The Option Investor Newsletter Sunday 02-08-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Got Chips? Futures Market: Binary Dollar Trade Floats All Boats Index Trader Wrap: Toil & Trouble Editor's Plays: Two in a Row Market Sentiment: The Big Bounce Ask the Analyst: Tracking stocks in a matrix Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 02-06 WE 01-30 WE 01-23 WE 01-16 DOW 10593.03 +104.96 10488.1 - 80.22 10568.3 - 32.22 +141.62 Nasdaq 2064.01 - 2.14 2066.15 - 57.72 2123.87 - 16.59 + 53.54 S&P-100 566.06 + 5.75 560.31 - 5.10 565.41 + 0.69 + 8.17 S&P-500 1142.76 + 11.63 1131.13 - 10.42 1141.55 + 1.72 + 17.97 W5000 11129.40 +100.20 11029.2 -127.58 11156.8 + 40.74 +187.04 RUT 584.07 + 3.31 580.76 - 15.38 596.14 + 5.73 + 15.21 TRAN 2894.36 + 8.40 2885.96 -186.99 3072.94 + 36.66 + 47.34 VIX 15.99 - 0.64 16.63 + 1.79 14.84 - 0.16 - 1.75 VXO 15.98 - 1.07 17.05 + 2.18 14.87 - 0.40 - 0.67 VXN 24.63 - 0.43 25.06 + 3.79 21.27 + 1.03 - 2.77 TRIN 0.62 1.00 1.15 0.47 Put/Call 0.62 0.81 0.77 0.51 ****************************************************************** Got Chips? by Jim Brown The semiconductor sector cured the Nasdaq from its bout of profit taking flu with a +4.77% gain on Friday and a total of +23.68 points. Considering the Nasdaq gained +44 points you can see where the real strength appeared. Traders who were dumping chip stocks for the last two weeks suddenly decided to put that money back to work when the Jobs report failed to implode. Dow Chart - Daily Nasdaq Chart - daily The Jobs report was neutral with a gain of +112,000 jobs but that is exactly where we wanted it. Not too hot to stimulate the Fed to hike rates and not too cold to suggest the recovery is failing. Yes, the porridge was just right for the Goldilocks market. The headline number was below the general consensus estimates between 125K and 150K and well below many of the outrageous speculations in the 175k to 225K range. After some initial volatility traders breathed a sigh of relief and charged off to buy stocks. It was more of a relief rally than a rally based on a change in fundamentals. Looking at the internals there were still some problems. The manufacturing component showed the 42nd consecutive monthly loss in manufacturing jobs with a loss of -11,000. Another benefit came from the seasonal adjustment for retail jobs. Fewer retail jobs were added at the end of 2003 which meant there were fewer people laid off in January. After the government adjusted for the normal seasonality they showed a gain of +76,000 net jobs. It is unsure whether they were actually gained or just the result of the over adjustment. Either way they "found" 76,000 jobs in the retail sector. Maybe they were making up for the decline of -13,000 jobs in government payrolls for the month. Professional/business payrolls declined by -22,000 but were offset by health services which rose by the same number. Leisure services rose by +21,000. Service industries declined with temporary workers dropping -21,000. Private non-retail jobs grew by only +36,000 jobs and less than half the +76,000 December rate. The unemployment rate fell to 5.6% but the average duration of unemployment rose to 10.7 weeks. Those out of work more than a year rose to 22.7%. When you boil down all the internals it appears the jobless rate is decreasing more from a slow down in layoffs than an increase in hiring. The number of unemployed remains at 8.3 million but that is nearly a million less than the level just six months ago. The alternative survey was the goldmine. Home based workers and 1099 workers increased by +496,000 according to the report. I hasten to add that these numbers are very suspect and the government is working to resolve the differences. Still the markets celebrated the official +112,000 headline number on the Nonfarm Payroll report with a sigh of relief. There was such a wide range of whisper numbers from -100K to +250K that just coming in close to the consensus was very encouraging. Bet you did not hear this on the mainstream media. The government also revised the jobs numbers for the last seven months and found even more jobs. The total gained by the revision was only +32,000 but the key point for me was the cycle. The recent months of Nov and Dec were revised up while the prior three months were revised down. That would tend to support the contention that jobs are growing in the current environment. December was revised up to 16,000 from 1,000 and November was revised up from 43,000 to 83,000. That is an increase of +55,000 over the prior two months. When added to the January numbers that is a +167,000 gain in the last 90 days that was just disclosed Friday morning. Using the political campaign method of reporting that blurb will be improved to "211,000 jobs were created in the last 90 days". I am surprised this was not more widely reported. Now the question remains. Whenever they can shuffle the numbers at will for nearly three quarters and nobody notices is it a good thing? Since the change was positive it suggests they could always "find" jobs when needed by "adjusting" the numbers into a more favorable time frame. But, that would be a conspiracy and it would never happen, right? Job Adjustment Table Since June The just right jobs report gave the bond groupies a new lease on life and they bought bonds at the open and kept it up all day. According to the bond bulls the Fed should be on hold for the rest of 2004. The odds of a May/June rate hike dropped somewhere in the 18% range and the next likely target even close to the radar screen became August. Considering the political implications of a rate hike two months before the election this is not likely and puts the Fed on vacation until January. There is a December meeting but the Fed almost never raises rates the week before Christmas. The Jobs report trumped the Fed and opened the window for another hot spring/summer for the home builders. With Fed rates still at 45 year lows the real rates for things like mortgages will not be surging any time soon. This should help the consumer confidence for the next quarter. There was another confidence report out Friday from the Associated Press. They said confidence FELL to 91.7 in January from 106.3 in December. Unemployment worries topped the list of consumer concerns. While this is not a mainline report it suggests the Michigan Sentiment next Friday could show a decline. The positive Jobs report will be seen as only a headline by Mom and Pop consumers and the questionable internals will never be seen. They should perk up on the news and the market gains from Friday will not hurt. The big money tried hard to get the Dow back to 10600 for Friday's close and they almost made it with the 10593 print. The Nasdaq gained +2.2% or +44 points to close at 2063 and well away from the support levels it threatened to break all week. The winner of course was the SOX. As I pointed out last week the SOX was the key and it held support and closed right on the 100 dma on Thursday. The sector had dropped -10% and was poised for a rebound. That rebound came on Friday with a +4.77% +23.68 point gain. Was it just an oversold relief rally or real buying? I think a little of both as well as some strong short covering. The jobs disaster failed to appear and shorts ran for cover. The Russell came in second with a +2.55% gain of +14.50 points and performed a perfect rebound off its 50 dma. SOX Chart - Daily Russell-2000 Chart The internals were unbelievably strong with advancers beating decliners 3:1 and advancing volume 5:1 over declining volume. Unfortunately volume was very light with barely 1.8B on the Nasdaq and 1.4B on the NYSE. The light volume was probably due to major events occurring over the weekend. The G7 is meeting and while nothing material is expected to happen it is still a potential powder keg. Also, President Bush is going to be on Meet the Press for a full hour on Sunday and you can bet Tim Russert will ask some pointed questions. Again, I expect no smoking gun but it will definitely be a risk. These events made some traders think twice before making big bets on Friday. For next week the economic reports are minimal with no important releases. The biggest challenge will be the Greenspan testimony to Congress on Wed/Thr and will give him the opportunity to correct any misunderstanding about the current Fed stance. Don't hold your breath. He typically does not divulge much real information but the potential exists for a slip of the tongue and the markets will be cautious until this event passes. Traders will also be watching the bonds with over $60 billion in new supply coming to market. The consensus of opinion also suggests the dollar will be under pressure again on Monday after a successful G7 meeting with no material announcements. That produces a mixed bag of blessings with the weak dollar providing an earnings boost to most companies doing business overseas. Of course the administration supports a strong dollar, wink, wink. Despite the pullback in techs over the last two weeks investors are still pouring money into the market. AMG Data said that as of Wednesday over $24 billion had moved into equity funds for the year. Five weeks and over $4B per week. That is a pretty good clip considering how high the indexes are after the 4Q rally. That rally is being called the flight to garbage rally due to the inversion of normal values. Stocks graded by Schwab with an "F" outperformed stocks they had graded an "A". Stocks with an S&P rating of one star out performed stocks with their five star rating. I mentioned last week we were seeing a rotation out of those stocks and back into blue chips. The Friday rebound was clearly on the back of those same small cap tech names with big cap stocks like IBM and MSFT up only fractionally while GE was down for the day. This was a retail investor rally and they partied with their old favorites instead and let those new found friends walk home. Where are we going now? I told you on Thursday that I thought Friday was a throw away day. It was going to be reaction driven and I thought any negative news was already baked into the cake. That prediction turned out to be correct with the mediocre jobs number providing a big gain in techs. I did not say "strong" relief rally because the volume was less than exciting. At 4B it is about -20% below recent market ramp days. When we were setting new highs two weeks ago we had many 5B days in succession. Still the internals were strong and I am chalking up the light volume to the weekend events. I suggested we monitor Monday as the moment of truth and I still believe it. If we do not get a news event over the weekend that moves the markets then the Monday direction will be the key for the week. I would not be surprised to see a drop at the open as shorts squeezed out on Friday try to take it down again. If there is no bad news then I expect that dip to be bought but not in volume. This is the pivot week for the quarter. It is the week before option expiration and earnings are about over but it is too early for mid-quarter updates. There will be a shortage of stock events to move the market and an excess of face time by Greenspan on TV. What I would like to see is another week of consolidation at this higher level. The Dow now has some breathing room above 10450 support and could easily trend sideways in a higher range above 10500. The longer we hold the higher ground the better chance of making new highs once the mid-quarter estimates start flowing. The Nasdaq is now well above its 50 dma support at 2021 and has some room to breathe of its own. If we can hold over 10500/2020 all next week we should be in good shape for an April earnings run. We are not out of the woods yet but that may be daylight up ahead. We dodged several large bullets last week with a successful Super Bowl and a positive Jobs report. Greenspan is now the hurdle for this week. Monday should be the key and another positive day would give us a nice cushion to wait out the Greenspan speech. A word of caution, February is normally a consolidation month. Since we have not seen normal in a long time I do not know if that trend will continue but that makes Monday even more critical as a directional indicator. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Binary Dollar Trade Floats All Boats Jonathan Levinson The US Dollar Index got sold steeply on Friday, with correlative gains in equities, metals, treasuries and the CRB. 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 failed on Friday morning with the release of the 8:30AM data, kicking off a nearly vertical move that found support just north of 85.85 before bouncing weakly. The move left a bearish engulfing candle on the daily chart and kicked off a sell signal on the daily cycle oscillators. The descending trendline from September is confirmed by the roll in the oscillators, and targets a retest of support below 85. The CRB gained .40 to finish at 261.07, led by silver, FOCJ, corn and gold futures. Daily chart of April gold The selloff in the dollar coincided with a rally in everything else, and April gold posted a bullish engulfing candle from a higher low. The long awaited bullish cross printed on the 10-day stochastic, and we now await confirmation on the Macd. The intraday high was 409.90, and price settled into a narrow range between 403 and 406. Resistance above 409 is 413-414, followed by 419. For the day, April gold on Globex added 7 or 1.76% to close at 405, HUI added 5.98% to close at 229.71 and XAU +4.85% to finish at 100.90. Daily chart of the ten year note yield Treasury notes rose sharply from 8:30AM continued to advance throughout the day, with the ten year note yield (TNX) finishing lower by 8.5 bps at 4.089%, a 2.04% move for the day. With Bernanke herding bonds lower on Thursday followed by a pre-G7 rally on Friday, the treasury market is becoming a rollercoaster. But Friday's move launched from a lower high on the TNX, just as the rally in gold launched from a higher low and the selloff in the Dollar Index from a lower higher, and so the relationships are clear for the moment. Any failure of bonds to sell off on Monday should see a new daily cycle downphase in the yield, targeting support at 4.07%, 3.96% and ultimately 3.92%. It's worth noting that the Fed drained 7.25B in unrefunded repos on Friday, with no appreciable weakness in any market other than the dollar. I suspect that we'll see news after the fact attributing the buying to yet another wave of massive Japanese intervention such as was reported in the Futures Monitor on Friday, but in the meantime it underscores the need to take these macro liquidity measures with a grain of salt. Daily NQ candles The NQ had a stellar day on Friday, spiking to a marginally lower low at 1460 before finding its legs and engulfing the week's losses, closing off its session high of 1501 at 1494. A bullish kiss printed on the 10-day stochastic, and so long as 1490 support holds, we should expect a bullish cross to complete on Monday. Last week's resistance was between 1505-1510, and that's the next challenge for bulls before more substantial resistance at 1518-1520. For the day, the NQ gained 26.50 for a 1.81% gain on the day. 30 minute 20 day chart of the NQ The 30 minute cycle oscillators advanced haltingly throughout the entire session, and felt ready to roll over throughout the afternoon even as the consolidation erupted into a secondary leg up. 1482 and 1490 resistance both fell on the way to 1500. Note how the Friday morning launch kicked off from a higher oscillator low against the lower price low, a bullish divergence. While the daily cycle oscillator is trying to turn up, the 30 minute cycle is in topping territory and finished on a downtick in overbought. My stochastic settings don't tend to trend in either overbought or oversold extreme, telling us that the 30 minute cycle is not likely to get much further before at least a corrective pullback for the NQ. This cycle picture lines up with 1500-02 resistance just overhead. A correction that bounces from any higher lower above 1460 will confirm the daily cycle oscillators in the process of turning up. On the other hand, a violation of today's 1460 low would set up today as a spectacularly tricky whipsaw, targeting the 1440 level. Daily ES candles ES gained 13 points to finish at 1139.50, a 1.15% gain. The move kicked off from a higher low of 1125, engulfing the week's endless range below 1136. The move failed at 1142 resistance, but the pullbacks were shallow. The daily cycle oscillators, which had become less oversold than those on the NQ, remain in a downphase that is in the process of aborting. The price was so firm on Friday that it's difficult to image a bearish reversal from here, but that's what the market does best. 1133-36 was persistent resistance and should now be support, and any higher low from current levels should be enough to permit the daily cycle oscillators to abort their downphases. Above 1142 is 1149 resistance, and any touch of that level should see a new daily cycle upphase underway. 20 day 30 minute chart of the ES The less bullish interpretation of today's rise is the head and shoulders pattern that looks admittedly sloppy but still viable. The neckline is likely as indicated at 1125, but I've not forgotten how persistent 1115 support once was, and it will be difficult to feel very bearish until that level breaks. The 1142 resistance level lines up with the tests in that area two weeks ago, and if it holds here, bulls will be considerably more nervous for the retest of 1122-4. The 30 minute cycle is rolling over as of the cash close on Friday, and the bottom of that downphase is going to tell us a lot about the outcome of the key daily cycle on the preceding chart. 150-tick ES The daily cycle oscillators were trying to roll over at 4:15PM Friday, with a wavelet oscillator bounce due (3rd pane from the bottom). A light bounce followed by a retest of 1136 support is my best guess for Sunday night/Monday morning. Daily YM candles The YM resembles ES most closely here, but lagged its peers with the smallest percentage gain of the 3. The daily cycle downphase is paused but not over, and it should take a revisit to 10600 to get the oscillators into bull mode. 20 day 30 minute chart of the YM As on NQ and ES, a corrective pullback is due on the 30 minute cycle, with first support at 10525, followed by 10500-10505, then 10456. The daily cycle should continue to form a bottom so long as the 10420 level holds. Friday added a great deal of clarity. The upper ranges on the equity indices broke, the daily cycle downturns paused, and on an intermarket basis, all of the markets we follow finished right at or on the line of significant cycle reversals. The dollar and ten year treasury yield are trying to kick off new downlegs, gold and equities are trying to kick off new uplegs. So long as we don't see a strong reversal of today's gains and losses on Monday, these signals should complete. I emphasize the word "should", however, because it's ill-advised to anticipate signals. This is particularly important in light of the 30 minute sell signals that were printing at the cash close on ES, NQ and YM. The bottom of the next 30 minute downphase, if higher, will give bulls the confirmation they need, and should afford a lower entry for bullish positions. If the bottom falls out, then Friday's early signals will be written off to one of the great headfakes of the rally. ******************** INDEX TRADER SUMMARY ******************** Toil & Trouble By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – Toil and trouble is what the Bush Administration is feeling some of over the past week or two. This part of the election cycle, with a Market-popular Republican administration (not for nothing has the financial industry been the single biggest giver to the Grand Old Party - GOP) is going to give a second act or up "leg" to this market some trouble, perhaps into the spring. Well, that and the anemic job creation and the dollar, plus Iraq hangs out there in the wings. But that's another story. Technically the market has reached both an overbought situation and a bit of a plateau in terms of some prior resistance. So, look for more of a trading range and some trading opportunities with puts, especially OEX, if the S&P 100 drives back up to the prior peak and forms a double top. After all, one of my better signals for a possible interim top was given by a bearish Price/RSI divergence. But more on that later. And, I'm glad to be back toiling away on the Weekly Sunday Index Wrap – plus I'll get to sound off on a Trader's Corner article once weekly, rooting around in the garden of technical analysis. I promise not to shamelessly promote my book on the subject either. Opps, just did! FRIDAY'S TRADING ACTIVITY – Stocks were up strongly after the job growth reported for January – not enough job growth to satisfy economists that the recovery is really robust, but not so much as to prompt the Federal Reserve to rain on the market's optimism by raising interest rates in the next few weeks or months. Hope springs eternal in the Nasdaq market and it had it best 1- day rally in some weeks – up over 2% or 44 points. The bullishness of the Ericsson quarter was a big help in providing some tangible evidence that tech spending was picking up. Better-than-expected earnings from Ericsson also helped boost European markets on Friday. Goldman upgraded the stock to "outperform" from its "in-line" (with the market) rating. Financial stocks did well and this is the blue chip leadership the Street likes to see. The S&P Banks Index (BIX.X) continues to perform well as a sector and its strength was seen as definite positive during the Friday session. Moderate growth in jobs is seen as more positive than cranking out 300,000 a month, which is probably the rate we need to really help boost the administration's case that their economic plan is working – Republicans are however, alarmed by the climb in the deficit which was precipitated by revised estimates that the Medicare prescription drug benefit will cost about a third more than the 400 billion cost they were "sold" on. The S&P 500 Index, closely watched by big time money managers, fared pretty well also by surging nearly 1 and half percent as it got to 1142 by the close, up 14. As reported widely on Friday, the closely watched nonfarm payroll report showed growth of 112,000 jobs – you have to now go back to 2000 to find the last time there was this much of a monthly jump. And, the unemployment rate declined further under 6% - this may not mean that much to economists, as many job searchers have stopped looking for work, but it’s a talking point to the administration, which is feeling a bit beleaguered. I mean the talking heads even get a chance to have a good Q&A with the President on Sunday morning – at least talking head Tim Russert. I think the Fed watch factor is most significant in the quick rush to exit shorts that we were seeing at the end of the week here. Rising rates do at some point have a danger in that so much of the recovery is still being fueled by borrowing at such historically low interest cost. Well, except for our credit cards! Wonder why the banks are pushing, yet again for the umpteenth time to get that bill through that toughens the ability to declare bankruptcy. Which I won't be doing anytime soon, as long as I keep my euro assets – gee pleasant surprise when I convert to the greenback – worrisome in other ways as you could read about Friday in OIN intraday reporting. The meeting of the Group of 7 (G7) was in Florida on Friday. The extreme strength in the Euro has our European partners – at least they used to be our pals – quite concerned. Bonds also surged on Friday on the back of the economic data, with the yield on the 10-year T-note falling .084% to a 4.085 percent yield. The dollar, fell over a percentage point against the euro to close at $1.27. Again the Yen, the greenback was off far less, closing at 105.53 in New York. Expectations on Friday was that not much would come out the G-7 Finance Minister's meeting here in the States that would be a call to action to support the dollar. MY INDEX OUTLOOKS – As I'm re-introducing my particular style of analysis and the types of indicators and patterns I find meaningful to assess probabilities for future direction near term and out, I will take the widely traded OEX index – and, a personal trading favorite of mine - and introduce more charts on it then would normally be the case – by way of demonstrating some things that I suggest you look at as you make your own trading decisions. S&P 100 Index (OEX) – Daily charts: One of the things I look at closely from week to week to gauge market "sentiment" is a simply to plot a ratio of the total daily volume of (total) equity call volume to daily total put volume. Now this is not the Put/Call reading as it takes the ratio the other way round and most importantly takes out the hedging (of stock positions and S&P 100 Index funds) activity related to Index puts and calls. The "indicator" gives a more pure read of what market participants using and trading options are up to. How bullish or bearish this group tends to can be pretty well calculated by how much call volume there is relative to put volume, at least on the CBOE. As we know the market is tricky in that often when calls or puts are heavily favored, a point of imbalance is reached and the market tends to tip in the opposite direction. When CBOE equity daily call volume runs about 2.5 times put volume on any given day, and I smooth this out a bit with a 5-day average above – lower left, there is often a top coming in 1-5 days. Not very precise in that, but it’s a "get ready" and watch indicator. I've marked some prior extremes – green arrows suggest a rebound or renewed push higher ahead. The red arrow suggests looking for a top within a day or so, within 5 days typically. But, like any indicator, there are times it doesn't work just that way. In a strong uptrend, there will be some false suggestion of froth and a top - the reverse in a strong downtrend. The recent reading on my Call/Put indicator – by the way this is a "custom" indicator that I have to keep up in a spread sheet/charting program so I can't refer you to a web site to watch it. The last extreme was suggesting a rebound and we got that strongly on Friday. Look for some attempt to follow through on the upside, but be watchful for a double top, which I think is a likely outcome. This is also suggested by the top indication, and about as reliable (not infallible) as they get in technical analysis terms by the drive to a new price peak, that was not also followed by a similar new high in the Relative Strength Index (RSI) as shown in the chart above – right. The trading envelopes also shown in the upper right chart have come back to a more historical average – as, relative to a 21-day moving average, the indexes tend to trade between a value that is within about 3% above/below the moving average in the center. The pop back up above the 21-day suggests the uptrend is back on track, but a second drive up toward the (upper) trading band is often a more significant lid on the market. OEX – Hourly: When is a bottom real simple to figure out – when it's a double bottom! Typically, you can trade off from double tops and bottoms and they won't fool you. This is showing real buying or selling pressure. However, basis the hourly chart in a close up view, there is also resistance coming up in the 570 area. This is an area where I want to buy puts, if I see churning going on. This means buyers don't have enough left to push it past the supply of stock for sale. The other thing worth noting with the chart above is that some of the better trading opportunities come along when both the short and longer-term hourly stochastic models (5 and 21-hour settings) get into overbought or oversold territory together. The last time was on the downside, but now they're both getting into oversold territory – with resistance indicated on the hourly chart above in the 570 area, looks like some potential for puts with OEX in the 570-575 area, looking for another downswing and to stay in a relatively narrow range awhile longer. OEX – Daily chart with some other indicators: One thing about the broadly traded indices, is that they can get into a trend where you can do significant buying or selling when the index comes down/up to its 50-day moving average. And such a "safe" point if we can ever call it that (let's say high probability trade) is not unless OEX got back down into the 550 area. 530 is major support as suggested by the trendline. The market is oversold near-term as suggested by the stochastic, but the pattern looks most like the formation of a top. Stay tuned! S&P 100 Index Weekly chart: The problem with getting too focused on the short to intermediate oversold is that the longer-range overbought/oversold type indicators, like the 13-week RSI shown on the OEX weekly chart below, are suggesting that the market is overbought now and may need to consolidate before conditions are ripe for another up swing. This is reflected also in the political/economic uncertainties that will be a focus for the next few weeks. This first up leg, if its reaching a consolidation/resting point ahead, was a pretty good run of 150 points. Hey, I'd like to be along for any 150 point move on the OEX! Not that I don't have some things to also worry about in index options, like how fast the time premium erodes relative to this trend. The Dow 30 Average: I would be mildly bullish here only as long as the Dow can now stay back above its 21-day moving average. It looks like there is significant resistance and stock for sale above 10,600. The weekly chart, below left, shows the same overbought condition as discussed with the S&P 100. The daily chart pattern (above left) had the appearance of a bear flag – midpoint in a downside correction – until the sharp rebound of Friday. That rally looked like it had more to do with short-covering than the start of a renewed uptrend. Let the market decide and watch for a possible double top - if that develops, it suggests a more prolonged correction and at least a sideways move to "throw off" the overbought condition. Indexes correct in price and or time – by going sideways. I thing there will be a retracement lower also. Nasdaq Composite Index (COMPX) – Weekly, Daily & Hourly: The Composite or COMPX looks like it has significant overhead resistance in the 2100 –2120 area. The oversold and strong rebound from the 50-day moving average should carry it up into at least this area, and maybe back into the 2150 area. A double top there would be my indication to short the Nasdaq, such as by shorting the QQQ tracking stock. A weekly close above 2150 however, along with the ability to hold this area as support on pullbacks, would suggest still substantial upside. I wouldn't rule it out but this possibility is not leaping out at me in what I am seeing here. Remember how far above, then how far below, the COMP got relative to its 200-day moving average? It is now pretty far above it, as shown in the upper right – the 200-day average is just climbing over 1800. A decisive downside penetration of the 50-day average at 2025 currently, would suggest two things – the longer moving average will gain a bit on current price levels and the Nasdaq Composite could retreat back into the 1900-1950 price zone. QQQ - Daily: Speaking of QQQ, the stock has been trading pretty reliably up to 5% above its 21-day moving average before corrections set in. In a downtrend, it tends to move down to about the same percentage below this average, but in an uptrend as we've been having, the lower end of its range has been on moves to about 3% under the 21-day average. What does all this mean. Well, the rebound came in right where I would have looked for it to, based on the lower envelope line. Now, I want to see if it can get back above the 21-day average in the center of these envelope bands. If not, look for the QQQ to come back down to the lower band again, at least, like it did on the last correction. Above 38, my upside target become to $40 where I would look to short the stock. Volume trends are, so far, consistent with the bull move underway for months, as volume expands or picks up in the direction of the trend – and contracts or slows down on corrective declines. The long sideways move in the fall, is now providing a floor under the stock as the Q's pulled back to the top end of this range. Still have to favor the trend continuing until we see otherwise. Little danger signals don't offset the trend – number 1 is the trend, until it shows definite signs of reversing. Still, trading opportunities have been coming on both sides of the market. Good Trading Success! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Two in a Row Last weeks VSEA put play at $48.74 hit our profit target at $46.00 and continued to a low of 44.65 on Wednesday. The option opened on Monday at $1.90 and was selling for $2.80 when our profit target was reached. Two winning weeks in a row. Can we stretch it to three? I discussed TASR last week and the lack of options and it had a monster week. Unfortunately, still no options. If we could just get options on TASR and NVR we would never need another candidate. The moves on those two stocks alone would keep us in the chips. Keeping with the earnings spike theory I chose MHK for my target this week. MHK spiked +$6.19 on Friday to close at 79.64. The reason for the spike was the jump in guidance from 90 cents to $.95-$1.12. While this is an admirable jump there was an extenuating circumstance. They changed their accounting period to include 4 more days in the first quarter. They estimate that each additional day in the quarter adds +2% to their sales. Now focus on this for a minute. Unless they have developed a time warp they have not added any more days to the year. I think our calendar has been fixed at 365 days for quite sometime. This means if they are adding +4 days to the first quarter those days have to come out of some other quarter. The actual revenue for the year will remain basically the same at the old estimate. This is not rocket science. The +8.42% jump in MHK stock on Friday could be slightly overdone in my opinion. Because this reaction was so overdone and should correct fairly quickly I am thinking a February option would still work. The Feb-$80 put MHK-NP at $1.75 is already slightly in the money an it would not take a very big move to be profitable but the time fuse is short. The Feb-$75 put MHK-NO is very cheap at .30 cents but it is well out of range for the time remaining. This suggests the March $75 Put MHK-OO at $1.05 is the best play. It would take a $2-3 move to cause any serious appreciation in premium but the odds of most of that $6 gain evaporating over the next week are good. The $1.05 put also offers the best risk reward ratio when you include the time factor. The profit target will be $2.00-$2.25 on the option and that should occur somewhere in the $66-67 range on the stock. As always this is a risk trade. There is no stop but I would think twice about sticking with the trade if MHK moves over $80 on Monday for more than a few minutes. MHK Chart - Daily ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** The Big Bounce - J. Brown No, I'm not talking about the movie in theaters titled the Big Bounce but the recent market action. The DJIA had been churning sideways and the NASDAQ was falling ahead of the Friday jobs report. As you've probably read numerous times now the jobs number (at 112,000) was neither too hot, nor too cold. Investors interpreted the report as a boon for stocks. The economy is growing but not overheating so the Fed should keep interest rates untouched for the foreseeable future. Considering the NASDAQ's bounce off the 50-dma just above the 2000 level and the DJIA's rally off short-term support above 10,400 we could see bullish week in front of us. It is interesting that while the markets have generally traded sideways or pull back in profit taking (depending on what sector your look at) for the last two weeks investors have continued to pour money into stock funds. That should mean managers have plenty of cash to put to use and buy this dip. Buyers were certainly out in force on Friday. Market internals were very strong. Advancing stocks out paced decliners by more than 4-to-1 on the NYSE and more than 3-to-1 on the NASDAQ. Up volume was almost 7 times down volume on the NYSE and about five times down volume on the NASDAQ. Not one sector index closed in the red on Friday making it a very broad-based bounce. The biggest performers were the homebuilders, gold & silver stocks and the semiconductors. All three were up more than four percent on Friday. The homebuilders are noteworthy because the jobs number puts the Fed on hold and that will keep mortgage rates down. The DJUSHB index broke through resistance at the 50- dma and its technical oscillators look bullish. Gold stocks were strong again because the dollar took a dive ahead of the G7 meeting and gold futures rallied back above the $400 an ounce level. Semiconductors helped lead the recovery in the NASDAQ with a huge move off its 100-dma to close back above the 500 level and its simple 50-dma. The volatility indices collapsed again on Friday's indicating investor confidence is high. However, even though bulls appear to be back in control I do expect some sideways action when Greenspan makes his appearances this week. Greenspan is making his regularly scheduled monetary policy report before congress on the 11th and before the senate on the 12th this week. Also look for the official Retail sales numbers on Thursday and the Michigan Sentiment numbers on Friday. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10701 52-week Low : 7416 Current : 10593 Moving Averages: (Simple) 10-dma: 10534 50-dma: 10308 200-dma: 9521 S&P 500 ($SPX) 52-week High: 1155 52-week Low : 788 Current : 1142 Moving Averages: (Simple) 10-dma: 1136 50-dma: 1105 200-dma: 1024 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 795 Current : 1498 Moving Averages: (Simple) 10-dma: 1496 50-dma: 1469 200-dma: 1331 ----------------------------------------------------------------- Looks like the rise in the VIX, VXO and VXN last week was a false alarm. All three promptly dropped on Friday's rally. Of course that means we could have another move higher in the markets this week. CBOE Market Volatility Index (VIX) = 16.00 -1.71 CBOE Mkt Volatility old VIX (VXO) = 15.98 -1.77 Nasdaq Volatility Index (VXN) = 24.67 -1.50 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.63 897,646 563,415 Equity Only 0.46 779,861 360,398 OEX 1.17 32,923 38,409 QQQ 1.31 31,825 41,620 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.3 + 0 Bull Confirmed NASDAQ-100 70.0 + 0 Bear Alert Dow Indust. 86.7 - 3 Bull Confirmed S&P 500 87.2 + 1 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: 0.96 10-dma: 0.96 21-dma: 0.99 55-dma: 1.01 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 2306 2301 Decliners 565 772 New Highs 205 162 New Lows 8 3 Up Volume 1571M 1483M Down Vol. 234M 330M Total Vol. 1811M 1819M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 02/03/04 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 Commercial traders can't seem to make up their mind. Currently, they're almost flat with a slight edge to the bears. Meanwhile the small traders have grown even less bearish. Commercials Long Short Net % Of OI 01/13/04 405,558 411,361 (5,803) (0.7%) 01/23/04 422,135 407,626 14,509 1.7% 01/27/04 417,089 410,930 6,159 0.7% 02/03/04 411,920 414,596 (2,676) (0.3%) 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 01/13/04 149,057 90,571 58,486 24.4% 01/23/04 141,107 100,090 41,017 17.0% 01/27/04 143,089 87,828 55,261 23.9% 02/03/04 141,465 81,926 59,539 26.7% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercials have become significantly more bearish by upping their short positions and closing some bullish ones. Small traders are still feeling optimistic. Commercials Long Short Net % Of OI 01/13/04 196,858 263,845 (66,987) (14.5%) 01/23/04 233,867 307,122 (73,255) (13.5%) 01/27/04 291,166 334,618 (43,452) ( 6.9%) 02/03/04 280,519 346,042 (65,523) (10.5%) 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 01/13/04 191,241 62,711 128,530 50.6% 01/23/04 187,270 57,196 130,074 53.2% 01/27/04 154,485 60,556 93,929 43.7% 02/03/04 133,293 55,476 77,817 41.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders in the NDX remain in limbo with very little movement over the last few weeks. In contrast small traders have become much more bearish. Commercials Long Short Net % of OI 01/13/04 41,829 38,547 3,282 4.1% 01/23/04 42,823 39,442 3,381 4.1% 01/27/04 43,704 40,951 2,753 3.3% 02/03/04 43,600 41,441 2,159 2.5% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 01/13/04 9,705 12,539 (2,834) (12.7%) 01/23/04 9,180 11,371 (2,191) (10.7%) 01/27/04 10,137 10,715 ( 578) ( 2.8%) 02/03/04 8,907 13,729 (4,822) (21.3%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL The shuffling continues for commercial traders in the Dow. Small traders have become more bearish. Commercials Long Short Net % of OI 01/13/04 16,501 8,724 7,777 30.8% 01/23/04 16,403 9,252 7,151 27.9% 01/27/04 16,536 8,404 8,162 32.7% 02/03/04 17,765 9,619 8,146 29.7% 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 01/13/04 6,496 9,970 (3,474) (21.1%) 01/23/04 6,068 10,183 (4,115) (25.3%) 01/27/04 7,240 12,372 (5,132) (26.2%) 02/03/04 6,352 13,113 (6,761) (34.7%) Most bearish reading of the year: (10,136) - 12/16/03 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Tracking stocks in a matrix I've noticed that you will make note of a stock's monthly pivot levels from time to time and you also have shown a monthly pivot matrix with your top picks for 2004. I've been amazed at how the indexes have traded within the weekly and monthly pivot matrix levels and their use has made me money, but also saved me from some large losses. Can you tell me how you're using the pivot matrix algorithm with your stock selections and entry points? Is there a reason you don't also post the daily and weekly pivots? There are a couple of ways that I'm using the pivot analysis algorithm. I'm not using it to necessarily pick stocks, but using it to track stocks against a major benchmark like the S&P 500 Index (SPX.X) and look for patterns of trade, with a focus on SIMILARITY or DIVERGENCE. Let me first point out that I'm currently having to hand enter a stock's high/low/close into an Excel spreadsheet, and just keeping up with some of the indices we track in each night's Index Trader Wrap at OptionInvestor.com becomes somewhat of a chore when updating the daily pivot levels each night. With only 24-hours in a day, I've only been able to track a stock's trade within a MONTHLY pivot matrix, as it cuts down on the time I must spend typing in numbers for the stocks I like to follow. By just tracking stock in a monthly pivot matrix, this allows me to follow more stocks, where I can then try to pick the stocks I feel, based on observation, offer good trades. When I started selecting stocks for this year's "Top Picks for 2004" I built a watch list of sorts from stocks that I had been following, where their point and figure charts represented stocks I felt would be bullish on a longer-term basis, for 2004. Unfortunately, I could only select 10 stocks to start the year out with, and I had a pretty long list of bullish-looking candidates. I also had a long list of bearish-looking candidates. My quandary to start the month of January was how I was going to narrow down a broad watch list, to a list of 10, for what I felt to be some good stock/option trades to start the new year out with. Making things tough was that I had to select a top 10 list in mid-December, write up profiles of the various stocks, to then be published in time for those traders and investors that were kind enough to purchase an annual subscription. One way I whittled down my list was to plug a bunch of stocks into a MONTHLY pivot matrix, where the monthly time frame would give me some perspective of how a stock had been trading relative to the S&P 500 Index (SPX.X) over the span of several months. I didn't want to load up my portfolio of "top 10" picks with stocks that were all breaking out, while at the same time, I didn't want to put together a list of "top 10" picks that were all pulling back, as it would be terrible to see all of my pullback stocks keep pulling back should we have seen some type of mass profit taking in the new year. So... here's an example of some stocks I'm currently observing. Think of these stocks as "candidates" for my "top 10" picks, that for one reason or another, didn't make the first cut for January selection. As noted in the annual renewal letter, I know for a fact that not all of my "top 10" picks were going to be all-stars for 2004, but it was the team I wanted to put on the field to start the year. Should one go down with an injury, I always want to have another player at the ready, that I feel can step in and be ready to perform. My candidate list isn't just a bunch of offensive players either. No sir! Investing or trading is very similar to sport. There's a time for offensive strategies and a time for defensive strategies. To my recollection, John Elway never played a single down on defense for the Denver Broncos. When it came time pick my "top 10" players, one stock I wish I had put on the playing field now (hindsight is always 20/20) was Amgen (NASDAQ:AMGN) $64.86, but in mid-December, I just wasn't certain the stock had found its bottom. But there were some signs in the monthly pivot matrix that AMGN was starting to find a bottom, and perhaps this is how a trader/investor can utilize a monthly pivot matrix when selecting stocks to trade or invest in. Here's a random list of stocks I'm tracking within a monthly pivot matrix. I'm showing just 10 stocks as I don't want to take up and entire computer screen when looking at a couple of month's trade. Various stocks in a MONTHLY pivot matrix - November-January Since I'm a believer that in a rising or falling market that most stocks will tend to move in the direction of the market, I like to be able to benchmark against the S&P 500 Index (SPX.X), so I include it in my MONTHLY matrix observation. As I track different stocks and mark their levels of trade within the matrix (levels within the matrix colored BLUE are levels where the stock traded that month), I can pick up on SIMILARITY and DIVERGENCE relative to the S&P 500 (SPX.X). Look at the bottom portion of the matrix and the month of November (For Month Nov). See Electronic Arts (ERTS) and how on October 31, 2003 it closed at $49.47, and in November it traded lower at its MONTHLY Pivot, then its MONTHLY S1 and then its MONTHLY S2? Meanwhile, the SPX traded it MONTHLY Pivot. That to me is DIVERGENCE. I mention ERTS' trade in November, as that trade action within the November MONTHLY pivot was just what Amgen (NASDAQ:AMGN) had been doing in its October Pivot Matrix. The reason AMGN was on my bullish candidate list was that AMGN's point and figure chart had turned more bearish in September of 2003, and had generated a bearish vertical count of $57. All be darned if AMGN didn't trade $56.76 on 12/11/03. Do you see for the month of November, AMGN traded its MONTHLY S1 of $58.03? That was pretty darned close to the bearish vertical count of $57.00 wasn't it? Could it be that this was a correlative level of trade between what the point and figure chart had been hinting at, and where institutions might begin to be re-accumulating the stock? Now look at the MONTH of December (For Month Dec) and we see that AMGN closed at $57.62 on November 28, 2003. While AMGN did go on to trade $56.76 in December and fulfill its bearish vertical count of $57.00, it didn't trade its MONTHLY S1, but did see higher levels of trade at its MONTHLY Pivot and then its MONTHLY R1. In a way, this was some DIVERGENCE to how AMGN had been trading when it was trading MONTHLY S1 in November. There was also some DIVERGENCE see as to November and December trade when comparing AMGN against the SPX. While AMGN was DIVERGING from the SPX in November, it was suddenly trading with the SPX in December. At the far right of the above table, we see that my December's end, AMGN had outperformed the SPX with AMGN sporting an impressive 7.2% gain versus the SPX's 5.1% gain. Could it be that AMGN had suddenly been moved off the bench and onto the playing field as an out performer? Had AMGN fulfilled its destiny of $57, and is now just beginning to come back into favor? As we look at the top of the table and January's trade (For January) not only did AMGN not trade its MONTHLY S1 like it did in November, but it didn't trade its MONTHLY Pivot like it did in December. Again, something has changed. True, the SPX also moved higher when trading its MONTHLY R1 and MONTHLY R2, but AMGN has been trading with the market on what might be viewed a more consistent basis and has most likely been a greater contributor to the SPX's gains. I could fill several more pages if we discussed each individual stock, but there are some observations I want to still make as it relates to the table above. Look at the various monthly percentage gains and losses (% G/L) that the stocks show on a month to month basis. Do you see how the stocks don't all just keep moving in one direction on a continual basis, and how buying or selling can take place for a period of time, then seem to take a break? But we also note that when the SPX traded flat like it did in November, the percent gains and losses for the various stocks are mixed. And then a month like December is seen, and the bulk of stocks show gains? One stock I have a very close eye on for a bullish play right now is Burlington Coat Factory (NYSE:BCF) $19.59 +1.5%. BCF's point and figure chart is longer-term bullish, and after generating a double-top buy signal at $18.50 last summer, it has built a bullish vertical count to $31.50, which would be in play as long as the stock doesn't trade $18.00. When I look at BCF's monthly pivot matrix for November, December and January, we see that in November, BCF did NOT trade its MONTHLY S1 of $19.35 as there must have been more demand above that level than supply. In December, BCF did trade its MONTHLY S1 (so I'm thinking stock is still weak) but did NOT trade its MONTHLY S2 of $19.57. (Note: Buyers above $19.35 and $19.57). In January, BCF did trade its MONTHLY S1 (so I'm thinking stock is still weak) but did NOT trade its MONTHLY S2 of $18.73. An observation I immediately make is that for the past two months, BCF has NOT traded its MONTHLY S2, and if it does, that would be a sign of DIVERGENCE from the past. Now we're going to scroll forward and look at this month's (February) current Monthly Pivot Matrix, where each night, I also take some time to type in any new monthly highs or lows for the stocks I'm tracking, and update their daily closes for the month. This gives me some "hands on" feel with the stocks I'm tracking, just as if I was taking some time to hand chart them on a point and figure chart. Various stocks in a MONTHLY pivot matrix - January - February Since I'm still sensing weakness in BCF, but think its reached a near-term bottom, I'm setting up a bullish entry point. So far, BCF has NOT traded its current (For Month Feb) MONTHLY S1 or Pivot. I've marked its MONTHLY S1 $17.99 and this interests me as an IMPORTANT support level, as a trade at $18.00 on BCF's point and figure chart would be a double-bottom sell signal, where if traded, BCF's bullish support trend is the last line of defense for bulls at $17.50. I can immediately begin assessing a stopping point if I trade bullish here at $19.59. An observation I make for BCF is that in January BCF fell through its MONTHLY Pivot of $20.89 as sellers (supply) outnumbered buyers (demand). A true test for strength in February (For Month Feb) is for BCF to trade back above its MONTHLY R1. This would be a bullish action point on strength. I'm thinking if buyers (demand) can push BCF above that Feb. MONTHLY R1, which is correlative with the Jan Pivot, then a resumption of strength would be witnessed. Look at ERTS. In January it traded its MONTHLY Pivot, and in February, its traded its MONTHLY S1. Resistance seems to be moving lower from January's MONTHLY R1 to February's Pivot, and while these levels are lower in value ($50.43 to $47.55) ERTS hasn't found enough buyers at this point to trade these lower values. ERTS's percentage gain/loss for February id DIVERGING from the broader S&P 500 (SPX.X). ERTS is a bearish candidate. When should I have bought AMGN? $59.02? $60.95? $63.85? Gosh I hope it pulls back somewhere between $61.93 and $63.83. Express Scripts (ESRX) is a stock I first profiled as bullish back in November, when President Bush's Medicare Bill was being reviewed as passed by Congress. I think the stock has performed well relative to the market and if I wished I had bought some at $64.98 or $68.85, then after a recent move to $71, a pullback near $67.67 should find buyers if the stock is in favor with the market, where MONTHLY S1 of $64.63 should provide strong support. A normal pullback on a point and figure chart is 3-boxes, and from $71.00, that would be $68.00. With a beta of -0.236, it's a stock I consider to be more defensive. Let's quickly talk about the MONTHLY S2-R2 range. Look at Netflix (NASDAQ:NFLX) $76.63 +4.74% and review the wide ranges of MONTHLY S2-R2. That's some volatility isn't it? When you're tracking stocks, you'll pick up on a stock's "normal" range. If it is consistently 10-points and the next month its 40-points, like Auto Zone (NYSE:AZO) $88.62 +2.22%, a stock I view as bullish, then realize the stock has made a major move, and when the range comes back to historical norm, be ready for the stock to be "coiling" and make another move. Since I touched on Netflix (NFLX), here's an example of how the MONTHLY Pivots can also be used, along with your retracement tool. In Friday's market monitor, a trader asked the question on what might be a bullish price target into Netflix's February 11th stock split. Since NFLX is a stock I track in my monthly pivots, I was eager to try and tackle the question. Hey! NFLX's point and figure chart is bullish, with a vertical count hinting at $90. Today's trade also had the stock's point and figure chart generating the "bullish triangle" pattern. Here's a bar chart of NFLX, where I use trend, along with the retracement technique of anchoring retracement at both the MONTHLY S2 and MONTHLY R2, to then develop a potential price target into the split. Netflix Inc. (NFLX) Chart - 120-minute intervals I don't normally view charts on a 120-minute time scale, but because I'm limited by horizontal scale, I wanted to show how I was attaching a bullish resistance trend from two higher highs, where extension of this bullish resistance might also be deemed a near-term target into the stock's split. The trade was compelling I thought. After a BIG gap higher to new highs, NFLX came back to fill its gap, but most likely, with the stock so heavily shorted, every bear that saw $79 was probably glad to do some buying on the pullback to that gap. The above screen capture was taken on Friday just before 02:30 PM EST. I thought the MONTHLY pivot retracement tied in pretty good with how the stock had been trading, and the intersection of the bullish resistance trend and the MONTHLY 19.1% retracement made for a good split target. Today's close of $76.63 has NFLX clearing the $75.39 level, and from the MONTHLY Pivot Matrix (For Month Feb) $82.70 looks to be the next hurdle. Can NFLX trade its bullish vertical count of $92.00 this month? One can never be sure, but it just might with MONTHLY R2 giving some room at $92.00. That would be a very bullish aspiration, but NFLX showed it could trade a MONTHLY R2 in January, and I dare say a bear short below $75 might be a little jittery. So, there are quite a few ways we can utilize the pivot matrix for stocks. A shorter-term trader might look to incorporate the DAILY and WEEKLY pivot levels into the trading of their favorite stocks, but some time is needed to populate the high/low/close. Still, the MONTHLY pivots only have to be updated once a month, and can be knocked out pretty quick. A real neat technique for tracking stocks in a pivot matrix is to group "like stocks" together (drug stocks, biotech stocks, semiconductor stocks, airline stocks, retail stocks, gold stocks) and see how they either move in UNISON with each other, or pick out the ones that are DIVERGING from each other. You will probably see too how the groups move in relation to each other. Groups that are out of favor or perhaps see profit taking will be groups DIVERGE from the SPX and other sectors you have grouped together. This would be similar to the sector bullish % charts that the point and figure charting methodology uses for tracking sector rotation and strength/weakness. For those interested in setting up their own spreadsheets, the rather simple mathematic formula for calculation the levels are posted in the January 19, 2003 Ask the Analyst column titled "Pivot Analysis to Define Levels and Range." Jeff Bailey ************* COMING EVENTS ************* Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- AL Alcan Inc. Mon, Feb 09 -----N/A----- 0.40 BOBE Bob Evans Farms Mon, Feb 09 After the Bell 0.45 CHD Church & Dwight Co. Mon, Feb 09 -----N/A----- 0.35 ESPD eSpeed, Inc. Mon, Feb 09 After the Bell 0.15 HAS Hasbro, Inc. Mon, Feb 09 Before the Bell 0.55 IACI InterActiveCorp Mon, Feb 09 Before the Bell 0.23 KB Kookmin Bank Mon, Feb 09 -----N/A----- N/A LRY Liberty Prop Trust Mon, Feb 09 After the Bell 0.78 LNCR Lincare Hldgs Mon, Feb 09 After the Bell 0.60 LNC Lincoln National Mon, Feb 09 After the Bell 0.91 MRD MacDermid Mon, Feb 09 After the Bell 0.41 MCY Mercury General Mon, Feb 09 -----N/A----- 0.60 GAS Nicor Inc. Mon, Feb 09 After the Bell 0.82 PRE PartnerRe Ltd. Mon, Feb 09 After the Bell 1.68 PPS Post Props, Inc Mon, Feb 09 After the Bell 0.48 TLTOB Tele2 AB Mon, Feb 09 -----N/A----- N/A PNX The Phoenix Companies Mon, Feb 09 Before the Bell 0.14 TMK Torchmark Mon, Feb 09 After the Bell 0.99 UDR Un Dom Rlty Trust, IncMon, Feb 09 After the Bell 0.37 UVV Universal Corp Mon, Feb 09 After the Bell N/A ZMH Zimmer Inc. Mon, Feb 09 After the Bell 0.47 ------------------------- TUESDAY ------------------------------ TW 21st Century Ins Tue, Feb 10 After the Bell 0.20 AGU Agrium, Inc. Tue, Feb 10 After the Bell 0.21 AW Allied Waste Ind, Inc Tue, Feb 10 After the Bell 0.12 AEE Ameren Corp Tue, Feb 10 Before the Bell 0.27 ACAS Am Capl Strategies Tue, Feb 10 After the Bell 0.69 AMH AmerUs Grp Co. Tue, Feb 10 After the Bell 0.95 ATO Atmos Energy Corp Tue, Feb 10 -----N/A----- 0.54 BP Bp PLC Tue, Feb 10 Before the Bell 0.84 CRL Charles River Labs Tue, Feb 10 After the Bell 0.38 CLX Clorox Tue, Feb 10 -----N/A----- 0.49 CTSH Cognizant Tech Solut Tue, Feb 10 -----N/A----- 0.24 FDP Fresh Del Monte Prd Tue, Feb 10 Before the Bell 0.37 GALN Galen Hldgs PLC Tue, Feb 10 Before the Bell 0.53 GET Gaylord Entertainment Tue, Feb 10 Before the Bell -0.35 HTG Hrtg Prp Invstmnt TrstTue, Feb 10 -----N/A----- 0.71 HNI HON IND Inc. Tue, Feb 10 Before the Bell 0.48 HS Hughes Electronics Tue, Feb 10 -----N/A----- -0.04 RX IMS Health Tue, Feb 10 After the Bell 0.31 IPCR IPC Hldgs Tue, Feb 10 After the Bell 1.16 LZB La-Z-Boy Inc. Tue, Feb 10 After the Bell 0.29 LF LeapFrog Enterprises Tue, Feb 10 After the Bell 0.73 TVL LIN TV Corp. Tue, Feb 10 Before the Bell 0.21 MAC Macerich Co Tue, Feb 10 -----N/A----- 1.02 MPG Maguire Props, Inc. Tue, Feb 10 After the Bell 0.49 MAR Marriott Intl Tue, Feb 10 Before the Bell 0.61 MDCO MEDICINES CO Tue, Feb 10 After the Bell 0.03 MET MetLife Inc. Tue, Feb 10 After the Bell 0.74 MICC Millicom Intl CellularTue, Feb 10 -----N/A----- 0.86 MNST Monster Worldwide Tue, Feb 10 After the Bell 0.10 NPSP NPS Pharmaceuticals Tue, Feb 10 After the Bell -1.06 PER Perot Systems Tue, Feb 10 Before the Bell 0.14 PNM PNM Resources Tue, Feb 10 After the Bell 0.36 PRU Prudential Financial Tue, Feb 10 After the Bell 0.61 PSD Puget Energy Tue, Feb 10 After the Bell 0.57 STR Questar.com Tue, Feb 10 After the Bell 0.65 ROIAK Radio One Tue, Feb 10 Before the Bell 0.07 RGC Regal Entertainment Tue, Feb 10 Before the Bell 0.31 RCII Rent-A-Center Tue, Feb 10 Before the Bell 0.60 PHG Royal Philips Elect Tue, Feb 10 -----N/A----- 0.46 SIAL Sigma-Aldrich Corp Tue, Feb 10 After the Bell 0.66 SIR SIRVA, Inc. Tue, Feb 10 Before the Bell 0.18 SRCL Stericycle Tue, Feb 10 After the Bell 0.38 SCMR Sycamore Networks Tue, Feb 10 After the Bell -0.04 XL XL Capital Ltd Tue, Feb 10 After the Bell -2.51 ------------------------ WEDNESDAY ----------------------------- ACL Alcon Inc. Wed, Feb 11 After the Bell 0.42 ALFA Alfa Corp Wed, Feb 11 Before the Bell 0.25 AIG American Intl Grp Wed, Feb 11 Before the Bell 1.04 APPB Applebee's Intl Wed, Feb 11 After the Bell 0.41 ATR AptarGrp Wed, Feb 11 After the Bell 0.48 RMK Aramark Corp Wed, Feb 11 Before the Bell 0.34 AXS Axis Capital Hldgs LtdWed, Feb 11 After the Bell 0.70 BAB British Airways Wed, Feb 11 Before the Bell N/A BSY British Sky Brdcstg Wed, Feb 11 Before the Bell N/A BRCD Brocade Cmmu Systems Wed, Feb 11 After the Bell 0.02 CGT CAE Wed, Feb 11 Before the Bell N/A CARS Capital Automotive Wed, Feb 11 Before the Bell 0.60 CHH Choice Hotels Intl Wed, Feb 11 After the Bell 0.45 XEC Cimarex Energy Co. Wed, Feb 11 Before the Bell 0.44 CMCSA Comcast Corp Wed, Feb 11 Before the Bell 0.02 CSC Computer Sciences CorpWed, Feb 11 After the Bell 0.70 DCN Dana Wed, Feb 11 Before the Bell 0.40 DVA DaVita Wed, Feb 11 -----N/A----- 0.69 DFG Delphi Financial Grp Wed, Feb 11 After the Bell 0.72 FR First Indl Rlty Trust Wed, Feb 11 After the Bell 0.91 FLA Florida East Coast Wed, Feb 11 Before the Bell 0.14 FST Forest Oil Corp Wed, Feb 11 After the Bell 0.38 FOX Fox Entertainment Grp Wed, Feb 11 Before the Bell 0.34 GRMN Garmin Ltd. Wed, Feb 11 Before the Bell 0.45 GEMP Gemplus Intl S.A. Wed, Feb 11 Before the Bell N/A GRP Grant Prideco Inc Wed, Feb 11 -----N/A----- 0.07 DA Grpe Danone Wed, Feb 11 -----N/A----- 0.85 HNT Health Net, Inc. Wed, Feb 11 Before the Bell 0.76 HPC Hercules Wed, Feb 11 Before the Bell 0.18 HRH Hilb Rogal & Hobbs Co Wed, Feb 11 After the Bell 0.53 IPXL Impax Labs Wed, Feb 11 Before the Bell -0.05 KIM KIMCO RLTY CORP Wed, Feb 11 After the Bell 0.84 LAMR LAMAR ADVERTISING CO Wed, Feb 11 Before the Bell -0.05 MHS Medco Health SolutionsWed, Feb 11 After the Bell 0.46 NRD NORANDA INC Wed, Feb 11 Before the Bell N/A OCAS Ohio Casualty Wed, Feb 11 After the Bell 0.30 OSI Outback Steakhouse Wed, Feb 11 After the Bell 0.58 PFCB P.F. Chang's Chn Bstr Wed, Feb 11 Before the Bell 0.28 PTP Platinum Underwriters Wed, Feb 11 After the Bell 0.66 PL Protective Life Corp Wed, Feb 11 Before the Bell 0.72 QLTI QLT Inc. Wed, Feb 11 Before the Bell 0.14 SKYW SkyWest Wed, Feb 11 -----N/A----- 0.27 STO Statoil ASA Wed, Feb 11 Before the Bell N/A SWMAY Swedish Match Wed, Feb 11 -----N/A----- N/A SYT Syngenta Wed, Feb 11 -----N/A----- N/A SYNT Syntel, Inc. Wed, Feb 11 Before the Bell 0.21 TFX Teleflex, IncorporatedWed, Feb 11 After the Bell 0.67 TLSN TeliaSonera AB Wed, Feb 11 -----N/A----- N/A TPP Teppco Wed, Feb 11 After the Bell 0.43 KO The Coca-Cola Co Wed, Feb 11 Before the Bell 0.45 FAF The First American Wed, Feb 11 Before the Bell 1.11 NWS The News Corp Limited Wed, Feb 11 Before the Bell 0.28 TNB Thomas & Betts Wed, Feb 11 After the Bell 0.23 TRH Transatlantic Hldgs Wed, Feb 11 -----N/A----- 1.44 VFC VF Wed, Feb 11 -----N/A----- 0.89 BER W.R. Berkley Wed, Feb 11 After the Bell 0.87 WC WellChoice, Inc. Wed, Feb 11 After the Bell 0.62 WFMI Whole Foods Market Wed, Feb 11 After the Bell 0.57 WEC Wisconsin Energy Corp Wed, Feb 11 Before the Bell 0.62 XTO XTO Energy Inc. Wed, Feb 11 Before the Bell 0.45 YUM Yum! Brands, Inc. Wed, Feb 11 After the Bell 0.62 ZBRA Zebra Technologies Wed, Feb 11 Before the Bell 0.49 ------------------------- THUSDAY ----------------------------- ADIC Adv Digital Info Corp Thu, Feb 12 -----N/A----- 0.08 AET Aetna Inc. Thu, Feb 12 Before the Bell 1.18 AMIS AMIS HLDGS INC Thu, Feb 12 After the Bell 0.11 ADI Analog Devices Inc. Thu, Feb 12 After the Bell 0.28 AIV Apart Invstmnt & Mgmt Thu, Feb 12 -----N/A----- 0.76 BHI Baker Hughes Incorp Thu, Feb 12 Before the Bell 0.28 BCS Barclays Bank PLC Thu, Feb 12 Before the Bell N/A BIO Bio-Rad Labs, Inc. Thu, Feb 12 After the Bell 0.74 BDN Brandywine Rlty Trust Thu, Feb 12 After the Bell 0.66 BNN BRASCAN CORP Thu, Feb 12 -----N/A----- 0.47 BTY BT Grp PLC Thu, Feb 12 Before the Bell N/A BUH Buhrmann NV Thu, Feb 12 Before the Bell N/A CNP CenterPoint Energy Thu, Feb 12 Before the Bell 0.19 CEPH Cephalon, Inc. Thu, Feb 12 After the Bell 0.52 CBI Chicago Bridge & Iron Thu, Feb 12 Before the Bell 0.39 CNA CNA Financial Corp Thu, Feb 12 Before the Bell 0.59 CORV Corvis Corp Thu, Feb 12 After the Bell -0.09 COX Cox Cmmu Inc. Thu, Feb 12 Before the Bell 0.07 CSR Credit Suisse Grp Thu, Feb 12 Before the Bell N/A CVS CVS Corp Thu, Feb 12 Before the Bell 0.58 DF Dean Foods Thu, Feb 12 -----N/A----- 0.54 DELL Dell, Inc. Thu, Feb 12 -----N/A----- 0.28 ELUX Electrolux AB Thu, Feb 12 Before the Bell 0.92 GPRO Gen-Probe Thu, Feb 12 After the Bell 0.16 GNTA Genta Thu, Feb 12 -----N/A----- -0.21 GSK GlaxoSmithKline Thu, Feb 12 Before the Bell 0.65 GTI GrafTech Intl Ltd Thu, Feb 12 Before the Bell 0.07 HB Hillenbrand Ind Thu, Feb 12 -----N/A----- 0.82 IDC Interactive Data Corp Thu, Feb 12 Before the Bell 0.19 IVGN Invitrogen Corp Thu, Feb 12 Before the Bell 0.56 SFI iStar Financial Thu, Feb 12 Before the Bell N/A JHX James Hardie Ind N.V. Thu, Feb 12 -----N/A----- N/A KROL Kroll Inc. Thu, Feb 12 Before the Bell 0.28 LTR Loews Corp. Thu, Feb 12 Before the Bell 1.16 MRH Montpelier Re Hldgs Thu, Feb 12 After the Bell 1.18 NOI National Oilwell Thu, Feb 12 Before the Bell 0.28 NFX Newfield Exploration Thu, Feb 12 Before the Bell 0.98 NXY Nexen Thu, Feb 12 Before the Bell 0.68 NVDA NVIDIA Corp Thu, Feb 12 After the Bell 0.11 OCR Omnicare Thu, Feb 12 Before the Bell 0.59 OSG Overseas ShipHldg Thu, Feb 12 Before the Bell 0.60 PHS PacifiCare Health Sys Thu, Feb 12 After the Bell 0.52 PHLY Phil Consolidated HldgThu, Feb 12 -----N/A----- 0.77 PDS Precision Drilling Thu, Feb 12 Before the Bell 0.76 SWY Safeway, Inc. Thu, Feb 12 Before the Bell 0.58 SPIL SILICONWARE PRECISION Thu, Feb 12 -----N/A----- 0.09 STRA Strayer Education Thu, Feb 12 Before the Bell 0.70 SDS SunGard Data Systems Thu, Feb 12 After the Bell 0.36 TLS Telstra Corp Limited Thu, Feb 12 -----N/A----- N/A TGN Texas Genco Hldgs, IncThu, Feb 12 Before the Bell 0.29 MAY May Department Stores Thu, Feb 12 -----N/A----- 1.32 SVM The ServiceMaster Co Thu, Feb 12 Before the Bell 0.08 TOC The Thomson Corp Thu, Feb 12 -----N/A----- 0.54 TMS Thomson Thu, Feb 12 -----N/A----- N/A TRZ Trizec Props, Inc. Thu, Feb 12 Before the Bell 0.39 TXU TXU Corp. Thu, Feb 12 Before the Bell 0.20 UL Unilever PLC Thu, Feb 12 Before the Bell N/A UNA UNOVA Inc. Thu, Feb 12 After the Bell 0.01 WMI Waste Management Thu, Feb 12 Before the Bell 0.33 WWCA Western Wireless Thu, Feb 12 After the Bell -0.02 WMGI Wright Medical Grp, Thu, Feb 12 After the Bell 0.17 XMSR XM Satellite Radio Thu, Feb 12 Before the Bell -1.16 ------------------------- FRIDAY ------------------------------- ABX Barrick Gold Fri, Feb 13 -----N/A----- 0.08 DP Diagnostic Products Fri, Feb 13 Before the Bell 0.51 FRT Fed Rlty Invstmnt TrstFri, Feb 13 -----N/A----- 0.67 SJM J. M. Smucker Co Fri, Feb 13 Before the Bell 0.63 IMI SanPaolo IMI SpA Fri, Feb 13 -----N/A----- N/A SCG SCANA Fri, Feb 13 Before the Bell 0.61 TELN Telenor ASA Fri, Feb 13 -----N/A----- N/A TU TELUS Fri, Feb 13 During the Market N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable JST Jinpan Intl Limited 2:1 Feb 6th Feb 9th MSCC Commercial Capital Bancorp2:1 Feb 6th Feb 9th DCAI Dialysis Corp 3:2 Feb 9th Feb 10th TASR TASER Intl, Inc. 2:1 Feb 10th Feb 11th ONFC Onedia Financial Corp 3:1 Feb 10th Feb 11th NFLX Netflix Inc. 2:1 Feb 11th Feb 12th NYB New York Community Bancorp2:1 Feb 17th Feb 18th SBGA Summit Bank Corp N/A Feb 17th Feb 18th BMS Bemis Company 3:2 Feb 17th Feb 18th MOG.A N/A 3:2 Feb 17th Feb 18th OVTI OmniVision Technologies 2:1 Feb 17th Feb 18th SNDK SanDisk Corp N/A Feb 18th Feb 19th CCBI Commercial Capital Bancorp3:2 Feb 20th Feb 23rd SLFI Sterling Financial Corp 3:2 Feb 20th Feb 23rd NATI National Instruments 2:1 Feb 20th Feb 23rd ACV Alberto-Culver Company N/A Feb 20th Feb 23rd -------------------------- Economic Reports This Week -------------------------- Wall Street will once again be focusing on Greenspan this week with his two appearances before the House and Senate. Look for the balance of this week's economic reports to announce late in the week. ============================================================== -For- ---------------- Monday, 02/09/04 ---------------- Wholesale Inventories (DM) Dec Forecast: 0.3% Previous: 0.5% ----------------- Tuesday, 02/10/04 ----------------- OPEC meeting ------------------- Wednesday, 02/11/04 ------------------- Greenspan reports on Monetary Policy to Congress ------------------ Thursday, 02/12/04 ------------------ Initial Claims (BB) 02/06 Forecast: N/A Previous: 356K Business Inventories (BB) Dec Forecast: 0.2% Previous: 0.3% Retail Sales (BB) Jan Forecast: 0.2% Previous: 0.5% Retail Sales ex-auto (BB) Jan Forecast: 0.4% Previous: 0.1% Treasury Budget (DM) Jan Forecast: $3.0B Previous: $10.6B Greenspan reports on Monetary Policy to the Senate ---------------- Friday, 02/13/04 ---------------- Trade Balance (BB) Dec Forecast: -$39.7B Previous: -$38.0B Export Prices es-ag. (BB) Jan Forecast: N/A Previous: 0.2% Import Prices es-oil (BB) Jan Forecast: N/A Previous: 0.1% Mich Sentiment-Prel. (DM) Feb Forecast: 103.6 Previous: 103.8 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. 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You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 02-08-2004 Sunday 2 of 5 In Section Two: Watch List: Is This Your Entry Point? Dropped Calls: GENZ, HSIC Dropped Puts: COF, QLGC ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Is This Your Entry Point? ___________________________________________________________________ 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. ___________________________________________________________________ Johnson Controls Inc - JCI - close: 60.06 change: +1.39 WHAT TO WATCH: JCI is certainly a stock to watch. We're seeing conflicting signals here. Its P&F chart is showing an ugly bearish signal from very overbought. Yet its daily chart has shares bouncing strongly from its rising 40-dma. The stock bounced from this technical support twice in November and once in October of last year. Even Friday's close back over the $60 level looks encouraging. The stock does have resistance at $62.00 but its short-term oscillators are coiling back into bullish buy signals. Chart= --- Winnebago Industries - WGO - close: 72.30 change: +1.92 WHAT TO WATCH: Back in the middle of December shares of WGO broke out through the top of its rising channel after announcing earnings that surpassed estimates by 14 cents. The stock ran straight to the $70 level and has since found support in the 68- 69 range for the last seven weeks. We've noticed that for the last several days WGO has been using the top of its earlier channel as support (extend a trendline from the June highs through the October highs and you'll see it). It looks like the rally on Friday might be a trade-worthy entry point for a run into its 2-for-1 stock split on March 5th. Chart= --- Bank of America - BAC - close: 82.76 change: +0.76 WHAT TO WATCH: Investors may be rotating back into financials again. BAC has put together a three-day run of gains but paused just under resistance at $83.00. Traders could use a trigger above $83.00 as a bullish entry point. Coincidentally, a move above $83.00 would produce a new double-top breakout for its P&F chart. Investors should note that BAC does have some resistance at $85.00 dating back to the July highs. Chart= --- Pulte Homes - PHM - close: 44.95 change: +1.63 WHAT TO WATCH: PHM has been consolidating in a trend of lower highs since early December. Shares did rally on Friday due to the jobs report and the expectation that the Fed will remain on hold but the stock is still under resistance at its 50-dma and the $46.00 level. We would consider a trigger above $46.00 as an entry point for new bullish positions. A move above $46 would break not only price resistance but its trend of lower highs. Chart= --- Juniper Networks - JNPR - close: 29.47 change: +1.25 WHAT TO WATCH: Only adrenaline junkies should pursue this opportunity but JNPR is breaking out again. Shares gapped higher three weeks ago on a much better than expected earnings report and guidance. Since then the stock has been consolidating its gains and using the top of the gap as support, which is common. Friday's 4.4% gain has broken its short-term trend of lower highs. Aggressive traders could go long now with a stop loss at 27.35. Less aggressive traders may want to see JNPR break above the $30 mark or its highs near $31. Chart= --- Avocent Corp - AVCT - close: 41.82 change: +0.84 WHAT TO WATCH: AVCT has broken through long-term resistance at $40.00 to hit new three-year highs after announcing earnings that beat the street by 2 cents. Traders might consider giving chase but we'd wait for a pull back toward the $40.00 level and buy the bounce. Point-and-figure chart readers will note the fresh triple-top buy signal and $66 price objective. Chart= --- Analog Devices - ADI - close: 48.04 change: +2.04 WHAT TO WATCH: Looking for a way to play the bounce in the semiconductor sector and don't want to trade the SMH holders? Check out ADI's bounce from the bottom of its rising channel and support at $45.00. Friday's 4.4% rally also broke through resistance at its 50-dma. Its MACD is about to turn bullish while its stochastics and RSI are already on new buy signals. Chart= --- Infosys Technologies - INFY - close: 89.13 change: +1.73 WHAT TO WATCH: We'd keep an eye on this India-based software firm. Its stock has been consolidating gains after reaching the $101 level in early January. The bounce from $85.00 looks good but shares are still struggling with resistance at $90.00. Aggressive traders could buy a break over $90 but its short-term trend of lower highs is still a concern. Look for a move over $91.50 or another bounce from the $85 level. Chart= ************************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 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Genzyme Corp. - GENZ - close: 54.79 change: -0.21 stop: 53.00 After more than 2 weeks of kicking around on the Call list, GENZ appears to have lost its way. Early last week, the stock made what looked like a convincing breakout move, but the rally stalled right in the middle of the $57-58 resistance area and then fell back towards its $55 price magnet. With the bearish alignment on the daily oscillators, GENZ looks like it is done with the upside for the time being, and we're going to pull the plug before it falls any further. Traders willing to hold on for one more bounce towards resistance should set a firm stop at $53.50 (just under the 20-dma) and exit on a move up near the $56 level. Picked on January 20th at $53.00 Change since picked: +1.79 Earnings Date 2/19/04 (confirmed) Average Daily Volume = 2.84 mln Chart = --- Henry Schein - HSIC - close: 70.42 chg: +0.69 stop: 68.00 We're going to pull the plug on HSIC. It's been two weeks and the stock really hasn't performed as expected. Granted the major averages have been flat to down over this time period and given how effective Murphy's law works HSIC will probably rocket higher next week now that we've closed it. Just because we're closing the play doesn't mean readers can't continue to play or monitor HSIC. The stock is still in an up trend but its technical oscillators are giving mixed to bearish signals and we've seeing a short-term trend of lower highs. If we were going to remain in the play we'd probably raise our stop loss to $69.00 since HSIC hasn't traded under $69.10 in over two weeks. Remember that HSIC has already met its current P&F price objective. Picked on January 22 at $70.65 Change since picked: - 0.23 Earnings Date 03/04/04 (unconfirmed) Average Daily Volume: 334 thousand Chart = PUTS ^^^^ Capital One Fin. - COF - close: 71.64 change: +1.99 stop: 72.50 Well, that didn't take long! COF gave us a great setup for a short, but it needed to break down to tempt us into a position. That breakdown never occurred, with the stock instead rebounding smartly in response to the Jobs data this morning. Since our trigger was never hit, we're going to pull the plug this weekend. The play never materialized, and by removing it from consideration, we have more space to focus on other plays. Picked on February 5th at $69.65 Change since picked: +1.99 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 2.12 mln Chart = --- QLogic Corp. - QLGC - close: 45.16 change: +1.69 stop: 46.00 With the Semiconductor index (SOX.X) catching a strong rebound on Friday, QLGC reluctantly went along for the ride, shooting up to the top of its descending channel at the open. The remainder of the session saw the stock consistently working its way higher, cleanly breaking above both the 10-dma and the top of the channel, which has now been resolved as a clear bull flag pattern. With the stock ending near its high of the day and within a few pennies of where we initiated coverage, it is clearly time to move on. Take advantage of any early weakness on Monday to exit at a more favorable price, but if that weakness doesn't materialize, then take whatever exit the market offers. Picked on January 22nd at $45.25 Change since picked: -0.09 Earnings Date 4/14/04 (unconfirmed) Average Daily Volume = 3.96 mln Chart = *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. 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The Option Investor Newsletter Sunday 02-08-2004 Sunday 3 of 5 In Section Three: Current Calls: ABK, DHR, ESRX, IBM, IMDC, TEVA New Calls: APOL, CDWC, GD, DHI Current Put Plays: AVID, EASI New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Ambac Financial Group - ABK - close: 76.50 chg: -0.29 stop: 71.99 Company Description: Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a leading guarantor of public finance and structured finance obligations, has earned triple-A ratings, the highest ratings available from Moody's Investors Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc. and Rating and Investment Information, Inc. (source: company press release) Why We Like It: We are still bullish on the insurance sector and the IUX has out performed this week hitting another new high. Recent earnings reports from lead companies in the group have not disappointed and with traders jumping back financials on Friday we'd expect insurance stocks to continue their recent up trend. We are a tiny bit perplexed with ABK. The stock didn't show any weakness or volatility this last week, unlike the markets, but neither did it enjoy the rally on Friday. We would still consider new positions at current levels but a dip to $75.00 would be more attractive. Momentum traders can look for a move above the $77.50 mark. Suggested Options: Short-term traders can use February or March strikes. February calls expire in two weeks so we're going to suggest the March calls. The March 70s and 75s are our favorites. BUY CALL FEB 70 ABK-BN OI=504 at $6.80 SL=4.00 BUY CALL FEB 75 ABK-BO OI=387 at $2.25 SL=1.15 BUY CALL MAR 70 ABK-CN OI= 11 at $7.10 SL=4.25 BUY CALL MAR 75 ABK-CO OI=140 at $3.00 SL=1.50 Annotated Chart: Picked on February 1 at $74.77 Change since picked: + 1.73 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 476 thousand Chart = --- Danaher Corp - DHR - close: 94.64 cls: +2.84 stop: 89.00*new* Company Description: Danaher, a leading industrial company, designs, manufactures, and markets innovative products, services and technologies with strong brand names and significant market positions. Driven by strong core values and a foundation provided by the Danaher Business System, Danaher's associates are pursuing a focused strategy aimed at creating a premier global enterprise. (source: company website) Why We Like It: The last few days we've heard a lot of talk about investors moving back into cyclicals and how traders should use the recent weakness as a buying opportunity. Looks like it may be a good idea. The last couple of weeks the major averages have been flat to down on concerns that the Fed may raise rates sooner than expected and that the jobs report on Friday (two days ago) would disappoint. Well, the jobs number did disappoint but not too badly and that has Wall Street thinking that the Fed will remain on hold or in their own words "patient". Renewed confidence of a low interest rate environment had investors opening up their wallets again. DHR outperformed most stocks on Friday with a 3% gain on better than average volume. The stock had already bounced from the $90 level, where we had suggested traders consider new positions. Most of its technical oscillators are bullish again and DHR is poised for a breakout over the $95.00 level. We're going to raise our stop loss to $89.00, just under the simple 50-dma. Readers who like to buy the dip can look for a bounce above the $93.00 level. In the mean time we'll be looking for DHR to break through minor resistance at $95.40. Suggested Options: Short-term traders can choose the February or March options and longer-term players might want to look at June or Septembers. Our preferred strikes would be the March calls with the March 90s as our favorite. BUY CALL FEB 90 DHR-BR OI=1712 at $5.30 SL=3.00 BUY CALL MAR 90*DHR-CR OI= 924 at $6.40 SL=4.00 BUY CALL MAR 95 DHR-CS OI=1012 at $3.30 SL=1.65 Annotated Chart: Picked on January 30 at $91.01 Change since picked: + 4.63 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 841 thousand Chart = --- Express Scripts - ESRX - close: 68.69 change: -0.15 stop: 65.50 Company Description: Express Scripts provides health care management and administration services on behalf of clients that include health maintenance organizations, health insurers, third-party administrators, employers and union-sponsored benefit plans. The company's fully integrated pharmacy benefit management services include network claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical information management services and informed decision counseling services through its Express Health Line division. Why we like it: After several attempts to break out over the $70 resistance level, it looks like ESRX is going to have to pull back to support and take another run at a breakout. Last week's move over $70 did look encouraging, but the bulls were simply unable to build on the mid-week gains and the stock drifted back towards support near $68. This support is reinforced by the 20-dma ($68.18) and with a multi-week base near this level, it should prove to be solid support once again. It was interesting that ESRX didn't join in on the broad market rally on Friday and this does raise a caution flag. We've continued to favor pullback entries throughout our coverage of the stock and that bias remains, primarily due to the fact that the stock hasn't yet been able to sustain a meaningful breakout. Look for signs of a rebound from the $68 area or even from lower support near $67 before considering new positions. Our stop remains at $65.50, comfortably below strong support at $66 and the 50-dma at $65.86. Suggested Options: Shorter Term: The February $70 Call will offer short-term traders the best return on an immediate move, as it is just slightly out of the money. Short term traders with a less aggressive stance will want to use the ITM February $65 call. Longer Term: Aggressive longer-term traders can use the March $70 Call. Our preferred option is the March $70 strike, which is just slightly out of the money and should provide sufficient time for the play to move in our favor. ! Alert - February options expire in 2 weeks! BUY CALL FEB-65 XTQ-BM OI= 911 at $4.60 SL=2.75 BUY CALL FEB-70 XTQ-BN OI=2180 at $1.45 SL=0.75 BUY CALL MAR-70*XTQ-CN OI= 374 at $2.90 SL=1.50 Annotated Chart of ESRX: Picked on January 13th at $68.32 Change since picked: +0.37 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.03 mln Chart = --- Int'l Bus. Machines - IBM - cls: 98.94 chng: +0.24 stp: 96.50*new* Company Description: International Business Machines uses advanced information technology to provide customer solutions. The company provides value to its customers through a variety of solutions including technologies, systems, products, services, software and financing. IBM's three hardware product segments are comprised of Technology, Personal Systems and Enterprise Systems. Other major operations consist of a Global Services segment, a Software segment, a Global Financing segment and an Enterprise Investments segment. Why we like it: Following Wednesday's foray over the $100 level, which activated the trigger for our IBM play, the stock pulled back again, showing that there wasn't yet sufficient enthusiasm for a sustained breakout. It was rather peculiar to see the stock unable to participate in Friday's rally, but we're encouraged to see price holding above the $97-98 support area. Daily oscillators are starting to peel off from overbought territory, confirming that IBM needs to retrace a bit before the bulls take another run at triple-digit territory. A rebound from the $97-98 area looks good for new entries, especially with the 20-dma ($96.65) now rising to reinforce the bottom of that support zone. Traders that would prefer to enter on strength will need to wait for a rally to new recent highs above $100.50 before playing. We're raising our stop to $96.50 this weekend, as a break below that level would be cause for concern, as it would represent a violation of the 20-dma, as well as the 1/29 intraday low. Suggested Options: Shorter Term: The February $100 Call will offer short-term traders the best return on an immediate move, as it will be at the money when the play is triggered. Longer Term: Aggressive longer-term traders can use the March $100 Call, while the more conservative approach will be to use the March $95 strike. Our preferred option is the March $100 strike, which is currently at the money and should provide sufficient time for the play to move in our favor. ! Alert - February options expire in 2 weeks! BUY CALL FEB- 95 IBM-BS OI=16596 at $4.40 SL=2.75 BUY CALL FEB-100 IBM-BT OI=28018 at $1.05 SL=0.50 BUY CALL MAR- 95*IBM-CS OI= 1929 at $5.50 SL=3.50 BUY CALL MAR-100 IBM-CT OI= 7312 at $2.35 SL=1.25 Annotated Chart of IBM: Picked on February 1st at $99.23 Change since picked: -0.29 Earnings Date 4/15/04 (unconfirmed) Average Daily Volume = 5.58 mln Chart = --- Inamed Corp - IMDC - close: 50.86 chg: -0.45 stop: 48.00 Company Description: Inamed is a global healthcare company with over 25 years of experience developing, manufacturing and marketing innovative, high-quality, science-based products. Current products include breast implants for aesthetic augmentation and for reconstructive surgery; a range of dermal products to treat facial wrinkles; and minimally invasive devices for obesity intervention, including the LAP-BAND. System for morbid obesity. (source: company press release) Why We Like It: Last Sunday we added IMDC due to its incredible strength, despite bad news, and the breakout over the $50.00 level. The stock appears to be consolidating its January gains but fortunately it is doing so above the $50 mark. A quick recap for those who missed the original play last Sunday: IMDC produces and markets a number of cosmetic surgery devices, treatments and supplies. Its biggest business is breast implants. The company got a lot of press in October during a company-sponsored FDA advisory panel meeting to look at re-introducing silicone implants. After some controversy the FDA essential said no and told IMDC to come back with more data. The stock gapped down in early January on the official no approval letter but shares quickly recouped their losses and broke above resistance at its 50-dma and the $50.00 mark. Contributing to the bullish move in IMDC was a very strong earnings report from rival breast implant maker Mentor. We're expecting a pre-earnings run for IMDC but shares need to hold support at $50.00. We're not happy to see what looks like a very short-term double-top at the $52.50 mark created last week and traders may want to wait for IMDC to trade above this level. More aggressive traders can still use dips to $50.00 as entry points. We do expect some resistance just above the $55.00 level but IMDC's P&F chart is pointing to a $70 price objective. Checking the company headlines we see that IMDC reported its latest findings for its Phase II dosing study of a botulinum toxin type A product at the American Academy of Dermatology meeting on Friday. The product is used to smooth out glabellar lines, which are the wrinkles between your eyebrows. IMDC plans to start its Phase III clinical trials in early 2004. The product is already on the market in 60 other countries under the name DYSPORT. Suggested Options: We don't plan to hold over the Feb. 24th earnings report but that date is not confirmed. We suggest the March or April calls. Our favorites are the March 50s and 55s. BUY CALL MAR 50 UZI-CJ OI=2870 at $3.60 SL=1.85 BUY CALL MAR 55 UZI-CK OI=5066 at $1.40 SL=0.75 BUY CALL APR 50 UZI-DJ OI= 564 at $4.60 SL=2.35 BUY CALL APR 55 UZI-DK OI= 568 at $2.50 SL=1.25 Annotated Chart: Picked on February 01 at $51.54 Change since picked: - 0.68 Earnings Date 02/24/04 (unconfirmed) Average Daily Volume: 682 thousand Chart = --- Teva Pharmaceutical - TEVA - cls: 65.25 chng: +0.78 stop: 61.00 Company Description: Teva Pharmaceutical Industries Ltd. is a global pharmaceutical company producing drugs in all major treatment categories. Teva has utilized its production and research capabilities to establish a global pharmaceutical business focused on the growing demand for generic drugs and on the opportunities for proprietary branded products for specific niche categories. Teva's active pharmaceutical ingredients business provides both significant revenues and profits from sales to third-party generic manufacturers and strategic benefits to the company's own pharmaceutical production through its delivery of significant raw materials. Why we like it: The past couple days have seen an unusual amount of volatility in shares of TEVA as investors have tried to determine whether to take profits from the recent runup or if this looks like a viable place to step aboard with new positions. The pullback from Thursday's intraday highs was eagerly bought and despite some intraday volatility on Friday, the stock surged to post another all-time closing high. Volume was a bit on the light side heading into the weekend, but it is hard to argue with the strength in price. Traders waiting for a solid pullback into the $62-63 support zone have had their patience tried in the past few days, as even the slightest dips have been bought, without allowing for real dip to support. Aggressive traders can target entries on a mild dip near the $64 level or a successful test of the 10-dma ($63.46), but we continue to prefer either a pullback to strong support in the $62-63 area or a clean breakout over $66. Maintain stops at $61 for now, as that is just under the bottom of the late-January consolidation zone, as well as the rising 20-dma ($61.39). Suggested Options: Shorter Term: The February $65 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Longer-term traders will want to use the March $65 Call, while the more aggressive approach would be to use the March $70 strike. We've listed a limited number of strikes on TEVA due to limited strike selection with acceptable open interest. Our preferred option is the March $65 strike, which is at the money and should provide sufficient time for the play to move in our favor. ! Alert - February options expire in 2 weeks! BUY CALL FEB-65 TVQ-BM OI=3642 at $1.55 SL=0.75 BUY CALL MAR-65*TVQ-CM OI=3396 at $2.50 SL=1.25 BUY CALL MAR-70 TVQ-CN OI=1503 at $0.70 SL=0.35 Annotated Chart of TEVA: Picked on February 3rd at $64.66 Change since picked: +0.59 Earnings Date 2/17/04 (unconfirmed) Average Daily Volume = 2.63 mln Chart = ************** NEW CALL PLAYS ************** Apollo Group - APOL - close: 77.44 change: +1.41 stop: 70.75 Company Description: The Apollo Group provides higher education to working adults. The company operates through its subsidiaries, The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International University, Inc. APOL offers its programs and services at 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Why we like it: After a brief respite, APOL is back to soaring like the NASA rockets of its namesake. Last time we played the upside in this education stock, the bulls stumbled just enough to trigger our stop before the uptrend reasserted itself with vigor. Beginning with a powerful breakout on Wednesday, where APOL moved to a fresh all-time high, the stock consolidated and then charged to another new high above $77 on Friday. Last week's breakout generated another PnF Buy signal, which underscores the Buy signal from early January that produced a bullish price target of $94. At the rate things are going, it looks like that target is indeed achievable and the only challenge remains finding a workable entry point into this very strong bullish trend that shows no signs of letting up. With the stock already up nearly 10% since its late January low, chasing APOL higher doesn't seem to be a high-odds strategy. The stock is due for a bit of a near-term pullback and that's where we'll want to look for an entry. There's mild support near $75 (the site of the late January peak), but support looks even better in the $74 area, especially with the 20-dma ($73.79) rising near that level. Note how the 30-dma has been providing steady closing support since late November -- we can expect that pattern to continue and that means a deep pullback near the 30- dma ($72.40) would provide an even better entry point ahead of the stock charging to new highs. We aren't going to be greedy and target that $94 PnF objective, but APOL does look like it could give us a nice rally up to the $85 area. Since we're looking to enter on a pullback, and not a breakout, we're going to set a fairly wide stop at $70.75, which is just below the 50- dma ($70.84). Suggested Options: Shorter Term: The February $75 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the March $80 Call, while the more conservative approach will be to use the March $75 strike. Our preferred option is the March $75 strike, which is both in the money and should provide sufficient time for the play to move in our favor. ! Alert - February options expire in 2 weeks! BUY CALL FEB-75 OAQ-BO OI=1332 at $3.20 SL=1.50 BUY CALL FEB-80 OAQ-BP OI= 477 at $0.60 SL=0.30 BUY CALL MAR-75*OAQ-CO OI= 212 at $4.40 SL=2.75 BUY CALL MAR-80 OAQ-CP OI= 295 at $1.85 SL=0.90 Annotated Chart of APOL: Picked on February 1st at $77.44 Change since picked: +0.00 Earnings Date 12/18/03 (confirmed) Average Daily Volume = 1.79 mln Chart = --- CDW Corp. - CDWC - close: 69.13 change: +2.29 stop: 64.00 Company Description: CDW Corporation is a direct marketer of multi-brand computers and related technology products and services in the United States. The company offers multi-brand computers and related technology products, including hardware and peripherals, software, networking and communication products and accessories, for use with microcomputers based on a variety of operating platforms, including Microsoft, Apple, Linux, Novel, Oracle and others. CDWC offers more than 80,000 products that include a range of product types from manufacturers including Cisco, Hewlett- Packard, IBM, Intel, Microsoft, Sony and Toshiba. With this selection of products, the company can provide its customers with fully integrated, multi-branded technology solutions and the convenience of one-stop shopping. Why we like it: Just when it looked like the rally in CDWC might be running out of gas, the stock blasted higher in early January, moving to its best levels since the first half of 2000. Over the past few weeks the stock has been trading in a nice clean consolidation patter, never drifting too far from its recent highs. The stock launched higher on Friday, gaining more than 3.4% and coming very near a breakout to new multi-year highs. The strong move in early January created a fresh PnF Buy signal, and the resultant vertical count gives an eventual upside target of $93. If achieved, it would have CDWC trading at new all-time highs, easily topping the highs near $85 from 2000. If looking for the reason behind the strength in the stock, the latest earnings report from 1/21 certainly provides some illumination, with sales rising 28%. We'll get another view as to the company's growth rate when it announces its January sales on February 11th. This looks like a great candidate to trade on a breakout to new highs, so we're going to set an entry trigger at $70.25, just over the 1/27 intraday high. Aggressive traders can enter on the initial breakout, while those with a more cautious approach may want to wait for a subsequent pullback to confirm support in the $67-68 area. While there's the potential for resistance to be found in the $72-73 area, it looks as though a solid breakout over $70 has room to run all the way to next solid resistance at $80, so that will be our upside target. Owing to the possibility that CDWC could still be subject to some consolidation before breaking out, we'll set a fairly wide stop down at $64, solidly below the current consolidation banc and the bottom of the 1/15 dip. Suggested Options: Shorter Term: The February $70 Call will offer short-term traders the best return on an immediate move, as it will be at the money when the play is triggered. Longer Term: Aggressive longer-term traders can use the March $75 Call, while the more conservative approach will be to use the March $70 strike. Our preferred option is the March $70 strike, which is at the money and should provide sufficient time for the play to move in our favor. ! Alert - February options expire in 2 weeks! BUY CALL FEB-65 DWQ-BM OI=793 at $4.80 SL=2.75 BUY CALL FEB-70 DWQ-BN OI=853 at $1.40 SL=0.75 BUY CALL MAR-70*DWQ-CN OI=325 at $2.75 SL=1.40 BUY CALL MAR-75 DWQ-CO OI= 90 at $1.05 SL=0.50 Annotated Chart of CDWC: Picked on February 8th at $69.13 Change since picked: +0.00 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 1.38 mln Chart = --- General Dynamics - GD - close: 96.88 chg: +1.37 stop: 92.00 Company Description: General Dynamics, headquartered in Falls Church, Va., employs approximately 67,600 people worldwide and had 2003 revenue of $16.6 billion. The company has leading market positions in land and amphibious combat systems, mission critical information systems and technologies, shipbuilding and marine systems, and business aviation. (source: company press release) Why We Like It: Seems like a day doesn't go by without some division of General Dynamics announcing another multi-million deal, most of which are for the government's defense program. In the last two weeks GD has announced $1.4 billion in deals on top of the $8.4 billion multi-year deal it will share with NOC to build submarines. Investors are betting that the White House's recent budget proposal calling for an increase in defense spending will send even more business to GD. We also like GD's bullish breakout over the $95.00 region last week after 3 1/2 weeks of consolidation above the $90 level. Contributing to the bullish mood in GD was a recent upgrade by UBS who lifted GD to a "buy" and raised their price target to $110. We also want to note the fresh triple-top breakout buy signal on GD's P&F chart and its $125.00 price objective. The $100 level will probably be GD's next resistance level but we're going to shoot for the $105-110 range as our profit target. We like entry points here but patient traders might wait for any possible dip toward the $95 mark, which should be new support. We'll start the play with a stop loss at $92.00. Suggested Options: There are only two weeks left for February strikes. Our preference is the March or May calls. We normally don't pick OTM calls as our favorite but we're going to bet on the May 100s. BUY CALL MAR 90 GD-CR OI= 72 at $7.80 SL=5.25 BUY CALL MAR 95 GD-CS OI= 517 at $4.10 SL=2.25 BUY CALL MAR 100 GD-CT OI= 139 at $1.55 SL=0.75 BUY CALL MAY 95 GD-ES OI=1082 at $5.40 SL=3.15 BUY CALL MAY 100*GD-ET OI= 933 at $2.95 SL=1.50 Annotated Chart: Picked on February 08 at $96.88 Change since picked: + 0.00 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- D.R.Horton - DHI - close: 30.00 chg: +1.35 stop: 27.99 Company Description: Founded in 1978, D.R. Horton, Inc. is engaged in the construction and sale of high quality homes designed principally for the entry-level and first time move-up markets. D.R. Horton currently builds and sells homes in 20 states and 47 markets, with a geographic presence in the Midwest, Mid-Atlantic, Southeast, Southwest and Western regions of the United States. The Company also provides mortgage financing and title services for homebuyers through its mortgage and title subsidiaries. (source: company press release) Why We Like It: A number of the homebuilders didn't react well to the Fed's change in language after their latest FOMC meeting. However, DHI held up and consolidated sideways. This Friday's jobs report, while disappointing, has given investors renewed confidence that the Fed will remain on hold and perpetuate the current low interest rate environment. That's exactly what homebuilders want to keep mortgage rates low, even though many have said that a small up-tick in rates would not hurt business. Speaking of business, business is good. DHI's most recent earnings report showed a 66% jump in net income to $185.6 million. Revenues jumped 26% to $2.2 billion. DHI's sales contract backlog rose 24% to $3.6 billion (14,480 homes) and net sales last quarter rose 20% to $2.0 billion (8,234 homes). Earnings were 78 cents, which were 16 cents better than the estimates. We like DHI because the stock is out performing many of its peers and with the Fed on hold investors will feel freer to buy the homebuilders without threat of a rise in interest rates. We're expecting another leg up as traders focus on DHI's current value with a P/E of just 10. Our first target is a move to $34-35 with a stop loss at $28.00. P&F chart readers will note that DHI's current price objective is $41.00. Suggested Options: There are only two weeks for February strikes. Our preference is for the March and May calls. You may notice some odd option symbols as a result of the recent 3:2 stock split. We're going to pick the May 30s as our favorite. BUY CALL MAR 25 DHI-CE OI= 154 at $5.40 SL=3.35 BUY CALL MAR 30 DHI-CF OI=1173 at $1.50 SL=0.75 BUY CALL MAY 30*DHI-EF OI= 774 at $2.40 SL=1.20 BUY CALL MAY 35 DHI-EG OI= 9 at $0.75 SL= -- Annotated Chart: Picked on February 08 at $30.00 Change since picked: + 0.00 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 2.4 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Avid Technology - AVID - close: 44.11 chg: +1.11 stop: 46.17 Company Description: Avid Technology, Inc. is the world leader in digital nonlinear media creation, management and distribution solutions, enabling film, video, audio, animation, games, and broadcast news professionals to work more efficiently, productively and creatively. For more information about the company's Oscar., Grammy., and Emmy. award-winning products and services, please visit: www.avid.com. (source: company press release) Why We Like It: Now we're really seeing the oversold bounce in AVID. Last Tuesday we added AVID to the put list after a very heavy, high volume sell-off in reaction to its earnings report, which wasn't that bad. The news sparked some broker downgrades and shares broke price support at $45.00 and technical support at its 200- dma. AVID did receive an upgrade from JPM a few days ago but the stock didn't react. Now that the major indices are bouncing we're seeing a bounce, probably short covering, in AVID. The $45 level and the 200-dma should act as overhead resistance. Beyond that the $46 mark is also mild resistance. We do expect AVID to bounce higher before rolling over again. We would not consider new entries until we see where the rally fails. P&F chart fans will note that its vertical count (price target) has dropped from $30 to $28. Suggested Options: February strikes don't have much time left so we're going to suggest the March or June puts. Our favorite is the March 45s. ! Remember, these are going to shrink in value on the bounce. Wait for the rebound to fail. BUY PUT MAR 45*AQI-OI OI=2181 at $4.00 SL=2.15 BUY PUT MAR 40 AQI-OH OI=3164 at $1.85 SL=0.95 BUY PUT JUN 45 AQI-RI OI= 648 at $6.20 SL=3.65 BUY PUT JUN 40 AQI-RH OI= 276 at $4.00 SL=2.25 Annotated chart: Picked on February 04 at $42.87 Change since picked: + 1.24 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 612 thousand Chart = --- Eng. Support Systems - EASI - cls: 47.96 chng: +2.21 stop: 50.50 Company Description: Engineered Support Systems, Inc. is a holding company for a group of subsidiaries that operate as suppliers of military electronics, equipment and logistics services. It has nine wholly owned subsidiaries: Systems and Electronics Inc., Engineered Air Systems, Inc., Keco Industries, Inc., Radian Inc., Engineered Coil Company, Engineered Electric Company, Universal Power Systems, Inc., ESSIbuy.com and Engineered Specialty Plastics, Inc. In April 2003, the Company sold its plastic products segment to a private equity group. The company supplies high-tech integrated military electronics, support equipment and logistics services to the United States armed forces and certain foreign militaries. EASI also engineers and manufactures air-handling and heat- transfer equipment, and material-handling equipment. Products are manufactured within three operating segments: light military support equipment, heavy military support equipment and electronics and automation systems. Why we like it: As convincing as last week's breakdown under the $48 level appeared, we couldn't shake the feeling that an oversold rebound was in the making, as traders could be expected to step in and buy the dip down to the $45 support area. Sure enough, that rebound materialized right at the opening bell on Friday, with the stock quickly pushing up to $47 and then steadily marching higher to end just a few pennies below the $48 level, which was the site of Wednesday's breakdown. Now we'll see whether that broken support has transformed into resistance or if the breakdown last week was a bear trap. A rollover from the $48-49 resistance area looks good for new entries, but if the stock moves back over the 20-dma ($50.16), then it will be a strong sign that we've seen just about all the downside the stock has to offer. Traders that would prefer to enter on weakness will now need to wait for a break under $45 as an indication of potential downside to our $40 target before opening new positions. Maintain stops at $50.50. Suggested Options: Aggressive traders can use the March 45 Put, while those with a more conservative approach will want to use the March 50 put. Our preferred option is the March 45 strike, as it provides more bang for the buck on a significant downward move. ! Alert - February options expire in 2 weeks! BUY PUT FEB-50 UFE-NJ OI=406 at $3.10 SL=1.50 BUY PUT MAR-50 UFE-OJ OI= 17 at $4.50 SL=2.75 BUY PUT MAR-45*UFE-OI OI=188 at $1.95 SL=1.00 Annotated Chart of EASI: Picked on February 1st at $50.00 Change since picked: -2.04 Earnings Date 3/09/04 (unconfirmed) Average Daily Volume = 387 K Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 02-08-2004 Sunday 4 of 5 In Section Four: Leaps: The Declining Dollar Traders Corner: The Long Hard Road To Profits Futures Corner: An Article Articulating Articulation Points ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** The Declining Dollar By Mark Phillips mphillips@OptionInvestor.com As noted on several occasions, the apparent rally in U.S. equities over the past year has been primarily caused by the falling dollar. With that downtrend reasserting itself with a bang on Friday, it's really no great shock that we saw a significant rally in equities. Without even testing its 50-dma (now at $87.90) last week, the brief rebound in the Dollar index (DX00Y) reversed itself on Friday in response to the disappointing Jobs report. The 1.01% decline in the DX00Y correlates nicely with the 0.92% advance in the DOW and the 1.25% rise in the S&P 500. A couple weeks ago, I pulled up a PnF chart of the DX00Y and it tells an interesting story with respect to how much further the dollar could be expected to fall. The Sell signal that was created during the initial leg of the Dollar's decline in the latter half of 2002 and early 2003 gives a bearish price target of 74, which means potentially another 14% downside from Friday's close near 86. Why is this important? I've demonstrated in the past that the lion's share of the rise in the market over the past year has simply been an effect of the falling currency. If we project further declines out into the future, another 14% fall in the DX00Y could be expected to cause roughly another 14% rise in the major indices like the DOW and S&P 500. Doing some quick math, that would project to a DOW trading just north of 12,000 and the S&P 500 trading at roughly 1300. In the past, when I heard projections for that sort of growth for 2004, I scoffed, believing that based on current valuations and the current tepid level of earnings growth that those levels are ridiculous. I'm not so sure anymore. I didn't expect the rally that began last spring to have nearly the life it has, but when put into the context with the sharp fall in the dollar in the same period of time, it does make sense. I've made no secret of my bearish long-term views for the U.S. equity market, based primarily on valuations and the fact that far more economic growth has been priced into stocks than we have any reason to expect, at least based on the data that has come out thus far. The whole issue of economic statistics has become thoroughly inscrutable, at least to me. According to the official government reports, inflation is still nonexistent, yet all around us, there are sharp increases in the cost of things we need to live, like energy, health care, housing and food. Conveniently, these items don't figure into the inflation calculations, which instead focus on the prices paid for goods -- a large portion of which are being imported from Asia which we all know is exporting deflation due to the very low comparative production costs. Those goods that are domestically produced are not seeing a rise in price either -- domestic manufacturers can't afford to raise prices unless they want to lose further market share to foreign competitors. So we have real inflation that truly does exist and is eroding Americans' purchasing power, but it is being kept hidden due to the fact that manufactured goods are not rising in price and are actually becoming cheaper. And with Ben Bernanke continuing to run the printing presses at the Fed at full tilt, our dollars are becoming worth less and less on the open market. That dynamic is inherently inflationary, but so far, the effects are being hidden from the official bean counters that give us our monthly economic reports. The "Sell dollars and buy U.S. equities" dynamic has a finite lifespan and eventually, I expect to see a dramatic upsetting of that apple cart. But there's no sign of it happening now. That means for the foreseeable future (at least I didn't say "considerable period of time") I think we can expect to see the dollar continue to weaken and in concert with that trend, equities will continue to rise. One trend I expect to be longer-lived though is the relationship between the dollar and precious metals. I expect the dollar to trend lower over the next several years and gold and silver (and the related stocks of the producers of those metals) to trend higher -- MUCH higher. The day is coming when the public will be forcibly reacquainted with the fact that gold and silver is money and this paper we carry around in our respective wallets has value only because the government says it does. And that relationship only works so long as the finances of the issuing government are deemed to be sound. With the U.S. running twin deficits (budget and trade) each in excess of $500 billion per year and growing, this is an unsustainable trend. I love my tax cuts as much as the next guy, but when taken together with the current administration spending like a bunch of drunken sailors, it causes me more than a little concern for the future. And this comes from a guy who actually voted for the guy in office and for the most part thinks he's doing a good job. But in terms of fiscal responsibility, let's just say I'm very concerned about the trend I see. Alright enough of the big picture and my nebulous political views. Where are we headed next? Believe it or not, it looks like that may be all she wrote in terms of profit taking and consolidation for now. Astounding as it may seem, that's what Friday's price action would seem to indicate. The poor employment data caused traders to breathe a sigh of relief that there's plenty of time before a rate cut arrives and that means more weakness in the dollar and rising equities. If I squint, I can see the potential for a Head & Shoulders topping formation on the DOW, with the neckline near 10,400. In order to fulfill that pattern, we'd need a break below that level and then it only projects down to the 10,100 area. That is roughly the bottom of the rising channel that has been in place since last April and a drop to that level would still be in keeping with the overall bullish trend. I don't place a lot of credence in that chart pattern though, as I don't see a corresponding H&S pattern on any of the other indices. The SPX and COMPX look purely bullish, and it's hard not to believe the rebound in the COMPX from dual support at the 50-dma and the bottom of its own rising channel. It's been awhile since we took a look at the bullish percent readings and after glancing at them this weekend, I have to say I don't see anything there to provide any illumination as to when this cyclical bull market will run out of gas. The weakest index is the NDX, which is currently Bear Alert at 70%, but contrasted with the DOW and SPX, both at 86% and strongly Bull Confirmed, I just don't see any signs of an impending trend reversal. Looking at the SharpChart view doesn't change the picture either -- until all of the major indices' bullish percent readings break below 70%, I think we can safely expect higher levels ahead for the overall market. Until we can see some concrete sign of a trend reversal in terms of the Bullish Percent and the VIX telegraphing some real fear with a move above 20, I think it makes sense to focus the bulk of our efforts here on playing the long side. We can still seek out and take advantage of compelling bearish trades, but we must do so with the understanding that it is bucking the overall trend of the market, a practice that inherently has a lower success ratio. So, without further ado, let's plunge in to our weekly plays discussion. Portfolio: SBUX - It's really hard not to love a play that delivers gains each week as consistently as SBUX has been doing. This trend will eventually end, but for now we may as well ride it for all it's worth. It took all week, but SBUX finally pushed through the $37 level on Friday to set another all-time high. I hope everyone understands that the stock is very extended after its rally from the $33 area and I would not be a bit surprised to see a bout of profit taking at any time. I've been advising more conservative traders to harvest some gains up here near the $37 level, and so everyone has gotten that opportunity. We'll continue to ride the trend as long as it lasts, but I'll be suggesting an exit at the $40 level. Last week, our stop rose to $33, and I think we can raise it again to $33.50, as that is now below the 50-dma, as well as the top of the longer-term channel that SBUX broke out of back in late December. Remember, conservative traders unwilling to exit here, but also unwilling to accept risk all the way down to our official stop can use a tighter stop at $35, just under the late January dip. SMH - I'll be the first to admit, I didn't like Friday's rebound in the Semiconductors one bit, and that nearly 4.5% gain on the SMH is definitely a cause for concern. Not only did price rebound from above $40 support and the bottom of the former channel, but it blasted right through the 50-dma, wiping out the prior 6 days' decline on strong volume. The one thing that does give me hope of seeing lower levels is that we still have the potential for bearish Stochastics divergence on the weekly chart. We'll keep the play active and maintain our stop at $46, just over the January highs. NEM - I expected the dollar rebound to be rather weak, but I didn't expect the downtrend to reassert itself quite so quickly. Nevertheless, that's what we saw happen on Friday, with the sharp fall in the dollar finally giving a boost to gold and gold stocks on Friday. NEM staged an impressive rebound and it looks like entries taken on the decline into the $40-42 support area were taken at the right point. There's still a lot of ground to cover to get back to the recent highs near $50, but Friday's action is a good start. The next major obstacle will be the 50-dma near $46 and once above that point, we can set our sights on a retest of $50. Note how the rebound in NEM, the XAU and the GC04J (April) gold futures contract all commenced from just above strong support levels, as well as the respective 200-dmas. Maintain stops at $37 for now, which is below strong support and the 200-dma near $38. Watch List: QCOM - So far, QCOM is holding up amazingly well. The pullback from the January highs near $60 has been finding strong support near $56 at the bottom of the early January gap and the rebound into the end of the week looks constructive to the long side. We've yet to see enough of a pullback to give us a solid entry near the 50-dma and without more of a pullback, I just can't see entering the play near current levels. Maintain the entry target at $53-54, which is close to the 50-dma ($53.67), as well as solid support at the midline of the former rising channel. HD - After being pinned in a rather tight range for the past several weeks, HD looks like it is finally going to make a bullish move. Friday's gains brought the stock right to the top of the recent consolidation and a breakout above $36.50 should generate enough upside to set us up for an entry in the $37-38 area. This still looks like the right place to take a position, as it is just below the top of the multi-year descending channel. That said, there's something nebulous about the current price pattern that leaves me with an uneasy feeling. I can't quantify it, but it feels like the stock may be setting up for a breakout to new recent highs. For that reason, we don't want to take a position just because HD trades into our entry zone -- we need to wait for weakness following that test of resistance. One other positive factor that is still in place is the bearish weekly Stochastics divergence. We could get handed a nice confirmation of that pattern if price manages to moves slightly above the October peak, while at the same time weekly Stochastics turns down from a lower level. Time will tell. Remember to use the protective put to control risk if our entry setup materializes. Use the May $40 Call (HD-EH), currently priced at only $0.45. SNDK - The first part of last week was rather unpleasant for the bulls, with SNDK continuing its plunge, hitting a low near $48 before rebounding into the end of the week. There's really nothing to suggest that this is THE bottom for the stock and I think we should keep the play on HOLD for now. Recall my initial target when we first started talking about the play was for a dip and rebound from the $40 area. That may end up being a viable target for entry, but we'll let the price pattern give us that answer. At a minimum, I think we need to wait for a more encouraging view on the PnF chart, which now has a bearish price target of $25. I don't expect that level to be traded, but until a new Buy signal is generated, that is the downside risk to bullish positions. CHK - Close, but no cigar. Our new natural gas play on CHK continued to slide lower last week, hitting a low on Thursday of $11.70 before Friday's solid rebound. With the weekly Stochastics still early in the decline from overbought territory and natural gas prices continuing to drift down towards strong support at $5.00, we're not in any hurry to take a position. Wait for the test of support and subsequent rebound. To be entirely honest, I'd be happier with a solid test of the $11.00 support level, as that is also the site of the 200-dma. MLNM - Another week of tight range consolidation was all MLNM had to offer, although Friday's rally certainly looks like the precursor to a breakout to once again test the $19 resistance level. I could certainly make an argument for entries at current levels, but let's stick with the plan. Each major pullback over the past year has come down very close to the rising trendline (currently $16.30) and there's no reason to expect that it won't happen this time. Maintain the entry target at $16.50. If MLNM breaks out over the December highs without giving us that pullback, then we may have to re-evaluate, but we're not there yet. Radar Screen: WMB - As expected, WMB is starting to show a bit more weakness, last week breaking below the 50-dma and that price weakness was enough to solidify the bearish rollover on the weekly Stochastics. That Stochastics rollover gives us a fresh bearish divergence with price and that means patience is warranted in playing the upside. I really like the stock's long-term prospects, especially in light of the developing situation in the Natural Gas arena, but we need to wait for the right entry point. Right now, it looks like that entry point may be near the 200-dma, but it certainly won't hurt to wait a week or so and see how price acts as the weekly oscillators come back near oversold. LUV - The airline stocks have been absolutely clocked in the past several weeks and shares of LUV have been in a persistent downtrend since topping out near $19.50 in October. LUV is probably my favorite stock in the sector, simply because the company is very well run and they are eating the lunch of the major carriers and likely will continue to do so. The resultant weakness has driven the stock all the way down to the $14.50 level, as the weekly Stochastics have now fallen deep within oversold territory. I don't think this is quite the place to be putting on a bullish position, but we may be getting close. Not that the PnF chart is still completely bearish, so we're not in any hurry yet. But this is a good one to stick on our Radar Screen, just so we're watching if we get another downward leg into the $12-13 support area. APA - Here's another Natural Gas play that I have had my eye on for the past several months. After breaking out last September, the stock soared to roughly $43 ahead of its 2-1 split last month. Since then, the stock has finally seen some real weakness, dropping the stock back to the site of its 100-dma. Weekly Stochastics are early in the bearish phase, so we've got time to wait here as well. But a drop back to the 200-dma could see the stock finding strong support and provide us a solid entry point for the next leg of the long rally. Closing Thoughts: Until we see some of the trends of the past year - weak dollar, low interest rates and bullish equities - begin to show concrete signs of a reversal, the best odds lie in plays that are in alignment with those trends. There will be occasional bearish plays that offer themselves up, but my focus is increasingly being directed to plays on the long side. Eventually that will cease to work and then we can get more aggressive on the downside. But for now, let's run with the bulls! Admin Note: I just have a couple more bugs to work out in the new playlists, and I should have them ready for publication next week. Fortunately, we didn't have any new Portfolio plays this week, so taking another week to get it right doesn't pose any great hardship. I think the change will be worth the wait! Have a great week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: SBUX 11/24/03 '05 $ 30 ZOS-AF $ 4.30 $ 8.90 +106.98% $ 33.00 '06 $ 30 WSP-AF $ 6.40 $10.80 +68.75% $ 33.00 NEM 01/18/04 '05 $ 40 ZIE-AH $ 8.20 $ 8.80 + 7.32% $ 37.00 '06 $ 40 WIE-AH $10.20 $11.60 +13.73% $ 37.00 Puts: SMH 12/30/03 '05 $ 40 ZTO-MH $ 4.90 $ 4.40 -10.44% $ 46.00 '06 $ 40 YRH-MH $ 6.60 $ 6.30 - 4.55% $ 46.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: QCOM 11/16/03 $53-54 JAN-2005 $ 55 ZLU-AK CC JAN-2005 $ 50 ZLU-AJ JAN-2006 $ 55 WLU-AK CC JAN-2006 $ 50 WLU-AJ PP APR-2004 $ 50 AAO-PJ SNDK 12/21/03 HOLD JAN-2005 $ 45 XWS-AK CC JAN-2005 $ 40 XWS-AJ JAN-2006 $ 45 YSD-AK CC JAN-2006 $ 40 YSD-AJ CHK 02/01/04 $11.50 JAN-2005 $ 12 XHV-AV CC JAN-2005 $ 10 XHV-AB JAN-2006 $ 12 WZY-AV CC JAN-2006 $ 10 WZY-AB PP APR-2004 $ 10 CHK-SB MLNM 02/01/04 $16.50 JAN-2005 $ 17 XVX-AW CC JAN-2005 $ 15 XVX-AC JAN-2006 $ 17 YDA-AW CC JAN-2006 $ 15 YDA-AC PP APR-2004 $ 15 QMN-QC PUTS: HD 12/21/03 $37-38 JAN-2005 $ 35 ZHD-MG JAN-2006 $ 35 WHD-MG PC MAY-2004 $ 40 HD -EH New Portfolio Plays None New Watchlist Plays None Drops None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** The Long Hard Road To Profits By Mike Parnos, Investing With Attitude How’s your performance been lately? Would you like a dose of trading Viagara to lengthen your time horizon and firm your resolve? Remember, the longer your horizon is, the better chance you have of satisfying your wife, your brokerage account, and your beneficiaries. Do you suffer from premature execution, and have little or no stamina? The impulse to over-trade can, indeed, be tough to conquer. It’s the itch that yearns to be scratched. When you’re about to lose control, if you think about baseball, it may give you the strength to persevere. At the CPTI, we normally focus on monthly returns, but, as conservative as we try to be, there is some risk inherent in all of our strategies. Well, today’s trading concept might help you to reduce your risk to zero, IF you don’t soften your stance on your position. We’ll help you extend your trading life, using protection the entire time. We’re going to fill that void to the satisfaction of all concerned and do CPTI students a “solid.” You’re going to like this one. _________________________________________________________________ The “Guaranteed” Investment How many of you have heard ads for those “guaranteed” investment products? They claim you can invest $10,000, have your principal guaranteed and also participate in the appreciation in the stock market over the next seven years. How can they do that? Who, in his right mind, would guarantee someone’s investment? What have they been smoking? Well, this weekend I was listening to one of Larry McMillan’s very interesting seminar CDs and I learned how it can be done. Actually, it’s pretty clever. First, a major financial institution decides to create a new product. They establish a cap limit of, for example, $1,000,000. They assign a share value of $10 to 100,000 shares. Their sales force (representatives) contacts their clients and sell the concept to generate the $1,000,000. It’s a pretty easy concept to sell. Everyone wants security as well as the opportunity to make money. Here it is – all wrapped up in a nice neat little package. What’s Inside The Package? Now, the institution has $1,000,000. They then go out and purchase $1,000,000 worth of zero coupon bonds that will come due in seven years. With zero coupon Treasury bonds (also called “strips”), the investor buys the bonds at a discount. At maturity, they receive the full face value of the bond. The prevailing interest rate at the time the bonds are purchased determines the price of the bond. The higher the interest rate, the less paid up front for the bond. At current rates, a $1,000 seven-year zero coupon bond will cost about $740. The institution has now spent $740,000 of the million it raised. With the $240,000 that remains, the institution buys far out calls on the S&P 500 (SPX). The strike price, from which profits will be measured, is where the S&P is trading the date the calls are purchased. This measuring point will remain the same for the entire seven-year duration. Institutions have their own rules regarding the products they offer. Some offer 100% participation in the S&P gains. Others may only offer 80%. Some products may not be structured on the S&P 500. They may use the QQQs or the Russell 200 Index – the choices are endless – whatever is written into the charter. Some institutions will just sit back and let the S&P do its thing, while other products may allow, or encourage, active trading within specified parameters. Once the product is created, shares can be bought and/or sold on the open market at any time during the seven years. Of course, you’re only guaranteed your investment back in full if you hold until maturity. There are complex formulas created to determine the value of the shares along the way – taking into consideration the time remaining until maturity and the trading profits accumulated to that point. Risks vs. Rewards By participating in such a program, technically, the upside is unlimited – limited only by the market movement and the trading skills of those responsible. Where’s the risk? It’s more of an “opportunity” risk than anything else. If the market tanks and no income is generated, you’re still guaranteed the return of your initial investment. However, if you put your money in CDs for seven years, you would have more to show for the experience – not a lot, but more. It was Will Rogers who said “I’m more concerned about the return OF my money as I am about the return ON my investment.” Maybe there is a way to get the best of both worlds. So What’s Stopping Us? Can this be done by individuals? Sure! Most CPTI students have modest trading accounts, but I know there are some heavy hitters out there. Plus, some CPTI traders only use a small portion of their assets for option trading because they don’t want to risk the bulk of their assets – and justifiably so. This may potentially, be a solution for conservative traders, who have a longer time horizon and who, for safety reasons, have been reluctant to put their money to work. Getting “Hypothetical” Let’s create a hypothetical hedge fund that used the same criteria as I described above. I like round numbers. We’ll use the $100,000 figure. But, we’re going to have the flexibility to trade the extra $26,000 however we want. We won’t get carried away, though. We’re going to use conservative, money generating strategies. We’ll start our calculations (which will be “educational,” or hypothetical,” or “imaginary” – to keep the lawyers happy) using the closing prices as of Friday. We’ll keep track of dollars generated and will update monthly – or as needed. We’ll call it the “Zero-Plus” strategy (unless you have a better idea). Putting It To Work So, how are we going to put $26,000 to work? What vehicle should be choose to make our money? For our example, I’m going to suggest the OEX – for one reason. It’s the only major index I can find that currently has 2006 options. There may be others out there, but I haven’t found them yet. So, with the OEX at 566.06, lets: Buy 3 OEX Jan. 2006 540 calls @ $81.00 = $24,300 debit Sell 3 OEX March 2004 585 calls @ $3.10 = $930 credit I selected the Jan. 2006 540 calls for two reasons. a) it’s 26 points in the money which means that the delta is higher, and b) the $81 price allows us to buy three contracts and use up most of the $26,000 we had to spend. How Aggressive Should We Be? Good question. It’s certainly a matter of personal preference. Keep in mind that we have $100,000 in Zero Coupon bonds sitting in our account and, guess what? They’re, at the very least, 70% marginable. That means we can use those dollars to satisfy maintenance requirements on credit spreads. So, let’s start off conservatively and put on a bull put spread well out of the money. Sell 3 OEX March 2004 535 puts, and Buy 3 OEX March 2004 525 puts Our net credit is $1.10 (x 3 contracts = $330) Ultimately, we expect the market to go up over the next seven years, but we may as well take in a few bucks while we’re waiting. Now we sit back and put up our feet as we watch our time horizon and brokerage account grow – a little at a time – until we’re ready to use it. ______________________________________________________________ FEBRUARY CPTI POSITIONS Position #1 -- OEX – Credit Spread Boogie – 566.06 With the market trending, let's not fight the tape. We're going to establish a bull put spread, take in some premium, and ride the wave into shore. We sold 3 OEX February 565 puts, and bought 3 OEX February 540 puts for a total credit of $6.80 (x 3 contracts = $2,040). This strategy requires $25 x 3 contracts = $7,500. We're only trading three contracts because, if the market reverses significantly, it might become necessary to close the bull put spread and establish a bear call spread that may be wider and would require more contracts. We need to preserve our money for a potential maintenance requirement. Position #2 – MNX (mini NDX index) – Iron Condor – 149.90 This index seems substantially safer than the highly volatile NDX. We going put on an Iron Condor with limited exposure. Because the market is trending, we skewed the strike prices slightly so that we have a little more cushion on the upside. The market turned down and that “skew” might come back to bit us in the ass, but the market popped up off the 50-day MA. We sold 10 MNX February 165 calls and bought 10 MNX February 170 calls for a net credit of $.40 x 10 contracts = $400. Then we sold 20 MNX February 150 puts and bought 20 MNX February 147.50 puts for a net credit of $.50 x 20 contracts = $1,000. Our total credit of $1,400. Our maximum profit range is 150 to 165. Our exposure is only $3,600 ($5,000 less $1,400). Maximum profit: $1,400. Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $100.90 This is a low risk and relatively safe play with a wide range. We sold 10 XAU February 90 puts and bought 10 XAU February 85 puts for a net credit of about $.70 (x 10 contracts = $700). Then we sold 10 XAU February 110 calls and bought 10 XAU February 115 calls for a net credit of about $.45 (x 10 contracts = $450). Our maximum profit range is $90 to $110 – a 20-point range. Our exposure is $3,850 ($5,000 less $1,150). Maximum profit: $1,150. Position #4 – OSX (Oil Service Sector Index) - $99.72 We're being cautious again here. We reduced our potential income by expanding our safety range. We sold 10 OSX February 105 calls and bought 10 OSX February 110 calls for a net credit of about $.45. Then we sold 10 OSX February 90 puts and bought 10 OSX February 85 puts for a net credit of about $.75. Our total net credit of about $1.20 (x 10 = $1,200). Our maximum profit range is 90 to 105 – a 15-point range. Our exposure is $3,800 ($5,000 less $1,200). Maximum profit: $1,200. _____________________________________________________________ ONGOING POSITION QQQ ITM Strangle – Ongoing Long Term -- $37.13 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We're going to make money by selling near term puts and calls every month. Here's what we've done so far: October: Oct. $33 puts and Oct. $34 calls – credit of $1,900. November: Nov. $34 puts and calls – credit of $1,150. December: Dec. $34 puts and calls – credit of $1,500. January: Jan. $34 puts and calls – credit of $850. February: Feb. $34 calls and $36 puts – credit of $750. Total credit: $6,150. Note: We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great cash flow generating strategy. ___________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ____________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************** FUTURES CORNER ************** An Article Articulating Articulation Points By Francis Chadwick There is not much written about median lines (usually called “Andrews Pitchfork” in most charting software) and not many traders get to the point of being able to use median lines effectively. Surprisingly, even though these lines are based on the basic laws of physics, those with higher education and training in physics and mathematics “get a headache” (and this is an actual quote) looking at median line charts. On the one hand, the market makes “measured moves” in balance and symmetry (which is where median lines come in), and yet the median lines are “anchored” off jagged, zig-zagging lines. The zigs and zags form “pivots” or “pivot points” – but they are not the kind that most futures traders think off in terms of the levels of support and resistance. In this case, pivot points are the “turning points” or “articulation points,” much like your elbow. Point your elbow toward the heavens and you have a “bearish pivot.” Point your elbow toward the ground and you have yourself a “bullish pivot.” With futures trading, these are sometimes “panic pivots” because the ES is the ultimate reflection of the herd mentality. Those who try to trade the S&P (ES or SP) with purely trending methodologies are and will be severely frustrated. Figure 1 (below) may look confusing and “give you a massive headache,” but once you train your eye (and mind) to see the turning points and where to anchor the median lines it will not be confusing at all. This is not like learning to read “sheet music” so don’t pretend like it’s a big deal. Even if you learn to read sheet music you’ll probably become a “starving musician” but leaning to use median lines will be better than “music to your ears.” You just have to trust us on this one! The market may get “out of whack” repeatedly, but eventually it has to get back into balance whether in the long term or the short term, whether sooner or later. Median lines show you not only support and resistance, but give your trend lines, speed lines, and even targets. Why mess around with Gann lines (speed lines or angles) and try to figure out what the speed of the market is or is supposed to be when the slope of the median lines will tell you? Referring to Figure 1 (below) ML-R 1 (Median Line Resistance 1) is a rally-back median line resistance confirmed by the overbought CCI over 200 and the “predictive roll-over” at the tipping point when price was near ES 1140. Note also that you can draw the median lines on the CCI (or other “high-wave” oscillators), and that in this case CCI had “pushed” its way above the blue line of the median line channel. ML-R 2 (Median Line Resistance 2) is a consolidation rally-back into a 3-day old median line that preceded the drop (with two distinct drive downs) into the 2-week- old lower median line support channel (labeled LML-S) – which had given us a “fulcrum point” and target of 1127 from two weeks ago. You can’t make this stuff up folks, but often it may look that way! Your name doesn’t have to be “Merlin” to figure it out either. Figure 1. ES (S&P 500 Emini Futures) 45 minute chart (with an 8- day look-back) showing minor and major median lines. Some of the “controlling” median lines go back two weeks (see annotation notes above and below). On Thursday we had a “sell first hour rallies” set-up, and then a “buy weakness” set-up (not an after the fact observation or commentary either). The “weakness” gave us another “test” of the green line (LML-S) before price was once again “contained” inside the major short-term channel and above the blue line labeled LML-S 2, which basically became a strong support area. We also had a wedging set-up marked off with the purple trend lines labeled TL-1 and TL-2 that was cleanly broken to the upside with increasing volume and volume spikes of over 4000 contracts in two minutes (see the volume “red-line” in Figure 3 below) in 5 separate bars which sustained the “outlier” move to the 1130 projected target (labeled PR, referring to “projected resistance”) area on the 2 minute chart and confirmed by the 45 minute chart (totally nailed it). There was also a head and shoulders on the 2-minute chart (see Figure 3 below), with the head peeking coyly one tick above 1130. There was even a “flapping right arm” (final rally-back) to 1129, which preceded a “panic volume dump” and/or “shakeout/stop run” back down to the original morning “value area” on the “market profile” chart (price points where the majority of the trading took place in a specified period). Note also the blue line on CCI labeled “CCI PR” referring to the projected resistance by using the median line anchored back to the January 26 (Monday) outlier spike day (on low volume), almost two weeks earlier. Our projected target for the week stands at 1140, and will be “dictated” to a large extent by the “Employment Situation” reports (non-farm payrolls, unemployment rate, average work week, and hourly earnings) coming out on Friday 8:30 ET. Figure 2. SPX (S&P 500 Index) Weekly chart showing a projected target (labeled PT) of 1175 on the week of March 21, 2004 if the blue median line support (anchored from the October 2002 inverse head and shoulders bottom) is held. The green upper median line (labeled UML) anchored from the week of 3/18/01 is the overhead resistance area that gets lower every week. We are using the SPX as a “continuous contract” so we can go back 10 years (or more if necessary). In fact, the longest-term median line is anchored back to 1994 and the next longest term is from 1998. Figure 3. ES (S&P 500 Emini futures) with the major median line (labeled UML-R) anchored from the first hour and nailing the first rally-back resistance target of 1126, which was broken around 13:15 ET with huge volume spikes labeled VS (see explanations above also). The blue line labeled NT ML refers to a new median line trend which was established and this was also the “speed of the market” which was the “balance” area after nice “market inefficiency” (which we were able to exploit) that occurred with the sudden influx of “outside paper” that created a short-term “too much too soon” price burst. It doesn’t matter what time frame you use if the market methodology you use fits your personality and is valid and robust. How you “see” the market is subjective, but the overt “market structure” is objective. Subjectivity comes in when you decide where to anchor your median lines and which ones you deem to be major and minor. This just takes time, but not as much time as learning to play the piano and read sheet music. Not nearly as much time! And it’s a lot more profitable if you master it, and master yourself in the process. As with any “analysis technique,” this is more than just TA or methodology-based exercises, it is also a “market philosophy” of such concepts as “selling into strength” and “buying into weakness.” This takes a “lot of guts” and is part of the Gann Frame methodology, but that’s whole new area, and certainly outside the scope of this paper. This is going to sound opinionated, but you can’t “sell or short into strength” if you don’t know how to master your emotions. Apart from emotions, you have to have targets, and the Gann Frame and/or median lines will help you with that problem. Master yourself, master the market. ************************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 Sunday 02-08-2004 Sunday 5 of 5 In Section Five: Covered Calls: Covered-Calls Fundamentals Naked Puts: Success Basics! Spreads/Straddles/Combos: A Good Excuse To Rally! ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ************* COVERED CALLS ************* Trading Basics: Covered-Calls Fundamentals By Mark Wnetrzak The duty of every trader is to consider any profitable strategy that is appropriate for their experience level and matches their risk-reward tolerance. Many of our readers find that writing in-the-money covered-calls fits their criteria for a conservative, easy-to-manage investing strategy. Unfortunately, more aggressive traders often become discouraged with covered-call writing because it limits their upside potential and eventually, they seek ways to increase the maximum return, but at the risk of increased downside exposure. A frequent mistake is "legging-in" to the covered-call position. For those of you unfamiliar with this method, it involves trading the stock and option individually -- trying to pick the "bottom" to buy the stock and the "top" to sell the calls -- the "perfect" scenario. Of course, there are problems with this approach. What happens if the stock doesn't hit your buy order or worse, it does, but then continues to move lower? What happens if the stock price (after you have purchased it) remains relatively unchanged for an extended period of time with little change in the option premium? What will your exposure be then? Does it outweigh your "potential" gain? As you can see "legging-in" to a covered-call position does offer a higher potential yield but it also carries a greater risk and obviously, it can be difficult to implement. A better strategy to use is the "buy-write" order, which involves the purchase of the stock and the sale of the call simultaneously. When placing an order for a buy-write, you are requesting to buy the underlying shares and sell the (call) options for a specific "net" cost, with both transactions occurring at exactly the same time. Since the cost basis is established prior to the trade, a buy-write order is a useful method to initiate a new covered-call position. The exact phraseology is not important but a specific "net-debit" must be given when the trade instructions are delivered to the agent. The broker will execute the order if the net-debit can be achieved through any combination of stock and call-option prices. One of the advantages of this technique is that it prevents the possibility of "slippage" during the position entry process when the premium in the call option declines. Slippage is generally described as the cost of buying at the "ask" price and selling at the "bid" price, but it also occurs in the time between the stock purchase and the sale of the options in a covered-call position. This problem happens frequently in the plays we offer as many are opened in the first hour of trading (on Monday) after the week-end edition of the newsletter is published. If too many calls are sold without any buying pressure, the bid premium drops quickly towards intrinsic value and the position becomes unfavorable. Traders who attempt to "leg-in" to these plays (buying the stock with plans to sell the call later) are sometimes surprised to see the previously overvalued premiums disappear before they can write the options that complete the position. With our total-return concept, we try to minimize risk and strive to obtain a consistent (low but favorable ) yield. For those who wants better returns, there are many methods available to enhance the potential yield that don't have the disadvantages of legging-in to the position. One alternative is the sale of partial positions using different strike prices and time frames. Another popular technique involves the systematic sale of options, where a trader writes covered-calls incrementally as the stock price rises. Of course, an investor can also sell at-the-money or out-of-the-money options if the market conditions suggest a predominantly bullish trend. What it all comes down to is adjusting the strategy to fit your personal preference and then implementing it with disciplined money management. In reality, some of the hardest trades to make are "selling for a loss" to preserve portfolio capital and "selling for a smaller profit" even as the little greed-gremlin whispers $$$ in your ear. Trade Wisely! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF PREVIOUS CANDIDATES The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield ZIXI 10.93 12.78 FEB 10.00 1.80 0.87* 6.9% ACLS 12.60 12.59 FEB 12.50 0.65 0.55* 6.7% TKLC 20.35 20.34 FEB 20.00 1.20 0.85* 6.4% CNET 10.75 10.72 FEB 10.00 1.15 0.40* 6.0% SIRI 3.15 2.80 FEB 2.50 0.80 0.15* 5.7% VXGN 10.92 10.80 FEB 10.00 1.40 0.48* 5.5% ALVR 13.09 13.39 FEB 12.50 1.45 0.86* 5.4% ZIXI 14.67 12.78 FEB 12.50 2.70 0.53* 4.8% NANO 20.14 19.64 FEB 17.50 3.20 0.56* 4.8% IPXL 18.90 20.58 FEB 17.50 1.95 0.55* 4.7% NEOL 19.10 18.73 FEB 17.50 2.30 0.70* 4.5% TIVO 10.75 11.92 FEB 10.00 1.05 0.30* 4.5% CREE 20.49 24.49 FEB 20.00 1.65 1.16* 4.5% AFFX 31.23 29.75 FEB 30.00 2.35 0.87 4.4% PAAS 16.10 15.55 FEB 15.00 1.95 0.85* 4.4% CHINA 11.05 10.75 FEB 10.00 1.60 0.55* 4.2% NANX 12.39 11.44 FEB 10.00 2.90 0.51* 3.9% CLTK 8.54 7.86 FEB 7.50 1.35 0.31* 3.9% SCMR 5.63 5.36 FEB 5.00 0.80 0.17* 3.8% ATSN 10.90 11.60 FEB 10.00 1.30 0.40* 3.7% SEAC 18.40 19.60 FEB 17.50 1.75 0.85* 3.7% WEBM 10.93 10.62 FEB 10.00 1.25 0.32* 3.6% LTXX 19.12 17.26 FEB 17.50 2.45 0.59 3.2% GSF 27.77 26.81 FEB 27.50 1.35 0.39 1.6% ADPT 10.50 9.28 FEB 10.00 1.10 -0.12 0.0% CIEN 7.97 6.17 FEB 7.50 0.85 -0.95 0.0% * Stock price is above the sold strike price. Editor's Comments: Is The Correction Over? Inquiring minds want to know! Or is the market merely offering a second chance to exit "weak" positions? The next few days should offer some more clues. Ciena (NASDAQ:CIEN) disappointed investors this week with a revenue warning and the position will be shown closed. The stock is now testing the bottom of a 9-month trading channel with the next support level near $4.50. We will also show Adaptec (NASDAQ:ADPT) closed next week as the current rebound is offering a break-even exit. As always, adjusting the position by rolling forward and/or down is a viable solution as well. Of course, investors with a bullish outlook on the company and market in general may decide to do nothing. The watch list for next week includes: Zix (NASDAQ:ZIXI), Alvarion (NASDAQ:ALVR), Pan American Silver (NASDAQ:PAAS), Chinadotcom (NASDAQ:CHINA), Nanophase Tech. (NASDAQ:NANX), Celeritek (NASDAQ:CLTK) and GlobalSantaFe (NYSE:GSF). Previously Closed: Centillum Communications (NASDAQ:CTLM). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Attention Readers: We are trying to determine which strategies are most preferred by the subscribers of this newsletter, in order to adjust our content to better meet your desires. Please send us a brief E-mail describing the techniques you utilize most: buying or selling stocks, buying or selling options, covered-calls, credit or debit spreads, calendar spreads, synthetic positions, straddles and strangles, and any other combination strategies. Thank You! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES Sequenced by Target Yield (monthly basis) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield MXT 5.89 FEB 5.00 MXT BA 1.05 903 4.84 14 7.2% ASIA 7.80 MAR 7.50 EUJ CU 0.90 179 6.90 42 6.3% NEOL 18.73 FEB 17.50 UOE BW 1.70 887 17.03 14 5.9% DDS 17.53 FEB 17.50 DDS BW 0.45 1334 17.08 14 5.3% AKSY 10.87 FEB 10.00 KQK BB 1.10 620 9.77 14 5.1% TIBX 7.95 MAR 7.50 PAV CU 0.90 549 7.05 42 4.6% CNET 10.72 MAR 10.00 QKW CB 1.30 403 9.42 42 4.5% Legend (for play description below) LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). __________________________________________________________________ MXT - Metris $5.89 *** Lateral Trend *** Metris Companies (NYSE:MXT) provide financial products and services throughout the U.S. Mextis' principal subsidiaries are Direct Merchants Credit Card Bank, National Association (Direct Merchants Bank), Metris Direct, Inc. and Metris Receivables, Inc. The company issues credit cards, and thereby generates consumer loans through, Direct Merchants Bank, which obtains information about prospective customers from credit bureau information, as well as from other 3rd-party sources including other companies' customer lists and databases. Metris also offers consumers a variety of enhancement services products, including credit protection products, membership program products, warranty products, 3rd-party insurance and list syndication products. Metris has been in a trading range for the last 6 months with a strong support area near $5. The recent rally offers a reasonable way to speculate on Metris' future share price with a favorable cost basis. FEB-5.00 MXT BA LB=1.05 OI=903 CB=4.84 DE=14 TY=7.2% __________________________________________________________________ ASIA - AsiaInfo $7.80 *** Lateral Trend: Part II *** AsiaInfo Holdings (NASDAQ:ASIA) is a provider of telecommunications network integration services and software solutions in China. The company's operations are organized as two strategic business units, Communications Solutions and Operation Support System Solutions (OSS). The Communications Solutions business unit offers network, service application, security and monitoring solutions. The OSS Solutions unit includes the AsiaInfo's highly scalable software, which can automate a telecom carrier's key business processes such as customer care and billing, order fulfillment and customer relationship management. ASIA conducts most of its operations through two wholly owned subsidiaries, AsiaInfo Technologies (China) and AsiaInfo Management Software. AsiaInfo has been in a lateral trend for the last 6 months. Traders can use this play to profit from the current trend with a cost basis near technical support. MAR-7.50 EUJ CU LB=0.90 OI=179 CB=6.90 DE=42 TY=6.3% __________________________________________________________________ NEOL - NeoPharm $18.73 *** Trading Channel *** NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged in the research, development and commercialization of drugs for the treatment of various cancers. The firm has built its drug portfolio based on its novel proprietary technology platforms, the proprietary NeoLipid liposomal drug delivery system and a tumor-targeting toxin platform. NeoPharm has several promising compounds in various stages of development. The company's lead compound is IL13-PE38, a tumor-targeting toxin being developed as a treatment for glioblastoma multiforme, a deadly form of brain cancer. NeoPharm has formed a trading channel over the last 10 months and this position offers a favorable reward with a cost basis near support. FEB-17.50 UOE BW LB=1.70 OI=887 CB=17.03 DE=14 TY=5.9% __________________________________________________________________ DDS - Dillard's $17.53 *** Rally Mode! *** Dillard's (NYSE:DDS) operates retail department stores located primarily in the southwestern, southeastern and Midwestern U.S. The primary product categories of the their stores are cosmetics, women's & juniors' clothing, children's clothing, men's clothing and accessories, shoes, accessories, lingerie and home products. Dillard's emphasizes its private brand merchandise in order to build penetration and recognition of those brands. Dillard's continues to rally off last year's low and investors who retain a bullish outlook on the company can use this low risk position to speculate on Dillard's future. FEB-17.50 DDS BW LB=0.45 OI=1334 CB=17.08 DE=14 TY=5.3% __________________________________________________________________ AKSY - Aksys $10.87 *** Bottom Fishing *** Aksys (NASDAQ:AKSY) provides hemodialysis products and services for patients suffering from end-stage renal disease (ESRD), commonly known as chronic kidney failure. The company has developed an automated personal hemodialysis system, known as the Aksys Personal Hemodialysis System (the PHD System), which is designed to enable patients to perform frequent hemodialysis at alternate sites, such as their own homes. Aksys has been forging a Stage I base for several months with strong support around $9. The recent rally on heavy volume bodes well for the future and this position offers a reasonable reward at the risk of owning AKSY for less than $10. FEB-10.00 KQK BB LB=1.10 OI=620 CB=9.77 DE=14 TY=5.1% __________________________________________________________________ TIBX - TIBCO $7.95 *** Breaking Out? *** TIBCO Software (NASDAQ:TIBX) is engaged in the development and marketing of a suite of software products that enables businesses to link internal operations, business partners and customer channels through the real-time distribution of information. The company's products are marketed and sold as part of the TIBCO ActiveEnterprise standards-based platform for real-time business. TIBCO ActiveEnterprise is a comprehensive set of solutions comprised of three categories of software: business optimization software, business integration software and enterprise backbone software. All of their products can be sold individually to solve specific technical challenges, but the emphasis of its product development and sales efforts is the creation of products that interoperate seamlessly and can be sold together as a complete solution to business problems. TIBCO also provides its customers implementation services, on-site support, consulting and training. TIBCO has rallied above near-term resistance near $6.50 and appears to be ready to resume its uptrend. Investors can use this position to speculate on that outcome in a conservative manner. MAR-7.50 PAV CU LB=0.90 OI=549 CB=7.05 DE=42 TY=4.6% __________________________________________________________________ CNET - CNET Networks $10.72 *** Next Leg Higher? *** CNET Networks (NASDAQ:CNET), a global media company informing and connecting buyers, users, and sellers of technology, produces a branded, global Internet network, print publications and a technology product database for both businesses and individuals. Using unbiased content as its platform, the company has built marketplaces for technology and consumer products, and, through its CNET Channel division, is a provider of standardized product information. CNET obviously pleased investors this week as the stock exploded higher on Friday to a 2-year high. Our outlook is also bullish, due to the recent technical strength and this position offers a reasonable cost basis in the issue. Target shooting a lower "net-debit" will increase the potential yield and downside protection in the position. CNET investors appear to be pleased with the company's earnings as the stock has rallied on strong volume this week. This position offers a reasonable cost basis for those who believe the bullish activity will continue. MAR-10.00 QKW CB LB=1.30 OI=403 CB=9.42 DE=42 TY=4.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Supplemental Covered Calls ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield ZHNE 5.38 FEB 5.00 QDJ BA 0.60 25 4.78 14 10.0% CCI 12.57 FEB 12.50 CCI BV 0.55 1148 12.02 14 8.7% MSPD 10.15 FEB 10.00 MND BB 0.50 1464 9.65 14 7.9% ACLS 12.59 FEB 12.50 ULS BV 0.50 605 12.09 14 7.4% VSAT 25.04 FEB 25.00 IQS BE 0.75 40 24.29 14 6.4% CLZR 23.12 FEB 22.50 UKZ BX 1.25 347 21.87 14 6.3% AEOS 20.48 FEB 20.00 AQU BD 0.95 1418 19.53 14 5.2% NANO 19.64 MAR 17.50 QNK CW 3.20 25 16.44 42 4.7% IBIS 13.94 FEB 12.50 UIB BV 1.70 1015 12.24 14 4.6% WEBM 10.62 FEB 10.00 UUW BB 0.80 684 9.82 14 4.0% ********** NAKED-PUTS ********** Options 101: Success Basics! By Ray Cummins All experienced traders agree on the wisdom of diversification. Those who participate in the financial markets know a diversified group of investments is one of the fundamental prerequisites to long-term success. By spreading out across industries, you can avoid the agony of violent swings in a particular stock or sector and limit losses when unexpected events occur. This reality is the main reason trader who have limited capital should divide their portfolio efficiently among a few positions in different industry groups or market segments. When your capital assets are small, you must manage the collateral effectively and it has been our experience that most of the issues in a specific sector will perform in a similar manner. For example, if one or two of the primary companies in a given industry move in a bearish manner, the rest of the stocks in that segment or category also have a high probability of performing poorly. In contrast, when a stock performs well, the odds are high that the rest of the issues in that sector will react in a comparable manner. Unfortunately, new traders usually have little margin (capital) for error in their portfolios and when they put all their eggs in one basket, the result is rarely favorable. Choosing issues in a variety of industries, as well as different growth categories, can help you take advantage of a wider range of trading opportunities. In the current economic environment, many experts believe that small-cap firms offer the best growth opportunities because they generally have innovative products and services. At the same time, they may have higher share-price volatility and the associated liquidity risks because of their limited stature and relative instability. Those who endorse "value" investing would recommend owning under-priced stocks of well-established businesses that have a faster growth rate than large companies but also more stability than small companies. A blue-chip portfolio would focus primarily on the stocks of large companies that, because of their asset size, tend to be the most stable. Another area of diversification includes the geographic component; buying stocks of companies located both in the United States and in other countries and regions around the globe. The best combination of these groups would blend expanding companies priced below their long-term valuation with strong potential for above-average earnings growth in the future. Some traders believe that diverse portfolios should also contain a few issues which will react differently to changes in economic conditions or the outlook for a specific sector or industry. We often identify these candidates as "hedge" positions and one way to illustrate the concept involves the oil sector. A conservative investor might hedge a portfolio by initiating positions in both an electric utility and a major oil service company. Higher fuel costs will have negative impact on the utility, but will boost the value of the oil service issue. Obviously, the reverse is also true; lower oil prices will impact the oil service company negatively while improving the utility's outlook. This strategy not only protects your portfolio against unexpected downturns in a particular industry, it also enables you to take greater risks with a few positions, which in some cases can increase your total return. Regardless of the manner in which you diversify your portfolio, it's important to remember that the activity is more than just a one-time event. In all cases, you should follow a precise and well-developed trading plan using a variety of favorable issues in a range of sectors, and you must make adjustments in a timely manner when unexpected events occur. Good Luck! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF PREVIOUS CANDIDATES The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield NGEN 12.59 10.91 FEB 10.00 0.30 0.30* 4.5% 15.4% ADAT 16.80 16.14 FEB 12.50 0.40 0.40* 3.6% 11.6% RMBS 31.16 30.29 FEB 25.00 0.45 0.45* 2.7% 9.7% ADAT 16.95 16.14 FEB 12.50 0.40 0.40* 3.0% 9.4% SEPR 27.99 26.28 FEB 22.50 0.65 0.65* 2.7% 9.1% XING 12.80 12.49 FEB 10.00 0.35 0.35* 2.6% 8.7% IMCL 43.41 40.80 FEB 35.00 0.75 0.75* 2.4% 8.4% NEOL 18.26 18.73 FEB 15.00 0.40 0.40* 2.5% 8.1% INSP 34.15 33.86 FEB 30.00 0.55 0.55* 2.7% 7.9% OPWV 15.18 14.86 FEB 12.50 0.40 0.40* 2.4% 7.6% PMCS 23.80 21.54 FEB 20.00 0.50 0.50* 2.3% 7.2% SEPR 27.25 26.28 FEB 22.50 0.65 0.65* 2.2% 6.9% ASKJ 23.83 22.82 FEB 20.00 0.60 0.60* 2.2% 6.9% SINA 45.69 42.51 FEB 35.00 0.45 0.45* 1.9% 6.8% MU 16.11 16.15 FEB 15.00 0.25 0.25* 2.5% 6.5% IDCC 24.36 24.13 FEB 20.00 0.25 0.25* 1.8% 6.4% BLTI 21.14 19.35 FEB 17.50 0.30 0.30* 1.9% 6.4% SPRT 16.40 12.98 FEB 12.50 0.25 0.25* 1.8% 6.3% NKTR 17.12 18.40 FEB 15.00 0.45 0.45* 2.2% 6.3% IDCC 24.46 24.13 FEB 20.00 0.50 0.50* 1.9% 6.2% RMBS 34.60 30.29 FEB 25.00 0.50 0.50* 1.8% 6.0% ERICY 23.01 26.77 FEB 20.00 0.25 0.25* 1.8% 5.6% JNPR 22.00 29.47 FEB 20.00 0.55 0.55* 2.0% 5.4% AFFX 28.29 29.75 FEB 25.00 0.50 0.50* 1.8% 5.2% AFFX 28.40 29.75 FEB 25.00 0.40 0.40* 1.8% 5.2% RDWR 30.73 24.00 FEB 25.00 0.35 -0.65 0.0% 0.0% ATRS 37.40 27.31 FEB 30.00 0.45 -2.24 0.0% 0.0% * * Stock price is above the sold strike price. Editor's Comments: A Timely Rebound! Stocks bounced "right on cue" Friday with the trend in the NASDAQ Composite and the Russell 2000 Index reversing exactly at their respective 50-DMAs. Chart watchers were fervently waiting for this key test to determine the intermediate direction of equities and they responded with a clear-cut forecast: range-bound! Yes, most analysts say the market will trade between the 2004 peaks and valleys in the coming month with no real progress until the next period of profit warnings rolls around. Actually, that's a great outlook for traders who sell "premium" and with earnings season coming to an end, it should be easier to take advantage of the volatility without the concern of a "gap-down" in the underlying issue. Along those lines, traders who did not run for the exits during the post-earnings slump in Altiris (NASDAQ:ATRS) were left grieving their inactivity at the end of the week as the issue fell another $5 in only three sessions. Experienced traders would have closed the position on Tuesday, or possibly as late as Wednesday morning, while it was still profitable. Radware (NASDAQ:RDWR) is now among the ranks of the "early-exit" candidates and Supportsoft (NASDAQ:SPRT), PMC-Sierra (NASDAQ:PMCS), Biolase (NASDAQ:BLTI) and Nanogen (NASDAQ:NGEN) remain on the "watch" list. Positions Previously Closed: Wireless Facilities (NASDAQ:WFII), United Therapeutics (NASDAQ:UTHR) and Retek (NASDAQ:RETK), which is currently profitable. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Attention Readers: We are trying to determine which strategies are most preferred by the subscribers of this newsletter, in order to adjust our content to better meet your desires. Please send us a brief E-mail describing the techniques you utilize most: buying or selling stocks, buying or selling options, covered-calls, credit or debit spreads, calendar spreads, synthetic positions, straddles and strangles, and any other combination strategies. Thank You! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Sequenced by Maximum Yield (monthly basis) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield AZR 23.35 FEB 22.50 AZR NX 0.60 2600 21.90 14 6.0% 14.3% LSCP 19.53 FEB 17.50 LXQ NW 0.40 2 17.10 14 5.1% 14.1% NVDA 22.76 FEB 20.00 UVA ND 0.30 3621 19.70 14 3.3% 9.8% AMR 16.05 FEB 15.00 AMR NC 0.25 6047 14.75 14 3.7% 9.7% TER 26.77 FEB 25.00 TER NE 0.40 1789 24.60 14 3.5% 9.3% ASKJ 22.82 FEB 20.00 AUK ND 0.25 1591 19.75 14 2.8% 8.3% BLUD 23.52 FEB 22.50 QMQ NX 0.25 10 22.25 14 2.4% 6.3% Legend (for play descriptions below) LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). __________________________________________________________________ AZR - Aztar $23.35 *** Hot Sector! *** Aztar (NYSE:AZR) is a publicly traded company that operates the Tropicana Casino and Resort in Atlantic City, New Jersey; the Tropicana Resort and Casino in Las Vegas, Nevada; the Ramada Express Hotel and Casino in Laughlin; Nevada, the Casino Aztar in Caruthersville, Missouri; and Casino Aztar in Evansville, Indiana. Aztar is an experienced developer and operator of casinos that provide a gaming environment. Each of its casinos is designed and operated to serve the unique demographics of its particular market. Gaming stocks are "hot" and AZR appears to be setting up for a test of its all-time high near $25. The company's earnings, due out next week, will determine the trend in the coming weeks and traders can speculate on the quarterly report with this position. FEB-22.50 AZR NX LB=0.60 OI=2600 CB=21.90 DE=14 TY=6.0% MY=14.3% __________________________________________________________________ LSCP - Laserscope $19.53 *** Entry Point? *** Laserscope (NASDAQ:LSCP) designs, manufactures, sells and services, on a worldwide basis, an advanced line of medical laser systems and related energy devices for the medical office, outpatient surgical center and hospital markets. The firm pioneered development and commercialization of lasers and advanced fiber-optic devices for a variety of applications. The company's product portfolio consists of more than 150 medical laser systems and related energy delivery devices. The firm's primary medical markets include dermatology, aesthetic surgery and urology. Its secondary markets include ear, nose & throat surgery, general surgery, gynecology, photo-dynamic therapy and other surgical specialties. On Friday, the firm said it will introduce the Gemini Dual-Wavelength Laser System at the American Academy of Dermatology's Annual Meeting next week. The Gemini system, which is approved for various clinical applications, is awaiting clearance for treatment of acne, wrinkle reduction and permanent hair reduction on all skin types. Investors who like the outlook for the company can establish a conservative cost basis in its stock with this position. FEB-17.50 LXQ NW LB=0.40 OI=2 CB=17.10 DE=14 TY=5.1% MY=14.1% __________________________________________________________________ NVDA - Nvidia $22.76 *** Earnings Speculation Only! *** Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and media communication processors and related software for personal computers (PCs), workstations and digital entertainment platforms. The company provides an architecturally compatible top-to-bottom family of unique, performance 3-D graphics processors and graphics processing units that set the standard for performance, quality and features for a broad range of desktop PCs. Nvidia's graphics processors are used for a wide variety of applications, including games, digital image editing, business productivity, the Internet and industrial design. Its graphics processors are designed to be architecturally compatible backward and forward between computer generations, giving its original equipment manufacturers, end users and other customers a low cost of ownership. Nvidia will announce its financial results for the fourth quarter and the fiscal year on February 12, 2004, after the market close. Traders can speculate on the content of the quarterly report with this position. FEB-20.00 UVA ND LB=0.30 OI=3621 CB=19.70 DE=14 TY=3.3% MY=9.8% __________________________________________________________________ AMR - AMR Corporation $16.05 *** Airline Sector *** AMR Corporation (NYSE:AMR) is principally engaged in the airline industry and its primary subsidiary is American Airlines, which together with its wholly owned subsidiary TWA Airlines, operates as a scheduled passenger airline. American provides scheduled jet service to more than 150 destinations across North America, the Caribbean, Latin America, Europe and the Pacific. American is also a global airfreight carrier, providing various freight and mail services to shippers throughout its system. AMR's other subsidiaries include AMR Eagle, which owns two regional airlines, and AMR Investment Services, which handles the investments and oversight of the company's assets. Airline stocks closed higher on Friday and the sector appears to be recovering along with the economy. Investors who want to diversify their portfolio with a position in the airline industry should consider this position. FEB-15.00 AMR NC LB=0.25 OI=6047 CB=14.75 DE=14 TY=3.7% MY=9.7% __________________________________________________________________ TER - Teradyne $26.77 *** The Bullish Trend Resumes! *** Teradyne (NYSE:TER) is a worldwide supplier of automatic test equipment, high-performance interconnection systems and electronic manufacturing services. The company's automatic test equipment products include Semiconductor Test Systems, Circuit Board Test and Inspection Systems and Broadband Test Systems. Teradyne's interconnection systems products and services (Connection Systems) include high-bandwidth backplane assemblies and other associated connectors used in electronic systems and electronic manufacturing services of assemblies that include its backplanes and connectors. TER shares rebound Friday in tandem with the chip-sector rally and the issue appears poised to move higher in the coming sessions. Traders who believe the bullish trend in semiconductor-equipment stocks will resume can profit from that outcome with this position. FEB-25.00 TER NE LB=0.40 OI=1789 CB=24.60 DE=14 TY=3.5% MY=9.3% __________________________________________________________________ ASKJ - Ask Jeeves $22.82 *** On The Rebound! *** Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search, providing consumers with authoritative and fast ways to find relevant information to their everyday searches. Ask Jeeves deploys its search technologies on Ask Jeeves (Ask.com and Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com). In addition, to its internet sites, Ask Jeeves syndicates its monetized search technology and advertising units to a network of affiliate partners. The company is based in Emeryville, California, with offices in New York, Boston, New Jersey, Los Angeles, London and Dublin. On Friday, ASKJ spiked higher in conjunction with the rebound in technology stocks and the move suggests an end to the recent consolidation pattern. Traders can speculate on the issue's near-term performance with this position. FEB-20.00 AUK ND LB=0.25 OI=1591 CB=19.75 DE=14 TY=2.8% MY=8.3% __________________________________________________________________ BLUD - Immucor $23.52 *** You Can't Live Without BLUD! *** Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood prior to blood transfusion. Immucor also markets a complete family of automated instrumentation for all of their market segments. During the past year, the company resolved the remaining performance issues relating to its ABS2000 instrument and launched new software for the product. The company has recently submitted the 510(k) pre-market notification submission for its new "Galileo" instrument to the U.S. Food and Drug Administration. In addition, Immucor replaced Concerto Software in the S&P Small-Cap 600 after the close of trading Friday, suggesting additional buying pressure from institutions in the coming weeks. FEB-22.50 QMQ NX LB=0.25 OI=10 CB=22.25 DE=14 TY=2.4% MY=6.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Supplemental Naked Puts ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield QLTI 23.35 FEB 22.50 QTL NX 0.65 160 21.85 14 6.5% 15.5% NSIT 22.64 FEB 22.50 QNT NX 0.65 2 21.85 14 6.5% 14.8% ACF 17.76 FEB 17.50 ACF NW 0.50 2207 17.00 14 6.4% 14.8% AV 17.63 FEB 17.50 AV NW 0.50 1314 17.00 14 6.4% 14.6% MU 16.15 FEB 16.00 MU NQ 0.45 6304 15.55 14 6.3% 14.5% TKLC 20.34 FEB 20.00 KQ ND 0.55 46 19.45 14 6.1% 14.3% ARRS 10.30 FEB 10.00 AQC NB 0.25 98 9.75 14 5.6% 13.3% ABTL 12.93 FEB 12.50 BCU NV 0.30 177 12.20 14 5.3% 12.9% GNTA 13.70 FEB 12.50 GJU NV 0.25 4254 12.25 14 4.4% 12.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************ SPREADS/STRADDLES/COMBOS ************************ A Good Excuse To Rally! By Ray Cummins U.S. equities soared Friday in spite of a tepid jobs report after analysts suggested the data would delay anti-inflationary measures by the Fed. The Dow Industrial Average closed up 97 points at 10,593 with AT&T (NYSE:T), Caterpillar (NYSE:CAT), Citigroup (NYSE:C), and Wal-Mart (NYSE:WMT) leading the blue-chip group higher. The NASDAQ soared 44 points to 2,064, its largest one-day gain since early November, as semiconductor issues bolstered the technology segment. The S&P 500 Index added 14 points to finish at 1,142, with homebuilding, casino, aluminum, consumer finance, biotech, airline, and hospital shares among the best performers. Volume was average with 1.46 billion shares swapped on the New York Stock Exchange, while 1.85 billion shares changed hands on the NASDAQ. Advancers outpaced decliners by almost a 3 to 1 margin on both the Big Board and the technology exchange. The bond market powered higher amid a belief that the Federal Reserve will hold rates at the current levels for some time. The 10-year note ended the day near its high, up 21/32 with a yield of 4.08%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Attention Readers: We are trying to determine which strategies are most preferred by the subscribers of this newsletter, in order to adjust our content to better meet your desires. Please send us a brief E-mail describing the techniques you utilize most: buying or selling stocks, buying or selling options, covered-calls, credit or debit spreads, calendar spreads, synthetic positions, straddles and strangles, and any other combination strategies. Thank You! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 02/06/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position or to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management, nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PUT-CREDIT SPREADS Symbol Pick Last Month LP SP Credit CB G/L Status OHP 46.69 46.45 FEB 40 43 0.30 42.20 0.30 Open NBR 44.11 43.97 FEB 38 40 0.30 39.70 0.30 Open BIIB 43.19 43.50 FEB 35 40 0.55 39.45 0.55 Open GENZ 54.26 54.79 FEB 48 50 0.30 49.70 0.30 Open AVE 73.00 78.81 FEB 65 70 0.45 69.55 0.45 Open CI 60.55 56.55 FEB 50 55 0.55 54.45 0.55 Open? DNA 96.40 96.52 FEB 85 90 0.70 89.30 0.70 Open ADI 47.85 48.04 FEB 40 45 0.60 44.40 0.60 Open KOSP 51.00 53.43 FEB 40 45 0.50 44.50 0.50 Open MSTR 62.40 62.08 FEB 50 55 0.55 54.45 0.55 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Bullish positions in Cabot Micro (NASDAQ:CCMP) and Lam Research (NASDAQ:LRCX) have previously been closed for small losses. The position in Cigna (NYSE:CI) is on the "watch" list. CALL-CREDIT SPREADS Symbol Pick Last Month LC SC Credit CB G/L Status ADBE 37.12 38.92 FEB 45 40 0.55 40.55 0.55 Open TBL 51.13 57.70 FEB 60 55 0.65 55.65 (2.05) Closed ABT 43.25 44.37 FEB 48 45 0.25 45.25 0.25 Open POWI 32.05 30.08 FEB 40 35 0.75 35.75 0.75 Open SCHN 45.90 46.77 FEB 60 55 0.50 55.50 0.50 Open OVTI 51.10 49.06 FEB 65 60 0.50 60.50 0.50 Open VSEA 45.27 46.90 FEB 55 50 0.55 50.55 0.55 Open AVCT 36.56 41.82 FEB 43 40 0.25 40.25 (1.57) Closed OVTI 48.48 49.06 FEB 60 55 0.60 55.60 0.60 Open LLY 68.04 72.85 FEB 75 70 0.60 70.60 (2.25) Closed LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Positions in Timberland (NYSE:TBL), Avocent (NASDAQ:AVCT) and Eli Lilly (NYSE:LLY) were closed early in the week (Tuesday/Wednesday) for smaller-than-published losses. Adobe Systems (NASDAQ:ADBE) is on the "watch" list along with Varian Semiconductor (NASDAQ:VSEA) and Abbott Labs (NYSE:ABT). CALL-DEBIT SPREADS Symbol Pick Last Month LC SC Debit B/E G/L Status BRCM 36.78 39.64 FEB 30 32 2.20 32.30 0.30 Open CREE 25.85 24.49 FEB 20 22 2.20 22.20 0.30 Open? TEVA 61.75 65.25 FEB 55 60 4.45 59.45 0.55 Open INTU 50.37 48.99 FEB 45 47 2.20 47.20 0.30 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT-DEBIT SPREADS Symbol Pick Last Month LP SP Debit B/E G/L Status MIK 41.42 47.00 FEB 47 45 2.20 45.30 (1.10) Closed QLGC 47.16 45.16 FEB 55 50 4.20 55.80 0.80 Open NVLS 39.89 33.73 FEB 45 42 2.20 42.80 0.30 Open AVID 47.04 44.11 FEB 55 50 4.55 50.45 0.45 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss As noted last week, the position in Michael's Stores (NYSE:MIK) was on the "watch" list and Thursday's close above the recent resistance area near $45.50 was our exit signal in the bearish position. The loss reflected in the summary is based on the closing prices on that day. SYNTHETIC (BULLISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status CEPH 52.50 53.04 FEB 60 45 0.10 1.00 Closed MXT 6.04 5.89 MAR 7 5 0.10 0.00 Open Previous positions in United Therapeutics (NASDAQ:UTHR) and Visx (NYSE:EYE) achieved profitability, however they were eventually closed to limit potential losses. The same can now be said of Cephalon (NASDAQ:CEPH), which was closed Friday after moving to a recent low on heavy trading volume. SYNTHETIC (BEARISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Put Call Credit Value Status DD 42.72 44.45 MAR 40 45 0.00 0.00 Open Dupont (NYSE:DD) surprised almost everyone with a bullish profit report and subsequent rally. However, the overhead supply near the sold (call) strike at $45 is formidable and with any luck, the issue will remain below that price for two more weeks. CALENDAR & DIAGONAL SPREADS Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status FISV 38.28 37.97 MAR-35P FEB-35P 0.30 0.50 Open AMHC 27.08 28.32 MAY-30C FEB-30C 1.25 1.50 Open ABGX 15.60 15.57 APR-17C FEB-17C 0.60 0.60 Open SONS 8.54 7.81 JUL-10C FEB-10C 1.00 0.90 Open Fiserve (NASDAQ:FISV) offered a viable "early-exit" profit for conservative traders when the issue fell below $36 on Thursday. The American Healthways (NASDAQ:AMHC) calendar spread is also profitable with over three months left in the position. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status MATK 65.74 60.99 MAR 65 65 9.40 9.00 Open BSC 84.10 83.00 MAR 85 85 5.25 6.10 Open FRX 74.49 75.54 MAR 75 75 6.50 6.30 Open New straddles in Nam Tai Electronics (NYSE:NTE) and Petrochina (NYSE:PTR) were not available due to pre-market volatility on the first trading day after the positions were offered. CREDIT STRANGLES No Open Positions Questions & comments on spreads/combos to Contact Support ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CREDIT SPREADS (BULLISH & BEARISH) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. __________________________________________________________________ CFC - Countrywide Financial $85.54 *** Next Leg Up? *** 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 $85.54 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-75.00 CFC-NO OI=9717 ASK=$0.40 SELL PUT FEB-80.00 CFC-NP OI=4550 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$79.50 __________________________________________________________________ CERN - Cerner $46.09 *** Technical Break-Out? *** Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. The firm's solutions give end users secure access to clinical, administrative and other financial data in real-time. Consumers retrieve appropriate care information and educational resources via the Internet. The firm implements these solutions as stand-alone, combined or enterprise wide systems. Cerner solutions can be managed by the company's clients or via an application outsourcing/hosting model. Cerner provides hosted solutions from its data center in Lee's Summit, Missouri. CERN - Cerner $46.09 PLAY (conservative - bullish/credit spread): BUY PUT MAR-35.00 CQN-OG OI=4185 ASK=$0.40 SELL PUT MAR-40.00 CQN-OH OI=2659 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$39.45 __________________________________________________________________ NFLX - Netflix $76.63 *** 2 For 1 Split = Entry Point? *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX - Netflix $76.63 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-65.00 QNQ-NM OI=7835 ASK=$0.35 SELL PUT FEB-70.00 QNQ-NN OI=4534 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$69.50 __________________________________________________________________ CYBX - Cyberonics $27.04 *** In Need Of Depression Therapy! *** Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and markets the NeuroCybernetic Prosthesis, an implantable medical device that delivers a novel therapy, Vagus Nerve Stimulation, for treating epilepsy and debilitating neurological, psychiatric diseases and other disorders. In July 1997, the NCP System was approved by the United States Food and Drug Administration for commercial distribution in the United States for the treatment of epilepsy, which the firm sells using its own employee-based direct marketing organization. In addition, the NCP System is marketed internationally for the treatment of epilepsy (mainly in Europe) using a combination of Cyberonics' own direct sales organization and independent distributors. CYBX - Cyberonics $27.04 PLAY (conservative - bearish/credit spread): BUY CALL MAR-35.00 QAJ-CG OI=2160 ASK=$0.35 SELL CALL MAR-30.00 QAJ-CF OI=47 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$30.60 __________________________________________________________________ SOHU - Sohu.com $29.05 *** Stuck In A Range? *** Sohu.com (NASDAQ:SOHU) is an Internet portal in China. The firm's portal consists of sophisticated Chinese language Web navigational and search capabilities, 15 main content channels, Internet-based communications and community services, and a unique platform for e-commerce and short messaging services. Each of the company's interest-specific main channels contains multi-level sub-channels that cover a range of topics; news, business, entertainment, sports and careers. The firm also offers free Web-based e-mail. Sohu.com offers a universal registration system, and the company's portal attracts consumers and merchants alike. One of the key features is a proprietary Web navigational and search capabilities that reflects the cultural characteristics and thinking and viewing habits of the People's Republic of China Internet users. SOHU - Sohu.com $29.05 PLAY (conservative - bearish/credit spread): BUY CALL MAR-40.00 UZK-CH OI=8152 ASK=$0.40 SELL CALL MAR-35.00 UZK-CG OI=3708 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$35.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DEBIT SPREADS (BULLISH & BEARISH) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. __________________________________________________________________ KSS - Kohl's $48.64 *** Revenge Play! *** Kohl's (NYSE:KSS) operates family-oriented, specialty department stores. The company's stores sell moderately priced apparel, shoes, accessories and home products targeted to middle-income customers shopping for their families and homes. Kohl's stores have fewer departments than traditional, full-line department stores, but offer customers assortments of merchandise displayed in complete selections of styles, colors and sizes. Since 1992, the company has increased square footage an average of 22% per year, expanding from 79 stores located in the Midwest to a total of over 400 stores with a presence in six regions. Of the stores it operates, over 100 are take-over locations, which facilitated the entry into several new markets, including Chicago, Illinois; Detroit, Michigan; Ohio; Boston, Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri, and the New York region. KSS - Kohl's $48.64 PLAY (conservative - bullish/debit spread): BUY CALL MAR-40.00 KSS-CH OI=370 ASK=$8.90 SELL CALL MAR-45.00 KSS-CI OI=3428 BID=$4.40 INITIAL NET-DEBIT TARGET=$4.40-$4.45 POTENTIAL PROFIT(max)=12% B/E=$44.45 __________________________________________________________________ SPF - Standard Pacific $49.75 *** Next Leg Up? *** Standard Pacific (NYSE:SPF) is a diversified builder of single family homes. The company constructs homes within a wide range of prices and sizes targeting a variety of homebuyers. Standard Pacific has operations in major metropolitan areas in California, Texas, Arizona, Colorado, Florida and the Carolinas and has built homes for thousands of families during its history. In addition to its core homebuilding operations, the firm provides mortgage financing and title services to its homebuyers through its many subsidiaries and joint ventures: Family Lending Services, SPH Mortgage, WRT Financial, Westfield Home Mortgage, Universal Land Title of South Florida and SPH Title. SPF - Standard Pacific $49.75 PLAY (conservative - bullish/debit spread): BUY CALL MAR-40.00 SPF-CH OI=331 ASK=$10.10 SELL CALL MAR-45.00 SPF-CI OI=2338 BID=$5.60 INITIAL NET-DEBIT TARGET=$4.40-$4.45 POTENTIAL PROFIT(max)=12% B/E=$44.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SYNTHETIC POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. __________________________________________________________________ SKX - Skechers U.S.A. $8.94 *** Rally Mode! *** Skechers U.S.A. (NYSE:SKX) designs and markets a collection of branded contemporary footwear for men, women and children, as well as a designer line for women branded separately. The firm's product line consists of over 1,500 styles that are organized in 11 distinct collections. The company pursues its retail store strategy through three integrated retail formats, the concept store, the factory outlet store and the warehouse outlet store. The company's Warehouse Outlet Stores are freestanding stores located throughout the United States that enable it to liquidate excess merchandise, discontinued lines and odd-size inventory in a cost-efficient manner. SKX - Skechers U.S.A. $8.94 PLAY (very speculative - bullish/synthetic position): BUY CALL APR-10.00 SKX-DB OI=81 ASK=$0.40 SELL PUT APR-7.50 SKX-PU OI=245 BID=$0.20 INITIAL NET-DEBIT TARGET=$0.05-$0.10 INITIAL TARGET PROFIT=$0.35-$0.50 Note: Using options, this position is similar to being long in the stock. The minimum initial margin/collateral requirement for the sold (short) option is approximately $250 per contract. However, do not initiate this position if you can not afford to purchase the stock at the sold call strike price ($7.50). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CALENDAR SPREADS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are generally speculative spreads with low initial cost and large potential profit. __________________________________________________________________ MEDI - MedImmune $25.14 *** Bottom-Fishing Only! *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of unique products on the market and a diverse product pipeline. The firm is focused on using advances in immunology and the biological sciences to develop new products that address significantly unmet medical needs in the areas of infectious disease, immune regulation and cancer. MedImmune actively markets Synagis, Ethyol and CytoGam and FluMist. MEDI - MedImmune $25.14 PLAY (speculative - bullish/diagonal spread): BUY CALL JUN-20.00 MEQ-FD OI=1214 ASK=$5.90 SELL CALL MAR-25.00 MEQ-CE OI=7367 BID=$1.55 INITIAL NET DEBIT TARGET=$4.30-$4.35 INITIAL TARGET PROFIT=$0.55-$0.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ LF - LeapFrog Enterprises $29.75 *** Earnings Speculation! *** LeapFrog Enterprises (NYSE:LF) is a designer, maker and marketer of technology-based educational products and related proprietary content, dedicated to making learning effective and engaging. The firm designs its products to help preschool through eighth grade children learn age- and skill-appropriate subject matter, such as phonics, reading, math, spelling, science, geography, history and music. The company has also extended its product line downward in age to reach infants and toddlers and upward in age to reach high school students. LF - LeapFrog Enterprises $29.75 PLAY (speculative - neutral/debit straddle): BUY CALL FEB-30.00 LF-BF OI=5105 ASK=$1.55 BUY PUT FEB-30.00 LF-NF OI=4601 ASK=$1.75 INITIAL NET-DEBIT TARGET=3.10-$3.20 INITIAL TARGET PROFIT=$1.45-$2.10 __________________________________________________________________ MNST - Monster Worldwide $25.13 *** Earnings Speculation! *** Monster Worldwide (NASDAQ:MNST), formerly known as TMP Worldwide, is a global provider of career solutions. The company, through its flagship Interactive product, Monster (www.monster.com), is engaged in online career management. Monster Worldwide is also a worldwide recruitment advertising agency through its Advertising and Communications division and a yellow pages advertising agency through its Directional Marketing division. On March 31, 2003, the company completed the distribution of the common stock of Hudson Highland Group, previously reported as the eResourcing and Executive Search divisions of Monster Worldwide. MNST - Monster Worldwide $25.13 PLAY (speculative - neutral/debit straddle): BUY CALL FEB-25.00 BSQ-BE OI=1778 ASK=$1.45 BUY PUT FEB-25.00 BSQ-NE OI=1834 ASK=$1.35 INITIAL NET-DEBIT TARGET=2.60-$2.70 INITIAL TARGET PROFIT=$1.10-$1.55 __________________________________________________________________ XMSR - XM Satellite Radio $22.86 *** Earnings Speculation! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1,000,000 subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee, at the Country Music Hall of Fame, XM provides its loyal listeners with 101 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. In addition, XM is available in more than 80 different 2004 car models. XMSR - XM Satellite Radio $22.86 PLAY (speculative - neutral/debit straddle): BUY CALL FEB-22.50 QSY-BX OI=7832 ASK=$1.30 BUY PUT FEB-22.50 QSY-NX OI=17830 ASK=$0.95 INITIAL NET-DEBIT TARGET=2.10-$2.15 INITIAL TARGET PROFIT=$0.90-$1.55 __________________________________________________________________ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... 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