The Option Investor Newsletter Tuesday 01-27-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Volatility Returns Futures Markets: The Downphase That Could Index Trader Wrap: Tech bulls get caught with their SOX down Market Sentiment: No Shortage Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-27-2004 High Low Volume Advance/Decline DJIA 10609.92 - 92.60 10701.77 10609.92 2.10 bln 1405/1835 NASDAQ 2116.04 - 37.80 2152.75 2116.04 2.14 bln 1336/1936 S&P 100 567.15 - 6.29 573.44 567.15 Totals 2741/3771 S&P 500 1144.05 - 11.32 1155.37 1144.05 W5000 11177.42 -104.40 11281.80 11177.42 RUS 2000 595.17 - 6.33 601.50 594.93 DJ TRANS 3041.22 - 25.50 3074.18 3033.34 VIX 15.35 + 0.80 15.44 14.74 VXO (VIX-O)15.32 + 1.00 15.41 14.75 VXN 23.03 + 2.04 23.07 21.60 Total Volume 4,634M Total UpVol 1,533M Total DnVol 3,054M Total Adv 3139 Total Dcl 4258 52wk Highs 905 52wk Lows 6 TRIN 1.19 NAZTRIN 2.02 PUT/CALL 0.87 ************************************************************ Volatility Returns After a +134 point gain on Monday to a new two year high the Dow slipped -92 today as put buyers outweighed call buyers almost 3:1. The Nasdaq gave back all its gains from Monday and returned to the low 2100s on weakness in the semiconductor sector. Volatility may have been higher today but it is still at relatively low levels. Considering our markets are at two year highs this is not surprising. When the bulls are running the volatility gets trampled. Dow Chart - 120 min Nasdaq Chart - Daily The economic calendar was slim today with only two reports. The Chain Store Sales showed a jump of +1.1% for the week after three weeks of decline. The Southwest was the strongest region as blizzard conditions and severe cold hampered those consumers in the Northeast. The ICSC raised it estimates for all of January to a gain of +4.0% to +4.5%. This is a +1% gain over the prior +3.0% to +3.5% estimates. The Consumer Confidence hit an 18 month high at 96.8 but was less than consensus expectations at 98.5. The December decline was reversed on the strength of a gain in the present conditions component. Not all components were rosy. Plans for new purchases slipped slightly and availability of jobs only increased slightly. The lower than expected headline number may have been influenced by the blizzards across the country. Fighting the elements tends to depress consumers and makes them less receptive to shopping. We all know shopping is a mood elevator for at least half the population. Confidence should continue to rise as long as employment continue to improve. Once the tax refunds start flowing the urge to spend will also grow. Kraft (NYSE:KFT) did not help confidence when they announced they were cutting -6,000 jobs including 1,300 salaried jobs over the next three years. They will take a charge that will impact their earnings for these layoffs. The news was all about Martha Stewart and earnings today. Since we are all Martha'ed out I will not bore you with what she had for lunch or how many powder room breaks she had. We will concentrate instead on the real news with several Dow stocks announcing earnings. Merck (NYSE:MRK) announced a fourth quarter profit that fell -26% due to a decline in sales and charges for recent job cuts. MRK posted +62 cents per share and reaffirmed its 2004 full year estimates. MRK traded up fractionally for the day and up +1.50 for the week to $47.35. It looks like new life is coming back into the stock after being a Dow dog for the last six months. Drug stocks are normally defensive and MRK could be benefiting from the rotation out of chips. Another Dow component, DuPont, lost -50 cents despite beating the street and issuing an upbeat outlook for the year. SBC lost -74 cents to close at $26 after posting a drop in profits and rising employee costs. The results were inline with estimates and were uninspiring. Investors are watching the decline in the telecom sector as each of the major players reports. Wire lines are dropping and with them the monthly and long distance revenues. McDonalds gained +17 cents inline with expectations on an increase in sales due to a restructured menu. Salads and chicken are beating out hamburgers as the high profit items. The biggest loser on the Dow was Caterpillar despite a surge in revenue to $6.47B from $5.38B and beating estimates by +3 cents. The drop in stock price was due to the retirement of their CEO and new guidance. The company said they did expect 2004 earnings to jump +40% and revenue +12%. They did not give short term guidance as they had in the past and simply said 2004 will be strong. This prompted some analysts to suggest they were hiding a weak first half. Also, much of their gains were due to currency translation benefits from the weak dollar. Other major earnings of note with misses or lowered guidance included BK, LMT, CNF, RTN and DJ. After the bell we saw another flurry of tech earnings and most were positive. AMZN est +0.29, act = +0.29 inline, raised guidance BRCM est +0.16, act = +0.19 beat FLEX est +0.14, act = +0.17 beat, raised guidance +3 cents AFCI est +0.09, act = +0.10 beat ADVP est +0.55, act = +0.55 inline EFII est +0.21, act = +0.27 beat CYMI est +0.00, act = +0.04 beat ERTS est +1.20, act = +1.26 beat MENT est +0.31, act = +0.30 miss MLNM est -0.31, act = -0.30 beat MGAM est +0.48, act = +0.48 inline PXLW est +0.09, act = +0.06 miss NTIQ est -0.01, act = -0.04 miss HRS est +0.49, act = +0.50 beat ELX est +0.23, act = +0.24 Raised guidance +2 cents RHI est +0.03, act +0.03 inline NET est +0.21, act +0.26 beat AV est +0.05, act +0.07 beat The two biggest newsmakers were AMZN and BRCM. Amazon did report blowout 4Q revenue and its first ever back to back quarterly profit. Proforma earnings were 29 cents and that was inline with the consensus estimates. They raised the Q1 revenue estimates to $1.39B to $1.49B and well above prior estimates at $1.32B. Unfortunately they did not provide profit estimates. Analysts are expecting +16 cents for Q1 and with higher sales you would think they would be inline or maybe even beat. Analysts were worried that margins may not be as good in the 1Q due to product mix. Also the company benefited greatly from currency translation issues in the 4Q. $98 million in revenue and $6 million in profit came from currency gains. With the decline in margins and higher shipping costs there were plenty of questions for AMZN. They also said there was a disturbing rise in inventory levels which could be pointing to a slow down in sales. AMZN traded down -$3 in after hours. BRCM beat the street by +4 cents but the stock dropped sharply on news they were going to issue $750 million in new stock or debt. That was quickly reversed when they raised guidance on the conference call and suggested sales could grow as much as +10% in the 1Q. The +10% number works out to $527 million and well above the prior estimate of $463 million. The company said they saw substantial new bookings late in the 4Q and early in the 1Q and that new enterprise spending could provide a big opportunity. They are planning on issuing 30 million new shares to enable a future acquisition. Four companies bought more than 48% of Broadcom's output. Dell, Cisco, HPQ and Motorola each bought more than 10% with HPQ the most at 15%. MSFT dropped -55 cents on news that the EU may issue a negative ruling against Microsoft and try to substantially change the way Microsoft does business. This is old news but the European Commission did confirm it was wrapping up its investigation. The EC has a draft decision and those are normally used to exercise leverage against the company in advance of the final ruling. Microsoft said it was in active talks to insure a positive resolution. Sounds like they are in a tight spot and the EU/EC is applying the screws. The EU has threatened to force Microsoft to strip Media Player out of Windows to give RealNetwork and Apple a more competitive opportunity. Overall earnings have been very strong. The best in ten years according to some analysts. First Call said earnings were coming in at +25% so far and could rise to as much as +27% as some smaller companies announce next week. This is a very strong quarter and helped by a weak comparison to Q4-2002. The average company beating estimates is beating by +19% compared to an average of +6% in normal quarters. The only problem is in the guidance. Because the good results have been expected for two months many stocks are seeing their prices battered when they announce. When expectations are so high it takes almost super human guidance to attract new buyers after the announcement. Guidance has been good with quite a few companies raising their outlook but it has not been exceptional. SOX Chart - Daily Some of the stocks getting hit the worst on good news have been the semiconductor stocks. The sector is well off its highs with the SOX dropping -7% in just the last five days. This includes the monster gains from Monday's romp that were completely erased on Tuesday. At 517 the SOX is very close to ending the month with a loss. The high of 560 was set back on the 12th. NVLS posted earnings on Monday night and dropped -5.85 on Tuesday. KLAC lost -1.70, PHTN -3.66, MXIM -3.05, CCMP and UTEK about -$3 each. SNDK continues to sink lower with another -2.20 today. If the SOX is the leading indicator for the Nasdaq then it is no surprise that the Nasdaq gave back all its gains from Monday and is down for the week with a -37 point drop today. There was a rumor making the rounds today that PMCS was seeing an order slowdown from Cisco, which is its biggest customer. Are we doomed to drop from here? Not necessarily. Remember earnings are excellent. It is just that investor profits are in the excellent category as well. Remember also that we have a Fed meeting underway that will end at 2:15 Wednesday afternoon. There is high risk that the Fed will change its bias statement and traders are just taking some profits off the table in advance. I am just surprised it did not happen on Monday. The afternoon buy program that triggered the short squeeze was entirely out of character. The bounce that ensued simply gave investors one more chance to exit at two year highs and dodge a fickle Fed statement. Tomorrow afternoon we will either get the "considerable period" statement or we won't. With the market at two year highs and earnings the best in ten years my bet is we get a new bias. If they are ever going to get a free shot this is it. The bullish sentiment is still so strong it is nearly bulletproof. According to Fed watchers there is almost no chance of a rate hike so they are playing the rate lottery with OTM options. As long as there is a "considerable period" statement they are looking at six months before the Fed will hike rates. Should that statement disappear and language about strong economy and rising employment appear in its place then bonds will die. By changing the statement they are loading the rate hike gun. It does not mean they are cocking it but just the presence of a loaded gun is enough to strike fear in the bond markets and by association the equity markets. Nobody expects any hikes this year so this is all just positioning and speculation but the best of all worlds is already priced into the market. Any change in the bias could cause temporary movement. That movement could be a couple hours or a couple days but is not likely to be lasting. Bond yields have already spiked up over the last three days on fear in advance of the meeting. Any market shakeup should be brief based on the current bullish sentiment. That sentiment could change at any time but it won't be because the Fed says the economy is strong. If it changes it will simply be due to the overbought conditions and lack of a catalyst to move higher. Let's face it, Monday's move was very bullish. The Dow moved over two year resistance highs to close at 10700. This clears the way to 11,000-11,300 for the next serious resistance. The Tuesday drop held over 10600 and still in bullish territory. The flaw in Monday's rally was the Nasdaq which stopped at 2150 resistance once again and the Russell which stopped at 600 resistance. These are strong levels for both indexes considering their overbought conditions. The market drop on Tuesday was literally led by the SOX. This sunk the Nasdaq and dragged IBM and INTC and the Dow down with it. CAT did not help either. However, help is on the way. The SOX got help from the BRCM earnings tonight and the 517 close is only +2 points above support at the 50 dma. This is the key point to watch in the morning. As long as the 50dma at 515 holds the Nasdaq is not going very much lower. The Nasdaq has strong support itself in the 2085 to 2110 range. We do not need to start worrying until the Nasdaq trades below 2085. The Dow has strong support at 10600, 10500, 10400 and 10300. We would have to see a serious trend change to break all those levels. The biggest potholes in our future are the Fed announcement at 2:15 and the GDP on Friday. The economic calendar heats up beginning on Thursday and continues into next week. Recently economics have been market favorable and until that changes traders need not fear the normal reporting cycle. The GDP has the biggest potential. A number under +4.5% would be a shocker especially after the strong earnings. Analysts are now expecting another blowout and that expectation could be the biggest hurdle. The Fed will have advance notice of the GDP in their meeting and will have already acted accordingly. Expect some volatility to appear when the Fed announcement is made at 2:15 and then a choppy market the rest of the day regardless of the announcement. Sanity should return by Thursday but that does not mean the markets will be directional. Friday is month end and window dressing should keep us in the current range if there are no economic disasters. For the rest of the week keep your eyes on the SOX and 515. As long as we do not stray too far away from that level we are still in striking distance of a new high. Should it break that level on good news then profit taking could take it down to 475 with a pause at 500. Use it as your market guide and you will not be far wrong. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** The Downphase That Could Jonathan Levinson An intraday downphase actually followed through today, with weakness in equities retracing most of yesterday's gains. Treasuries, gold and silver advanced as the US Dollar Index declined. 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 usual 3AM selling became a cascade when London opened and continued through most of the cash session, with the USD Index dropping over 10 basis points to trade the low 86.25 level as of this writing. The selling was sufficient to cause the first suggestion of a pause in the daily cycle upphase but no sell signal has been given. The move coincided with strength in metals and in FCOJ and coffee futures. Silver led the CRB which was nevertheless lower by .18 at 267.09 on weakness in cotton, corn, soybeans and crude oil futures. Daily chart of February gold February gold had a big day, printing a key upside reversal with a lower low and higher high above the recent session tops, with a high of 412.40. The bounce came from a test of the rising support line and engulfed the losses of the past three sessions. The daily cycle downphase did not abort, but the Macd histogram is showing a bullish divergence. 412-3 was significant downside support and is now acting as resistance. If that level breaks to the upside tomorrow, I expect to see the daily cycle downphase at least pause for the first time since it kicked off earlier this month. For the day, February gold added 7.10 to close at 410.60, a 1.76% move. March silver added 4.3% to close at 6.55. XAU added 1.93%, HUI +2.54%. Daily chart of the ten year note yield Ten year notes rose strongly today, with the yield (TNX) dropping 5.3 bps or 1.28% to close at 4.087%. This retracement of yesterday's gains did not impede the daily cycle upphase, but another day like today might. The current 4.08% level is confluence support below which a retest of 3.9% support cannot be ruled out. But for the moment, the move looks like a retrace of recent gains in the yield within the context of a daily cycle upphase. Daily NQ candles The NQ went out half a point above its session low, closing at 1520 and below the rising channel trendline. This break is significant, but bear in mind that it's only my trendline, and the 1515-20 area is strong support. The wide-ranging move broke yesterday's low slightly and reignited the daily cycle downphase that had been in the process of aborting after yesterday's powerful run. Below 1515, 1492 and then 1460 are the next significant supports. 30 minute 20 day chart of the NQ Newcomers may not know one of my favorite chart patterns, named by a dear friend and mentor, "The Finger" formation. The stoprunning panic blast higher doji-ed back down, retracing the entire move just as quickly. The surprise here was that the 30 minute cycle downphase actually played out fully for a change. The selling lined up with synchronous daily and 30 minute cycle downphases, optimal conditions for bearish trades. The key 30 minute cycle oscillators are now oversold, not yet reversing but in prime reversal territory, and this right on key support. If it's going to bounce, this should be the place, but below 1515, the 30 minute oscillator will likely be trending and bears in control, for a change. Bulls can look for aggressive entries around current levels but stops should be placed close beneath 1515 in case the bottom falls out. Daily ES candles ES stopped right on the rising lower channel trendline at 1142, closing half a point above it. Most of yesterday's gains were erased, as was the daily cycle uptick in the trending daily oscillators. A move below 1140 would be an obvious channel break, but the failure of those tests since mid-December is also obvious. On a daily basis, there's nothing to do here either way, as the ES closed on uptrend support. Bulls will be looking to buy current levels with a stop nearby at 1140, while bears should wait to see the trendline fail with a break of 1140. 20 day 30 minute chart of the ES The 30 minute cycle downphase is as oversold as it's been in weeks, with the ES resting right on rising trendline support. Support is currently at 1139-40, followed by strong support at 1128-32. While particularly dubious of the gains of recent weeks, it will take something special to break the current 1139- 40 support, and I'd be shocked to see the lower support fail. If so, it will signal a true daily cycle downtrend commencing. With the FOMC announcement due tomorrow, we have the potential for a major direction event. But on the pure idealized cycles, extrapolating from the action of recent weeks, a bounce should be expected from or close to today's closing print. 150-tick ES The short cycle oscillators all finished deep in oversold territory, with Keltner support just north of 1140. A move lower will set these oscillators trending and should indicate further weakness to target the 1132 level. Daily YM candles Nothing to add on YM, which most closely resembles ES. The rising channel support line held into the close. 20 day 30 minute chart of the YM We saw metals and treasuries advance against US Dollar weakness, and equities declined. With the FOMC meeting on deck, I expect volume to be light tomorrow morning. Volatility took a jump, with the VXO up 6.98%, and the question is whether typical pre- FOMC doldrums or the current higher-anxiety atmosphere will prevail. Support at current levels is strong, but we have a break of the channel already completed by the NQ. While the market feels bearish, these moments have been proven to be traps for the past several months. Bottom line: look for a bounce at current levels, and if it doesn't come, then I expect potentially big selling as the daily cycle downphases on ES, NQ and YM reassert themselves over the oversold intraday timeframes. See you tomorrow. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Tech bulls get caught with their SOX down While I've been suffering from flu symptoms the past couple of days, the thought of trying to eat a potato chip has my face turning green. Forward earnings guidance from chip-related names like Novellus (NASDAQ:NVLS) $34.40 -14.5% and Altera (NASDAQ:ALTR) $22.52 -6.71% helped set a negative tone for today's session, where anything chip-related had a bull's face turning red. The Semiconductor Index (SOX.X) 517.42 -4.44% lead broader market declines, where the bulk of yesterday's gains for the major indices were erased. In short, technology bulls appeared to have been caught with their SOX down, and while the invention of elastic replaced the need for socks-suspenders, SOX 500-504 looks to be an important near-term level of support. U.S. Market Watch (01/27/04 Close) - I've shown my QCharts list of major indices and sectors, where today's trade saw a broadly lower trade, with the technology portion (MSH.X thru XTC.X) suffering the bulk of today's selling. I've displayed today's percentage changes (Net %) as well as 5- day net percentage change (5DyNet%) and 20-day net percentage change (20DyNet%), which gives us a snapshot glance at where we've been and where things are at. While I've highlighted the Semiconductor Index (SOX.X) as tonight's "sector of focus," the Disk Drive Index (DDX.X) 137.19 -1.69% has been a weak technology sector of late, where building competitive pressures in the flash-memory markets has weighed on names like SanDisk (NASDAQ:SNDK) $58.14 -3.66%. Semiconductor Index (SOX.X) - Components (01/27/04) Here's a quick look at the Semiconductor Index (SOX.X) components, where NVLS, ALTR and MXIM paced declines. I've placed PINK asterisks by those components that are components of the NASDAQ-100 Index (NDX.X) 1,519.23 -2.21%, where any loss of semiconductor strength/leadership may be a bad omen for the NASDAQ-100, and perhaps broader technology. I do take note of Micron Technology (NYSE:MU) $15.71 +4.73% being a lone gainer in today's trade. Micron makes DRAM chips, which are perhaps the most commoditised portion of the semiconductors. While today is just one day, it makes little sense to this analyst, from a fundamental point of view, that the most "commoditised" portion of the chip sector would see gains, if the grim reaper was ready to harvest some heads in the semiconductors. Market Snapshot / Internals - 01/27/04 Close The major indices reached their most bullish levels of the session at 10:15 AM EST, which was just after the Conference Board released its January Consumer Confidence Index reading, which jumped to 96.8 from December's 91.3 reading, but was still shy of economists' forecast of 99.0. While the major indices did try and firm late in the session, a brief attempt at a rebound into the 03:00 hour stopped dead in its tracks as the bond market closed. One observation I made was in the Dow Industrials (INDU) 10,609.92 -0.9% as it approached its WEEKLY R1 of 10,655.77 after what looked to be a successful test of support at 10,613.48, where yesterday afternoon's rally really took hold. Dow Industrials (INDU) Chart - 5-minute intervals I couldn't have capture the highs of the afternoon any better than if I really tried as this screen capture, taken at 02:35 PM EST saw the INDU dilly dally just below the WEEKLY R1 (thick red) after it kissed our MONTHLY 19.1% retracement of 10,652.33. The "Pow!" was where the INDU broke an intra-day level of resistance, that eventually saw the INDU close at new 52-week highs. With the INDU closing at 10,609.92 -0.86%, the bulk of yesterday's gains have vanished. But lets quickly take a look at the Semiconductor Index (SOX.X), where I wanted to show this index with WEEKLY and MONTHLY Pivot retracement, which I think can become a test and give us some "spatial" observation as to WEEKLY and MONTHLY pivot levels in respect to the other major indices. Semiconductor Index (SOX.X) - Daily Intervals I wanted to quickly look at the SOX.X chart with WEEKLY MONTHLY Pivot levels. Many NASDAQ-100 Tracking Stock (AMEX:QQQ) $37.74 - 2.2% traders like to keep a close eye on the SOX, and see the SOX as a leading indicator/sector for the Q's. At times, the QQQ itself will lead a SOX advance/decline and is why index trading can be much more complex that individual stock trading as there are so many interrelationships taking place. It becomes rather evident that SOX 540 is a rather important level of resistance right now, where 521 and 528 become near-term measures for any strength. You will see some obvious ties with the SOX's WEEKLY S1 514 and overlap of its WEEKLY 80.9% retracement of 514.24, as with the yellow "zone of support" from WEEKLY S2 and MONTHLY Pivot 504.21. In the Oscillators (MACD and Stochs) I've tried to envision a potential SOX support at 514 as Stochs reach "oversold." However, for Stochastics, I'm more skeptical of their reliability in a trending market (the regression channel is still bullish). MACD currently ties in better with a very bullish index taking a rest, where support lies at 500-504. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals The similarity I see right now with the SOX.X and the QQQ is marked by the yellow "zone of support." While the grim reaper may be coming for the SOX near-term I'd be monitoring the SOX for support from 500-504, in correlation with the QQQ at approximately $37.36. I' not sure we can always associate a 4.14% decline in the SOX with a 2.2% decline in the QQQ. I do think the pivot matrix levels do give some levels where we can measure strength/weakness from as it relates to the SOX/QQQ relationship. The simple moving averages are of no real help. I totally agree with QQQ traders that the semiconductors strength/weakness play an important role in how the QQQ trades, and if a QQQ bull is to look for bullish pullback entry in the $37.36-$37.53 area, I would think it best that the SOX be holding at or above the 500-504 zone. One good "tell" for a bull entry would be if the QQQ were just sitting in the $37.36-$37.53 area, while the SOX.X were moving higher above 521 or 528 as if a bull's hoof were being applied to the gas pedal. Right now it's not. S&P 500 Index (SPX.X) Chart - Daily Intervals I've pointed to a spot on the SPX's chart dating back to early January and 4-days of trade, as what we saw yesterday (SPX closing new high) then quickly reversing from the opening bell the following day. There are some similarities in the SPX chart as the SOX, but not as striking as found with the SOX/QQQ. The one "suspicious" trade I noted today was that the BIX.X session high was 355.38, which was 0.01 shy of MONTHLY R2. While the BIX.X has been extremely strong, as it might relate to SPX MONTHLY R2 and BIX.X MONTHLY R2, then the BIX.X came just shy of "confirming" some of the strength seen yesterday in the SPX when it saw trade further above its MONTHLY R2. SPX and OEX traders have appreciated how the financials have lent to SPX/OEX strength and while I wouldn't consider today's trade in the banks as "weak," their stopping just shy of MONTHLY R2 may hint that some of the recent merger- related news in the sector is being digested. Pivot Analysis Matrix - I spent quite a bit of time on the SOX tonight and am running late with tonight's wrap. The "key" levels where I'd have an upside and downside alert set would be at OEX Pivot and OEX R1 for weakness and strength. I should have "dashed red" the SPX MONTHLY R2 and DAILY R1 as this 1,152 level was traded through today and would be deemed a tentative level of resistance for tomorrow, but a resistance level to be monitoring should the major indices attempt a rally into tomorrow afternoon's FOMC announcement. A final note. I listed all of the SOX components tonight. I didn't do this to just show what a "whacking" some of them took. I (Jeff Bailey) don't know if this is the beginning of the end for the semiconductors. I do know this though. If institutions are still firmly convinced of a longer-term bull market intact and some have been sitting on the sidelines the past couple of months, some of the SOX components, like a NVLS that got creamed, may suddenly be deemed "attractive" as this is now a valuation level that makes sense, relative to the longer- term outlook. Let's keep an eye on some of these stocks and follow their progress. Those that have been hit hardest might firm, while those that may still have some profits to be taken out of them move lower in coming sessions. Still, it is difficult to say that NVLS and ALTR's guidance isn't simply based on their own products not measuring up to the competitions. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** **************** MARKET SENTIMENT **************** No Shortage - J. Brown There seems to be a growing number of analysts suggesting that investors begin to "trim" their portfolio. Take some money off the table, maybe scale down or get rid of those stocks that are under performing. Oh, it's not that they're bearish. Most stock analysts you hear from are bullish but everyone keeps looking at the horizon for the long overdue correction. Any event is suddenly a good excuse to do a little profit taking and this week has no shortage of events. You could take last night's earnings reports from TXN or NVLS. Despite a decent report investors sold the news on TXN and they absolutely ran for cover after NVLS warned. If chip stock earnings aren't your style then the Conference Board's consumer confidence index could be your event. Economists were looking for a rise to 98.5 in January, up from 91.7 in December. What we got was a rise to 96.8. This is the highest consumer confidence since July 2002 but it's still a disappointment. Not a big enough event? There's nothing bigger than an FOMC meeting. The current two-day meeting is schedule to end tomorrow and we'll get the Fed's decision on interest rates Wednesday afternoon. No one expects any change in rates so the focus is all on their bias going forward. Will they use the "considerable period" language or not? Want more? Tomorrow we'll get the Durable goods order for December. Economists are expecting a rise of 2% to erase November's decline. We'll also hear the new home sales numbers. Estimates are for a small rise to an annualized rate of 1.1 million homes. If this report misses expect some bloodshed in the homebuilders. There is definitely a lot of investors to digest on top of the parade of earnings. Speaking of which investor reaction has been rather normal. After a huge eight- week run higher in the Dow and S&P 500 investors are choosing to sell the news. Today's action certainly felt bearish. Advancers lost to decliners 12 to 16 on the NYSE and 19 to 12 on the NASDAQ. Down volume washed over up volume on both exchanges (3:1 on the NASDQ). Technical oscillators for a large number of sector indices have turned or are rolling over into sell signals. Notable losers are the GHA.X, SOX.X, and the IUX.X. Not because they had the biggest losses, well the SOX actually wins that honor with a 4.14% drop; but because their MACD's have the freshest sell signals. Also notable was the XAU's gain of 1.92%. Gold was the strongest sector today but if you look at the XAU's performance it looks like a failed rally at 100. Be careful there! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10701 52-week Low : 7416 Current : 10609 Moving Averages: (Simple) 10-dma: 10577 50-dma: 10180 200-dma: 9436 S&P 500 ($SPX) 52-week High: 1155 52-week Low : 788 Current : 1144 Moving Averages: (Simple) 10-dma: 1139 50-dma: 1091 200-dma: 1014 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 795 Current : 1519 Moving Averages: (Simple) 10-dma: 1537 50-dma: 1454 200-dma: 1315 ----------------------------------------------------------------- Volatility is creeping upward, which is expected after a down day in the markets. Unfortunately, these indices aren't signaling any major changes. CBOE Market Volatility Index (VIX) = 15.35 +0.80 CBOE Mkt Volatility old VIX (VXO) = 15.32 +1.00 Nasdaq Volatility Index (VXN) = 23.03 +2.04 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.87 762,179 666,311 Equity Only 0.65 653,867 421,537 OEX 1.77 16,387 29,006 QQQ 5.67 18,722 106,156 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 78.7 + 0 Bull Confirmed NASDAQ-100 78.0 - 1 Bull Confirmed Dow Indust. 93.3 + 0 Bull Confirmed S&P 500 88.4 + 0 Bull Confirmed S&P 100 88.0 + 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: 0.99 10-dma: 0.95 21-dma: 0.95 55-dma: 1.04 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 1247 1216 Decliners 1618 1908 New Highs 329 275 New Lows 9 2 Up Volume 827M 512M Down Vol. 1181M 1631M Total Vol. 2022M 2153M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/13/04 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 Wow! We've seen a mild reversal in the commercial traders' positions. They've moved from mildly net short to mildly net long. That's an encouraging sign for more strength in the markets. Small traders have grown a bit more cynical with a slight increase in short positions but they remain net long. Commercials Long Short Net % Of OI 12/22/03 400,066 405,240 (5,174) (0.6%) 01/06/04 403,721 408,729 (5,008) (0.6%) 01/13/04 405,558 411,361 (5,803) (0.7%) 01/23/04 422,135 407,626 14,509 1.7% 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 12/22/03 147,537 81,596 65,941 28.8% 01/06/04 142,844 83,518 59,326 26.2 01/13/04 149,057 90,571 58,486 24.4% 01/23/04 141,107 100,090 41,017 17.0% 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 Commercials are starting to up their bets on the e-minis with almost 40K new longs and 44K new shorts. Small traders in turn reduced their bets but remain net long. Commercials Long Short Net % Of OI 12/22/03 128,801 213,021 (84,220) (24.6%) 01/06/04 175,489 240,865 (65,376) (15.7%) 01/13/04 196,858 263,845 (66,987) (14.5%) 01/23/04 233,867 307,122 (73,255) (13.5%) 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 12/22/03 125,248 43,482 81,766 48.5% 01/06/04 139,433 51,909 87,524 45.7% 01/13/04 191,241 62,711 128,530 50.6% 01/23/04 187,270 57,196 130,074 53.2% 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 very little change in commercial traders' positions here and the same holds true for the small traders. Commercials Long Short Net % of OI 12/22/03 40,277 36,452 3,825 5.0% 01/06/04 42,892 37,801 5,091 6.3% 01/13/04 41,829 38,547 3,282 4.1% 01/23/04 42,823 39,442 3,381 4.1% 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 12/22/03 22,656 14,544 8,112 21.8% 01/06/04 8,035 17,911 ( 9,876) (38.1%) 01/13/04 9,705 12,539 ( 2,834) (12.7%) 01/23/04 9,180 11,371 ( 2,191) (10.7%) 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 Commercials are also hesitant to make any big changes to their net bullish stance on the Dow. Meanwhile small traders grow a little more bearish. Commercials Long Short Net % of OI 12/22/03 14,088 9,998 4,090 17.0% 01/06/04 15,697 9,497 6,200 24.6% 01/13/04 16,501 8,724 7,777 30.8% 01/23/04 16,403 9,252 7,151 27.9% 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 12/22/03 6,915 8,983 ( 2,068) (13.0%) 01/06/04 5,713 8,105 ( 2,392) (17.3%) 01/13/04 6,496 9,970 ( 3,474) (21.1%) 01/23/04 6,068 10,183 ( 4,115) (25.3%) Most bearish reading of the year: (10,136) - 12/16/03 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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The Option Investor Newsletter Tuesday 01-27-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: AMZN, MXIM, STJ Dropped Puts: None Call Play Updates: APOL, CSC, ESRX, GENZ, HSIC, MBI, MWD New Calls Plays: None Put Play Updates: ADBE, QLGC New Put Plays: KSS, NSM **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** Amazon.com - AMZN - close: 55.74 chg: -1.29 stop: 55.00 According to our strategy we've been discussing the last several days, we would have closed this play Tuesday afternoon to avoid any earnings surprises or disappointments. It was a good thing too because AMZN is down in after hours to $53.88 despite guiding higher for the next quarter. AMZN reported GAAP earnings of 29 cents a share, which were in-line with expectations. Revenues soared more than 36% to $1.95 billion for the quarter, well above estimates of $1.86 billion. Management raised guidance for the first quarter saying revenues should fall between $1.39-1.49 billion, above estimates of $1.32 billion. AMZN also raised its full year projections. Picked on January 14 at $55.01 Change since picked: + 0.74 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 10 million Chart = --- Maxim Integrated - MXIM - cls: 52.03 chg: -3.05 stop: 52.49 Ouch! Investor reaction to TXN and NVLS's earnings reports that came out last night was not positive. The semiconductor index (SOX) lost 4.14% and investors decided to take some money off the table in MXIM. Shares of MXIM fell 5.5% and broke through support at $52.60, passed our stop at $52.49 and stalled at $52. Closing at its low for the day is not a good sign for tomorrow and we'd expect MXIM to aim for the $50 level. While we may be out of the play keep an eye on it. The $50 region is near the bottom of its rising channel and it may offer another trading opportunity soon. Picked on January 06 at $51.89 Change since picked: + 0.14 Earnings Date 02/05/04 (confirmed) Average Daily Volume: 5.4 million Chart = --- Saint Jude Medical - STJ - cls: 65.39 chg: +0.00 stop: 62.75 The good news for STJ shareholders is that support at $65 and its rising 10-dma held. The bad news is that our strategy was to close the play this afternoon to avoid any disappointing surprises in its early morning earnings report due out tomorrow. This closes the play for us with a small move but we won't have any sleepless nights about whether or not STJ beats the estimates or guides higher for the current quarter. It may not be bad news after all. Picked on January 12 at $64.01 Change since picked: + 1.38 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.4 million Chart = PUTS: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Apollo Group - APOL - close: 72.57 change: -0.87 stop: 71.00 The past few sessions have been rough on APOL bulls, as the stock pulled back from its highs near $75 to consolidate just above what should now be strong support near $72. With yesterday's strong market rally, price got a nice rebound and things were looking rosy for those that bought last week's dip near support. But Tuesday's broad market decline pushed APOL right back to its $72.50 price magnet and the situation is a bit dicey here. This could be the setup for another entry point if APOL can rebound from above the 20-dma (currently $71.85). Note that the daily Stochastics oscillator (5,3,3) is attempting to turn back up from near oversold territory. But if the bears rule again tomorrow and the 20-dma fails as support, odds are good that the nascent Stochastics reversal will be erased and our $71 stop will be violated. So aggressive entries can be taken on a rebound from support, but the more conservative approach will be to wait for a rally back through $74 before adding new positions. Picked on January 13th at $72.63 Change since picked: -0.06 Earnings Date 3/18/04 (unconfirmed) Average Daily Volume = 1.83 mln --- Computer Sciences Corp - CSC - cls: 45.68 chng: -1.00 stop: 43.50 It was really disappointing to see our CSC play unable to capitalize on yesterday's broad market rally, posting only the tiniest of gains the day after a major breakout over $46 resistance. That disappointment grew on Tuesday, with the sharp pullback, which erased all of last Friday's gains, leaving in place a bearish looking 3-day candle pattern. We were hoping for a bit of a pullback to provide a better entry near $45 and it certainly looks like we're going to get it. The big question is whether it will truly be an entry point or whether it should be left alone. We'll have to let price action be our guide, but entries should only be taken on a rebound from potential support near $45, not just on that price level being touched. Note that both the 10-dma ($45.23) and 20-dma ($44.99) are converged near that level and should act to reinforce support. If looking to enter on strength, traders will now need to wait for a rally back over Friday's intraday high at $46.82. Maintain stops at $43.50, which is just below the consolidation lows of the past month. Picked on January 25th at $46.54 Change since picked: -0.86 Earnings Date 2/11/04 (confirmed) Average Daily Volume = 1.22 mln --- Express Scripts - ESRX - cls: 69.86 chng: +0.21 stop: 64.75*new* As though impervious to the gyrations of the broad market, our ESRX play just keeps grinding a bit higher each day. The strength in the overall market yesterday lent a strong bid to the stock, as it rebounded smartly off the 10-dma ($67.91) and it built on those gains today, ending just below $70 after trading slightly above that level early in the day. Over the past week, the stock has built solid intraday support near $67.75 and a dip back near the 10-dma may prove to be a viable entry. The persistent rise since last week's breakout suggests that a pullback to test the $66 support level may not be in the cards at this time. If such a pullback did materialize though, it should see active dip buying, especially with that support level now reinforced by the 30-dma ($65.75). Aggressive traders can enter on strength above today's high, but our preference remains to buy the dips near the 10-dma. Note that we're raising our stop to $64.75, just under the 50-dma ($64.77). Picked on January 13th at $68.32 Change since picked: +1.54 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.23 mln --- Genzyme Corp. - GENZ - close: 55.67 change: +0.05 stop: 51.00 Volatility anyone? GENZ has provided plenty of it over the past week as the bears continue to sell into each and every rally attempt over $56, while the bulls aggressively buy the dips below $55. This stalemate will eventually be resolved and we think to the upside. The wet blanket that seems to be holding the stock back is the Biotechnology index (BTK.X), which suffered a 2% loss on Tuesday after failing to break out over the $527.50 resistance level yesterday. If the bulls aren't able to successfully defend $515 support, then a dip back to the $500 area seems likely. Such a pullback would likely have GENZ dipping back towards the 10-dma ($53.69) and quite possibly stronger support in the $52-53 area. A rebound near there would finally give the dip buyers the entry point they've been waiting for since the stock broke above $52 nearly 2 weeks ago. With the selling pressure that has been coming in at the bottom of the $57-58 resistance zone, we're still not in favor of breakout entries. Maintain stops at $51 for now. Picked on January 20th at $53.00 Change since picked: +2.67 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 2.82 mln --- Henry Schein - HSIC - close: 70.96 chg: -1.07 stop: 67.50*new* Yesterday's strong rally in the markets inspired a nice move in HSIC to above the $72 mark. Unfortunately, HSIC followed the herd again today with a pull back to $71. It looks like traders might get another opportunity to buy a dip towards the $70 level. Fortunately, $70 should be decent support bolstered by its simple 10-dma. We're going to raise our stop to $67.50, which is about 25 cents below the simple 50-dma. In the news HSIC announced that its CFO would be presenting at the UBS Global Healthcare Services conference on Tuesday, February 3rd. Picked on January 22 at $70.65 Change since picked: + 0.31 Earnings Date 03/04/04 (unconfirmed) Average Daily Volume: 334 thousand Chart = --- MBIA Inc. - MBI - close: 62.58 chg: -0.65 stop: 59.99 How about that? After two days of trading MBI closed right back at Friday's level. We keep expecting a pull back to the $61 region and it has not yet materialized. However, odds are growing that it will. The IUX insurance index has finally closed under its simple 10-dma (just as MBI did). The IUX has also produced a bearish sell signal from overbought on its MACD indicator. Together, these two observations make us cautious on new bullish positions for MBI. A bounce from $61 still looks buyable for MBI but any profit taking may not stop if the IUX begins a much larger consolidation. Be careful. After 9 weeks of gains the IUX is overdue for a dip. The question now is how deep will it be. With this sort of bias we would not be rushing to commit new capital to bullish plays in MBI. Picked on January 20 at $62.93 Change since picked: - 0.35 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 572 thousand Chart = --- Morgan Stanley - MWD - close: 58.72 chg: -1.61 stop: 56.75 The profit taking that washed across the markets today didn't stop at the XBD broker-dealer index, which fell 1.48%. The bad news is that MWD under performed with a 2.66% decline of its own. We're not excited about the close under $59.00 but mentioned a possible dip to the 50-dma, now approaching $57.00, as the next support level and potential entry point. If you prefer to see the glass as half full then MWD might be building a bullish flag consolidation pattern. We would be cautious about initiating new positions here, especially if patient traders get an opportunity to buy a bounce from $57.00. In the news both MWD and JPM have decided to sell Samurai bonds. These are yen-based bonds sold in Japan by non-Japanese entities. These typically have a five-year maturation date. Picked on January 15 at $59.81 Change since picked: - 1.09 Earnings Date 03/18/04 (unconfirmed) Average Daily Volume: 3.8 million Chart = ************** NEW CALL PLAYS ************** 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 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Adobe Systems - ADBE - close: 37.59 change: -0.75 stop: 39.50*new* Continuing to volley back and forth, the bulls and bears are still keeping shares of ADBE pinned in a rather tight range. Resistance has been firm at the 20-dma ($38.44) and it once again served its function this morning, turning the stock back from its early morning foray above $38.50. By the end of the day, ADBE had shed nearly 2% and came to rest right back on the magnetic 200-dma ($37.60). Price action does seem to be weakening and it seems only a matter of time before the 200-dma will give way once and for all, leading to a break of the $36 support level and then a drop to next support in the $33-34 area. But so far, that break has been exceedingly elusive. The aggressive entry strategy continues to be opening new positions on rejections from below the 20-dma, while traders looking to enter on weakness are still waiting for the break of $36. With the last reaction high at $39.29 and the 50-dma now at $39.41, it seems safe to inch our stop down to $39.50. Picked on January 11th at $37.12 Change since picked: +0.47 Earnings Date 3/11/04 (unconfirmed) Average Daily Volume = 3.43 mln --- QLogic Corp. - QLGC - close: 45.54 change: -1.20 stop: 48.50 When we initiated coverage of QLGC last week, we had a strong suspicion that the stock would rebound from the $45 level before breaking it. Sure enough, that's what happened, with our desired entry point near $47 resistance occurring near the end of the day yesterday. Proof of the rightness of that strategy came today when the stock moved lower right from the opening bell and closed at the low of the day, pressured throughout the session by the weakness in the Semiconductor index (SOX.X), which lost more than 4%. Traders looking to enter on weakness are likely to get their chance tomorrow on any follow-through weakness that pressures QLGC below the $45 level. It may happen early or it may wait until after the FOMC nonevent -- it's hard to tell. But when the break does occur, it will open the door to a drop near next solid support in the $41-42 area. Until QLGC breaks and closes below $45, we'll maintain our stop at $48.50. Picked on January 22nd at $45.25 Change since picked: +0.29 Earnings Date 4/14/04 (unconfirmed) Average Daily Volume = 3.85 mln ************* NEW PUT PLAYS ************* Kohls Corp - KSS - close: 44.05 change: -0.11 stop: 45.05 Company Description: Based in Menomonee Falls, Wisconsin, Kohl's is a family-focused, value-oriented specialty department store offering moderately priced national brand apparel, shoes, accessories and home products. The company operates 542 stores in 36 states. (source: company press release) Why We Like It: We're picking KSS for the put list due to its technical weakness and descending channel. Bears could also argue that KSS's disappointing earnings performance last year and its -1.2% comparable-store sales growth is pretty dismal, especially for holiday shopping-powered December. The company also lowered its Q4 (current quarter) guidance from 89-95 cents to 68-70 cents. Bulls will argue that KSS is still a growth play and its $275 sales per square foot is well above its peers. We're going to play the trend and currently the larger trend is down. We'd suggest plays at current levels with a stop at $45.05. The $45 level should be price resistance and the 40 & 50-dma's will also act as technical resistance. More conservative traders might want to consider plays once KSS trades under its 10-dma currently at $43.35. Our first target is $40 but the bottom of the channel suggest a possible target in the $37-38 range. Suggested Options: KSS earnings are in late February and we don't plan to hold over the event. That being said our favorite strikes would be the February puts but March and Aprils are available. BUY PUT FEB 45*KSS-NI OI= 7363 at $2.10 SL=1.00 BUY PUT FEB 40 KSS-NH OI=12065 at $0.35 SL= -- BUY PUT MAR 45 KSS-OI OI= 173 at $2.90 SL=1.50 BUY PUT MAR 40 KSS-OH OI= 110 at $0.95 SL= -- Annotated Chart: Picked on January 27 at $44.05 Change since picked: - 0.00 Earnings Date 02/26/04 (unconfirmed) Average Daily Volume: 4.6 million Chart = --- National Semiconductor - NSM - cls: 36.73 chng: -1.57 stop: 39.00 Company Description: National Semiconductor Corporation designs, develops, manufactures and markets an array of semiconductor products, including a line of analog, mixed-signal and other integrated circuits (ICs). These products address a variety of markets and applications, including amplifiers, personal computers, power management, local and wide area networks (LANs and WANs), flat panel and cathode ray tube displays and imaging and wireless communications. The Company's operations are organized in five groups: the Analog Group, the Displays Group, the Information Appliance and Wireless Group, the Wired Communications Group and the Custom Solutions Group. Why we like it: After months of leading the NASDAQ higher through its demonstration of relative strength, the Semiconductor sector (SOX.X) is finally starting to look truly top-heavy. Less then exciting news from NVLS in its earnings report last night got the ball rolling and the SOX shed more than 4% on Tuesday to close just above its 50-dma ($515) and just above the bottom of the 11- month rising channel at $510. We've had our eye on shares of NSM since early December, when the stock first broke below $40 and the 50-dma. The bulls managed to buy the dip and drive the stock back up tot the $43 area earlier this month, but since then NSM has been steadily falling. Breaking back under the 50-dma (now at $40.48) was a nice start, but the real clincher was the break under the 100-dma ($38.79) for the first time since last April. After a couple days of consolidation below that average, NSM took another sharp turn lower today, losing more than 4% and closing below $37 for the first time since late October. It looks like a sure deal for the $36 support level to be tested later this week and if that support breaks, we'll be eyeing a near-term drop near $32, the site of strong support at the top of the early September gap. But if the profit taking gets carried away, a drop to test the 200-dma ($30.52) isn't out of the question. Note that a trade at $35 will generate another PnF Sell signal, issuing a tentative bearish price target of $26. The bullish support line is still down at $23, meaning that if the bears do get hungry, they've got a lot of territory to cover. Our strategy will be to use a trigger at $35.85 (just under the 12/16/03) intraday low and initially target the $32 level. If the 200-dma is reached, we'll definitely want to take an exit there. We'll need to monitor the SOX for signs of continued weakness as well, and if it breaks $500, NSM seems sure to reach at least our initial target. Set a fairly tight stop at $39, which is just over the past three day's intraday resistance as well as the 100-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. Our preferred option is the March 35 strike, as it provides more time until expiration. BUY PUT FEB-40 NSM-NH OI=4099 at $3.80 SL=2.25 BUY PUT FEB-35 NSM-NG OI=5025 at $1.05 SL=0.50 BUY PUT MAR-35*NSM-OG OI= 663 at $1.90 SL=1.00 Annotated Chart of NSM: Picked on January 27th at $36.73 Change since picked: +0.00 Earnings Date 3/04/04 (unconfirmed) Average Daily Volume = 3.39 mln ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 01-27-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: A couple up, a couple down ********** WATCH LIST ********** A couple up, a couple down ___________________________________________________________________ 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. ___________________________________________________________________ Davita Inc - DVA - close: 40.12 change: +0.95 WHAT TO WATCH: There was no profit taking in DVA today. The stock actually broke out above the $40 level of resistance with no apparent catalyst for the move. There is still potential resistance near $40.41 from its December 3rd high but from the looks of DVA's intraday chart we could see some follow through tomorrow. Chart= --- Magna Intl Corp - MGA - close: 83.11 change: +0.64 WHAT TO WATCH: Out performing the markets today is auto-related MGA. The stock appears to be breaking out over the $82.50 level from a long-term wedge-pattern. We would look for a move over $84 to confirm the bullish breakout. Fortunately, volume has been strong the last couple of sessions. Chart= --- Interactive Corp - IACI - close: 32.99 change: -0.97 WHAT TO WATCH: Shares of IACI appear to be failing again at the top of its descending channel that began back in July. IACI does have some support at the $32 level and bearish traders might consider a trigger there. The bottom of the channel suggests traders could aim for a move to the $27-28 range. Chart= --- Wyeth - WYE - close: 41.05 change: -0.55 WHAT TO WATCH: After gapping down four days ago, shares of WYE have continued to sink. The stock closed under its simple 50-dma today but remains above what might be support at $41 and $40. Bears can keep this on their list for a possible move to the $37- 38 range. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- IBM $98.80 -1.05 - As expected the $100 level is acting as new resistance for IBM. Today's candle looks like a bearish harami pattern. Nimble bears might consider scalping a move from $98 to $95 with a trigger under $98. AIG $68.45 -1.18 - AIG is looking more and more vulnerable to potential profit taking. The IUX has closed under its 10-dma and AIG is approaching its 21-dma. Traders could use a trigger at $68 for a quick move to $65. ITT $75.50 +1.14 - If you're looking for a relative strength play, ITT is flexing its muscles. Shares broke through resistance at $75 while the rest of the market was falling. ************************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 ************************************************************** ********** 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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