The Option Investor Newsletter Wednesday 01-21-2004 Copyright 2004, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Adrift in an Eddy of Earnings. Futures Wrap: New Rally Highs Index Trader Wrap: Two DOWn and one to go? Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 01-21-2004 High Low Volume Advance/Decline DJIA 10623.62 + 94.96 10643.55 10490.96 2.31 bln 1759/1073 NASDAQ 2142.45 - 5.53 2150.11 2120.20 2.40 bln 1455/1636 S&P 100 568.64 + 4.89 569.47 562.02 Totals 3214/2709 S&P 500 1147.62 + 8.85 1149.21 1134.62 RUS 2000 597.48 - 0.50 598.75 591.51 DJ TRANS 3063.60 + 43.60 3063.77 3008.12 VIX 14.34 - 0.87 36.55 14.24 VXO 14.43 - 0.48 15.64 14.37 VXN 20.71 + 0.22 21.72 20.58 Total Volume 5,182M Total UpVol 2,341M Total DnVol 2,759M 52wk Highs 1120 52wk Lows 7 TRIN 1.18 PUT/CALL 0.67 ******************************************************************* Adrift in an Eddy of Earnings. by James Brown Earnings, earnings, earnings. The markets ran higher for weeks in anticipation of strong Q4 earnings numbers and now that they're finally here we're getting good news. There are exceptions to the rule and we are still seeing investors exercise their tendency to "sell the news" but investors are still in a buying mood. Traders took advantage of the recent weakness and bought the dip. Yesterday's worst performers in the Dow are now some of today's best performers as MMM, UTX, HD, BA, WMT, CAT and more all bounce higher. Together the DJIA and the S&P 500 managed another positive session and reached new 22-month highs. The second theme today, in addition to buy the dip, was a rotation of money out of tech stocks and into financials and energy issues. JPMorgan and Citigroup were two of the top three performers in the Dow today and I noticed several electric utilities and natural gas stocks breaking out to new highs. Of course it's probably not a surprise to see some profit taking in technology. The NASDAQ has been hitting 30-month highs and it took an earnings warning from the biggest hard drive maker on the planet to finally convince investors to take some money off the table. Market internals were mixed, which would be expected considering the closing numbers on the major indices. Advancing stocks outpaced decliners almost 18 to 11 on the NYSE. The view wasn't so rosy on the NASDAQ where decliners edged past advancing stocks 8 to 7. Up volume did outrun down volume on the NYSE but up volume was only half down volume on the NASDAQ. Overall it was a very heavy volume day with 2.3 billion on the NYSE and almost 2.4 billion on the NASDAQ. Today also marked another new record on the NASDAQ as volume traded over 2 billion for the 12th day in a row. The strength in the S&P 500 helped push the volatility indices back towards their lows, which indicates extremely little fear by investors. As mentioned earlier, earnings news from the major player in the computer hard drive industry last night set off a round of profit taking across the technology sectors. The culprit was Seagate Technology (STX). Not only did STX miss analyst estimates for its December quarter numbers but it warned for the next quarter. Estimates for last quarter were 45 cents and STX only hit 41 cents on revenues of $1.76 billion, also below consensus estimates. Current analyst projections for the current quarter were 39 cents a share but STX warned that the March quarter would probably fall in the 20 to 30 cent range. STX gapped significantly lower this morning and closed with a loss of more than 20 percent. Its news took the DDX disk drive index (-5%) with it and fellow hard drive makers MXO and WDC both lost more than 12%. Not surprisingly STX wasn't the only one to blame for the tech sell-off today. Lackluster results from Motorola and another warning, this time from RF Micro Devices, sent the semiconductor sector slipping to a 2.6% loss on the session. Networking issues didn't fare any better. The NWX lost 3.3% after Lucent Technologies (LU) slipped 6.9% after reporting its Q4 numbers. Fortunately, LU's decline wasn't related to bad news. The company actually beat estimates this morning on better than expected revenues. LU's decline was more of a "sell the news" variety and it help up pretty well considering a 65% gain for 2004 already under its belt. Investors now had to decide what to do with this money they were taking out of tech. Biotechs and airlines stocks saw a strong surge in buying interest today but one of the real winners were the financials. Dow component J.P.Morgan Chase (JPM) added 2.6% after turning in a very strong fourth quarter performance. Analysts had been estimating 77 cents a share but JPM turned in a net income of 89 cents. Making this more dramatic was the year ago comparisons against a 20 cent loss in Q4 2002. Another Wall Street blue chip to announce earnings was Merrill Lynch (MER). Our nation's largest brokerage house reported net income of $1.18 per share, well above estimates at $1.01. Unfortunately, revenues were just $4.92 billion and below consensus estimates. This sent shares of MER lower on concerns that the profit numbers were achieved on cost cutting and not an increase in business. Another big story today was the housing market and the December housing starts. Considering the snow, the cold and the previous red-hot pace for homebuilders economists were expected a mild slow down to a seasonally adjusted rate of 1.95 million homes. This morning the Commerce Department reported an increase to 2.09 million for new home construction. The U.S. hasn't seen monthly housing starts that high since February 1984. This set the homebuilders on fire again and the DJUSHB home construction index roared to a 4.97% gain. It was the perfect news to frighten shorts and inspire new buying in the sector. Of course this data is nothing new for the builders. Most of the builders have been projecting strong growth for the next two years and a few have disclosed record-high backlog for orders. In related news Fannie Mae (FNM), the nation's biggest source for residential financing, announced Q4 earnings that beat analyst estimates by 2 cents. FNM began to rebound a week ago after the index of mortgage applications reported its biggest increase in three years sparked by a drop in mortgage rates this January. The earnings parade picked up the pace again after the close and topping the list was EBAY. The world's largest online auctioneer reported net income of 24 cents a share, 2 cents better than estimates. Revenues soared more than 57% to $648 million, well above the consensus estimates. Furthermore the company guided higher for its 2004 full year estimates by 8 cents. EBAY was trading higher after hours, up $2.65 to $67.03. San Diego-based QUALCOMM also reported after the bell tonight. Reuters was reporting consensus estimates at 48 cents a share and QCOM beat those numbers with 51 cents. Revenues rose 13% to $1.24 billion, passing revenue estimates. Strong royalty and licensing income help boost its Q4 profits but the company was cautious about the first quarter and told investors that revenues would actually decline. Probably the most encouraging earnings announcement this evening was from Symantec (SYMC), the computer-virus software maker. Analysts had been looking for 29 cents and SYMC beat that number by a nickel. Revenues soared more than 30% to $493.9 million, well above estimates for $460 million. Making the report even sweeter was SYMC's positive guidance for the current quarter. Analysts had been looking for 29 cents a share on revenues of $471 million. Now SYMC expects earnings closer to 32 cents on revenues between $500 and $520 million. Given the current market environment for investors to only hear what they want to hear this is a strong catalyst for traders to buy the technology dip tomorrow, at least in the software sector. Chart of the DJIA: Chart of the NASDAQ: Viewing the action in the major averages it's tough to imagine that the bears will be able to mount a solid offense tomorrow. The NASDAQ looks poised to break the 2150 mark and if not there will probably be traders waiting to buy the dip to 2115-2100 near its simple 10-dma. The DJIA looks even stronger with a bullish engulfing candlestick pattern on top of another bounce from its rising 21-dma as well as a close above the 10600 level. Now cross your fingers and hope that AT&T (T), BellSouth (BLS), Eastman Kodak (EK), Ford (F), Nokia (NOK) or Pfizer (PFE) don't blow it for us. This list of companies represent the major earnings announcements before Thursday's opening bell. Aside from the earnings buffet Wall Street will also be digesting the weekly jobless claims numbers, which are expected to come in flat, and the December leading indicators. ************ FUTURES WRAP ************ New Rally Highs Jonathan Levinson Dollar up or down, equities go up. That trend reasserted itself today as the ES and YM sprinted to new rally highs, the NQ lagging, while gold, silver and the CRB corrected part of yesterday's advance and bonds gained slightly. 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. Chart of the US Dollar Index The US Dollar Index sunk lower overnight and spent the day trying unsuccessfully to regain 86.40 (cash index). The steep daily cycle upphase hesitated but remains pointed higher. The dollar weakness coincided with weakness in the CRB as well as precious metals, with the CRB dropping 1.54 to 269.23 on weakness in FCOJ, Natural gas and silver futures. Daily chart of February gold There was a story that circulated in the early morning about the Bundesbank's intention to sell 600 tons of silver over the next 5 years. Silver led gold lower, but both traded weakly throughout the session, with gold bouncing from 407.60 and silver from 6.10. February gold failed at 413.70, spending most of the afternoon in the 412 area. The HUI and XAU traded both sides of unchanged. Support at 407 on gold remains key and began to resemble a potential head and shoulders neckline. If it is, then a break implies a downside target around 385. While I doubt if that level will be reached, these corrections can be fast, and little would surprise me. Gold closed at 410.70, a .58% decline. Daily chart of the ten year note yield Bonds corrected part of yesterday's losses, with the TNX dropping 1.8 basis points to finish at 4.039%, a .44% move for the session. Despite this correction of yesterday's move, the support line under the ten year yield looks far away near 3.9%, and the daily cycle oscillators are looking bottomy here. If bond bears can hold the yield above 4%, the current downphase should abort and a new yield upphase will commence, targeting first resistance at 4.1%, followed by descending trendline resistance in the 4.3% area. Daily NQ candles The NQ was the weaker equity index by a comfortable margin today, making a valiant effort to scrap itself off the lows even as the ES and YM made new rally highs. The wide 27 point range took place almost entirely below the broken rising channel support line, and could have been a bullish hammer had the index been able to stay above unchanged. But it couldn't, and the deep spike was sufficient to print a sell signal on the 10-day stochastic. Bears should take it with a grain of salt until the Macd gives a confirming cross. The price trend remains up, and the secondary rising channel provided the bounce point at 1530 on the upper channel resistance line. The uptrend is intact, but it weakened today on the NQ. For the day, the NQ dropped 6.5 to close at 1546.50. 30 minute 20 day chart of the NQ The 30 minute NQ shows the lower high printed against yesterday's range, despite the nice rise off the 30 minute cycle bottom this morning. Note that the Macd was deeply oversold, moreso than it was a week ago from which the last run to new rally highs had kicked off. Whether we get a fresh run to higher highs from this signal or not remains to be seen, but the failure this afternoon and reversal back to negative territory was not bullish. Resistance is at 1558, followed by 1561, while support is at 1542, 1530, and 1515. Daily ES candles The ES cruised to a new rally high of 1148.75, finishing close below at 1145.50, an 8 point gain on the day. Only the rising upper channel resistance line and upper Bollinger band contained the rally, and 1150 looks like the next likely level at which to expect a pause. The trending daily cycle oscillators squeezed higher, and support at 1130 was never tested. Volatility collapsed, with the VXO dropping 3.22% from admittedly low levels to finish at 14.43, while the SPX volatility index, the VIX, closed at 14.37. The put to call ratio was low throughout the day, indicating that calls were being aggressively sold, but bullish speculation will continue to be rewarded right up until the moment at which it does not. With futures and options, timing is critical and the trend is your friend. The trend here is clearly up, even as evidence of risk of a correction continues to accumulate. 20 day 30 minute chart of the ES The ES blew the roof off today, and yesterday's bear wedge breakdown was reversed to the upside, yet another of those wedge whipsaws that were such a hit in 2003. ES was below yesterday's low for part of the morning and then engulfed the highs, for an upside key reversal after Tuesday's downside key reversal. Don't try this at home... The 30 minute cycle upphase was approaching the top of its range at the close, and upside should be limited on the basis of toppy 30 minute and daily cycles, but bulls clearly get the benefit of the doubt until the price trend ceases to be so unequivocally up. Support is now 1141, 1134, 1141 and 1128. 150-tick ES I've left yesterday's intraday prints up to show the breakout to new rally highs here. The short cycle oscillators favor a downside correction here, and the Keltner channel eased off its steep upslope. With the 30 minute cycles still pointed north, we can expect a blowoff at the open tomorrow to the upside, unless the 3PM spike high was it. Daily YM candles The YM added 91 points to close at 10600 after busting to a new high of 10629. The daily cycle downphase is obviously not doing much here, but another positive day for the index could turn the cycle back to an upphase, with extremely bullish implications. 20 day 30 minute chart of the YM According to the trend of this and last week, weakness in the dollar should have coincided with weakness in bonds, weakness in equities, strength in metals and the broad CRB. Instead, we got dollar weakness, equity strength, bond strength and commodity weakness. Interestingly, the XAU added fractionally while the HUI declined by a few pennies. Whether this is a merely corrective aberration, possibly caused by the massive amounts of intervention money in the market (35B in fed repos expire tomorrow), we cannot yet know. But for the moment, the trend in the dollar remains lower, and for equities it is higher, with the NQ's weakness possibly giving bulls the first indication of trouble in paradise. ******************** INDEX TRADER SUMMARY ******************** Two DOWn and one to go? The Dow Industrials (INDU) 10,623.62 +0.9% closed at new 52-week highs with 24 of its 30 components showing gains by the close and still looks capable of challenging its March 2002 relative high of 10,673. The Dow Transportation Average (TRAN) 3,063.60 +1.44% also broke to new 52-week highs, breaking above it March 2002 relative high of 3,051, which for market theorists that believe the transports lead an advance, bodes well for broader market bulls. Dow Transportation Average (TRAN) - Daily Intervals It makes no sense that the TRAN can be breaking to new highs and what has been near-term resistance of 3,051, while crude oil futures are at contract highs of $35.00. Unless of course, the MARKET believes the economy is heating up, where transports would benefit from rising demand for transportation services. The above daily interval chart of the TRAN is the same chart we looked at in prior Index Trader Wraps, including the November 6, 2003 wrap at this http://members.OptionInvestor.com/Itrader/marketwrap/iw_110603_1.ASP Stronger than expected December housing starts and building permits, combined with a 30.4% jump in the Mortgage Bankers Association weekly Market Composite Index of mortgage loan application helped fuel a bullish round of buying in the homebuilders, with the Dow Jones Home Construction Index (DJUSHB) 579.75 +4.97% closing back at its rounding lower 50-day SMA of 580.78, but still off its all-time highs of 622.40 set on December 1, 2003. After-hours earnings from homebuilder Ryland Group (NYSE:RYL) $79.43 +6.61% and bullish forward guidance may well have bulls saying, "Two DOWn and one to go" for three Dow-related indices to be trading new 52-week highs in the days to come. After the close, Ryland's (RYL) shares rose to $81.37 after the company reported Q4 (December) EPS of $3.29 per share, which was $0.39 better than consensus. Revenues rose 15.3% year-over-year to $1.07 billion versus the $1.03 billion consensus. RYL said fiscal 2004 EPS will "exceed $10.00 per share," which would be above consensus of $9.54. Ryland was just one of many companies reporting quarterly earnings after the bell. Jim Brown made some notes in the OptionInvestor.com market monitor on quarterly earnings, guidance and after-hours movers. Market Monitor - After hours (01/21/04) Dow component AT&T (NYSE:T) $21.25 -1.84% looks to be following last week's lead from IBM (NYSE:IBM) $97.70 +0.61% and moving its quarterly earnings announcement date sooner than expected. The plethora of earnings announcements and after-hour action saw the S&P Depository Receipts (AMEX:SPY) $115.10 +0.78% edge up 3 cents to 115.13, the Dow Diamonds (AMEX:DIA) $106.30 +0.79% rise 25 cents to $106.54 and the NASDAQ-100 Tracker (AMEX:QQQ) $38.38 -0.41% gain 13 cents to $38.51. Market Snapshot / Internals - 01/21/04 Close It was a potluck session with the NYSE Composite ($NYA.X) 6,658.32 +0.89% and its 12:00 A/D line turning positive that seemed to fuel a recovery. The INDU turned positive just ahead of the 12:00 mark and may have bolstered bullish psychology. Trade volumes at both the NYSE and NASDAQ were brisk, nearly an exact match to Tuesday's trade. Pivot Analysis Matrix - I've marked today's highs in the SPX, SPY, OEX and BIX.X to draw attention to trades at WEEKLY R1s for the SPX, SPY, OEX and BIX.X, where the BIX.X also traded its MONTHLY R1 for the first time this month. The S&P Banks Index (BIX.X) 349.48 +1.56%, KBW Bank Index (BKX.X) 1,003.04 +1.63%, Broker Dealer (XBD.X) 734.28 +1.63% and S&P Insurance (IUX.X) 316.13 +1.47% all rounded out a bullish session for financials. Ahead of tomorrow's economic data, its may well be the stacked pivot resistance at INDU MONTHLY R1, WEEKLY R1 and DAILY R1, which is the key level of resistance in the indices, and if today's fractional gains for the INDU, which built stronger toward the close gave a lift to market psychology and helped lift the NASDAQ Composite and NDX/QQQ back to finish just fractionally red, a break above INDU 10,700 could further fuel gains in the major indices. Dow Industrials (INDU) Chart - Daily Intervals One thing I saw on an intra-day basis and commented on in today's 01:00 PM EST update was in regards to market psychology getting a bullish lift should the INDU make a move back above the 10,578 (10,588 to add 10-points). I've marked some benchmark levels of where the SPX/OEX and QQQ were trading when the INDU made its break. Now... the reason I discuss the TRAN tonight is to try and make note of how the TRAN has broken above its March 2002 relative highs, and if we believe that the transports are an indicator for leadership, we can further tie that sign of leadership from the TRAN to the INDU, where the INDU March 2002 relative high was 10,673. From a purely psychological standpoint, should the INDU break above its MONTHLY R1, then next bullish level higher would be its WEEKLY R2. S&P 500 Index (SPX.X) Chart - Daily Intervals This morning, if it not for some strength in the homebuilders and financials holding tough, I thought for sure we would see a test of correlative 1,132 support in the SPX. While we saw some buy/sell program premium alerts in today's trade, we never got a chance to see what might take place at the 1,132 level as buyers were evidently too aggressive. As a side note, the March 2002 relative highs on the SPX was 1,173.94, which would be well above our current WEEKLY R2. NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals There were definitely some technology stocks that got hit lower in today's trade, but for some reason, the QQQ stopped dead in its tracks at $38.00. Just after the QQQ printed the $38.00 level I made some notes in the Market Monitor regarding a check of the QQQ option chain. Most active options were Feb. $41 calls, but I made special note of the Feb. $38 puts and April $36 puts as the then #2 and #3 most active options. I thought this $38 and $36 trade, where both options were priced at about $0.90 each might have institutions buying the Feb. $38 puts, but selling the $36 puts. Thought would be, a "no risk" trade, with determination to buy $36 into April expiration. Late in the session, a subscriber noted that the $38.00 low on the QQQ was also the "5-DRT" support from this weekend's Ask the Analyst exercise. I profiled a bearish trade for a loss today, then got back on the bullish side with a day trade long and managed to end the session break-even. However, in after-hours, I did profile the QQQ as a swing trade long/bullish at $38.51, stop $37.95 and target of $39.20. I think there may have been some shorts added today, and today's BIG volume might give a good squeeze to the upside near-term, if Tuesday's highs are taken out. Jeff Bailey. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Wednesday 01-21-2004 Copyright 2004, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: GENZ, GILD, STJ Dropped Calls: None Dropped Puts: None Spreads, Combinations & Premium-Selling Plays: Blue-Chips Jump...Techs Slump! Watch List: More Breakouts and Earnings ************************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 ************************************************************** ***************** STOP-LOSS UPDATES ***************** GENZ - call Adjust from $49.50 up to $51.00 GILD - call Adjust from $60.50 up to $62.50 STJ - call Adjust from $61.00 up to $62.50 ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Blue-Chips Jump...Techs Slump! By Ray Cummins A rotation to "old economy" issues helped the broader market move higher Wednesday while the NASDAQ suffered from another round of profit-taking in computer hardware shares. The Dow Jones Industrial Average climbed 94 points to 10,623 as Citigroup (NYSE:C), JP Morgan (NYSE:JPM) and 3M (NYSE:MMM) led the blue-chip group higher. The NASDAQ Composite closed down 5 points at 2,142, with electronic manufacturing, disk drive, semiconductor, communications equipment, internet and networking issues among the laggards. The S&P 500 finished up 8 points at 1,147 as gaming, healthcare, and homebuilding shares rallied. Volume was heavy at 1.76 billion on the NYSE and 2.4 billion on the NASDAQ. Advancers beat decliners by a ratio of 2 to 1 on the Big Board, while losers narrowly edged winners on the technology exchange. Treasurys were higher in in the wake of the upbeat housing data, with the 10-year note closing 9/32 higher at 4.02%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/20/03 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NAKED PUTS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield SEPR FEB 20 19.60 28.17 0.40 21.62% 2.04% CECO FEB 40 39.30 50.93 0.70 5.04% 1.78% ERES FEB 27 27.00 36.36 0.50 5.07% 1.85% MICC FEB 65 64.05 80.47 0.95 4.10% 1.48% NTES FEB 40 38.90 48.88 1.10 7.39% 2.83% RMBS FEB 25 24.50 34.54 0.50 5.60% 2.04% SEPR FEB 22 21.90 28.17 0.60 7.02% 2.74% SINA FEB 40 38.75 46.80 1.25 7.89% 3.23% SOHU FEB 30 29.30 37.88 0.70 6.72% 2.39% NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield CYD FEB 35 35.45 25.97 0.45 6.36% 1.27% SNDK FEB 80 81.10 72.45 1.10 5.97% 1.36% PUT-CREDIT SPREADS Symbol Pick Last Month L/P S/P Credit C/B G/L Status COCO 60.73 62.51 FEB 55 55 0.65 54.35 0.65 Open KOSP 45.30 51.97 FEB 35 40 0.60 39.40 0.60 Open CEPH 54.65 55.16 FEB 45 50 0.65 49.35 0.65 Open NFLX 65.10 67.75 FEB 48 50 0.25 49.75 0.25 Open CALL-CREDIT SPREADS Symbol Pick Last Month L/C S/C Credit C/B G/L Status ANF 24.90 25.54 FEB 30 27 0.30 27.80 0.30 Open MANH 27.00 29.15 FEB 35 30 0.50 30.50 0.50 Open CKFR 27.60 30.12 FEB 35 30 0.55 30.55 0.43 Closed ESV 27.45 28.37 FEB 35 30 0.45 30.45 0.45 Open NVLS 41.68 43.24 FEB 47 45 0.40 45.40 0.40 Open Conservative traders should have exited the bearish spread in Checkfree (NASDAQ:CKFR) when the issue closed above the sold (call) strike at $30 during Tuesday's "pre-earnings" rally. Manhattan Associates (NASDAQ:MANH) is on the "watch" list with the stock moving back to the top of a recent trading range. Questions & comments on spreads/combos to Contact Support ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ APPX - American Pharma Partners $39.98 *** All-Time High! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX - American Pharma Partners $39.98 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 35 AQO NG 1142 0.65 34.35 5.7% 1.9% * SELL PUT FEB 40 AQO NH 323 2.15 37.85 12.0% 5.7% __________________________________________________________________ CRDN - Ceradyne $45.80 *** Another All-Time High! *** Ceradyne (NASDAQ:CRDN) develops, manufactures and markets advanced technical ceramic products and components for industrial, defense, consumer, microwave communications and automotive applications. The company derives a portion of its revenues from its traditional products, which include lightweight-ceramic armor for military helicopters and microwave tube products. However, newer products developed or being developed by Ceradyne for defense, industrial and consumer applications represent an increasing share of its business. CRDN - Ceradyne $45.80 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 40 AUE NH 297 0.95 39.05 7.2% 2.4% * SELL PUT FEB 45 AUE NI 375 2.60 42.40 13.1% 6.1% __________________________________________________________________ GPRO - Gen Probe $38.63 *** Next Leg Up? *** Gen Probe (NASDAQ:GPRO) is engaged in the development, production and marketing of rapid, accurate and cost-effective nucleic acid probe-based products used for the clinical diagnosis of human diseases and for screening donated human blood. The company has received FDA approvals for more than 50 products that detect various infectious microorganisms. In February 2002, the FDA approved the Biologics License Application for the biochemical test used to screen donated blood for human immunodeficiency virus and hepatitis C virus. This assay is utilized to screen a majority of the United States donated blood supply for HIV-1 and HCV. GPRO - Gen Probe $38.63 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 32.5 PSU NZ 149 0.40 32.10 4.2% 1.2% * SELL PUT FEB 35 PSU NG 677 0.95 34.05 7.5% 2.8% __________________________________________________________________ KYPH - Kyphon $29.00 *** Rally Mode! *** Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal anatomy using minimally invasive technology. The firm's initial marketing focus is on surgeons who repair spine fractures caused by osteoporosis. Kyphon's first commercial products, comprising its KyphX instruments, utilize its proprietary balloon technology. Surgeons use those tools to help repair fractures during minimally invasive spine surgeries. Its instruments have also been used in open surgical procedures. The firm sells various instruments for use in spine fracture procedures including: Bone Access Systems, Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices and Bone Biopsy Devices. KYPH - Kyphon $29.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 25 QYQ NE 35 0.55 24.45 6.8% 2.2% * SELL PUT MAR 22.5 QYQ OX 22 0.55 21.95 4.5% 2.5% __________________________________________________________________ IMCL - ImClone Systems $43.66 *** Erbitux Speculation Only! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL - ImClone Systems $43.66 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 30 QCI NF 4763 0.30 29.70 3.4% 1.0% TS SELL PUT FEB 35 QCI NG 2462 0.85 34.15 8.9% 2.5% * SELL PUT FEB 40 QCI NH 3525 1.95 38.05 12.5% 5.1% __________________________________________________________________ OSIP - OSI Pharmaceuticals $36.20 *** Tarceva NDA! *** OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on the discovery, development and commercialization of oncology products that both extend life and improve the quality of life for cancer patients worldwide. The company has established a balanced pipeline of oncology drug candidates that includes both next-generation cytotoxic chemotherapy agents and novel mechanism based, gene-targeted therapies. The company's most advanced drug candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor of the epidermal growth factor receptor (HER1/EGFR). The protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is over-expressed or mutated in many major solid tumors. OSIP - OSI Pharmaceuticals $36.20 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 30 GHU NF 941 0.40 29.60 4.7% 1.4% * SELL PUT FEB 35 GHU NG 525 1.65 33.35 11.2% 4.9% __________________________________________________________________ PCLN - Priceline.com $21.22 *** Buy-Out/Merger Speculation! *** Priceline.com (NASDAQ:PCLN) offers products for sale in two major categories: a travel service that offers leisure airline tickets, hotel rooms, rental cars, packaged vacations and cruises; and a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. PCLN also owns travel Web sites Lowestfare.com and Rentalcars.com. The firm is part-owner of Internet travel service Travelweb. Priceline.com licenses its business model to independent licensees, including pricelinemortgage and certain international licensees. PCLN - Priceline.com $21.22 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 17.5 PUZ NW 536 0.35 17.15 6.9% 2.0% * SELL PUT FEB 20 PUZ ND 1172 1.15 18.85 13.9% 6.1% __________________________________________________________________ SEPR - Sepracor $27.38 *** Drug Sector Favorite *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company 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. SEPR - Sepracor $27.38 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT FEB 22.5 ERQ NX 1241 0.45 22.05 7.0% 2.0% * SELL PUT FEB 25 ERQ NE 1340 0.95 24.05 10.1% 4.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CFC - Countrywide Financial $80.32 *** On The Rebound! *** Countrywide Financial (NYSE:CFC), formerly Countrywide Credit Industries, is a holding company that originates, purchases, sells and services mortgage loans through its major subsidiary, Countrywide Home Loans. The company's mortgages are principally prime credit first-lien mortgage loans secured by single one- to four-family residences (prime credit first mortgages). The firm also offers home equity loans and sub-prime credit loans. CFC, through its other wholly owned subsidiaries, offers products and services that are largely complementary to its mortgage banking business, including lender-placed mortgage insurance, insurance brokerage, mortgage-backed securities brokerage and underwriting, brokerage of bulk servicing transactions, loan processing and servicing in foreign countries, and retail banking. The company conducts its business through four segments: Insurance Segment, Capital Markets Segment, Global Segment and Banking Segment. CFC - Countrywide Financial $80.32 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-70.00 CFC-NN OI=3635 ASK=$0.40 SELL PUT FEB-75.00 CFC-NO OI=1894 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$74.35 __________________________________________________________________ MDC - MDC Holdings $66.31 *** Homebuilding Sector Rebound! *** MDC Holdings (NYSE:MDC), whose subsidiaries build homes under the name "Richmond American Homes," is one of the largest homebuilders in the United States. The firmy also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary HomeAmerican Mortgage. MDC is a major regional homebuilder with a significant presence in some of the country's best housing markets. The firm is the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, Phoenix, Tucson and Las Vegas; among the top ten homebuilders in suburban Maryland, Northern California, Southern California and Salt Lake City; and has also recently entered the Dallas/Fort Worth and Houston markets. MDC - MDC Holdings $66.31 PLAY (conservative - bullish/credit spread): BUY PUT FEB-55.00 MDC-NK OI=167 ASK=$0.35 SELL PUT FEB-60.00 MDC-NL OI=124 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$59.50 __________________________________________________________________ GILD - Gilead Sciences $65.37 *** Consolidation Complete! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a new drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $65.37 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-55.00 GDQ-NK OI=3339 ASK=$0.35 SELL PUT FEB-60.00 GDQ-NL OI=3694 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=14% B/E=$59.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ISIL - Intersil $27.11 *** Earnings Speculation Only! *** Intersil Corporation (NASDAQ:ISIL), a world leader in the design and manufacture of high performance analog and wireless networking solutions. Intersil's product portfolios address fast growing markets such as flat panel displays, optical storage (CD and DVD recordable), power management and wireless networking. Intersil brings added customer value in providing silicon, software and reference design solutions to unique products that enhance the computing experience for people wherever they live, work or travel. ISIL - Intersil $27.11 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 30 UFH BF 1494 0.50 30.50 6.0% 1.6% * SELL CALL FEB 25 UFH BE 329 2.80 27.80 18.0% 10.1% __________________________________________________________________ MCHP - Microchip Tech. $31.81 *** More Earnings Speculation *** Microchip Technology (NASDAQ:MCHP) develops and manufactures specialized semiconductor products used by its customers for a wide variety of embedded control applications. The company's product portfolio comprises field-programmable RISC-based microcontrollers that serve 8- and 16-bit embedded control applications, and a broad spectrum of high-performance linear and mixed-signal, power and thermal management devices. The company also offers complementary microperipheral products, including interface devices, serial EEPROMS, and its patented KEELOQ security devices. The firm markets its products to the automotive, communications, computing, consumer and industrial control markets. MCHP - Microchip Tech. $31.81 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 35 QMT BG 1236 0.45 35.45 4.6% 1.3% * SELL CALL FEB 30 QMT BF 409 2.65 32.65 15.6% 8.1% __________________________________________________________________ UTSI - UTStarcom $36.26 *** Earnings Due Thursday! *** UTStarcom (NASDAQ:UTSI) is a global provider of wireless and wireline access and Internet protocol switching solutions. The company designs, manufactures, sells and installs an integrated suite of future-ready access network and next-generation switching solutions. It enables wireless and wireline operators in growth markets worldwide to offer voice, data and Internet access services rapidly and effectively by utilizing their existing infrastructure. UTStarcom's products provide a seamless migration from wireline to wireless, from narrowband to broadband and from circuit to packet based networks by employing next-generation network technology. UTSI - UTStarcom $36.26 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 45 UON BI 3555 0.25 45.25 3.4% 0.6% TS SELL CALL FEB 40 UON BH 14012 0.95 40.95 8.2% 2.3% * ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ HTCH - Hutchinson Technology $32.45 *** A Big Down Day! *** Hutchinson Technology (NASDAQ:HTCH) is a supplier of suspension assemblies for hard disk drives. The company categorizes its products as either suspension assemblies or other products, which consist primarily of etched and stamped components used in connection with or related to suspension assemblies. The firm makes its suspension assemblies with proprietary technology and processes to precise specifications with very-low, part-to-part variation. These specifications are critical to maintaining the necessary microscopic clearance between the head and disk and the electrical connectivity between the head and the drive circuitry. HTCH - Hutchinson Technology $32.45 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-40.00 UTQ-BH OI=246 ASK=$0.15 SELL CALL FEB-35.00 UTQ-BG OI=295 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$35.60 __________________________________________________________________ ICST - Integrated Circuit Sys. $27.60 *** New Trading Range? *** Integrated Circuit Systems (NASDAQ:ICST) supplies a broad line of timing products for use in personal computer motherboards and peripheral applications. These silicon timing devices control multiple processes by providing and synchronizing the timing of the computer system, including signals from the video screen, graphics controller, memory, keyboard, microprocessor, drives and communication ports. The company also designs, develops and sells silicon-timing devices for non-PC motherboard applications, such as digital videodisk players, digital set-top boxes, digital cameras, laser printers, flat panel displays and digital TVs. In addition, it offers surface acoustic wave technology to develop high-performance products for optical networking and wireless infrastructure markets. ICST - Integrated Circuit Sys. $27.60 PLAY (conservative - bearish/credit spread): BUY CALL FEB-35.00 IUY-BG OI=370 ASK=$0.15 SELL CALL FEB-30.00 IUY-BF OI=309 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$30.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ********** Watch List ********** More Breakouts and Earnings ___________________________________________________________________ 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. ___________________________________________________________________ Everest Re Group - RE - close: 87.40 change: +1.15 WHAT TO WATCH: Insurance stocks have been a strong sector lately and RE is one of its current leaders. Shares have broken out above resistance at $85 on its daily chart and produced a bullish triangle breakout on its P&F chart (one of the more profitable patterns to follow). RE looks good at current levels and we'd consider bullish entries anywhere above $85 with a plan to exit before its Feb. 2nd earnings report. Chart= --- Toll Brothers - TOL - close: 41.63 change: +2.31 WHAT TO WATCH: Strong housing numbers set the homebuilders on fire again and the DJUSHB index added 4.97%. TOL out performed its peers with a 5.87% gain today and a strong move above resistance at $40 and the 41.50 region. Normally, we don't like to chase stocks but this one might be worth bending the rules or at least keeping a close eye on. Earnings for TOL are in February. Chart= --- Legg Mason - LM - close: 89.95 change: +4.70 WHAT TO WATCH: Up, up and away! Shares of LM soared today on a very strong earnings report. The company beat estimates by 8 cents with net income of $1.07/share. Revenues rocketed 40% for the year. LM might be worth watching for a pull back toward the 86.00-85.00 region. We're not saying it will ever get there but the stock looks extended and we wouldn't want to chase it. Chart= --- Cabot MicroElectronics - CCMP - close: 57.50 change: -0.04 WHAT TO WATCH: Investors have been very bullish on CCMP the last few days as the stock rallied from $50 to $57.50, breaking out above resistance at $55 and its simple 200-dma. The bullish move also broke CCMP's four-month trend of lower highs. Tomorrow morning is the big event as CCMP releases earnings before the opening bell. Estimates are for 43 cents a share. Will CCMP deliver? Will investors sell the news? If the results are positive and guidance is good we'd be looking for a dip toward the $55.00 region as a potential entry point. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- DHI $28.51 +1.79 - The strong housing permits number this morning really launched the entire homebuilding sector and DHI is due to announce earnings on top of this news. The breakout today over 27.50 and its 50-dma looks tempting. ORI $26.93 +1.14 - ORI is another insurance stock breaking out to new highs today. We consider a bullish play on ORI now that it's above the $26 mark but earnings should be Jan. 29th. LEA $67.30 +1.00 - LEA has been a good performer over the last few weeks as investors ramp up the stock ahead of its Jan. 26th earnings report. The recent dip to $65 appears to be attracting buyers. PIXR $67.96 -0.45 - We're pretty early on any sort of directional play for PIXR. Bulls can wait for a breakout over $70 or get aggressive and try and buy a dip from $65 and its 200-dma. Bears can wait for the breakdown under $65 or get aggressive and short the recent failed rally. Earnings are early February. ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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