential. It's a good thing that most Couch Potato Trading Institute students were prepared. Some of our profits were washed away, but we still have plenty left as we live to trade another day. Is the rain subsiding? We don't know. The QQQs are still rising. So we have to be prepared to possibly adjust the trading range in our QQQ In-The-Money Strangle position. I haven't seen detailed articles devoted to the actual rollout process. That's what we're going to discuss today – just in case the rain doesn't stop reasonably soon. So, turn off the TV, the radio, put down your Penthouse and focus. This is good stuff to know. ____________________________________________________________ Different Methods Of Roll-Playing There are a number of ways to roll out your positions. A lot depends on your brokerage firm and the flexibility of their trading software. Regardless, when making a range adjustment in our QQQ In-The-Money Strangle strategy, you need to be careful. Method: One Option At A Time I'm going to assume that the majority of CPTI students do not have the trading level to trade uncovered options. Plus, in their online brokerage, they may not have the ability to place trades as spreads. Therefore, when you're adjusting your position, you may have to do it one option at a time. If so, there's a particular sequence that must be followed. 1. You should first buy back your short near term call before you try to sell your long LEAPS call. Why? Because if you try to sell your LEAPS call first, you'll likely get one of those nasty messages on your computer screen reminding you that you don't have uncovered trading approval levels. If the brokerage first permitted the sale of the long LEAPS, it would leave your near term short option uncovered – and that's a no-no. 2. Once you buy back your short near term call, it releases your LEAPS call to be sold. Once filled you can then repeat the process with the put side. 3. Once your LEAPS are sold and your near term short options bought back, you then are free to purchase your new LEAPS. 4. Once your new LEAPS are in place, you can sell a short near term option against each of them. Method: Let The Good Times Roll Some brokerage firms (OptionsXpress and ThinkOrSwim to name a few) have a feature that enables you to "roll" a position. On their trading platforms, the "roll" feature prompts you to input the option you're closing and the option you're opening for the credit or debit limit you want. This is a great feature that simplifies your trading life. It allows you to sell and buy a long position simultaneously. That means you can trade the long LEAPS first and not have to risk leaving the short near term options uncovered. Method: Trading As Spreads Our ITM Strangle strategy is basically just two calendar spreads – owning a long-term option and selling a near term option to generate money. Most online brokerage firms allow you to place "spread" orders. To close a calendar spread as a "spread", you will simultaneously sell the long LEAPS and buy back the short near term option. For instance, if we're rolling the short-term January calls and adjusting our LEAPS range at the same time, you would place the order as follows: a) Buy to close _____ contracts of the QQQ January 2004 $34 calls and sell to close _____ contracts of the QQQ January 2005 $29 calls at a credit limit price of $______ . For this example, let's assume we're adjusting the LEAPS range to $33/$43. Then, to establish the newly adjusted call position you would then: b) Buy to open _____ contracts of the QQQ January 2005 $33 LEAPS calls and sell to open _____ contracts of the QQQ February 2004 $38 calls at a debit limit price of $ ______ . Then, you'd repeat the process for the put side of the strategy. Having a spread screen on your online trading platform allows you to just fill in the blanks – a lot easier. If you have to deal with a human, you would use the verbiage exactly outlined in "a" and "b" – and hope the broker will understand. Trading, using spreads, can give you the potential advantage of placing your limit order between the posted prices and possibly shaving off some of the combined bid/ask spread. Why? Because the long LEAPS often have a $.20 bid/ask spread. The near term short options will likely be so liquid that they will only have a nickel spread with no room for negotiation. Preparing To Place The Order One method isn't necessarily any better than the other. The one common denominator is that you must make sure it's very clear in your mind what you intend to do before you start mouse-clicking or pick up the phone to call your broker. Wrapping Up The Roll The rolling out and/or closing out methods I've discussed in this article can be applied to most of our strategies. It's one thing to have discipline – and discipline is great!! The willingness to pull the trigger on a trade and act upon your disciplined decision is even better!! You may want to keep this article for future reference. Placing the orders properly can save you and/or make you more money. It can also avoid misunderstandings. Tweaking and honing your order placement skills will make you a more well rounded trader. _________________________________________________________________ JANUARY CPTI POSITIONS Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1520.46 We sold 5 NDX January 1500 calls and bought 5 NDX January 1525 calls for a credit of $3.70 (x 5 = $1,850). Then we sold 5 NDX January 1325 puts and bought 5 NDX January 1300 puts for a credit of $2.40 (x 5 = $1,200). The total credit was $6.10. Maximum profit range: 1325 – 1500. Potential profit: $3,050. Closed for $1,700 loss. Position #2 – SOX (Semiconductor Index) – Iron Condor – 543.31 We sold 10 SOX January 530 calls and bought 10 SOX January 540 calls for a credit of $1.40 (x 10 = $1,400). Then we sold 7 SOX January 440 puts and bought 7 SOX January 425 puts for a credit of $1.35 (x 7 = $945). Our total credit was $2,345. Maximum profit range: 440 – 530. Potential profit: $2,345. Closed for $3,255 loss. Position #3 – XAU (Gold/Silver Index) – Iron Condor – $109.48 We sold 10 XAU January $95 puts and bought 10 XAU January $90 puts for a credit of $.60 ($600). Then we sold 10 XAU January $110 calls and bought 10 XAU January $115 calls for a credit: $.60 (600). Our total credit was $1.20 ($1,200). Maximum profit range: $95 – 110. Potential profit: $1,200. Position #4 -- QQQ Diagonal Calendar Spread -- $37.72 I'm a glutton for punishment, but there's a little voice telling me that we should be positioned to take advantage of a pullback in the market. We're going to start out risking a buck and we have two additional months to sell against the March long puts to reduce our cost basis while we wait. It's a cheap speculation. We'll consider this an ongoing position. We bought 10 QQQ March $34 puts for $1.20 and sold 10 QQQ January $33 puts for $.20. We rolled out to the February $34 puts and our total debit is now only $.70. _____________________________________________________________ ONGOING POSITION QQQ ITM Strangle – Ongoing Long Term -- $37.72 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: October: Oct. $33 puts and Oct. $34 calls – credit of $1,900. November: Nov. $34 puts and calls – credit of $1,150. December: Dec. $34 puts and calls – credit of $1,500. January: Jan. $34 puts and calls – credit of $850. February: Feb. $34 calls and $36 puts – credit of $750. Note: We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great cash flow generating strategy. OEX Credit Spread Boogie – 556.65 We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX 545 calls @ $1.55. Total credit of $7.45 ($1,490). Exposure $17.55 ($3,510). Rolled out to five contracts of the January 535/505 bull put spread. In the process we took in an additional $280. Total potential profit of $1,770. Looking good. We want the OEX to finish above 535. _________________________________________________________________ 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. ************** FUTURES CORNER ************** Was That THE Top? by Keene Little As a follow-up to last weekend's article, I thought it would be a good idea to review this past week and see if the targets we hit might indicate a top is in. Notice I said a top and not THE top. It could be THE top but we're going to take it one step at a time and see what we can set up for short-term trades while the market makes it clearer what the long-term holds. Before getting into the week's review and next week's projection I thought I would take the opportunity to review Friday's trade. I think it highlights both good and bad judgment and makes for a good learning example. I never like missing a trade, though I recognize I will miss more than I capture. That's just the nature of our business. If I miss this bus, I know they'll be sending me another one shortly. What I really don't like is being in a trade, getting stopped out, barely, and then watching from the sidelines as the market moves in the direction I thought it would, but now without me. That's what happened Friday and I think it's worth reviewing with you. After the gap-down opening Friday morning, following the employment reports, the market rallied back up. The DOW was clearly the weaker index of the three (DOW/SPX/NDX) so I wanted to pick on it and short the YM, the e-mini futures for the DOW. I waited for evidence the bounce looked to be failing and as the chart below shows, I shorted YM at 10,521. I placed an initial stop at 10,535, which was just above a fibonacci resistance level for the second leg of the bounce. A subsequent bounce stayed under my stop so everything was looking OK going into the lunch hour. Shortly after lunch the market started to rally a little bit and I was keeping my eye on ES, the e-mini futures for SPX. The NDX meanwhile had been rallying and was close to making new highs so I began to think it might drag the rest of the market up with it. I was also thinking the continuing consolidation might lead to an afternoon rally, which is what had been occurring this past week. So I felt it was prudent to lower the stop as close to break-even as soon as possible so as to limit the risk in the trade. As the market rallied back to its highs for the day, ES took out the previous high at 1129.59 and looked like a classic breakout. Here are the two 3-min charts showing this action: Once the ES broke out above 1129.50, and with the NDX making new daily highs, getting stopped out of the YM short was the right thing to do as I was fully expecting that it too would rally to new highs. But once ES fell back under 1129.50, which was a failed break-out (a bull trap), and the fact that YM never took out its previous high, it was an excellent short signal. My bias for an afternoon rally got in the way of recognizing this setup. So lesson learned--while we need to form a bias in order to have the confidence to enter a trade, we need to be able to immediately recognize a good setup and set our bias aside and trade what we see. This is so easy to see in hindsight but so hard to do in battle. But look at the trade I missed. OK, on to a review of the longer-term charts to see what happened and what to watch for this coming week. Starting with the daily chart of the DOW: We've been watching that downtrend line from January 2000, a fibonacci projection for the last leg up and the top of the longer-term up-channel, creating a target zone between 10,575- 10,625 (about 10,500-10,600 on the YM). Thursday's high was 10,592 and then Friday's candle looks like a fairly strong reversal candle (bearish engulfing). With Thursday's high in the DOW, we could even count the 68-day cycle still in effect. This 68-day cycle has marked significant turns for the past two years and the turn date was January 6th, but has a +/- 2-day window. Several other indexes, including the SPX barely, made new highs on Friday, which went unconfirmed by the DOW. This inter-market divergence also often marks significant turning points. And lastly, the YM left an island reversal from Thursday--there was a gap higher into Thursday's action and then a gap lower Friday, leaving an "island" at the top. This is another reversal signal. So it would appear that the pieces are in place to call a top here, at least for this leg of the rally. But we've seen countless reversals to new highs after these kinds of days, so we're still on guard for another high next week. The daily SPX chart shows a similar reversal day: Note the reversal from a fibonacci target for this leg, which I'm counting in Elliott Wave terms as complete. There is an alternate EW count that shows we need a larger pullback (say to 1100 on the SPX) and a launch to new highs for the very last leg of the rally from the March 2002 low. If that were to happen, I could see the SPX achieve its 50% retracement of the bear market decline from 2000. That level is 1160.75. A little later I'll show some things I'll be watching for to give us some clues. The NDX also experienced a significant reversal day: The NDX stopped short of breaking back inside its ascending wedge that it's been in since August. A penetration back inside will leave a throw-over from this pattern, which is a typical way these patterns end. Price hit the price projection coming out of the triangle it formed in November/December. The candle leaves a bearish outside down day with a higher high and lower close. Once again, the pieces are in place for a reversal lower. Now we'll watch for evidence of the kind of pullback we get which will help identify it as either just a pullback before launching higher, or if it's the real deal and the next bear market leg has begun. I won't get into a lot of Elliott Wave details here, but if you have any follow-up questions, please don't hesitate to ask-- keene@OptionInvestor.com. Basically for this decline, assuming it's gotten started, I'll be looking for impulse waves down instead of corrective. Impulse waves consist of 5 sub-waves whereas corrective waves consist of 3 sub-waves. As the pattern plays out, it will start to become clearer whether or not we're moving lower impulsively or correctively. That will help me determine whether or not we can expect a run to new highs later this month or into February. The 10-min chart of the YM shows what I'll be watching for on Monday and into the week: I'm expecting another low Monday morning as per the chart above. It's possible we completed this move down at the Friday low and we'll see a bounce first thing Monday morning instead of a dip at the open. If it drops lower first, I show a fibonacci target as low as 10,379 (about 10,400 on the DOW). That's just a target--it doesn't mean we'll get there before seeing a bigger bounce. The form and height of this bigger bounce on Monday, as shown in the chart above, will help determine the next move from there. If it's corrective, as I expect it will be, then we'll be due for another leg lower. This second leg lower should be equal to, if not greater than, the drop from Thursday's high to wherever the decline stops Monday morning. I'm going to take this decline one leg at a time but as for an ultimate target for this pullback, a 38-50% retracement of the rally from the December 10th low would be reasonable. That would put the DOW at 10,200-10,300. From there it will be dependent on whether or not the next bear market leg has started, or if we've got one last high to make. I'll cross that bridge when I come to it. For those who like to play longer-term positions, such as LEAP options, I think it's too early to take a position. My guess at the moment is that we should have a pretty clear idea for the year once we get through January. If we are starting down in the next bear market leg, you will have plenty of opportunity to position for it after the first major bounce back up. If we've got higher highs ahead of us, you'll want to play that possibility first. For now (this week), I believe we can expect further downside but there will be a lot of corrective action in between and it will make trading difficult (so what else is new). This is opex week and we can expect some volatility as everyone squares up positions. I would like to be able to open up stops and let my trades run but it may still be a tad early to do that. I think tight stops are in order and take your lumps if you're stopped out only to watch the market run in the direction you KNEW it was going to go (grin). But as I learned on Friday, watch for evidence your bias is wrong and be prepared to jump on a market move quickly. We're still in a very tight-range environment with the low volatility and we're not being given much of an opportunity to grab big swings before the market reverses. Continue to make hit and runs and take what you can from this market. The big swings will return, but they're not here yet. I hope you all have a great trading week this coming week. I'll see some of you in the Futures Monitor early Monday morning. I intend to catch a few of those volatile swings this week. Keene Little ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. 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The Option Investor Newsletter Sunday 01-11-2004 Sunday 5 of 5 In Section Five: Covered Calls: Fundamentals Of Success Naked Puts: More Q&A With The Editor Spreads/Straddles/Combos: A Necessary Correction! Market Posture: Bears Come Out of Hibernation ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ************* COVERED CALLS ************* Trading Basics: Fundamentals Of Success By Mark Wnetrzak There are many different approaches to trading and the goal of most techniques is to reduce the risk of loss while increasing potential returns. Every strategy has its advantages and drawbacks but regardless of the approach you use in the market, there are a number of guidelines that can help you be more successful. While it is almost impossible to list every idea or methodology that might be beneficial, knowing a few of the principles that professional market players live by will help any trader improve their results. First, you should always be mentally and physically prepared to participate. The decision-making ability and emotional control necessary to be successful is so great that it is impossible to manage a portfolio during periods of serious health or personal problems. Having achieved a keen and enthusiastic state of mind, the next step is to assume full responsibility for all actions you initiate. A well-known characteristic of professional money managers is their willingness to assume personal accountability for any trading decisions. Those who routinely blame their losses on unexpected events or failures by other entities, such as the broker for "bad fills," are never successful. It's also important to have realistic expectations. When one anticipates results that are far too optimistic, objective decision-making becomes nearly impossible, eventually resulting in emotionally driven "reaction" trading. If it seems like that might be a problem, ask yourself what you really want. Is your goal well defined and achievable? Are you serious about devoting the necessary time and effort to become a successful trader? Can you overcome the urgent desire to always be "in the market?" In short, can you eliminate the destructive compulsions that doom novice players long before they have time to learn (and absorb!) the various techniques required for profitable trading. When you begin to explore trading strategies, keep it simple and consistent. Be sure that you clearly understand the risk-reward ratio of any potential position and use only those methods that conform to your portfolio outlook and personal trading style. Always check the overall market indicators for primary direction. Analyze the sector and industry in which your issue resides and study the performance of similar groups to make sure it coincides with your forecast. Before making any trade, check the trend and character of the issue against other time periods. In some cases, this extra step will identify areas of support or resistance that were not previously apparent, substantially changing the outlook for the position. Understand that new investors often study too many indicators and they listen to such a variety of differing opinions that "information overload" ultimately paralyses their judgment. The incessant deluge of facts and figures (financial fodder) by the media, whose true goals are to simultaneously hype, shock, and entertain, often leave traders unable to make sensible and unbiased decisions. In fact, few people realize that most of the top fund managers focus primarily on two or three fundamental indicators and they rarely listen to the opinions of the popular market "gurus." Timing is everything and there is much to be said for the ability to wait for the correct entry opportunity. For most investors, profit comes from the successful participation in specific plays and as with any investment or speculative venture, the key is to remain alert for signs of changes in character or direction, and respond promptly and decisively, when and if such events occur. Professional traders know they will encounter very few clear-cut opportunities in a lifetime and yet they train themselves to wait for the absolute best conditions before committing any funds to a prospective position. In this manner, they can identify the most important elements of technical analysis and market signals that afford the highest possible probability of a successful outcome. When it comes to specific trading axioms, one important guideline that new traders should adhere to is the need to outline an exit strategy, before initiating any position, to eliminate emotional decisions. Using predetermined targets for profit (and potential loss) addresses a number of problems. First, it eliminates the need for "judgment under fire." Second, it keeps one from closing a play too soon, thus reducing potential upside profits. Finally, developing a sound exit strategy will help you "lock-in" previous gains, rather than exposing a winning position to a possible loss. Trade Wisely! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield NGEN 7.50 11.99 JAN 7.50 0.90 0.90* 19.8% PLUG 7.48 8.05 JAN 7.50 0.30 0.32* 9.7% ARRS 7.52 9.35 JAN 7.50 0.30 0.28* 8.4% CHU 10.05 11.30 JAN 10.00 0.35 0.30* 6.7% WIND 7.48 9.10 JAN 7.50 0.50 0.52* 6.5% FMKT 7.74 7.55 JAN 7.50 0.45 0.21* 6.3% DGIN 25.08 26.12 JAN 25.00 1.10 1.02* 6.2% CE 13.50 14.59 JAN 12.50 1.80 0.80* 5.9% SANM 12.56 13.62 JAN 12.50 0.70 0.64* 5.9% NGEN 11.69 11.99 JAN 10.00 1.95 0.26* 5.8% ACF 15.58 17.03 JAN 15.00 1.15 0.57* 5.7% HPC 12.58 12.71 JAN 12.50 0.40 0.32* 5.7% ELNK 10.33 10.76 JAN 10.00 0.70 0.37* 5.6% TKTX 15.35 16.50 JAN 15.00 1.25 0.90* 5.5% PCS 5.06 5.94 JAN 5.00 0.30 0.24* 5.5% SKX 7.54 7.95 JAN 7.50 0.40 0.36* 5.5% XING 10.66 12.80 JAN 10.00 1.35 0.69* 5.4% UTHR 23.20 23.09 JAN 22.50 1.75 1.05* 5.3% NTIQ 12.53 14.60 JAN 12.50 0.85 0.82* 5.1% VTS 10.05 12.88 JAN 10.00 0.55 0.50* 4.6% UAIR 6.20 5.89 JAN 5.00 1.40 0.20* 4.5% RHAT 18.88 20.39 JAN 17.50 1.90 0.52* 4.4% MYGN 12.75 14.50 JAN 12.50 0.85 0.60* 4.4% MYGN 12.76 14.50 JAN 12.50 0.95 0.69* 4.2% CNH 15.27 16.74 JAN 15.00 0.95 0.68* 4.1% CHTT 18.06 18.60 JAN 17.50 1.20 0.64* 4.1% RHAT 17.49 20.39 JAN 15.00 3.00 0.51* 3.8% OSTK 20.90 17.50 JAN 17.50 3.80 0.40 3.4% EMBT 15.98 14.60 JAN 15.00 1.65 0.27 1.6% NEOL 17.71 16.25 JAN 17.50 1.00 -0.46 0.0% * Stock price is above the sold striking price. Comments: Jobs Report Drop-Kicks The Market! The major averages plunged on Friday after a disappointing Jobs report failed to meet expectations. The question is: is it simply a good excuse for profit-taking in an over-extended market; or is it the start of a major correction? Either way, next week should be very interesting, especially with the January options expiration. As for the covered-call portfolio, the "rampant" bullishness this first week of January was definitely welcome though it may have caused a few cases of "sellers" remorse. Any issues not acting as expected should be monitored closely and may include: NeoPharm (NASDAQ:NEOL) -- testing its 150-day MA; Overstock.com (NASDAQ:OSTK) and Embarcadero Technologies (NASDAQ:EMBT) -- both testing their respective 50-day MAs; and US Airways Group (NASDAQ:UAIR) -- which continues to move lower. Positions Previously Closed: None NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield ZIXI 10.93 FEB 10.00 HQU BB 1.80 1686 9.13 42 6.9% ALVR 13.09 FEB 12.50 QBY BV 1.45 105 11.64 42 5.4% CREE 20.49 FEB 20.00 CQR BD 1.65 2342 18.84 42 4.5% PAAS 16.10 FEB 15.00 USP BC 1.95 1104 14.15 42 4.4% CHINA 11.05 FEB 10.00 UIH BB 1.60 8714 9.45 42 4.2% NANX 12.39 FEB 10.00 NSY BB 2.90 113 9.49 42 3.9% SEAC 18.40 FEB 17.50 UEG BW 1.75 125 16.65 42 3.7% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ZIXI - ZixCorp $10.93 *** New Contracts = New High! *** Zix Corporation (NASDAQ:ZIXI) is a global provider of e-messaging management and protection services. Its services offer a range of managed onsite and hosted e-messaging solutions to securely exchange Internet communications with any e-mail user and protect organizations from viruses, spam and electronic attack, while delivering the ability to enforce corporate policies. Their advisory services and comprehensive e-messaging solutions enable organizations of any size to streamline operations, mitigate the risks associated with obsolescence, negligence and a series of e-mail-borne threats, as well as leverage the cost and time efficiencies of e-messaging. ZixCorp solutions are managed policy-driven services for analyzing and encrypting Internet communications and for addressing anti-virus, anti-spam, content filtering, reporting and archiving needs. They also provide related advisory, consulting, installation, customization and training services. ZixCorp signed a couple contracts over the last few weeks and pleased investors have sent the stock to a new 52-week high. Investors who wouldn't mind owning ZixCorp near $9 can use this position to speculate on the company's future share value. FEB-10.00 HQU BB LB=1.80 OI=1686 CB=9.13 DE=42 TY=6.9% ***** ALVR - Alvarion $13.09 *** Rally Mode: Telecom Sector *** Alvarion (NASDAQ:ALVR) is a provider of wireless broadband connectivity infrastructure. Their product offerings provide three different types of wireless broadband applications: access, backhauling and feeding and private network connectivity. These products provide a wireless telecommunications alternative to wired access solutions used to provide broadband data and voice services for subscribers in the last mile of connectivity and for feeding cellular networks and private networks. Alvarion's products offer a range of integrated wireless broadband and wideband solutions by market segment and frequency band, designed to address the various business models of carriers and service providers. Their products operate in licensed and license-free bands ranging from 2.4 GHz to 26 GHz. In order to support its products, the company provides a family of accessories, including antennas, cables, surge arrestors, amplifiers and other components. What can I say? Alvarion is in a strong Stage II rally that is showing no signs of stopping. This position offers a reasonable reward for trying to "target-shoot" an entry point near $11.60. FEB-12.50 QBY BV LB=1.45 OI=105 CB=11.64 DE=42 TY=5.4% ***** CREE - Cree $20.49 *** Bracing For A Rally? *** Cree (NASDAQ:CREE) is engaged in the development and manufacture of compound semiconductor materials and electronic devices made from silicon carbide (SiC), and a developer and manufacturer of optoelectronic and electronic devices made from gallium nitride (GaN) and related materials. The company also produces radio frequency (RF) power transistor components and modules for wireless infrastructure applications using silicon-based bipolar and laterally diffused metal oxide semiconductor (LDMOS) process technologies. Cree operates its business in two segments, the Cree segment, which consists of its SiC-based products and research contracts; and the Cree Microwave segment, which consists of RF transistors and RF transistor modules based on a silicon platform. Cree had been hampered by lawsuit issues (dropped or dismissed) and a SEC investigation but has begun to strengthen technically. The current outlook is recovering and the recent bullish activity supported by heavy volume bodes well for the future. We simply favor the support area near $18 and investors can speculate on the short-term performance of the issue with this position. Earnings are due in the coming week. FEB-20.00 CQR BD LB=1.65 OI=2342 CB=18.84 DE=42 TY=4.5% ***** PAAS - Pan American $16.10 *** Diversify: Precious Metals! *** Pan American Silver (NASDAQ:PAAS) is principally engaged in the exploration for, and the acquisition, development and operation of, silver properties. PAAS owns and operates the producing Quiruvilca silver mine in Peru, a 99.85% interest in the Huaron silver mine in Peru and the producing La Colorada property. The company mines and sells silver-rich pyrite stockpiles at a small-scale operation in central Peru. Pan American also either holds an interest in or may earn an interest in non-producing silver resource and silver exploration properties in Peru, Argentina, the United States, Russia and Mexico, including the Alamo Dorado deposit in Mexico. Pan American continues to move higher in a strong Stage II climb and investors who want to diversify their portfolio should consider this position. FEB-15.00 USP BC LB=1.95 OI=1104 CB=14.15 DE=42 TY=4.4% ***** CHINA - Chinadotcom $11.05 *** Asian Speculation *** Chinadotcom (NASDAQ:CHINA) is an integrated enterprise solutions company offering software services and outsourcing, technology, marketing and media services and content for companies and end users throughout greater China and the Asia-Pacific region, the United States and the United Kingdom. The companies under the Chinadotcom group have extensive experience in several industry groups including finance, travel, telecom and manufacturing, as well as in key business areas, including e-business strategy, packaged software implementation, precision marketing, supply chain management and mobile applications. Chinadotcom leverages this expertise with alliances and partnerships to provide client solutions. A speculative position that offers a favorable entry point in a "hot" sector. FEB-10.00 UIH BB LB=1.60 OI=8714 CB=9.45 DE=42 TY=4.2% ***** NANX - Nanophase Tech $12.39 *** Small Is Big! *** Nanophase Technologies (NASDAQ:NANX) is engaged in creating and the engineering of nanocrystalline materials. Products include, among others, coated materials as ingredients for sunscreens, Nanophase's largest application, and uncoated materials as ingredients for personal care applications, including anti-fungal aids, automotive catalytic converters and abrasion-resistant flooring. A growing new product area for Nanophase is the production of engineered nanomaterials, and their dispersion in a variety of media, for various electronics polishing applications. They work collaboratively with various companies in meeting their application needs, providing value-enhanced solutions for commercial applications in multiple global markets. The Nanotech industry is on fire, especially after President Bush's signing of the 21st Century Nanotech Research and Development Act. We simply favor the bullish break-out on high volume and investors interested in the "nanotechnology" craze should consider this position. FEB-10.00 NSY BB LB=2.90 OI=113 CB=9.49 DE=42 TY=3.9% ***** SEAC - SeaChange $18.40 *** Stepping Higher! *** SeaChange International (NASDAQ:SEAC) is a developer, manufacturer and marketer video storage servers that automate the management and distribution of long-form video streams, such as movies or other feature presentations, and short-form video streams, such as advertisements. The company sells its products and services to cable system operators, telecommunications companies and broadcast television companies. The company's broadband network segment includes its VOD (video-on-demand) System, which digitally manages, stores and distributes digital video, allowing cable system operators and telecommunications companies to offer VOD and other interactive television services, including interactive electronic advertising and retrieval of Internet content, through TV. SEAC made another new 52-week high as the stock continues to "stair-step" higher. Investors who believe the firm's shares have moved up to a new trading range can use this position to profit from that outcome. FEB-17.50 UEG BW LB=1.75 OI=125 CB=16.65 DE=42 TY=3.7% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield CRGN 8.03 FEB 7.50 CQX BU 1.05 22 6.98 42 5.4% MIMS 7.51 FEB 7.50 OQX BU 0.50 150 7.01 42 5.1% CPN 5.34 FEB 5.00 CPN BA 0.65 6416 4.69 42 4.8% NGEN 11.99 FEB 10.00 QEM BB 2.60 656 9.39 42 4.7% ASKJ 23.83 FEB 22.50 AUK BX 2.70 1935 21.13 42 4.7% VRSN 17.98 FEB 17.50 QVR BW 1.50 2512 16.48 42 4.5% PTEK 10.15 FEB 10.00 QTE BB 0.70 1410 9.45 42 4.2% RMBS 35.20 FEB 30.00 BNQ BF 6.80 8678 28.40 42 4.1% PMCS 21.33 FEB 20.00 SQL BD 2.40 1728 18.93 42 4.1% ZIGO 18.68 FEB 17.50 UZY BW 2.05 70 16.63 42 3.8% ***************** NAKED PUT SECTION ***************** Options 101: More Q&A With The Editor By Ray Cummins This week’s E-mail concerns one reader's recent experience with "naked" puts. Hello Ray, The market has been doing quite well for my option plays and many of them came from your picks in the naked puts section. That is not to say that I haven't had a few problems along the way and even this week I was hit with a loser (Medimmune-MEDI) due to some unexpected news. Since I am fairly new at this strange game, I was wondering what suggestions you had for dealing with losers like MEDI and making naked puts a profitable part of my portfolio in the long run. Thanks and keep-em-comin! LW Hello LW, The strategy of writing deep-out-of-the-money options is based on a high probability of achieving a small profit. But, as with any "premium-selling" technique, there will always be a few unexpected losers that create draw-downs far in excess of the profits from winning positions. With that fact in mind, one requirement for success is to prevent the majority of losing positions from being "catastrophic" to your portfolio. The best way to accomplish that task is by setting specific limits on the collateral requirements (loss potential) for every position in this category and through diversity in the underlying industries/sectors selected for each position. Another important fact that new option traders should understand is the probability of profit or loss is not the primary consideration. Equally important is the risk-reward outlook of a position. When one evaluates a prospective play, the likelihood of each possible outcome must be carefully factored into the final assessment. After this evaluation has been completed, a question must be resolved: Is the reward, even a limited one, sufficient to offset the risk? If the answer is not a resounding "affirmative," then it probably best to repeat the process until a satisfactory candidate emerges. In my experience, the key to achieving consistent profits through "premium-selling" is to understand the statistical nature of the strategy, which suggests that careful play selection and diligent position management can produce (over time) a reasonable return on investment. However, this approach is not suitable for everyone and many professional traders say it is one of the most difficult strategies to master (due to human emotions) in the options market. Fortunately, there are plenty of other ways to trade and if selling "naked" options starts to cause you more grief than joy, switch to a strategy that better fits your personal style, experience level, and risk-reward outlook. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield JNPR 19.68 22.00 JAN 19.00 0.40 0.40* 4.7% 11.4% PDLI 18.42 18.69 JAN 17.50 0.35 0.35* 4.4% 11.2% MERX 24.75 23.77 JAN 22.50 0.60 0.60* 4.0% 10.5% THER 18.77 20.23 JAN 17.50 0.45 0.45* 3.8% 9.5% PDLI 16.65 18.69 JAN 15.00 0.45 0.45* 3.4% 9.0% SIL 21.10 22.90 JAN 20.00 0.30 0.30* 3.3% 8.5% SOV 23.70 24.08 JAN 22.50 0.90 0.90* 3.6% 8.5% PLMD 26.45 27.25 JAN 22.50 0.50 0.50* 2.5% 7.6% MERX 24.45 23.77 JAN 20.00 0.40 0.40* 2.2% 7.6% BLTI 17.19 18.74 JAN 15.00 0.25 0.25* 2.5% 7.3% SMMX 21.15 24.74 JAN 20.00 0.25 0.25* 2.8% 7.2% SHRP 32.39 33.00 JAN 30.00 0.55 0.55* 2.7% 7.2% IPG 15.45 16.41 JAN 15.00 0.40 0.40* 3.0% 7.1% IMCL 40.01 38.85 JAN 35.00 0.55 0.55* 2.3% 6.9% SLXP 21.50 22.70 JAN 20.00 0.60 0.60* 2.7% 6.8% ATVI 18.65 18.30 JAN 17.50 0.30 0.30* 2.5% 6.6% JNS 15.91 16.42 JAN 15.00 0.35 0.35* 2.6% 6.6% NPSP 32.64 34.52 JAN 30.00 0.80 0.80* 2.4% 6.2% BLTI 14.01 18.74 JAN 12.50 0.30 0.30* 2.1% 5.9% WEBX 20.18 21.32 JAN 17.50 0.30 0.30* 1.9% 5.7% AAII 25.00 26.35 JAN 22.50 0.30 0.30* 2.0% 5.6% RMBS 30.66 35.20 JAN 20.00 0.40 0.40* 1.8% 5.3% AAII 25.01 26.35 JAN 22.50 0.45 0.45* 1.8% 4.9% EMMS 27.17 26.71 JAN 25.00 0.50 0.50* 1.8% 4.7% BDY 26.72 24.30 JAN 25.00 0.35 -0.35 0.0% 0.0% CYD 32.22 28.03 JAN 30.00 0.65 -1.32 0.0% 0.0% * Stock price is above the sold striking price. Comments: A Big Day For Hungry Bears! Friday's retreat ended another week of gains, giving market bears a morsel of profits after a long dry spell. Equities mounted an early rally that boosted the technology index to two year highs, but those gains were fleeting after investors began to consider the implications of a disappointing employment report. With the potential for a post-earnings slump overhanging the stock market, traders are urged to initiate bullish positions only in the most favorable (technically) issues and implement diligent portfolio management in the coming weeks. The position in China Yuchai (NYSE:CYD) was closed early in the week and Brady Pharmaceuticals (NYSE:BDY) is on the "watch" list. Positions Previously Closed: None WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield XING 12.80 FEB 10.00 QAE NB 0.35 200 9.65 42 2.6% 8.7% OPWV 15.18 FEB 12.50 UMN NV 0.40 206 12.10 42 2.4% 7.6% SEPR 27.25 FEB 22.50 ERQ NX 0.65 470 21.85 42 2.2% 6.9% ASKJ 23.83 FEB 20.00 AUK ND 0.60 823 19.40 42 2.2% 6.9% NKTR 17.12 FEB 15.00 QNX NC 0.45 454 14.55 42 2.2% 6.3% IDCC 24.46 FEB 20.00 DAQ ND 0.50 947 19.50 42 1.9% 6.2% WFII 17.80 FEB 15.00 QUU NC 0.40 399 14.60 42 2.0% 6.1% JNPR 22.00 FEB 20.00 JUX ND 0.55 2098 19.45 42 2.0% 5.4% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** XING - Qiao Xing $12.80 *** Chinese Telecom Leader *** Qiao Xing Universal Telephone (NASDAQ:XING) is engaged in the design, manufacture and sale of telecommunication terminals and equipment in the People's Republic of China, including in-house corded and cordless telephone sets under the Qiao Xing trademark. Its QX Communication subsidiary also designs, develops and manufactures global standard for mobile (GSM) mobile telephones for CEC Telecom. Qiao Xing has a nationwide sales network that includes 3,500 retail outlets in China. The firm has introduced smart card telephones and expects to develop and introduce other new products to the market. Qiao Xing rallied in December after a subsidiary said it expects a substantial increase in both sales and profits over last year. The upside activity continued this week with the wireless sector rally and now the stock is above a recent lateral trading range. This position offers a reasonable reward at the risk of owning XING shares near long-term technical support. FEB-10.00 QAE NB LB=0.35 OI=200 CB=9.65 DE=42 TY=2.6% MY=8.7% ***** OPWV - Openwave Systems $15.18 *** Wireless Rally! *** Openwave Systems (NASDAQ:OPWV) is the leading independent provider of open software products and services for the communications industry. Openwave's breadth of products, including mobile phone software, multimedia messaging software (MMS), email, location and mobile gateways, along with its worldwide expertise enable its customers to deliver innovative and differentiated data services. Openwave is another issue "riding the wave" of the recent wireless rally. Traders who foresee continued upside activity in the group should consider this position. FEB-12.50 UMN NV LB=0.40 OI=206 CB=12.10 DE=42 TY=2.4% MY=7.6% ***** SEPR - Sepracor $27.25 *** On The Rebound! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. Shares of SEPR are "on the rebound" and traders say the catalyst may be the company's upcoming earnings report. SEPR will announce its fourth quarter and full-year 2003 financial results on 1/22/2004 and traders who believe the outcome will be favorable should consider this position. FEB-22.50 ERQ NX LB=0.65 OI=470 CB=21.85 DE=42 TY=2.2% MY=6.9% ***** ASKJ - Ask Jeeves $23.83 *** New Multi-Year High! *** Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search, providing consumers with authoritative and fast ways to find relevant information to their everyday searches. Ask Jeeves deploys its search technologies on Ask Jeeves (Ask.com and Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com). In addition, to its internet sites, Ask Jeeves syndicates its monetized search technology and advertising units to a network of affiliate partners. The company is based in Emeryville, California, with offices in New York, Boston, New Jersey, Los Angeles, London and Dublin. Jeeves is partnered with Google and some traders believe the recent speculation about a Google IPO is fueling the rally in ASKJ. Regardless of the reason, shares of ASKJ are trading at a multi-year high and there is no indication the bullish trend will end soon. FEB-20.00 AUK ND LB=0.60 OI=823 CB=19.40 DE=42 TY=2.2% MY=6.9% ***** NKTR - Nektar Therapeutics $17.12 *** Rally Mode! *** Nektar Therapeutics (NASDAQ:NKTR) provides industry-leading drug delivery technologies, expertise, and manufacturing to enable the development of high-value, differentiated therapeutics. Nektar's advanced drug delivery capabilities are designed to enable the firm's biotechnology and pharmaceutical partners to solve drug development challenges and realize the full potential of their therapeutics, from developing new molecular entities to managing the lifecycles of established products. Shares of NKTR are in "rally mode" in anticipation of a positive announcement with regard to their unique drug delivery technologies. Traders who like speculative positions in the pharmaceutical segment should consider this position. FEB-15.00 QNX NC LB=0.45 OI=454 CB=14.55 DE=42 TY=2.2% MY=6.3% ***** IDCC - InterDigital Comm. $24.46 *** Strong Sector! *** InterDigital Communications (NASDAQ:IDCC) specializes in the architecture, design and delivery of wireless technology and product platforms. Over the course of its corporate history, the company has amassed a substantial and significant library of digital wireless systems experience and know-how, and holds an extensive worldwide portfolio of patents in the wireless systems field. InterDigital markets its technologies and solutions primarily to wireless communications equipment producers and related suppliers. In addition, the company licenses its Time Division Multiple Access and Code Division Multiple Access patents to equipment manufacturers worldwide. Stocks in the wireless group are "hot" and IDCC shares have moved in tandem with the sector, up almost 25% in the last week. Traders who believe the rally will continue should consider this position. FEB-20.00 DAQ ND LB=0.50 OI=947 CB=19.50 DE=42 TY=1.9% MY=6.2% ***** WFII - Wireless Facilities $17.80 *** Follow The Crowd! *** Wireless Facilities (NASDAQ:WFII) has become a worldwide leader in telecommunications outsourcing, designs, deploys, integrates and manages wireless networks and specialized security systems for some of the largest wireless telecommunication carriers, wireless equipment vendors and general contractors globally. WFI provides a wide range of network services, from business and market planning to RF engineering, fixed network engineering, IP and data engineering, site acquisition and development, installation, optimization and maintenance. Investors are flocking to stocks in the wireless group and option traders can speculate conservatively on continued bullish activity in the group with this position. FEB-15.00 QUU NC LB=0.40 OI=399 CB=14.60 DE=42 TY=2.0% MY=6.1% ***** JNPR - Juniper Networks $22.00 *** Next Leg Up! *** Juniper Networks (NASDAQ:JNPR) is a global provider of Internet infrastructure solutions which enable service providers and other telecommunications service providers to meet the demands resulting from the growth of the Internet. Juniper's Internet routers are designed and purpose-built for service provider networks and offer performance, scalability, interoperability and flexibility, as well as lower complexity and cost compared to legacy alternatives. Juniper's proprietary software is designed for the Internet protocol network routing, operations and control requirements of service providers and is an integral embedded component of its product family system architecture. In December, Juniper Networks was awarded a multi-year contract by Science Applications International to supply all edge and core IP/MPLS routers under the Defense Department's Global Grid Bandwidth Expansion project, which is considered the next step in the development of the Internet. Investors were happy with the news and now they have pushed the issue to a 2-year high. Traders can establish a cost basis below $20 in the issue with this position. FEB-20.00 JUX ND LB=0.55 OI=2098 CB=19.45 DE=42 TY=2.0% MY=5.4% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield NANX 12.39 FEB 10.00 NSY NB 0.45 48 9.55 42 3.4% 10.8% OSIP 33.42 FEB 25.00 GHU NE 0.80 172 24.20 42 2.4% 7.7% ERES 30.70 FEB 27.50 UDB NY 0.95 4 26.55 42 2.6% 6.9% THER 20.23 FEB 17.50 UKT NW 0.55 40 16.95 42 2.3% 6.7% SWIR 21.45 FEB 17.50 IYQ NW 0.40 17 17.10 42 1.7% 5.8% DITC 20.60 FEB 15.00 QZD NC 0.35 202 14.65 42 1.7% 5.7% PMCS 21.33 FEB 17.50 SQL NW 0.40 712 17.10 42 1.7% 5.7% BLTI 18.74 FEB 15.00 BQF NC 0.30 56 14.70 42 1.5% 5.4% NVDA 25.47 FEB 22.50 UVA NX 0.55 2237 21.95 42 1.8% 5.1% RMBS 35.20 FEB 25.00 BNQ NE 0.50 4617 24.50 42 1.5% 4.8% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Necessary Correction! By Ray Cummins Stocks slumped Friday as investors used a disappointing labor report as a catalyst for profit-taking. The Dow Jones industrial average fell 133 points to 10,458 on weakness in telecom components SBC Communications (NYSE:SBC) and AT&T (NYSE:T). The technology-laden NASDAQ Composite slid 13 points to 2,086 as semiconductor shares retreated in force. The S&P 500 Index lost 10 points to 1,121 amid selling pressure in aluminum, transportation, insurance, hospital, restaurant, and brewery shares. Despite the drop, all three major averages rose during the week. The Dow ended 0.5% higher, the S&P 500 gained 1.2% and the NASDAQ climbed 4%. Volume was heavy, with about 1.66 billion shares changing hands on the New York Stock Exchange, where advancers and decliners were roughly equal. On the NASDAQ, almost 2.5 billion shares traded with losers pacing winners 3 to 2. Treasury prices closed at recent highs, with the ten-year note up 1 12/32, yielding 4.08%. ***************** PORTFOLIO SUMMARY ***************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position or to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management, nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. PUT CREDIT SPREADS ****************** Symbol Pick Last Month LP SP Credit CB G/L Status CME 70.63 75.30 JAN 60 65 0.50 64.50 0.50 Open NCEN 39.62 40.41 JAN 30 32 0.45 32.93 0.45 Open SII 40.22 44.07 JAN 35 37 0.25 37.25 0.25 Open CYBX 32.70 34.28 JAN 25 30 0.50 29.50 0.50 Open INTU 52.16 48.80 JAN 45 47 0.25 47.25 0.25 Open TRN 31.36 30.93 JAN 25 30 0.75 29.25 0.75 Open AA 37.30 37.25 JAN 32 35 0.30 34.70 0.30 Open MTH 65.37 62.08 JAN 55 60 0.45 59.55 0.45 Open NFLX 51.07 62.00 JAN 40 42 0.25 42.25 0.25 Open SCHN 59.28 53.62 JAN 45 50 0.55 49.45 0.55 Open SINA 37.90 40.65 JAN 30 35 0.60 34.40 0.60 Open SOHU 32.70 34.37 JAN 25 30 0.65 29.35 0.65 Open YHOO 45.40 48.12 JAN 40 42 0.25 42.25 0.25 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Meritage (NYSE:MTH), Intuit (NASDAQ:INTU), Trinity Industries (NYSE:TRN) and Schnitzer Steel (NASDAQ:SCHN) are on the "watch" list. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CERN 39.22 38.59 JAN 50 45 0.55 45.55 0.55 Open MDC 64.06 62.43 JAN 70 65 0.60 65.60 0.60 Open CL 49.19 50.49 JAN 55 50 0.65 50.65 0.16 Open? KLAC 55.55 60.81 JAN 65 60 0.55 60.55 (0.26) Closed CTX 104.40 101.70 JAN 115 110 0.50 110.50 0.50 Open IACI 33.26 32.18 JAN 37 35 0.25 35.25 0.25 Open RYL 85.08 74.00 JAN 95 90 0.45 90.45 0.45 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss KLA-Tencor (NASDAQ:KLAC) became an "early-exit" candidate Friday, when the issue traded above its recent lateral range at a 52-week high. The bearish position in Research in Motion (NASDAQ:RIMM) has previously been closed for a loss. Clorox (NYSE:CL) is on the "watch" list. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status OSX 89.45 98.50 JAN 80 85 4.40 84.40 0.60 Open ACDO 31.77 31.86 JAN 25 30 4.40 29.40 0.60 Open IMCL 40.76 38.85 JAN 30 35 4.50 34.50 0.50 Open MCHP 32.90 34.35 JAN 25 30 4.40 29.40 0.60 Open ATRS 36.84 35.39 JAN 30 35 4.45 34.45 0.55 Open? LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss The bullish debit-spread in Digital River (NASDAQ:DRIV), which has previously been closed by conservative traders, is now profitable. Altiris (NASDAQ:ATRS) slumped late in the session Friday and any further downside movement would suggest an early exit in the play. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status SYMC 32.42 35.99 JAN 37 35 2.15 35.35 (0.64) Closed AMZN 51.90 51.59 JAN 60 55 4.45 55.45 0.55 Open Our "watch-list" position in Symantec (NASDAQ:SYMC) was closed when the issue moved above resistance near the sold (call) strike at $35. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status IDCC 19.00 24.46 JAN 25 15 0.20 0.40 Open? NE 36.09 38.19 JAN 37 35 0.10 0.80 Open? PTEN 31.34 33.85 JAN 32 30 (0.10) 1.75 Open? UTHR 23.20 23.08 MAY 30 17 (0.10) 0.10 Open Patterson-UTI Energy (NASDAQ:PTEN) has already reached the target gain and Noble (NYSE:NE) achieved a favorable "early-exit" profit in less than one week. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status CEPH 46.34 52.50 FEB-50C JAN-50C 0.70 1.05 Closed FISV 38.28 38.73 MAR-35P JAN-35P 0.70 0.60 Open XMSR 26.80 27.50 FEB-30C JAN-30C 0.85 1.15 Open? As noted last week, the bullish position in Cephalon (NASDAQ:CEPH) achieved maximum profit with the issue near the sold strike at $50 and conservative traders could have closed the position for a nice gain during Tuesday's rally. The new play in XM Satellite Radio (NASDAQ:XMSR) offered a favorable "early-exit" profit after only three days in the position. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ATN 17.93 18.27 JAN 17 17 2.40 2.75 Closed ACL 59.19 59.45 JAN 60 60 3.00 2.80 Open? MATK 65.74 65.90 MAR 65 65 9.40 9.00 Open The straddle on Mylan Labs (NYSE:MYL) has been previously closed for a small loss. CREDIT STRANGLES **************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** LRCX - Lam Research $34.59 *** Chip-Equipment Specialist! *** Lam Research Corporation (NASDAQ:LRCX) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's products are currently used in the front-end of the wafer processing manufacturing cycle: etch, CMP, and post-CMP clean. Lam's unique family of etch systems incorporates plasma technologies designed to meet both current and future needs. The company offers both 200-milimeter and 300-milimeter Teres CMP integrated polishing and cleaning systems with Linear Planarization Technology (LPT), which uses a high-speed belt instead of the rotating table used in conventional polishers. The company also provides the Synergy Integra, which incorporates advanced cleaning technology with a platform that integrates polisher and cleaner. LRCX - Lam Research $34.59 PLAY (conservative - bullish/credit spread): BUY PUT FEB-25.00 LMQ-NE OI=78 ASK=$0.20 SELL PUT FEB-30.00 LMQ-NF OI=648 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$29.45 ***** OHP - Oxford Health $46.69 *** New Trading Range? *** Oxford Health Plans (NYSE:OHP) is a healthcare company providing health benefit plans in New York, New Jersey and Connecticut. The company's product line includes its point-of-service plans, the Freedom Plan and the Liberty Plan, health maintenance organizations, preferred provider organizations, Medicare+Choice plans and also third-party administration of employer-funded benefit plans. The company offers its products through its HMO subsidiaries and also through Oxford Health Insurance, a health insurance subsidiary. OHP - Oxford Health $46.69 PLAY (conservative - bullish/credit spread): BUY PUT FEB-40.00 OHP-NH OI=334 ASK=$0.45 SELL PUT FEB-42.50 OHP-NV OI=552 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$42.20 ***** NBR - Nabors Industries $44.11 *** Strong Sector! *** Nabors Industries (NYSE:NBR) operates in two primary business segments within the oilfield services industry, contract drilling and manufacturing and logistics. The company provides drilling, workover, well-servicing and related services on land and offshore in the lower 48 states of the United States (lower 48 states), Canada and Alaska, as well as international markets. The company also manufactures and leases (or sells) top drives, drilling instrumentation systems and rig-reporting software domestically and internationally, and provides oil rig construction, logistics services and marine transportation and support services in Alaska and the lower 48 states. NBR - Nabors Industries $44.11 PLAY (conservative - bullish/credit spread): BUY PUT FEB-37.50 NBR-NU OI=103 ASK=$0.25 SELL PUT FEB-40.00 NBR-NH OI=427 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=12% B/E=$39.70 ***** ADBE - Adobe Systems $37.12 *** Sell-Off In Progress! *** Adobe Systems (NASDAQ:ADBE) offers a line of software products that allow consumers, businesses and creative professional customers to create, manage and deliver visually rich, compelling and reliable content. Adobe has four business segments: Creative Professional, which provides software for professional page layout, professional Web page layout, technical document and business publishing; Digital Imaging and Video, which provides users with software for creating, editing and enhancing digital images and photographs, digital video, animations, graphics and illustrations; ePaper Solutions, which provides electronic document distribution software that allows users to create, enhance, annotate and securely send Adobe PDF files that can be shared, viewed, navigated and printed, and OEM PostScript and Other, which includes printing technology to create and print simple or visually rich documents with precision. ADBE - Adobe Systems $37.12 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-45.00 AEQ-BI OI=879 ASK=$0.20 SELL CALL FEB-40.00 AEQ-BH OI=559 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$40.60 ***** TBL - Timberland $51.13 *** In A Trading Range? *** Timberland (NYSE:TBL) is a global leader in the design, engineering and marketing of premium-quality footwear, apparel, and accessories for consumers who value the outdoors and their time in it. The company's products offer quality workmanship and detailing and are built to withstand the elements of nature. They can be found in leading department and specialty stores as well as Timberland-brand retail stores throughout North America, Europe, Asia, Latin America, and the Middle East. TBL - Timberland $51.13 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-60.00 TBL-BL OI=149 ASK=$0.30 SELL CALL FEB-55.00 TBL-BK OI=220 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$55.65 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** BRCM - Broadcom $36.78 *** Next Leg Up? *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $36.78 PLAY (conservative - bullish/debit spread): BUY CALL FEB-30.00 RCQ-BF OI=785 ASK=$7.30 SELL CALL FEB-32.50 RCQ-BZ OI=1368 BID=$5.10 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$32.20 ***** MIK - Michael's Stores $41.42 *** Retail Sector Slump! *** Michaels Stores (NYSE:MIK) is an arts and crafts specialty retailer providing materials, ideas and education for creative activities. The firm operates over 700 Michaels retail stores in 48 states, as well as in Canada, offering a products for the do-it-yourself home decorator and arts and crafts supplies. The company also operates over 150 Aaron Brothers stores in nine states, with photo frames, a full line of ready-made frames, custom framing services and a wide selection of art supplies. In addition, the company owns and operates Star Wholesale, a single-store wholesale operation located in Dallas, Texas, offering merchandise primarily to interior decorators/designers, wedding/event planners, florists, hotels, restaurants and commercial display companies. MIK - Michael's Stores $41.42 PLAY (conservative - bearish/debit spread): BUY PUT FEB-47.50 MIK-NT OI=10 ASK=$6.50 SELL PUT FEB-45.00 MIK-NI OI=23 BID=$4.30 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$45.30 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** CEPH - Cephalon $52.50 *** New Trading Range? *** Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm dedicated to the discovery, development and marketing of products to treat sleep disorders, neurological disorders, cancer and pain. In addition to conducting a very active research and development program, the company markets three products in the United States and a number of products in various countries throughout Europe. Cephalon's United States products are comprised of Provigil, for the treatment of excessive daytime sleepiness associated with narcolepsy, Actiq for cancer pain management, and Gabitril for the treatment of partial seizures associated with epilepsy. CEPH - Cephalon $52.50 PLAY (speculative - bullish/synthetic position): BUY CALL FEB-60.00 CQE-BL OI=729 ASK=$0.60 SELL PUT FEB-45.00 CQE-NI OI=1773 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.10-$0.15 INITIAL TARGET PROFIT=$0.75-$1.10 Note: Using options, this position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $1400 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($45.00). ***** EYE - Visx $25.30 *** Cheap Speculation! *** Visx (NASDAQ:EYE) is engaged in the development of proprietary technologies and systems for laser vision correction. Laser vision correction relies on a computerized laser system to treat nearsightedness, farsightedness and astigmatism with the goal of eliminating or reducing reliance on eyeglasses and contact lenses. The company's Excimer Laser System (the Visx System) ablates or removes submicron layers of tissue from the surface of the cornea to reshape the eye, thereby improving vision. The Visx system also treats certain types of corneal pathologies in an outpatient procedure known as PhotoTherapeutic Keratectomy. The company's significant customers include Laser Vision Centers, and TLC Laser Eye Centers. EYE - Visx $25.30 PLAY (very speculative - bullish/synthetic position): BUY CALL MAR-30.00 EYE-CF OI=468 ASK=$0.45 SELL PUT MAR-20.00 EYE-OD OI=476 BID=$0.25 INITIAL NET-DEBIT TARGET=$0.00-$0.10 INITIAL TARGET PROFIT=$0.35-$0.60 Note: Using options, this position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $550 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($20.00). *********************** STRADDLES AND STRANGLES *********************** Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** PTR - PetroChina $54.08 *** A Volatile Issue! *** PetroChina (NYSE:PTR) is engaged in petroleum-related activities, including the exploration, development, production and sale of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sale of common petrochemical products, derivative chemical products and other chemical products, and the transmission of crude oil, refined products and natural gas, as well as sale of natural gas. Substantially all of its total estimated proved oil and natural gas reserves are located in China, principally in northeastern, northern, southwestern and northwestern China. PTR - PetroChina $54.08 PLAY (speculative - neutral/debit straddle): BUY CALL FEB-55.00 PTR-BK OI=356 ASK=$3.50 BUY PUT FEB-55.00 PTR-NK OI=211 ASK=$4.20 INITIAL NET-DEBIT TARGET=7.30-$7.50 INITIAL TARGET PROFIT=$2.40-$3.15 ***** ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ************** MARKET POSTURE ************** Bears Come Out of Hibernation by - Nich Sheldon Well, well, well... what a bearish turn of events. A quick look at the scoreboard and we see Bears leading the pack 21 to 6. While the scoreboard is bleeding red, only seven of the indexes lost more than one percent. The INDU Dow Jones Industrial Average lost -1.26 percent today, falling 133.55 points and failing to break over strong resistance at 10600. The index actually closed under its 10-DMA for the first time since November 21st. This leads us to wonder whether or not we're going to see further confirmation of this breakdown throughout next week? The OEX S&P 100 index has been climbing higher in a very narrow range. Friday's drop doesn't even bring the index back to its 10- dma, so we've yet to see true weakness here. The TRAN Dow Jones Transportation Index collapsed through its 10- DMA today, losing -1.34 percent. The TRAN is approaching support at its rising 40 and 50-dma's, where the index has bounced in the past. Until it breaks the 50-dma the trend is still up. The fire that was lit under the DDX Disk Drive Index simmered down a bit today, as the index dropped -1.22 percent. The 20-point gain in the past five sessions made the index far to overextended to break over its strong resistance at 144. The group looks poised for more profit taking and the next support level is near 135. The recent breakout over 256 for the GHA GSTI Hardware Index had bulls jumping at the thought of higher highs. But the GHA found difficulty breaking over 265 today, as it lost half of Thursday's gains by market close. Look for any profit taking to bring the group back toward old resistance near 256. The XAL Airline Index met some turbulence today, dropping -2.26 percent and closing right between the 10 and 50-DMA, which are resting at 62. The XAL has just returned to neutral territory from overbought territory on the Stochastics indicator. It would not surprise us to see more selling in this group and a test of support in the 59-60 levels is the area to watch. The NWX Networking Index tried as hard as its little overextended legs could run to make today the tenth consecutive day of gains, but bears overturned the index, retracing half of yesterdays gains and pushing the NWX to drop -1.14 percent by the closing bell. It seems that support in November of 2001-January 2002 (294) was hard resistance on Friday. There were a few indexes that ended higher on Friday, but only a couple of them claimed noteworthy gains. The OSX Oil Service Index struck oil today, gushing higher by +3.74 percent. The OSX almost broke the 100 level. If you look at the chart you might see some strange volatility. It looks like there were some bad ticks early in the session and again very late in the day with readings near the 90 level. The DJUSHB DJ US Home Construction Index finally received some relief from bulls. The +2.68 percent gain in the index was a continuation of Thursday's afternoon rebound but the group remains under its 50-dma. ********** 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
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