The Option Investor Newsletter Sunday 02-22-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Questions and More Questions Futures Market: Buyers of Cash Index Trader Wrap: Running out of Gas Editor's Plays: Readers Write Market Sentiment: Are You Ready? Ask the Analyst: See Note 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 02-20 WE 02-13 WE 02-06 WE 01-30 DOW 10619.03 - 8.82 10627.8 + 34.82 10593.0 +104.96 - 80.22 Nasdaq 2037.93 - 15.63 2053.56 - 10.45 2064.01 - 2.14 - 57.72 S&P-100 564.87 - 1.05 565.92 - 0.14 566.06 + 5.75 - 5.10 S&P-500 1144.11 - 1.70 1145.81 + 3.05 1142.76 + 11.63 - 10.42 W5000 11143.58 - 30.42 11174.0 + 44.60 11129.4 +100.20 -127.58 RUT 579.89 - 5.25 585.14 + 1.07 584.07 + 3.31 - 15.38 TRAN 2892.18 - 24.38 2916.56 + 22.20 2894.36 + 8.40 -186.99 VIX 16.04 + 0.46 15.58 - 0.41 15.99 - 0.64 + 1.79 VXO 16.25 + 0.62 15.63 - 0.35 15.98 - 1.07 + 2.18 VXN 24.12 - 0.02 24.14 - 0.49 24.63 - 0.43 + 3.79 TRIN 1.29 1.19 0.62 1.00 Put/Call 0.86 0.76 0.62 0.81 ****************************************************************** Questions and More Questions Was Friday's market weakness caused by the CPI data? Did Tokyo's raised terror alert spook the markets? Did the dollar's strength hit those stocks that had seen gains in an export-friendly, low- dollar environment? And, the biggest question of all--did the markets begin a breakdown on Friday or just rest for a day? Friday dawned with a mixed performance in overnight markets. Japanese investors reacted to a smaller-than-expected rise in the Japanese services industries index by sending the Nikkei lower by 0.31 percent. Other Asian bourses turned in a mixed performance. Semi-conductors fell in Asia due to a January U.S. semiconductor book-to-bill number that was above the benchmark 1 but still deemed disappointing by Asian investors. A strengthening dollar helped support those export-heavy Asian markets, however. European markets were mixed, too, but U.S. futures were higher and U.S. markets looked primed for a bounce until the release of the CPI data. That CPI data showed a 0.5 percent increase for January, far above the expected 0.1 percent rise. The surprise number raised fears of inflation and rate hikes. The markets tried to steady at the open, but then news of a heightened terror alert in Japan hit the markets. Indices fell, climbed in bear flag formations and broke down again. By 1:00 EST, most had hit their day's low and then began a laborious climb that caught fire at about 2:00 EST. The Fed had marshaled its forces and Fedspeak included Federal Reserve Governor Ben Bernanke asserting that the CPI figure shouldn't raise alarms. The president of St. Louis's Federal Reserve Bank, William Poole, also reassured investors, saying that inflation should remain low throughout 2004. Greenspan did his part, although he focused on job growth and not inflation. He reiterated his belief that expanding output would soon lead to jobs growth. The Dow, SPX, NDX, and OEX all managed climbs above their opening levels, but the SOX and Nasdaq never made it that far when another bout of selling hit the markets just before the bond market close. Most indices ended near the middle of their day's ranges, with the Dow down 0.43 percent, the Nasdaq down 0.39 percent, and the SPX down 0.26 percent. Weak sectors included semiconductor stocks, networking stocks, computer storage and peripherals, the metals, the airliners, and the homebuilders, but even normally defensive sectors such as the pharmaceuticals and those represented by the Morgan Stanley Healthcare Providers Index traded lower. The Oil Service Sector Index was green as were the Morgan Stanley Consumer and Early Cyclical Indices, but the first two of those three were essentially flat. The advdec line was negative all day, and by the close there were 12 advancers to 21 decliners on the NYSE and 12 advancers to 20 decliners on the Nasdaq. Down volume measured 2.7 times up volume on the NYSE and 1.7 times up volume on the Nasdaq. HPQ and AA led decliners among Dow stocks. HPQ lost 3.06 percent following its earnings report, considered in line with expectations; and AA lost 2.41 percent after it announced that it had sold its automotive fastener business. This was part of an already announced plan to help AA pay down debt. Other story stocks included DIS, now target of Comcast's takeover bid; and KO, subject of a Bear Stearns downgrade to a peer-perform rating after Thursday's announcement that the CEO would retire at the end of the year. DIS lost 1.67 percent, but KO declined only 0.12 percent. Some stocks performing well included G, adding 0.82 percent and reaching a 52-week high after Prudential raised its rating to an overweight rating; and WMT, gaining 1.80 percent after yesterday's earnings report. Those who came to the markets today expecting the usual opex Friday, including early-morning volatility and then pin-them-to- the-max-pain number, straight-across-the-charts trading, found themselves surprised by the day's action. How much damage was actually done? Annotated Daily Chart for the Dow: On the way to its low of the day, the Dow slipped below 10,600, testing its 21- and 30-dma's and finding support from them. However, some troubling facts become apparent from a study of the chart. The Dow may have broken down below a recently established symmetrical right triangle, and the afternoon bounce may have been nothing more than a bounce back up to retest the broken support. Bearish price/MACD divergence occurred as that higher high was hit week before last, and oscillators have continued a pattern of lower highs. The apparent breakdown, even with the bounce, may merely have been reforming the consolidation pattern into a bearish right triangle, with a flat bottom at about 10,575-10,580 and a descending top trendline. RSI and stochastics have rolled down and both have far to go before hitting levels indicating oversold conditions. Those oscillators support the idea that the Dow is either in the process of breaking down or has already broken down, with plenty of downside to go. Believing in oscillators in a trending market is a treacherous endeavor, but the Dow has begun a consolidation process despite the recent new highs, and we might be able to begin putting more credence in those oscillators. For now, however, I consider the evidence inconclusive, although with a slight bias to the downside. Look for another break above 10,700 as a sign that the Dow may be breaking out to the upside, and a break below Friday's low as confirmation of a downside break. Be careful, though, if that downside break occurs, because the 50- dma speeds up to join forces with the top line of the former ascending trendline. A bounce of some amplitude should be expected at that point. A failure to maintain the 50-dma would be more serious. Annotated Daily Chart for the TRAN: While the Dow was rising to its 2/11 new high, the TRAN was bouncing from the bottom of its recent plunge. The 50 percent retracement of the plunge and the 50-dma stopped the TRAN's advance, however. The divergent behavior of the two sister indices, the Dow Industrials and Transports, has been troubling to those familiar with Dow theory, and the longer that divergence persists, the more bearish the outlook for the Dow. Like the Dow, however, the TRAN's chart leaves questions unanswered. Until and unless the TRAN sustains levels above that 50 percent retracement of the recent plunge, we can't consider any move higher to be a bullish move. Yet Friday's doji at the bottom of a decline left open the possibility that the TRAN could reverse, printing a higher low. Oscillators look bearish, but also look as if they're trying to slow their descent in preparation to turn up again. Next week's movement will tell us more, but watch for a TRAN move above 2952 to verify strength in the Dow, or a fall below 2800 to verify weakness. A TRAN move to 2800 will create a new P&F sell signal. Annotated Daily Chart for the NDX: The NDX left traders with as many unanswered questions as did the other indices. Is the NDX breaking down out of this long-term ascending channel? The NDX closed right on its 50-dma after having broken through it during Friday's dip. Oscillators look ready to tip over again, but essentially just squiggle around at neutral levels for each. As I study this chart, I note that each of the last few times the NDX approached the upper boundary of its rising regression channel, it turned down from a bigger distance away from that boundary, and each time it approached the lower boundary, it violated it to a greater degree. Is this signaling increasing weakness? Perhaps, but it's been dangerous to reach that conclusion during the last year. If the NDX should dip below the 50-dma, it will soon find historical support at 1450, a point at which traders should expect a bounce, if not before. It's only after such a bounce or failure to bounce that we'll know more about continuing strength or weakness. Another lower high would set up the possibility of a bearish right triangle on this chart, too, with a much lower downside target. Annotated Daily Chart for the SOX: A look at the NDX wouldn't be complete without a study of the SOX. Over the last few days, I've been watching as the SOX retraced some of its recent descent. The climb appeared to be taking the form of a bearish rising wedge, but these formations have been notoriously unreliable over the last year. I found myself somewhat skeptical. Thursday, the SOX climbed above a 50 percent retracement of the plunge, to levels that shouldn't be sustained if the climb is a bearish distribution formation. However, by the end of that day, the SOX had fallen back below that key level, unable to sustain the retracement. Friday, the SOX appeared to have fallen out of the bearish rising wedge. It certainly fell back below the 50-dma, and, unlike the NDX and COMPX, was unable to close back on that average. The break was minimal, however, and the oscillators inconclusive, leaving open the question of whether the SOX can climb back inside that regression channel and continue its way higher. Without the SOX, however, the NDX and COMPX are unlikely to make much headway. Friday's action left me with the impression that the markets teeter on the edge of a bigger pullback, but that the action could have resulted from a combination of multiple blows received one after the other and opex activity. The damage did not prove so severe that the markets could not recover, as we've seen them do so many times over the last year when similarly teetering on the edge of a breakdown. When I study the weekly chart of the OEX, a favorite index of mine to watch, I see the possibility that the OEX could trade sideways a number of weeks, expending any overbought pressure, just as it's done through other periods over the last year. The last two sideways consolidations each required 11 to 12 weeks, and we've seen only five or six in this latest consolidation period. The question of what happens next must unfortunately be delayed until next week. Earnings reports slow down next week, but a number of retailers do report, including GPS, JCP, and KSS, among others. Next week's economic calendar will see a number of releases, with February's consumer confidence number Tuesday morning at 10:00 and January's existing home sales Wednesday at 10:00. That's only the beginning. Thursday will see the release of January's durable orders, help-wanted index, and new home sales, as well as the previous week's initial claims. The releases don't let up on Friday, either, with before-the-bell releases of the Q4 preliminary GDP and chain deflator, the 9:45 release of February's revised Michigan sentiment, and the 10:00 release of the February Chicago PMI. The durable orders, preliminary GDP, Michigan sentiment, and Chicago PMI will probably draw the most attention out of those numbers. Linda Piazza ************** FUTURES MARKET ************** Buyers of Cash Jonathan Levinson The US Dollar Index broke its 6-month descending trendline and commenced a new daily upphase on a huge move Friday, drilling equities, treasuries, commodities and precious metals lower. 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 You're looking at the big winner today on a global basis. The US Dollar Index, whose decline since 2002 has buoyed the price of virtually everything that can be bought, rose strongly today against other currencies and assets. An overnight low of 85.60 on the cash index topped at 87.40 before returning to the 87.20 level. On the March future, the DX contract broke descending resistance with authority, consummating the bullish divergence on both the Macd and 10-day stochastic, and targets 88.20 resistance. The CRB dropped 1.70 to close at 264.07, led to the downside by heating oil, gold, silver and platinum futures. Daily chart of April gold I've zoomed in to a six month view of April gold to get a better bead on the damage caused by today's selloff in metals. April gold bottomed at 394.50, printing a double bottom from the beginning of February. The rising trendline was broken, setting up the possibility of a head and shoulders top projecting roughly to the 365-70 level. That said, 388-392 was significant resistance on the way up, and despite the ferocity of today's 3%+ move, the US Dollar Index is approaching resistance just as gold is approaching support. The daily cycle upphase ended at a lower high, and any weakness on Monday will kick off a new daily cycle downphase. For the day, April gold lost 12.60 or 3.07% to close at 398.40. HUI and XAU recovered from deep losses in the mid- afternoon to close down 3.28% at 222.30 and -2.69% at 97.55 respectively. Daily chart of the ten year note yield Ten year note yields (TNX) also made good on their promise of higher prices, but with a more moderate advance, gaining 4.6 basis points to close at 4.098%, a 1.14% move. The daily cycle downphase on the yield did not abort, and given how frequent pennant apex whipsaws have become this year, it's premature to rule the current downphase in the yield over. But today's move was impulsive and build from a higher low and reached a higher high, with the Macd and stochastic oscillators set up for the same bullish divergence that we see above on the US Dollar Index. A higher dollar would be expected to be accompanied by higher yields as US cash rises in value. For this reason, I'm bearish on treasuries. Yet, if foreigners decide to ride a US Dollar bounce in treasuries, increased foreign demand could drive yields down. Add the constant drumbeat of BoJ and Fed interventions, and it's safer to defer to technical oscillators. The upphase is not underway, but the daily cycle low on the TNX may well have printed this week. Daily NQ candles Friday morning's bark was worse than its bite, in the end, as the NQ recovered multiple broken supports to both the day and the week with slight losses. The NQ plunged to a session low of 1470.50 but managed to bounce into positive territory, failing at 1495 and closing lower by 4.5 points or .30% at 1484. The recovery off the low left a long doji tail, and combined with the rejection at the day highs we were left with the perfect indecision depicted by a doji star. A lower high and lower low were printed, as would be expected by the US Dollar rally in light of the binary dollar relationship we've been following. The same head and shoulders discussed on the gold contract applies here, with the neckline on NQ tested but not broken on a closing basis. The daily cycle upphase is still intact, but the Macd will give a clear sell signal on any weakness Monday. Support came at 1480-82, 1476-7 and 1470, below which is 1460 and 1440. Volume was heavy on QQQ, worth noting at 135M+ shares for the day. 30 minute 20 day chart of the NQ Friday was a blast from the past, with directional moves in both directions. The 30 minute cycle oscillators opened near their lows and ground slowly lower as the price sliced through support. The first Macd buy signal was the one to follow, as NQ spiked back up to the pennant apex where it failed. That failure in positive territory was signaled by the overbought short cycle oscillators, but the ensuing pullback into the close found support at a higher low, confirming the 30 minute cycle upphase. Confused? We should see an intraday pattern of higher highs and higher lows on the 150-tick (approx 3 minute candle) chart, provided that 1480 support (the bottom of the 30 minute cycle channel) is not violated. Resistance is at 1495-6, followed by 1502 and 1508. A failure from any high below 1518 would confirm that the daily cycle upphase is over, and we'll return to short- all-rallies mode. Daily ES candles ES fell 3.50 to 1143.75, bouncing from a low at 1137.75 and then failing at 1151. As on the NQ, a doji star reflects equal amounts of fear on both sides of the trade, but the day nevertheless finished with a lower low and lower high, the third in a row for a lightly negative week. If the rising trendline at 1136 actually breaks next week, we will have to applaud the outstanding sustained distribution job evidenced the repeated sustained prints at 1160 without breakout or breakdown until yesterday. The daily cycle upphase remains intact as the Macd grinds toward a sell signal, and absent a sharp rally starting on Monday, it's likely that we've seen the top of this upphase. A new downphase from this lower oscillator high would be divergent, portending a strong downphase to follow. Support is at 1136-7, followed by 1130, 1128, 1122, and finally 1115-1118. 20 day 30 minute chart of the ES I've left the mid-week oscillator divergences highlighted to emphasize the potential if the daily cycle oscillators above flash bearish crosses from those lower highs. On the 30 minute chart, the rising support line break was disastrous, but as with the NQ an afternoon stick save recovered to positive territory until the final hour selloff. The 30 minute cycle points higher, and so I expect a pattern of higher short cycle highs and lows to fail well-below the broken trendline- ideally in the 1151-53 area, which would confirm a new daily cycle downphase. This picture will be invalidated by either a break above the rising trendline or an immediate failure on Monday morning, which would indicate a much stronger than expected daily cycle downphase forming. 150-tick ES The 150-tick chart shows the oversold short cycle oscillators and Keltner channel proxy (red envelope nested within the orange 30 minute cycle proxy). The downward slope to the 30 minute channel should abort on Monday's open, as it's not confirmed by the 30 minute cycle oscillators above. This mixed picture leaves the door open for either direction on Monday, but I'm guessing at strength first. Daily YM candles YM dropped 41 points or .38% to close at 10623, breaking below its primary channel support line for the first time in 2 weeks. Despite its relative strength this week, it too appears headed for a daily cycle downphase and a failure below the secondary rising trendline that supported Friday's decline should be sufficient to get the ball rolling- look for a break of 10575. 20 day 30 minute chart of the YM Nothing to add here, as the 30 minute YM closely resembles the ES contract. The NQ is now negative for the month, while ES and YM are hanging onto fractional gains by a hair. The impulsive, divergent nature of the dollar bounce signals more pain ahead for all US Dollar denominated assets, but the market never makes matters as easy as one hopes. Equities didn't decline that much on Friday, and while bonds got hit as well, it wasn't a clear trend change either. The wildcard here is the response of foreign investors to a rising US Dollar. If they choose to take their forex gains and covert to "cheap" US Dollars, and, for fun, park that money in t-bills, GE, MSFT and maybe a high-beta screamer or two, we could see a whole new wave to the rally. This ultra-bullish scenario isn't unimaginable to me, surprising though it would be. With opex week rebalancing to continue on Monday, unexpected moves (or lack thereof) should be expected. Traders confused by the action are best advised to stick to the individual charts they're trading and leave the intermarket relationships for afterhours consideration. We're likely at a daily cycle turn for NQ, ES and YM, as well as ten year treasuries and gold. If so, today's moves will continue to extend, possibly after some corrective chop as the channels roll over. Enjoy the weekend and I'll see you in the Futures Monitor on Monday. ******************** INDEX TRADER SUMMARY ******************** Running out of Gas By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – The market is losing some steam - running out of gas is an apt metaphor due to the energy bump reflected at the pump and seen in the CPI jump. The market is starting to tire here and I continue to anticipate the Indices will work sideways to lower. Specifics on this after some news and views from the Street of Dreams. FRIDAY'S TRADING ACTIVITY – Stocks finished lower with the S&P 500 (SPX) off 0.3% to 1144 and the Nasdaq Composite (COMPX) falling 0.4% to 2037, in a see-saw day where the major talk was about global terrorism and concerns about inflation – you remember inflation? That condition where prices keep going up at a rate faster than your income. The inflation fear was sparked by the report from the U.S. Labor Department that the Consumer Price Index (CPI) jumped by 0.5%. This was the largest increase since a year ago – 3/4ths of this came from a jump in energy prices, which is why, hey!, those fill ups are costing more and more lately. Anyway, energy costs were up nearly 5%. Excluding the more volatile food and energy costs, the "core" CPI was up a more modest 0.2%, but still double the 0.1% that was the consensus forecast. Of course, with bond yields low already, a jump in inflation is tough to take for holders of fixed income investments. What's a poor bondholder to do but to look for higher rates. The 30-year Treasury bond, which is most sensitive to this concern, fell nearly a full point (31/32nds), which put its yield up to 4.96% from 4.9. A new high for the dollar against the yen also was a contributor to bonds selling off – when the yen cheapens and buys less bucks, Japanese appetite for U.S. bonds is anticipated to fall off. And Japan is financing a lot of the big debt we are taking on – I've seen estimates that they have been averaging purchases that amount to some 40% of our bond sales. Dollar levels are significant when our savings rate is low and we depend on capital markets from abroad to buy our paper. Ripple effects into equities were apparent early Friday after Japan's government raised its national terrorism threat level to its highest level. AP reported early that Japanese officials were putting heavily armed police around airports, government offices and nuclear plants. Officials there wouldn't say whether there was new information about a terror strike. But we leave the speculation about that to stock traders! The news out of Japan sent the major equity averages to the lows of the day early on. The strong increase in consumer prices outweighed any "flight to quality" trading. Option-related activity along with a lessening sign of aggressive buyers pressured stocks most of the day. With the Dow (off 45 pts on Friday to 10,619) and Nasdaq indices down for the week, Wall Street sentiment has been shifting to the idea that stocks are starting to run out steam – a sentiment I echoed at the beginning of the week. Not cause the Street of Dreams was thinking it, but cause that's what the charts were showing. Hey, the charts don't lie – only analysts and pundits, but that's another story. The latest from Fed Chairman Alan-the-man Greenspan, was reassuring an audience in Nebraska (in those soothing tones he always speaks in) that he was confident that "employment will begin to increase more quickly before long as output continued to expand". By the way, the White House or specifically President Bush backed away from an earlier week report that the Administration was expecting 2.7 million new jobs created this year. A Federal Reserve Governor, Ben Bernanke, had some soothing things to say about the January CPI number as not being a cause for alarm and not reflective of a new trend in pricing. William Poole, another Fed Board member, also reflected his expectation that inflation will remain at its current low levels for the balance of this year. SOME STOCKS IN THE NEWS – Important Nasdaq bellwether Cisco Systems (CSCO) was down sharply and led the NASDAQ most actives. The stock looked to be in danger of breaking important technical support at $23.00, a key price resistance in November before it ran up to just over 29. An old technical axiom is that what was resistance (once decisively penetrated) should offer support on pullbacks. If not, well, it’s not a bullish sign. CSCO closed at 23.19, off 2%. As Jeff reported Friday, after falling to a morning low of $32.55, shares of Netflix (NFLX) moved back up like gangbusters to close at 35.38, up 3.6%. What Jeff didn't report was that, in MY personal opinion, this company will eat Blockbuster and Hollywood Video's lunch by continuing to met consumer dissatisfaction with LATE FEES! I hates em. We hates em! And the mailbox delivery is great for us coach potatoes too!! Not so great for the lets-get-it-NOW kids. Disclosure: I DON'T own the stock. (I only wish I did, like under 10, where it was less than a year ago!) In the Dow 30, CAT, GM, MRK, SBC and DIS were all off more than 1%. Disney (DIS) is of course the target of a takeover bid by Comcast – ex-board member Roy Disney repeated that while CEO Michael Eisner has failed to deliver shareholder value (and paid himself gazillions of dollars), Comcast's offer is too low. SBC fell every day last week after its Tuesday announcement that it would acquire AT&T wireless (jointly with BellSouth) for $41 billion bucks – a lot of bucks. And reception/signal strength continues to be such a problem so often! – well maybe its just when I make MY important calls on my mobile. Reminding us of what drives the market – it’s the earnings stupid! – only Wal-Mart (WMT) bucked the downslide by rallying on a strong Q1 profit report – it added nearly 2%, to 59.43. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily charts: I talked last week about the likelihood that the bellwether S&P indexes (and the Dow) were forming double tops. Of course, a breakout above the prior high could have occurred. As to why I didn't think so, requires taking a look at more than just one concept or idea. I looked at the political/economic uncertainties of course, especially given that stocks has run up so far without too much of a correction. Technically, the other key factors in assessing the likelihood of at least an interim stop, was the bearish Price/RSI divergence; i.e., the move to the prior high was accompanied by significantly lower "relative strength" as suggested by the RSI Indicator. The down sloping line on the RSI chart shows this visually. The two down arrows show the likely double top. The overbought situation can be seen by how far the S&P 500 is trading above its 200-day moving average – you know, that line hanging out why lower than the 50-day average. Another measure of an "overbought" market situation is when the RSI on a daily and weekly chart (not shown) basis gets above a reading at 70-75 as can be seen by the move above the red level line in the RSI chart above. I use "simple" moving average envelopes to give some idea of downside or upside potential, assuming that the indices continue (they usually do) to trade in their recent historical range as measured by how far above or below prices get(in percent terms) above or below a 21-day moving average. Typically, given "normal" volatility, the S&P trades 2-3% above or below this average before falling off, or rebounding. In an uptrend like we have currently, the upper S&P Index band can be set at 3% and prices will tend to have periods where it advances up along (hugs) this line. Eventually however, it drops back to the average. On the downside, within an uptrend, look for declines to hold 1) above the 21-day average even sometimes even after 1-2 days spent below it; 2) to fall to prior chart support (dashed blue level line); 3) to decline to its 50-day average (shown on first chart); or, 4) to fall to the lower moving average envelope line. Simple benchmarks! Not a trading "system" however! The 1120-1125 area is my downside objective for SPX, with the possibility of brief slippage to 1115-1128. A close above 1160 however, changes this outlook to a bullish one. I wrote this past week on the use of the ratio of the CBOE daily volume ratios for equities options as an Indicator of when the market is vulnerable for a trend reversal within 1-5 trading days. See the Trader's Corner article at – http://www.OptionInvestor.com/traderscorner/tc_021904_2.asp This most recent price peak in the S&P indices was accompanied by this indicator reaching the extreme (at the red level line) that I usually consider a forewarning for a downside reversal - at least for a while. Important to know when you see index option time premiums falling fast when the market starts to correct. Now, I will be watching for SPX's ability to maintain closes above its 21-day moving average. More than 1-2 consecutive days closing below this average suggests that I stay put in puts – no PUN intended of course. [NOTE: E-mail me with questions related to such technical stuff – as in technical analysis – which I use for possible answer in my weekly Trader's Corner article.] S&P 100 Index (OEX) – Daily charts: The double top that has formed so far, was what I anticipated for this Index based on the bearish/price RSI divergence that had developed, the aforementioned overbought situation and my sentiment indicator – equities calls to puts daily volume ratio that got pretty extreme at the first price peak. See this on the left hand side. I look would for further weakness now if there is one or, better, a couple of consecutive closes below the 21-day moving average as seen on the right hand chart. The OEX's 21-day average is at 565 currently. The Indexes tend to trade within envelope lines or percentages above or below a moving average. When there is second drive to a top that lacks follow through AND the index then retreats to below the average (center line), there is usually a further drop – sometimes back to the lower envelope line. However, I always also look at the trend – in a strong uptrend, the surprises, and extreme moves, tend to come on the upside. OEX support looks to be in the 557 area. Given the double top, and the line of resistance above, I expect a retreat to lower support. If so, a drop to 560 or below, would break the steep up trendline. If in puts at 570 and above per my last commentary, I suggest staying put – no PUN intended. However, a new closing high would be my stop out/exit/liquidation/get-me-out trigger. OEX – Hourly: As key support, my focus is on the support (up) trendline that comes suggested by various recent lows on the hourly chart – I said last week to look for support just above 560, which was where the OEX got too on Friday. If prices penetrate this trendline, perhaps after another rally attempt - such as back up the down sloping trendline which intersects around 570 currently – my next downside objective is to around 558, a measured move objective where a decline would at least equal the amount that the Index fell on its last correction. Stay tuned. As always, I like to keep aware of the tendency for short-term trend reversals, and 1-3 day price moves, when both the 5 and 21- hour stochastics get to extremes. Short term, the S&P 100 is both near some technical support and falling to a short-term oversold. I suggest using rallies as an opportunity to purchase some index puts. At around 568-570, the downside potential looks to be to 558-560. Evaluating downside objectives is tricky but if the trendline is broken and the OEX cannot get back above this line, the short-term trend turns down by this key measure. Nasdaq 100 Index (NDX) – Daily & Hourly: In terms of the Nasdaq and focusing this week on the Nas 100 or NDX, there has been a couple of consecutive closes under the 21- day moving average (left hand chart), suggesting more weakness to come in the week ahead. My downside objective is to 1460, back to prior hourly chart support or to around 1450 at the lower envelope line. If, on the other hand, NDX regained or got back above resistance at 1500-1505, it would be an alert that the Nasdaq up trend was getting back on track. I would then want to see an ability to hold at or above 1500 to confirm a trend change. The idea of price resistance becoming support later on brings me to a related thought. What is the "KOD" trendline? Inquiring minds want to know and the answer is, that this is a trendline that was previously broken and where prices have returned to it – however, this is often the "Kiss Of Death" to that rally. The idea for a trendline to do this is a variation of the idea that what was support can "become" resistance later on and vice versa. This principle would also be demonstrated if Cisco (CSCO) closed under prior key support at $23, an area that then might offer strong resistance on a subsequent rebound. (Cisco stock comment was in the first part of my commentary.) QQQ – Daily & Hourly: The Q's are in a short-term downtrend as suggested by its hourly channel shown in the top chart. Key resistance comes in at 37.5, and key support at 35.5. A move to 35.5 would however be a bearish break of the daily chart uptrend channel. A possible tip off that such a break may be in the works ahead is seen in the way that daily volume jumped on this latest sell off. As I noted in the same Trader's Corner article mentioned already, volume, to "confirm" a bullish trend, ought NOT to jump or expand on a decline. The consistent pattern prior weeks' pattern of expanding daily trading volume, basically expanding on rally phases and declining or contracting on downswings, was altered with the substantial volume jump on Friday when the stock was under selling pressure. If short the stock, I suggest using a liquidating (buy) stop order at 37.8, with an objective to also exit on a profit on a dip under 36. 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 ************** Jim is under the weather this weekend and there will not be a new play. Instead here is an email we received this week. Readers Write Dear Jim: I have been a subscriber to OIN for five years, and this is the first time I write. I work here in Italy (in beautiful Verona, to be exact) and I log in every day to OIN to trade. I just wanted to say that the market analysis you and your staff provide is phenomenal. But more than this, the most important thing I received from the OIN staff is the education: the ability to analyze stocks, and the importance of making a plan and trading according to my risk profile. After five years of following you guys, it's really starting to pay off! Using the education I receive from OIN, I have been making some really good trades recently. One example: I took your advice, and traded AMAT calls. Tuesday I bought 10 ANQDX (Apr 22.5 C) at $1.40, and I sold them this morning at the open for $2.20 - that's a $700 profit in two days!!! I owe it all to you and OIN - because, when I started, I didn't know what technical analysis was and I didn't even know that options existed. But now I have learned how to analyze markets, how to pick stocks, and most of all, how to make decisions for myself based on the educational material you and your staff provide. Of course, I have just started learning, and I will keep on logging in to further my education. However, what I have learned thus far is starting to bring some good results! Keep up the good work! One extremely satisfied subscriber Sincerely Mauro Verona, Italy **************** MARKET SENTIMENT **************** Are You Ready? - J. Brown Hmm... the failed rally on Thursday was bad enough but Friday's afternoon bounce also rolled over in the last two hours of trading and that doesn't bode well for next week. Are you ready for the major indices to test support again? Inflationary fears sapped the strength out of the markets on Friday after St. Louis fed head William Poole issued comments concerning a stronger rise in inflation than expected. This lead investors to fear over a sooner than expected rise in rates despite the Fed's promise to be patient. Fortunately, Alan Greenspan soothed those fears somewhat with his own comments on Friday afternoon. Aggravating the mood on Wall Street were headlines from Japan about the country gearing up to their highest state of alert over terrorism fears. Overall it was a choppy day with only retail and oil stocks managing any gains. Market internals were bearish as declining stocks out paced advancers almost 18 to 10 on the NYS and nearly 19 to 11 on the NASDAQ. Down volume was more than double up volume on the NYSE and almost as bad on the NASDAQ. All of the talk about the markets looking tired is finally starting to take affect. Most of the sector indices do look tired and several are testing support. The disk drive index has pulled back to support at 125 and if it breaks there it should quickly test its 200-dma. Hardware stocks also look weak as the GHA.X has produced another sell signal in its MACD indicator. Software stocks tell the same story but the GSO is still holding on to its 50-dma. Surprisingly Internet stocks are holding up relatively well due to the strength in shares of EBAY. The bounce in the semiconductors appears to be fading and the February consolidation may turn out to be nothing but a big bear flag. I'd expect the SOX to retest support at the 500 level soon. The NWX networking index is beginning to look pretty weak with Friday's drop to the 50-dma. Banking stocks have managed to hold up pretty well considering all the M&A activity and speculation for more mergers defusing most of the selling pressure. Brokers are doing pretty well too with only minor profit taking. Normally one might expect defensive stocks like drugs to out perform with the markets weak but not so this last week. The DRG has dropped five out of the last six sessions and looks poised for more declines. Oil and oil services have been able to maintain their bullish trends but traders are beginning to take some money out of oil services issues and the OIX still can't break resistance at 330. Natural gas stocks had a rough week after the El Paso warning. Defense and insurance stocks, which have been real leaders in the markets, are finally seeing some profit taking. If the major indices bounce I'd expect to see traders buying the dip here. Retail issues have been able to maintain their gains with Wal- Mart's strong performance lending a floor to the RLX index. Gold stocks look weak now after a strong drop in gold futures due to the big bounce in the dollar. The dollar may have put in a short-term bottom but still has resistance just overhead. Be sure to revisit your stop losses as next week could be choppy with another round of economic reports and multiple speaking engagements for the various Federal Reserve governors. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 7416 Current : 10619 Moving Averages: (Simple) 10-dma: 10651 50-dma: 10452 200-dma: 9619 S&P 500 ($SPX) 52-week High: 1158 52-week Low : 788 Current : 1144 Moving Averages: (Simple) 10-dma: 1148 50-dma: 1120 200-dma: 1034 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 938 Current : 1482 Moving Averages: (Simple) 10-dma: 1497 50-dma: 1482 200-dma: 1349 ----------------------------------------------------------------- The major market averages couldn't make up their minds what direction to go and neither could the volatility indices, but that's probably par for the course on an expiration Friday. CBOE Market Volatility Index (VIX) = 16.04 +0.24 CBOE Mkt Volatility old VIX (VXO) = 16.25 -0.65 Nasdaq Volatility Index (VXN) = 24.12 -0.12 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.86 1,224,856 1,050,314 Equity Only 0.63 1,046,201 689,385 OEX 1.30 63,522 82,645 QQQ 2.89 44,855 129,820 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.9 - 1 Bull Confirmed NASDAQ-100 68.0 - 1 Bear Alert Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 87.0 - 1 Bull Confirmed S&P 100 89.0 + 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: 1.11 10-dma: 1.02 21-dma: 1.02 55-dma: 0.99 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 1050 1142 Decliners 1774 1896 New Highs 171 158 New Lows 13 10 Up Volume 476M 695M Down Vol. 1310M 1165M Total Vol. 1823M 1882M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 02/17/04 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 are still stuck in limbo with very little movement, although the movement this week was bullish. As is normally the case small traders moved the opposite direction. Commercials Long Short Net % Of OI 01/27/04 417,089 410,930 6,159 0.7% 02/03/04 411,920 414,596 (2,676) (0.3%) 02/10/04 412,217 414,044 (1,827) (0.2%) 02/17/04 416,148 415,278 870 0.0% 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 01/27/04 143,089 87,828 55,261 23.9% 02/03/04 141,465 81,926 59,539 26.7% 02/10/04 143,496 80,362 63,134 28.2% 02/17/04 141,533 84,227 57,306 25.3% 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 Commercial traders became slightly more bearish last week with a decent increase in short positions. Small traders increased both longs and shorts but overall look a lot more bullish. Commercials Long Short Net % Of OI 01/27/04 291,166 334,618 (43,452) ( 6.9%) 02/03/04 280,519 346,042 (65,523) (10.5%) 02/10/04 297,601 356,630 (59,029) ( 9.0%) 02/17/04 296,313 371,703 (75,390) (11.3%) 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 01/27/04 154,485 60,556 93,929 43.7% 02/03/04 133,293 55,476 77,817 41.2% 02/10/04 110,480 58,428 52,052 30.8% 02/17/04 144,014 64,391 79,623 38.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials still aren't making any big changes here but they did turn slightly more bullish on the NDX. Small traders didn't move much. Commercials Long Short Net % of OI 01/27/04 43,704 40,951 2,753 3.3% 02/03/04 43,600 41,441 2,159 2.5% 02/10/04 44,406 40,439 3,967 4.7% 02/17/04 46,104 40,385 5,719 6.6% 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 01/27/04 10,137 10,715 ( 578) ( 2.8%) 02/03/04 8,907 13,729 (4,822) (21.3%) 02/10/04 9,906 13,018 (3,112) (13.6%) 02/17/04 9,630 12,338 (2,708) (12.3%) 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 Minor increases in both shorts and longs for commercial traders lead to a small up tick in bullish sentiment. Small traders turned slightly more negative on the Dow. Commercials Long Short Net % of OI 01/27/04 16,536 8,404 8,162 32.7% 02/03/04 17,765 9,619 8,146 29.7% 02/10/04 21,764 11,974 9,790 29.0% 02/17/04 24,451 12,907 11,544 30.9% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 01/27/04 7,240 12,372 (5,132) (26.2%) 02/03/04 6,352 13,113 (6,761) (34.7%) 02/10/04 6,267 14,220 (7,953) (38.8%) 02/17/04 6,768 15,623 (8,855) (39.5%) 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 *************** We're sorry but the Ask the Analyst column has been delayed and will be published on Monday. ************* COMING EVENTS ************* Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- BNL BUNZL PLC Mon, Feb 23 Before the Bell N/A CPB Campbell Soup Mon, Feb 23 -----N/A----- 0.57 CHK Chesapeake Energy CorpMon, Feb 23 After the Bell 0.35 CE Concord EFS Mon, Feb 23 Before the Bell 0.20 DY Dycom Industries Mon, Feb 23 After the Bell 0.18 ETM Entercom Comm Mon, Feb 23 Before the Bell 0.38 LOW Lowe's Companies Mon, Feb 23 Before the Bell 0.50 NAV Navistar Intl Mon, Feb 23 Before the Bell -0.44 NOVL Novell, Inc. Mon, Feb 23 After the Bell 0.03 ODSY Odyssey Healthcare Mon, Feb 23 After the Bell 0.23 OKE ONEOK Inc. Mon, Feb 23 -----N/A----- 0.66 KPN Royal Kpn N.V. Mon, Feb 23 -----N/A----- N/A SNPS Synopsys Mon, Feb 23 After the Bell 0.31 TRI Triad Hospitals, Inc Mon, Feb 23 After the Bell 0.47 WRI Weingarten Rlty InvstrMon, Feb 23 Before the Bell 0.88 ------------------------- TUESDAY ------------------------------ ABGX Abgenix Tue, Feb 24 After the Bell -0.46 AIB Allied Irish Banks Tue, Feb 24 Before the Bell N/A AMSG AmSurg Tue, Feb 24 After the Bell 0.40 AMLN Amylin Pharm, Inc. Tue, Feb 24 Before the Bell -0.22 ASMI ASM International N.V.Tue, Feb 24 -----N/A----- -0.19 BMO Bank Of Montreal Tue, Feb 24 -----N/A----- N/A BTI British Am Tobacco Tue, Feb 24 Before the Bell 0.58 BFb Brown-Forman Corp Tue, Feb 24 Before the Bell 0.60 CCU Clear Channel Comm Tue, Feb 24 Before the Bell 0.33 COLT COLT Telecom Group Tue, Feb 24 Before the Bell N/A CPRT Copart Tue, Feb 24 After the Bell 0.16 DLTR Dollar Tree Stores Tue, Feb 24 After the Bell 0.69 ESRX Express Scripts, Inc. Tue, Feb 24 After the Bell 0.85 FOSL Fossil, Inc. Tue, Feb 24 Before the Bell 0.55 HRB H&R Block, Inc. Tue, Feb 24 After the Bell 0.45 HNZ H.J. Heinz Company Tue, Feb 24 Before the Bell 0.57 HIW Highwoods Properties Tue, Feb 24 After the Bell 0.63 HD Home Depot Inc Tue, Feb 24 Before the Bell 0.39 HMT Host Marriott Tue, Feb 24 Before the Bell 0.23 IM Ingram Micro Tue, Feb 24 -----N/A----- 0.23 LIHRY LIHIR GOLD LTD Tue, Feb 24 -----N/A----- 0.10 NXTP Nextel Partners Tue, Feb 24 -----N/A----- -0.04 POG Patina Oil & Gas Tue, Feb 24 After the Bell 0.70 PUK Prudential PLC Tue, Feb 24 Before the Bell N/A RCI Renal Care Group, Inc.Tue, Feb 24 After the Bell 0.56 REP Repsol YPF Tue, Feb 24 Before the Bell 0.50 STOSY Santos Ltd. Tue, Feb 24 -----N/A----- N/A SRE Sempra Energy Tue, Feb 24 -----N/A----- 0.57 SMTC Semtech Tue, Feb 24 After the Bell 0.14 SFD Smithfield Foods Tue, Feb 24 Before the Bell 0.43 TIWI Telesystem Intl Wrls Tue, Feb 24 After the Bell 0.01 TTC Toro Tue, Feb 24 Before the Bell 0.22 TUES Tuesday Morning Corp Tue, Feb 24 Before the Bell 0.88 TZA TV Azteca S.A. de C.V.Tue, Feb 24 After the Bell 0.28 WOOF VCA Antech, Inc. Tue, Feb 24 After the Bell 0.20 WTW Weight Watchers Intl Tue, Feb 24 After the Bell 0.35 ------------------------ WEDNESDAY ----------------------------- AEM Agnico-Eagle Mines LtdWed, Feb 25 After the Bell 0.01 AFR Am Finl Rlty Trust Wed, Feb 25 Before the Bell 0.24 AAUK Anglo American Plc Wed, Feb 25 Before the Bell N/A BLI Big Lots, Inc. Wed, Feb 25 Before the Bell 0.65 CNQ Can Natl Resources LtdWed, Feb 25 Before the Bell 0.95 CPG Chelsea Property GroupWed, Feb 25 After the Bell 1.02 CYH Comm Hlth Sys Inc. Wed, Feb 25 After the Bell 0.32 EV Eaton Vance Corp. Wed, Feb 25 Before the Bell 0.45 ERIE Erie Indemnity Wed, Feb 25 After the Bell 0.66 FMT Fremont General Wed, Feb 25 Before the Bell N/A FMS Fresenius Medical CareWed, Feb 25 -----N/A----- N/A EKT Grupo Elektra S.A. Wed, Feb 25 After the Bell N/A TV Grupo Televisa, S.A. Wed, Feb 25 After the Bell 0.91 JOYG Joy Global Inc. Wed, Feb 25 Before the Bell 0.06 MDG Meridian Gold Inc. Wed, Feb 25 After the Bell 0.10 NDSN Nordson Wed, Feb 25 -----N/A----- 0.24 ORLY O'Reilly Automotive Wed, Feb 25 After the Bell 0.43 PEI Penn Rl Est Invest Wed, Feb 25 Before the Bell 0.77 TRK Speedway Motorsports Wed, Feb 25 Before the Bell 0.25 SPM Spirent PLC Wed, Feb 25 Before the Bell 0.06 TRLY Terra Networks Wed, Feb 25 Before the Bell N/A TJX The TJX Companies Inc Wed, Feb 25 Before the Bell 0.44 TIF Tiffany & Co. Wed, Feb 25 Before the Bell 0.70 URI United Rentals Wed, Feb 25 Before the Bell 0.16 ------------------------- THUSDAY ----------------------------- ABB ABB Thu, Feb 19 -----N/A----- N/A AEOS Am Eagle Outfitters Thu, Feb 26 Before the Bell 0.55 APPX American Pharm Prtnrs Thu, Feb 26 -----N/A----- 0.22 ADSK Autodesk, Inc. Thu, Feb 26 After the Bell 0.29 AXA AXA Thu, Feb 26 -----N/A----- N/A BE BearingPoint, Inc. Thu, Feb 26 Before the Bell 0.07 CPN Calpine Corporation Thu, Feb 26 Before the Bell -0.11 BCM Can Imprl Bank Comm Thu, Feb 26 Before the Bell N/A CZ Celanese AG Thu, Feb 26 -----N/A----- N/A KOF COCA-COLA FEMSA Thu, Feb 26 Before the Bell 0.43 BVN Comp Minas Buena Thu, Feb 26 After the Bell 0.42 CXR COX RADIO INC Thu, Feb 26 Before the Bell 0.15 DDIOOB DDi Corp. Thu, Feb 26 After the Bell N/A DCI Donaldson Thu, Feb 26 After the Bell 0.57 ECA EnCana Corporation Thu, Feb 26 -----N/A----- 0.61 EASI Engineered Support SysThu, Feb 26 Before the Bell 0.55 E ENI SpA Thu, Feb 26 -----N/A----- 1.71 FMX FEMSA Thu, Feb 26 -----N/A----- 0.85 GPS Gap Inc. Thu, Feb 26 After the Bell 0.37 HTV Hearst-Argyle TV, Inc Thu, Feb 26 Before the Bell 0.33 OTE Hellenic Telecomm Thu, Feb 26 -----N/A----- N/A IMDC INAMED Thu, Feb 26 After the Bell 0.47 ISG Intl Steel Group Inc. Thu, Feb 26 Before the Bell 0.15 IRM Iron Mountain Incorp Thu, Feb 26 Before the Bell 0.21 JCP JC Penney Thu, Feb 26 Before the Bell 0.80 KSS Kohl's Thu, Feb 26 -----N/A----- 0.69 LQI La Quinta Corporation Thu, Feb 26 Before the Bell -0.10 LR Lafarge Thu, Feb 26 Before the Bell N/A LTD Limited Brands Thu, Feb 26 Before the Bell 0.74 LIZ Liz Claiborne Thu, Feb 26 Before the Bell 0.66 CLI Mack-Cali Realty Corp Thu, Feb 26 Before the Bell 0.88 MGA Magna International Thu, Feb 26 -----N/A----- 1.63 MRVL Marvell Technology Thu, Feb 26 After the Bell 0.28 NXL Nw Pln Excel Rlty TrstThu, Feb 26 Before the Bell 0.47 NIHD NII Holdings Thu, Feb 26 Before the Bell 0.45 POM Pepco Holdings, Inc. Thu, Feb 26 -----N/A----- 0.18 PRX Pharmaceutical Res Thu, Feb 26 -----N/A----- 1.08 PDG Placer Dome Thu, Feb 26 -----N/A----- 0.12 PDE Pride International Thu, Feb 26 After the Bell 0.12 PSA Public Storage Thu, Feb 26 After the Bell 0.71 RHD R.H. Donnelley Corp Thu, Feb 26 After the Bell 0.46 RA Reckson Ass Rlty Corp Thu, Feb 26 After the Bell 0.36 SPW SPX Thu, Feb 26 After the Bell 1.30 TKP Technip Thu, Feb 26 -----N/A----- N/A RSE The Rouse Company Thu, Feb 26 -----N/A----- 1.11 TOL Toll Brothers Thu, Feb 26 -----N/A----- 0.60 TKS Tomkins PLC Thu, Feb 26 Before the Bell N/A TD Toronto Dominion Bank Thu, Feb 26 -----N/A----- N/A UNEWY United Business Media Thu, Feb 26 Before the Bell N/A USON US Oncology Thu, Feb 26 Before the Bell 0.21 VTR Ventas Thu, Feb 26 -----N/A----- 0.39 WPC W. P. Carey & Co. LLC Thu, Feb 26 Before the Bell 0.84 ------------------------- FRIDAY ------------------------------- ANIK Anika Therapeutics Fri, Feb 27 Before the Bell N/A AVE.L Avis Europe Fri, Feb 27 -----N/A----- N/A XTXI CROSSTEX ENERGY INC Fri, Feb 27 Before the Bell N/A FIA Fiat S.p.A. Fri, Feb 27 -----N/A----- N/A KIDD First Years Fri, Feb 27 -----N/A----- N/A FS Four Seasons Hotels Fri, Feb 27 Before the Bell 0.25 IART Integra LifeSciences Fri, Feb 27 Before the Bell 0.30 IPR International Power Fri, Feb 27 Before the Bell N/A INGN Introgen Therapeutics Fri, Feb 27 -----N/A----- -0.35 LOJN LoJack Fri, Feb 27 Before the Bell 0.15 MED.F Mediclin AG Fri, Feb 27 -----N/A----- N/A PSS PAYLESS SHOESOURCE Fri, Feb 27 -----N/A----- -0.32 PNY Piedmont Natural Gas Fri, Feb 27 -----N/A----- 1.80 RANKY Rank Group Plc. Fri, Feb 27 Before the Bell N/A RY ROYAL BK CDA MONTREAL Fri, Feb 27 -----N/A----- N/A TWI Titan International Fri, Feb 27 -----N/A----- -0.47 WPPGY WPP Group PLC Fri, Feb 27 Before the Bell 1.18 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable CCBI Commercial Capital Bancorp4:3 Feb 20th Feb 23rd SLFI Sterling Finl Corp 5:4 Feb 20th Feb 23rd NATI National Instruments 3:2 Feb 20th Feb 23rd ACV Alberto-Culver Co 3:2 Feb 20th Feb 23rd AMG Affliated Managers Group 3:2 Feb 24th Feb 25th SAFM Sanderson Farms, Inc 3:2 Feb 26th Feb 27th ETN Eaton Corp 2:1 Feb 27th Mar 1st CNI Canadian National Railway 3:2 Feb 27th Mar 1st AME AMETEK Inc 2:1 Feb 27th Mar 1st HCP Hlth Care Prop Investors 2:1 Mar 1st Mar 2nd SJW SJW Corp 3:1 Mar 1st Mar 2nd FWFC Washington FinancialCorp 5:4 Mar 1st Mar 2nd AVP Avon Products Inc 2:1 Mar 1st Mar 2nd HCSG Healthcare Services 3:2 Mar 1st Mar 2nd POG Patina Oil & Gas Corp 2:1 Mar 3rd Mar 4th TRMB Trimble 3:2 Mar 4th Mar 5th CLFC Center Financial Corp 2:1 Mar 5th Mar 8th WGO Winnebago 2:1 Mar 5th Mar 8th SSNC SS&C Technologies, Inc 3:2 Mar 5th Mar 8th -------------------------- Economic Reports This Week -------------------------- Another busy week of economic reports with the Consumer confidence, home sales, durable good orders, preliminary GDP, Chicago PMI and revised Michigan Sentiment. Plus we have several federal reserve governors speaking this week. ============================================================== -For- ---------------- Monday, 02/23/04 ---------------- None ----------------- Tuesday, 02/24/04 ----------------- Consumer Confidence (DM) Feb Forecast: 93.0 Previous: 96.8 Alan Greenspan makes an appearance ------------------- Wednesday, 02/25/04 ------------------- Existing Home Sales (BB) Jan Forecast: 6.45M Previous: 6.47M Alan Greenspan speaks on economic outlook Fed Governor Poole speaks in N.Carolina ------------------ Thursday, 02/26/04 ------------------ Initial Claims (BB) 02/21 Forecast: 347K Previous: 344K Durable Orders (BB) Jan Forecast: 1.4% Previous: 0.3% Help-Wanted Index (DM) Jan Forecast: 39 Previous: 38 New Home Sales (DM) Jan Forecast: 1095K Previous: 1060K Bernanke speaks in Washington ---------------- Friday, 02/27/04 ---------------- GDP-Prel. (BB) Q4 Forecast: 3.8% Previous: 4.0% Chain Deflator-Prel. (BB) Q4 Forecast: 1.1% Previous: 1.0% Mich Sentiment-Rev. (DM) Feb Forecast: 93.8 Previous: 93.1 Chicago PMI (DM) Feb Forecast: 63.5 Previous: 65.9 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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The Option Investor Newsletter Sunday 02-22-2004 Sunday 2 of 5 In Section Two: Watch List: Auto-related stocks top the list. Dropped Calls: ATH, BRL Dropped Puts: 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 ************************************************************** ********** Watch List ********** Auto-related stocks top the list. ___________________________________________________________________ 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. ___________________________________________________________________ Chiron Corp - CHIR - close: 49.67 change: -0.45 WHAT TO WATCH: CHIR has been under performing its peers in the biotech sector and the recent trend of lower highs has broken down through support at $50.00 and its 200-dma. Technicals are turning lower again and the stock might be a short candidate with a target near the $45 area. Chart= --- Borg Warner - BWA - close: 92.03 change: -1.10 WHAT TO WATCH: We're still keeping an eye on BWA. The recent pull back has stalled at BWA's 40-dma and above support near $90 and its 50-dma. Its P&F chart appears to be building a pennant or triangle formation, which means we may see big move either direction soon but it could still have some coiling to do as it completes the pattern. Chart= --- General Motors - GM - close: 48.51 change: -1.09 WHAT TO WATCH: GM has spent the last several days unsuccessfully trying to break resistance at the $50.00 level. Friday's market decline sent GM lower by 2.19% but also broke its trend of higher lows. This may be the failed rally that bears have been looking for. There is some support at $47.50 but GM has stronger support at $45 and makes a decent target for short positions. Chart= --- Daimlerchrysler - DCX - close: 45.27 change: -1.42 WHAT TO WATCH: DCX may be hinting at a deeper correction on the way. Shares broke down through support at its 50-dma on Friday after several days of lower highs. Volume was twice the norm on Friday's breakdown. Traders concerned about possible support at $45.00 can look for a move under Friday's low (44.80) and target a move toward $40.00. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- GS $106.52 +0.75 - Goldman Sachs has been able to maintain its position above the $105 level and consolidate sideways. Traders can watch for a move over new resistance at $108 or a bounce above $103. WMT $59.43 +1.05 - Wal-Mart is quickly approaching long-term resistance at the $60.00 level. After such a strong run during the month of February it wouldn't surprise us to see a pull back to $58 again before it attempts a breakout. HSY $83.72 +3.56 - Hershey soared on Friday with very strong volume after CSFB upgraded the stock to "out perform". We would watch it for a dip before considering any bullish positions. ************************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 ^^^^^ Anthem, Inc. - ATH - close: 82.22 change: -0.38 stop: 81.00 Pushing just high enough a week ago to activate our trigger, ATH has been a poor performer throughout the last week. While the stock hasn't broken down yet, Friday's dip near our $81 stop doesn't look encouraging. Although it did manage to fight its way back over the $82 level, ATH looks stalled at best and weak at worst. Right now, the prospects for another bullish move over $85 look rather bleak and we'd prefer to drop the play from consideration and focus on stronger candidates. Use any sort of rebound back into the $83-84 to effect a more favorable exit from the play. But a rebound from here now has its work cut out for it and we'd prefer to watch this one from the sidelines. Picked on February 12th at $84.53 Change since picked: -2.31 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 1.46 mln Chart = --- Barr Pharmaceuticals - BRL - cls: 78.02 chg: -0.88 stop: 77.95 We tried to keep our risk at a minimum by placing the top near $78.00, which was the top of the gap from BRL's recent jump higher. The profit taking the last three days of this week was too much and BRL broke through this level of support. Not helping our bullish case any was news on Friday that BRL's CEO Bruce Downey sold 405,000 shares of stock. Downey exercised his stock options with an average price of $4.48 so he took home quite a bit of cash. However, he did use part of the funds to buy 27,000 incentive-based options, which increased his holdings in BRL to 286,000 shares (-Reuters). Picked on February 18 at $80.61 Change since picked: - 2.59 Earnings Date 02/05/04 (confirmed) Average Daily Volume: 730 thousand Chart = PUTS ^^^^ None *********** 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. 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The Option Investor Newsletter Sunday 02-22-2004 Sunday 3 of 5 In Section Three: Current Calls: ATH, APOL, DHR, DHI, GD, PD, QCOM, RJR, RNR New Calls: EBAY Current Put Plays: AVID, CTSH, MMM New Puts: WGO ************************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 ****************** Amerada Hess Corp. - AHC - cls: 61.55 chng: +0.02 stop: 58.50*new* Company Description: Amerada Hess Corporation explores for, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place in the United States, United Kingdom, Norway, Denmark, Equatorial Guinea, Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia, Colombia and other countries. The company also manufactures, purchases, transports, trades and markets refined petroleum and other energy products. It owns 50% of a refinery joint venture in the United States Virgin Islands, as well as another refining facility, terminals and retail gasoline stations located on the east coast of the United States. Why we like it: Despite the broad market weakness, AHC managed to eke out a tiny gain of 2 cents on Friday, but the reversal from the intraday high of $62.29 hints that perhaps a bit of profit taking is in store. The stock has been moving steadily upwards - albeit at a snail's pace - since breaking out on 2/10. Note that daily Stochastics are starting to tip over from well within overbought territory, so it looks like a pullback to test support is in order. The first likely spot to provide support will be the $60 level, as it is now reinforced by the 10-dma ($60.25). A more significant pullback could see support tested near $59, which is the site of the recent breakout. The 20-dma (now at $58.55) should provide strong support in that event, so it seems prudent to raise our stop to $58.50 this weekend. With the need to retrace a bit before heading higher, we are not interested in breakout entries at this time. Let's wait for the pullback and support test first. Suggested Options: Shorter Term: The March $60 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 May $65 Call, while traders looking for more immediate movement will want to use the May $60 strike. Our preferred option is the March $60 strike, which is at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-60*AHC-CL OI= 953 at $2.50 SL=1.25 BUY CALL MAR-65 AHC-CM OI= 272 at $0.50 SL=0.25 BUY CALL MAY-60 AHC-EL OI= 729 at $3.80 SL=2.25 BUY CALL MAY-65 AHC-EM OI= 295 at $1.55 SL=0.75 Annotated Chart of AHC: Picked on February 10th at $59.53 Change since picked: +2.02 Earnings Date 1/28/04 (confirmed) Average Daily Volume = 1.03 mln Chart = --- Apollo Group - APOL - close: 77.63 change: +0.02 stop: 73.50 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: APOL continues to be stymied by resistance near $79, but the lack of a breakout certainly isn't for a lack of trying. The stock has been testing that level of resistance almost on a daily basis for over a week, but each attempt is followed by a pullback near the $77 support level. Friday's price action was no different, with a push to an intraday high of $78.98, and then a drop back to exactly $77, before a feeble rebound at the end of the day. While we're still expecting a drop back to the $75 level before the current round of consolidation is complete, it has been encouraging to see the stock holding above $77 while daily Stochastics are working off their overbought condition. Aggressive traders can consider entries on successive rebounds from the $77 level, while the better entry will be found on a pullback and rebound from the site of the 20-dma (now at $75.72). The only momentum entry that makes sense is a strong breakout over $79.55, which was the site of the intraday high a week ago. Maintain stops at $73.50. Suggested Options: Shorter Term: The March $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 traders looking at a longer time horizon will want to use the May $80 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. BUY CALL MAR-75*OAQ-CO OI= 473 at $4.20 SL=2.50 BUY CALL MAR-80 OAQ-CP OI= 764 at $1.50 SL=0.75 BUY CALL MAY-75 OAQ-EO OI=1993 at $6.50 SL=2.25 BUY CALL MAY-80 OAQ-EP OI= 871 at $3.80 SL=2.25 Annotated Chart of APOL: Picked on February 1st at $77.44 Change since picked: +0.19 Earnings Date 12/18/03 (confirmed) Average Daily Volume = 1.61 mln Chart = --- Danaher Corp - DHR - close: 92.55 cls: -0.28 stop: 90.00 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 markets struggled this week and many of the cyclicals churned sideways as investors wrestled with concerns over the economy, potentially higher interest rates and the dollar. Fortunately, the longer-term bullish trends for DHR are still very much intact. It is the short-term trends that look worrisome. We were expecting a dip toward the $90 level and DHR only traded to $91.47 on Friday morning. That may be a new short-term bottom given the afternoon bounce but don't count on it yet. DHR has still not tested its 50-dma (near $91.00) and it does have a disturbing trend of lower highs. For the last several days we've been suggesting that only aggressive traders try and initiate plays on a bounce above $90.00. The rest of us can probably do okay waiting for DHR to trade back above the $95.00 level. Suggested Options: Short-term traders can choose the 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 MAR 90*DHR-CR OI= 947 at $4.40 SL=2.20 BUY CALL MAR 95 DHR-CS OI=1036 at $1.70 SL=0.85 Annotated Chart: Picked on January 30 at $91.01 Change since picked: + 1.54 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 841 thousand Chart = --- D.R.Horton - DHI - close: 30.15 chg: -0.35 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: Homebuilders were prime candidates for profit taking this week but odds are the pull back may just be another entry point into a strong sector that should out perform the markets this year. The group as a whole held up pretty considering some of the broker talk about interest rates potentially rising sooner rather than later but with the Fed's promise to be patient and the up coming spring-summer home buying season these stocks should do well. Mortgage rates are still at historic lows and if analysts were suggesting investors buy homebuilders last week then they look even better today. Unfortunately, CSFB doesn't feel so bullish on DHI and they lowered their rating from "out perform" to "neutral" on Thursday but shares of DHI held up. We do suspect more weakness in DHI or at least more sideways consolidation. Its technical indicators like the MACD, stochastics and RSI are all pointing lower (or about to like the MACD). If you're looking for new positions be patient. DHI may dip toward the $29.00-29.50 level and offer a slightly better entry than here at $30.00. Suggested Options: 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= 172 at $5.40 SL=3.25 BUY CALL MAR 30 DHI-CF OI=1420 at $1.45 SL=0.75 BUY CALL MAY 30*DHI-EF OI= 750 at $2.55 SL=1.30 BUY CALL MAY 35 DHI-EG OI= 457 at $0.80 SL= -- Annotated Chart: Picked on February 08 at $30.00 Change since picked: + 0.15 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 2.4 million Chart = --- General Dynamics - GD - close: 94.43 chg: -0.83 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: Is buying interest waning for the defense stocks? We think not - at least not yet. The defense sector has been one of the strongest groups for investors this year and was overdue for some profit taking. While the DFI traded lower shares of GD churned mostly sideways between $94 and $97. We're actually a little surprised that the defense group didn't tick higher on Friday after the news in Japan about the government going on their highest level of alert. Right now GD has pulled back to minor support at $94. If it holds great; if not then the next stop should be in the $92 range as its 40 & 50-dma's rise to meet it. According to GD's oscillators this may be a good bet since its technicals don't look that strong at the moment. Fortunately, its P&F chart is still very bullish with a target of $125.00. Suggested Options: 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= 57 at $5.50 SL=3.25 BUY CALL MAR 95 GD-CS OI= 802 at $2.10 SL=1.05 BUY CALL MAR 100 GD-CT OI= 306 at $0.55 SL= -- BUY CALL MAY 95 GD-ES OI=1005 at $3.80 SL=1.90 BUY CALL MAY 100*GD-ET OI=1004 at $1.80 SL=0.90 Annotated Chart: Picked on February 08 at $96.88 Change since picked: - 2.45 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- Phelps Dodge - PD - close: 80.87 chg: -1.01 stop: 78.00 Company Description: Phelps Dodge Corp. is the world's second-largest producer of copper, a world leader in the production of molybdenum, the largest producer of molybdenum-based chemicals and continuous- cast copper rod, and among the leading producers of magnet wire and carbon black. The company and its two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 13,000 people in 27 countries. (source: company press release) Why We Like It: If you missed the entry point near $80 last week here's another chance. Shares of PD have consolidated their early February gains despite the price of copper hitting new highs this week. Analysts continue to be bullish on copper as the global economy heats up, especially in China and other Asian emerging markets. While we believe PD is a great way to play the rise in copper it may actually see more weakness next week despite being right at $80 support. We're going to leave our stop loss at $78.00 but if you're still looking for an entry point consider waiting. PD might pull back and tag its 50-dma again, which is currently near $76.00. We'll be stopped out but we may consider a new position on a bounce back above $80.00. If PD does not break $78.00 you may also want to consider waiting on a new position until it breaks the current short-term trend of lower highs. Right now that would probably require a move over $83.00. However, while these two alternate entries sound tempting, pure technical traders should probably be evaluating entries now with the afternoon bounce from the $80 region. The stock has already retraced nearly half its run from the early February low. Suggested Options: We like the March and April strikes. If PD sees a dip the $75's would be a good play. We're going to suggest the March 80's. BUY CALL MAR 80 PD-CP OI=3229 at $4.20 SL=2.10 BUY CALL MAR 85 PD-CQ OI=1427 at $1.95 SL=1.00 BUY CALL APR 80 PD-DP OI=1130 at $5.50 SL=3.25 BUY CALL APR 85 PD-DQ OI=1819 at $3.20 SL=1.65 Annotated Chart: Picked on February 11 at $80.51 Change since picked: + 0.36 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 1.6 million Chart = --- Qualcomm, Inc. - QCOM - close: 59.40 change: +0.61 stop: 56.00 Company Description: Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Why we like it: The weakness in the NASDAQ certainly isn't apparent in the price action of QCOM, as the stock has stubbornly held up very near the $60 resistance level throughout the past week. This still looks like a very bullish consolidation, with support being found above $58, in anticipation of a breakout to new highs in the near future. Because of the tight range-bound action over the past week, oscillators are hard to read, but they certainly aren't giving a bearish indication. Remember that we need to see QCOM break out over our $60.75 trigger before considering entries into the play. Momentum traders will want to play on the initial breakout, while those employing a more cautious approach can look for a subsequent pullback to confirm support in the $59-60 area before playing. Maintain stops at $56, which will be under the 50-dma ($55.88) by Monday. Suggested Options: Shorter Term: The March $60 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 $65 Call, while the more conservative approach will be to use the April strikes due to the greater time until expiration. Our preferred option is the April $60 strike, which is at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-60 AAO-CL OI= 9094 at $2.05 SL=1.00 BUY CALL MAR-65 AAO-CM OI= 5359 at $0.60 SL=0.30 BUY CALL APR-60*AAO-DL OI=10415 at $3.10 SL=1.50 BUY CALL APR-65 AAO-DM OI= 4642 at $1.30 SL=0.60 Annotated Chart of QCOM: Picked on February 17th at $59.55 Change since picked: -0.15 Earnings Date 1/21/04 (confirmed) Average Daily Volume = 8.40 mln Chart = --- RJ Reynolds Tobacco - RJR - cls: 59.98 chg: +0.25 stop: 57.50 Company Description: R.J. Reynolds Tobacco Holdings, Inc. is the parent company of R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco Company, Inc. R.J. Reynolds Tobacco Company is the second-largest tobacco company in the United States, manufacturing about one of every four cigarettes sold in the United States. Reynolds Tobacco's product line includes four of the nation's 10 best- selling cigarette brands: Camel, Winston, Salem and Doral. Santa Fe Natural Tobacco Company, Inc. manufactures Natural American Spirit cigarettes and other tobacco products, and markets them both nationally and internationally. (source: company press release) Why We Like It: (Thursday's Original Update follows) We're going to add RJR to the call list both on its developing bullish technical picture and as a defensive play if the markets continue to slip lower. Technicals are turning bullish as the stock builds on its trend of higher lows and consolidation under resistance in the $60.00-60.50 level. RJR is also a defensive play based on its recession proof products and 6.4% annual dividend. We're going to use a TRIGGER at $60.51 to open the play. This should be a clean breakout above the recent highs. If we're triggered we'll use a stop loss at $57.50 but more conservative traders can probably get away with a stop under the 50-dma (near 58.50). RJR made some headlines recently when management stated their proposed merger with British American Tobacco's Brown and Williamson unit should close this summer. Together RJR, the No 2 U.S. tobacco company, and Brown and Williamson, the No 3 tobacco company, will form to become Reynolds American. They hope to compete more efficiently with their much larger rival Phillip Morris, owned by Altria Group (MO). Currently the merger is still under FTC review. Weekend Update: Wow! We have quite the knack lately for stocks hitting our trigger and pulling back the opposite direction. That's not a skill we really want to develop. The move to $60.60 surpassed our trigger at 60.51 so the play is officially open. Unfortunately the close back under the $60.00 is a concern. We would remain CAUTIOUS and look for RJR to surpass Friday's high at $60.60 before initiating new positions! We don't want this to be a bull trap sort of move. Suggested Options: Looking over the March and May options we like the 55 and 60 strikes but our favorite is the March 55's. BUY CALL MAR 55 RJR-CK OI= 201 at $5.40 SL=3.20 BUY CALL MAR 60 RJR-CL OI=1577 at $1.45 SL=0.75 BUY CALL MAY 55 RJR-EK OI= 722 at $6.20 SL=4.10 BUY CALL MAY 60 RJR-EL OI=2994 at $3.00 SL=1.50 Annotated Chart: Picked on February 20 at $60.51 Change since picked: - 0.53 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 699 thousand Chart = --- Renaissancere Ltd - RNR - close: 51.15 chg: -0.17 stop: 49.50 Company Description: RenaissanceRe Holdings Ltd. is a global provider of reinsurance and insurance. The Company's business primarily consists of four business units: (1) Catastrophe Reinsurance; (2) Specialty Reinsurance; (3) Individual Risk business, which includes primary insurance and quota share reinsurance, and (4) Renaissance Underwriting Managers, which manages the Company's Property Catastrophe Joint Ventures, its Business Development Joint Ventures, and its Structured Reinsurance Products. (source: company press release) Why We Like It: Much like the defense sector the insurance sector, which had been leader in the market's climb, has pulled back the last three days in profit taking. Odds are good that investors who have been watching the advance will be tempted to buy the dip. RNR is no exception. The stock shot higher on Tuesday as we expected and pulled back the rest of the week. The stock may see a dip to the $50.00 level, which would be the preferred entry point for new positions. We're going to keep our stop tight at $49.50. Suggested Options: Option trading is a little light on RNR especially in the March strikes. We're going to suggest the April 50s as our favorite. BUY CALL MAR 50 RNR-CJ OI= 19 at $2.10 SL=1.05 BUY CALL APR 45 RNR-DI OI=100 at $6.70 SL=4.20 BUY CALL APR 50*RNR-DJ OI=210 at $2.75 SL=1.35 BUY CALL APR 55 RNR-DK OI= 54 at $0.70 SL= -- Annotated chart: Picked on February 15 at $50.83 Change since picked: + 0.32 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 238 thousand Chart = ************** NEW CALL PLAYS ************** eBay, Inc. - EBAY - close: 69.26 change: +0.83 stop: 66.50 Company Description: After developing a Web-based community in which buyers and sellers are brought together in an efficient format, EBAY has emerged as the dominant online auction site. The eBay dynamic pricing format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. Items listed on eBay include collectibles, automobiles, art objects, jewelry, consumer electronics and a host of practical and miscellaneous items. Although based in the United States, through its subsidiaries, EBAY also operates trading platforms in Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. Why we like it: In defiance of all its critics, EBAY has remained very strong since breaking out to all time highs over $64 in late January. Surging to just below $70 following its earnings report, the stock pulled back just enough to confirm new-found support near $65 and then pushed its way back to just below $70, where it has been consolidating for the past week. The stock is consistently finding support above its 20-dma ($67.72) as it consolidates at a higher level in preparation for another breakout to new all-time highs. Even with the rollover in the daily oscillators, price action has remained strong over the past week and the stock has remained unperturbed by the weakness in the overall market. With a very bullish PnF chart, complete with a $96 bullish price target, it's hard not to like the stock. We don't have any illusions about that target being reached in the near term, but once over $70, it seems reasonable to expect a continued rally up to the $75 level, at least. This is clearly a play where we want to wait for proven strength in the form of a breakout before playing, so we're setting an entry trigger at $70.10, just over Thursday's all-time intraday high. Clearly, our preference is for entries on that initial breakout, although more conservative traders may get a better entry if they wait for a subsequent pullback to confirm new support near $69 before playing. We'll initially target a rally to $75, but will leave room for EBAY to run as high as $80 in case it delivers another $10 move like it did when the stock rallied from $55 to $65 in one swift move last December. We're going to use a fairly tight stop on EBAY, setting it just below the bottom of the trading range of the past 2 weeks. Suggested Options: Shorter Term: The March $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 April strikes due to the greater time until expiration. Our preferred option is the April $70 strike, which is at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAR-70 XBA-CN OI= 7195 at $2.30 SL=1.25 BUY CALL MAR-75 XBA-CO OI= 3051 at $0.65 SL=0.30 BUY CALL APR-70*XBA-DN OI=10241 at $3.30 SL=1.75 BUY CALL APR-75 XBA-DO OI= 1809 at $1.50 SL=0.75 Annotated Chart of EBAY: Picked on February 22nd at $69.26 Change since picked: +0.00 Earnings Date 4/21/04 (confirmed) Average Daily Volume = 7.04 mln 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: 40.01 chg: -0.06 stop: 42.87*new* 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: The put play in AVID is actually working out pretty well. The trend of lower lows continues to hold up and shares are struggling to hold support at $40.00. Traders should begin to plan their exit strategy. Our initial target was a move to the $38.50-38.00 region. That could happen soon but take note of the short-term descending channel. AVID is at the bottom of this channel and should actually bounce again. We would not suggest new bearish positions unless we see a failed rally near the $41.50 area. If AVID hits $38.00 intraday we'll close the play. We're also going to lower our stop loss to breakeven at $42.87. Suggested Options: This close to our target we're not suggesting new positions unless AVID fails again near $41.50. Annotated chart: Picked on February 04 at $42.87 Change since picked: - 2.86 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 612 thousand Chart = --- Cognizant Tech. - CTSH - cls: 48.67 chng: +1.18 stop: 52.50*new* Company Description: Cognizant Technology Solutions Corporation delivers full lifecycle solutions to complex software development and maintenance problems that companies face as they transition to e- business. These information technology (IT) services are delivered through the use of a seamless on-site and offshore consulting project team. The company's solutions include application development and integration, application management and re-engineering services. Among CTSH's prominent clients are ACNielsen Corporation, ADP, Inc., Brinker Int'l, Computer Sciences, The Dun & Bradstreet Corporation, First Data Corporation and Nielsen Media Research. Why we like it: It was really no great surprise to see CTSH rebound on Friday, following the breakdown under the 50-dma on Thursday. As noted in the initial writeup, there was the potential for a rebound from the $47 level and that's exactly what happened. After it became clear there wasn't enough selling pressure to take out Thursday's $46.96 low, bargain hunters came in and pushed the stock right back to test the 50-dma ($49.66) as resistance. That resistance held and in so doing is providing us the opportunity for a solid entry on a rollover here in the $49.50-50.50 area. Once that rollover occurs, look for $47 support to be broken and allow price to sag to next support at $45 before continuing the bearish journey towards our $41 target. We can edge our stop down to $52.50, as that is now over the 20-dma ($52.42), and that average should not be violated if the downside is to play out the way we're expecting. Suggested Options: Aggressive short-term traders can use the March 45 Put, while those with a more conservative approach will want to use the March 50 put. Aggressive traders looking for more insulation against time decay will want to utilize the April strike. Our preferred option is the April 45 strike, as it provides more time until expiration. BUY PUT MAR-50 UPU-OJ OI= 339 at $3.50 SL=1.75 BUY PUT MAR-45 UPU-OI OI=1475 at $1.40 SL=0.75 BUY PUT APR-45*UPU-PI OI= 756 at $2.20 SL=1.00 Annotated Chart of CTSH: Picked on February 19th at $47.49 Change since picked: +1.18 Earnings Date 2/10/04 (confirmed) Average Daily Volume = 1.26 mln Chart = --- 3M Company - MMM - close: 79.70 change: +0.60 stop: 82.00*new* Company Description: Commonly known as the maker of the ubiquitous, adhesive-backed Post-It Notes, MMM is also a leading manufacturer of a variety of industrial, consumer, and medical products. Reflective sheeting on highway signs, respirators, spill-control sorbents, and Thinsulate brand insulations are just some of the company's industrial products. MMM also makes microbiology products, making it easier for food processors to test for the microbiological quality of food. Why we like it: Just to keep the bears on their toes, MMM followed up the weakness seen throughout the rest of the week to rebound back over the 100-dma on Friday. Of course, we probably could have anticipated that rebound, as participants would seek to close the stock near the $80 level on expiration Friday. That slight rebound doesn't look particularly troublesome though, as the stock remained below the 20-dma ($80.09) and closed well off its intraday high. The daily oscillators are clearly pointing down with fresh bearish crosses and if the broad market weakness continues, we ought to see a test of strong support near $77.50 next week. Remember that it will take a trade at $77 to give us the PnF Sell signal and open the door to further weakness. New entries look good on failed bounces below the $81 level, although more conservative traders will want to wait for the break of $77 before playing. Once that support gives way, look for potential support also near $76 before a continued slide towards our target at the 200-dma (currently $73.18). Lower stops to $82 this weekend, as that will be above the 50-dma ($82.01) by Monday. Suggested Options: Aggressive short-term traders can use the March 75 Put, while those with a more conservative approach will want to use the March 80 put. Our preferred option is the March 80 strike, as it is currently at the money. Aggressive traders looking for more insulation against time decay will want to use the April strike. BUY PUT MAR-80*MMM-OP OI=3243 at $1.95 SL=1.00 BUY PUT MAR-75 MMM-OO OI=3118 at $0.50 SL=0.25 BUY PUT APR-75 MMM-PO OI=2856 at $1.05 SL=0.30 Annotated Chart of MMM: Picked on February 15th at $79.68 Change since picked: +0.02 Earnings Date 1/20/04 (confirmed) Average Daily Volume = 2.74 mln Chart = ************* NEW PUT PLAYS ************* Winnebago - WGO - close: 68.13 chg: -1.44 stop: 71.50 Company Description: Winnebago Industries, Inc. is the leading manufacturer of motor homes, self-contained recreation vehicles used primarily in leisure travel and outdoor recreation activities. The Company builds quality motor homes under the Winnebago, Itasca, Rialta and Ultimate brand names with state-of-the-art computer-aided design and manufacturing systems on automotive-styled assembly lines. The Company's common stock is listed on the New York, Chicago and Pacific Stock Exchanges and traded under the symbol WGO. (source: company press release) Why We Like It: Honestly we're bullish on WGO given its leadership position in the industry and the upcoming spring-summer RV season. This last year's rise in the stock market has probably resurrected the "wealth effect", which should boost RV sales. However, the stock has gotten ahead of itself and more than one broker has downgraded WGO on valuation concerns. The technical breakdown under $69-70 looks like bad news and its P&F chart looks very bearish with a triple-bottom breakdown and a $52 price objective. Pressuring the stock was news out last week that a major shareholder, Hanson Capital Partners, who owns 13% of WGO's outstanding shares plans to diversify by selling just over half their position, or 1.25 million shares between now and July 31st. Also noteworthy is WGO's 2:1 split on March 5th and its quarterly cash dividend of 5 cents a share payable on April 15th (5 cents is post-split). Normally the split and dividend would be bullish drivers for the stock but this time they may not help. We're going to target a move to the $60-62 range with a stop loss at 71.50. Suggested Options: We would choose from the March of April puts at the 70 or 65 strikes. Our favorite is the April 65's. BUY PUT MAR 70 WGO-ON OI= 430 at $4.20 SL=2.10 BUY PUT MAR 65 WGO-OM OI= 203 at $1.70 SL=0.90 BUY PUT APR 70 WGO-PN OI= 174 at $5.10 SL=3.00 BUY PUT APR 65*WGO-PM OI= 892 at $2.75 SL=1.35 Annotated chart: Picked on February 22 at $68.13 Change since picked: - 0.00 Earnings Date 12/17/03 (confirmed) Average Daily Volume: 276 thousand Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 02-22-2004 Sunday 4 of 5 In Section Four: Leaps: Successful Reinflation? Traders Corner: The CPTI Rules! We’re Back With A Vengeance ************************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 ***** Successful Reinflation? By Mark Phillips mphillips@OptionInvestor.com Last week was rather interesting in terms of the big picture, even if the magnitude of the moves in the equity market didn't reflect it. With the DOW and the S&P 500 surging to new highs on Thursday, we wouldn't have been out of line expecting a breakout before the end of the week. But once again, resistance held and the DOW and SPX fell back into the midst of the trading range that has held since the start of the year. I normally don't focus on the details of economic reports, because I find that I just can't interpret them accurately or quickly enough to make incisive trading decisions. But every once in a while there are some nuggets of wisdom to be found there that cause me to sit up and take notice. The last couple days provided just such an opportunity. Friday's CPI release showed prices rising by 0.5%, with the official inflation rate coming in at 1.1% (excluding food and energy) for the past 12 months. As was parroted across the airwaves on Friday, there's no inflation problem. To which I reply, "Oh really?" First off, the primary cause of January's sharp rise over the 0.2% of December was attributed to increased energy costs. Well, guess what? Energy prices aren't rising! You think I'm crazy for making that statement? Do you remember what the price of crude oil was 2 years ago? Do you remember where the Dollar index (DX00Y) was 2 years ago? Here's a quick trip down memory lane -- in January of 2002, crude oil was going for between $22-24 per barrel and the DX00Y was resting near 120. Since then, we've seen the DX00Y crumble by roughly 30%. Add 30% to that $24 level and we get something just over $31 as where the price of crude oil should be if the supply/demand equation was exactly the same as it was 2 years ago. Granted, $31 is below the current $35 level for a barrel of crude oil, but not by a whole lot. And just 2 weeks ago, the price of crude was down near $32, essentially reducing the discrepancy to the point of insignificance. Do you think it is any coincidence that the rise in the price of crude has mirrored the fall in the dollar? I don't, especially given the fact that all global crude oil transactions are denominated in dollars. I've been saying for quite some time now that it is all about the dollar and that reality is being borne out in many ways in the current macro-economic landscape. 2003 was an anomalous year in that all asset classes rose. It was a sell the dollar and buy everything else kind of year. I do not expect that pattern to be repeated in 2004. Intermarket relationships have been stressed to the breaking point and I believe something has got to give, and soon. Predicting how these connections will be broken in the year ahead of us is an exercise for which I am completely out of my league, but I can look at the data and see that something has got to change. Are we near the end of the current bullish trend in the stock market? Is the dollar near the end of its decline? Are interest rates poised to rise from here? Is the bull market in gold and other commodities about to reverse? Is inflation going to rear its ugly head? As you can see, I have a lot of questions and very few answers. But the answers to those questions all hinge (in my never-to-be-humble opinion) on what happens with the dollar. If I were to guess, I would say that the dollar is destined for lower levels before the dominant downtrend is reversed. It would take the Dollar index (DX00Y) moving over 92 to convince me that I need to rethink that position. If the dollar does continue down, then we could see the equity market continue to work its way higher and interest rates hold near their lows. At the same time, we can expect prices for most commodities like gold, silver, platinum, copper, oil, etc. to continue to rise in terms of dollars. On the other hand, if the dollar were to rise significantly, then we should expect many of these bullish trends to reverse over the intermediate term and we would probably we faced with a rising interest rate environment. The Fed has recently said that interest rates will remain low until there are concrete signs of strong and sustained job growth. So far that strength in the job market has been lacking. So what we really need to know is what happens to interest rate policy in the event of a sharp rise in inflation in the absence of that strong job growth. You see, the rise in prices has not been the result of increased demand for stuff. It is all about the demand for dollars due to their increasingly abundant supply. But all the same, it does seem like we're starting to see inflation rear its head, despite efforts to keep problematic factors out of the official reports. This brings us back to where we started, talking about the CPI release. January's rise of 0.5% is currently being glossed over in the mainstream press. But let's engage in a bit of speculation. What if January's rise is the beginning of stronger gains in prices? Let's assume we see roughly equivalent rises over the next several months. Wouldn't that mean that we're on course to an inflation rate near 6% (12 x 0.5%)? I think that would tell anyone that inflation really IS a problem, don't you? That brings me to the issue of the PPI report, which was Missing In Action last week? Why? Could it be that it showed even stronger signs of inflation and it was going to require more time to either massage them away through some creative data manipulation, or that it was desired to let the Fed Heads out on the speaking circuit again to assuage any concerns before the report was released? I won't say that is what is happening, but I won't say it isn't possible either. If we proceed under the assumption that inflation is creeping into the official economic reports to the degree that it can't be ignored, then the Fed will be faced with an interesting dilemma in the months ahead. Inflation over 5% would practically force a rise in interest rates, whether or not the job growth is there to support such a policy change. Now if we really are seeing tepid economic growth, and interest rates begin to rise, I hope those of you that are my age or older will recognize what this is the recipe for - stagflation. We all got to "enjoy" it in the 1970s and it wasn't a lot of fun. Remember interest rates near 18% and high inflation? I know this is pure speculation here, but the background for the speculation is sound. The Fed knows that their policies of the past couple years had to weaken the dollar and send us down this path where we run the risk of reliving the 70s. The reason they've been so reticent to change any of their policies is that achieving a repeat of that time period would actually be a success, as opposed to letting the economy actually lapse into deflation. There are tools that can be used to fight inflation, even in a weak economy. But combine a weak economy with deflation - it's even worse with a heavy debt load - and the potential consequences are much more dire. There are no monetary weapons with which to combat deflation, an economic reality that Japan has been grappling with for more than a decade. As I said before, I have far more questions than answers, but I think we are near a key inflection point for all asset classes right now. The violent move in the currency markets on Friday is just one more piece of the puzzle that tells me others are thinking the same thing. It could take months for us to be presented with any sort of closure as to whether any of these trends are in the process of reversing, or if this is just a pause before they go on to become even more extended. For equity bulls, I think we need to hope that when the PPI does get released, it doesn't contain any surprises to the upside in terms of inflation. My gut feel is that the sharp dislocation in the currency market on Friday was a direct result of savvy traders figuring out that the CPI was in fact hinting at rising inflation, which inevitably will lead to rising interest rates, which will in turn cause the dollar to strengthen. I think it was anticipation of that eventuality that finally caused a sharp reversal of the "bearish dollar/bullish all other currencies" trend. Whether it is a short-term or sea change event is something that will have to be answered after more water has passed under the bridge. I don't think I need to tell you that I think extreme caution is warranted no matter what market you're playing in or whether you are aligned bullish or bearish. That's the nature of inflection points, isn't it? Alright, enough of my speculation on the direction of the many disparate markets that have an influence on the direction of equities. I often find it useful to look outside that relatively small box, to see what external factors we need to be aware of. I hope you've found it useful as well. Now let's turn our attention back to the near term and see how our list of plays fared in the week just ended. Portfolio: SBUX - That was certainly an impressive jump in SBUX on Tuesday, wasn't it? Try as I might, I didn't see any company-specific news that should have motivated such a sharp rise, but apparently that didn't matter, as the stock rocketed just over $39 on huge volume over 7 million shares. The remainder of the week saw the stock digesting those gains and falling back towards the $37 level. Remember that we're targeting $40 as our final exit point from the play and Tuesday's move got really close to that. I view that breakout as an opportunity to get more aggressive with our stop, and I'm raising it to $36.50, which was the level from which Tuesday's rally began. If SBUX breaks below that level, then we'll know there's a more significant round of profit taking in store. Otherwise, we'll look to exit the play when our $40 target is reached. Clearly, this close to our exit point, there's no way I'd suggest new positions. SMH - Semiconductor stocks are continuing to lose strength and providing a steady drag on the overall Technology sector. Thursday's failed rally looked particularly bearish, with the gap higher being reversed to a loss by the close and producing another close under that 50-dma. More weakness into the close on Friday certainly suggests that another test of the $40 level is in store, after which we can look for the December lows near $38.50 to come into play. There's been a lot of volatility in the group in recent weeks, and I'm not yet ready to tighten our stop. But if the NASDAQ closes under 2000 and the SMH breaks $40 on a closing basis, then I think stops can be ratcheted down to $44, just over Thursday's intraday high. Our final target remains a drop down to test strong support in the $34-35 area. NEM - Once again, the price action in gold stocks is all about what is happening with the dollar and there was a big reversal there at the end of the week. After being rejected at the 50-dma resistance, NEM looks headed back down to take another shot at the $40-42 support level, but that isn't really any cause for concern. The stock is still working on putting in a bottom after pulling back from its $50 highs earlier in the year. Note that weekly Stochastics have now dropped near oversold territory, and we ought to see them turning back up in the next couple weeks. The rebound in the dollar that exacerbated the stock's decline last week is a short-term effect that I would be surprised to see continue much beyond the 88 level on the DX00Y. Then there is major resistance in the 91-92 area. We could still see NEM weaken down into the $38-40 area, but with the 200-dma now over $39, our $37 stop should be safe. I still like the prospects for new entries near $40, if we can get it. HD - We're not seeing a significant move in HD yet, but I do like the weakness in price seen throughout last week. Note that Friday's low coincided almost exactly with the bottom of the short term rising channel or bear flag, not to mention the 50-dma. We took our position as close to the top of the long-term descending channel as we could and now we're waiting for enough weakness in price to give us the tip over in the weekly Stochastics. Everything looks good so far, and now we wait for price action to prove the merits of our bearish stance. Should we get another failed bounce near the $37-38 level, that can be used for continuation entries. MLNM - It is so nice to know that all I had to do is raise our entry target on MLNM in order to get enough of a pullback to let us in! The stock came down right into our revised entry zone on Friday, so MLNM moves to the Portfolio this weekend. Watch List: QCOM - We've certainly seen a graphic demonstration of relative strength from QCOM over the past few weeks. Despite the weakness in the NASDAQ, QCOM barely dropped at all, and is right back to testing resistance at the $60 level. Based on the PnF chart's bullish price target of $67, I just can't justify entries at this level and it may be that we end up dropping the play without ever entering. I'm not ready to do that just yet, but neither am I willing to raise our entry target. We need a decent spread between where we enter and what our profit target is, and we really need an entry no higher than where we currently have it set to give the play an acceptable risk to reward ratio. If QCOM comes back to give us that entry we'll take it, but if it breaks out over the January highs, then we'll have to say farewell. SNDK - If you weren't expecting the split, you were clearly surprised to see SNDK trading near the $25 level last week. With price solidly below all its moving averages and the 50-dma about to cross below the 200-dma, I have to admit I am having some concerns about this Watch List play. Fortunately, it's just sitting there on hold, so nobody should be getting into trouble just yet. Price action on the daily chart certainly suggests a break to new recent lows is in store, so there's no need to get worked up about entering the play any time soon. Weekly Stochastics are trying to form a bottom, but that could still take some time. My expectations are still for a drop to the $20 area (post-split) to give us a viable entry, but we don't want to even consider trying to catch the falling knife until we see some more constructive price action. CHK - Now that's more like it! Last week, I expressed concerns that CHK might take off without us. But the reversal at the 50- dma has the stock coming back towards support at $12 and our targeted entry zone in the $11.50-12.00 area. I still like that area for entries, although we may have to deal with some near-term weakness down near the $11 area until the weekly Stochastics reach bottom in oversold and begin to turn up. Natural gas should continue to be a bullish area of the market, whether the broad market heads north or south and CHK looks like one of the better candidates to let us play that trend. Radar Screen: WMB - Traders obviously did not like what management had to say in their earnings report, as concerns over the losses from the power segment took center stage. I view this as rather short-sighted, with the company still in the process of exiting the energy trading business. Looking at the positive side, the company's losses narrowed considerably due to the gains in the core natural gas business. That's where SMB shines and will continue to do so over the long term. Technically, it is really no surprise to see the stock heading back down, as the first test of the bearish resistance line on the PnF chart could be expected to be painful for the bulls. I'm not ready to put the stock on the Watch List, with weekly Stochastics pointed strongly lower. But I can envision making that transition sometime in the next few weeks when the stock reaches strong support. Ideally, we'll get a shot at an entry near $7, but we could see the stock hold support at a higher level. For now we wait and let the current weakness play itself out. LUV - As expected, the rebound attempt from just above $14 was pretty feeble, and LUV appears to be rolling over once again. Weekly Stochastics have bottomed, but that doesn't mean that the price has done the same. We can take our cue from the Transports as a whole, with the TRAN still headed lower and likely to pull the DOW in the same direction over the near term. We'll hold out for another drop to new recent lows and then look to try our hand at a bullish play if we can get price down into the $11.50-12.50 area on a retest of the lows that have defined a bottom for the stock over the past few years. APA - Just as we should have expected from a technical perspective, APA rebounded back to its 50-dma, rolled over and appears headed back to test its early February lows near $37. Weekly Stochastics are heading south, as the overbought condition is methodically worked off, while price makes a controlled descent back towards strong support in the $35 area. That is also the site of the 200-dma, which hasn't been touched in over a year. As noted previously, we're early to be looking for entries just yet, and we'll take our cues from where the stock actually finds strong support at the same time as the overbought condition is completely worked off. Then we can take a position ahead of a run at new highs, as the stock continues to benefit from strong and growing demand in the natural gas markets. Closing Thoughts: So far, we really haven't seen any significant changes in the bullish equity landscape, although the action in the NASDAQ has got to be causing the bulls a bit of heartburn. I'll be watching that area of the market closely from here on out, as a break of strong support near 2000 could have bearish implications for the rest of the market. As noted above, it feels like we're at an important inflection point, so I decided to hold off on adding any other symbols to our menu this week. But we'll have some fresh appetizers next week, hopefully with a better gauge of what the big picture holds. Admin Notes: I was a bit surprised by the lack of comments and questions related to the new format for the Portfolio last week. Either I've gotten much better at writing clearly, or very few of you actually tuned in last week! GRIN Seriously, I did get one suggestion, which related to the readability of the Portfolio table, and it came from three different readers. Apparently, not everyone likes the rigidity of the displayed grid from the spreadsheet. So in keeping with my policy of providing changes (where possible) for those of you that request them, this week we've yanked all those nasty gridlines, but other than that the format is the same. Be sure to chime in if you have any thoughts or suggestions. Have a great week! Mark LEAPS Portfolio Current Open Plays 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 $11.50-12.00 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 PUTS: None New Portfolio Plays MLNM - Millennium Pharmaceuticals $18.37 **Call Play** It was starting to feel like MLNM was just going to break out and keep on going without us, but fortunately, the broad market weakness took the edge off the bullish enthusiasm towards the end of the week. We had raised our entry target to the $18.00-18.50 area last week and on Friday the stock dipped as low as $17.99 before rebounding right into the middle of our targeted entry zone. We could see a bit more weakness in the weeks ahead, but I really expect the stock to continue its pattern of higher highs and higher lows, enroute to its destiny with our final target up near $28.50, which is the bullish price target from the PnF chart. Simply put, MLNM has one of the best looking charts in the Biotechnology space, primarily because its rise over the past year has been measured and steady, actually adhering to things like support and resistance levels, continuing its climb without getting too carried away. This sort of price pattern has the feel of quiet accumulation ahead of potential product announcements later in the year, which would have the effect of goosing the stock significantly higher. The pattern of higher highs and higher lows has been unbroken for the past year, so we should expect to see it continue, with solid support provided by the 50- dma ($17.93) and much stronger support coming in at the rising trendline at $16.75 and then the 200-dma at $15.65. Note that all of these levels could be tested without violating the overall upward trend. It would take a trade at $14 to break that trend, so that's where we're setting our stop. Traders still looking for an entry into the play will want to take advantage of any additional weakness down into the $16-17 area as a better entry than we logged here on Friday. BUY LEAP JAN-2005 $20 XVX-AD $ 2.50 BUY LEAP JAN-2006 $20 YDA-AD $ 4.00 BUY PUT MAY-2004 $17 QMN-QW $ 1.20 **Protective Put** 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 CPTI Rules! We’re Back With A Vengeance By Mike Parnos, Investing With Attitude After a less-than-impressive January, our neutral strategies for February were all winners! This month we were both lucky and good – the best possible combination. The market took a breather, stopped trending and all of our trades were closed profitably. Money management skills proved important as we locked in profits for very little a few days before expiration rather than allowing ourselves to be exposed to market volatility for the last few days. The February option cycle was the third cycle in the second year of tracking our Couch Potato Trading Institute portfolio. With our $5,085 profits, we’ve now accumulated a total of $9,480 in four short months. February P & L Summary OEX Credit Spread Boogie: $1,935 Profit! MNX Iron Condor: $1,000 Profit! XAU Iron Condor: $1,150 Profit! OSX Iron Condor: $1,000 Profit! Total March Profit: $5,085 dead presidents for the good guys! Total maintenance held in the above positions: $22,000. That’s an over 30% hypothetical return on our hypothetical risk. I’ll take that every month. Wouldn’t you? ___________________________________________________________ RECAP OF FEBRUARY CPTI POSITIONS Position #1 -- OEX – Credit Spread Boogie – 564.87 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). Closed trade for $.35 ($105). Profit: $1,935. Position #2 – MNX (mini NDX index) – Iron Condor – 148.21 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. Closed trade @ $.20 ($400). Profit: $1,000. Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $97.55 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). Maximum profit: $1,150. All options expired worthless. Profit: $1,150. Position #4 – OSX (Oil Service Sector Index) - $104.80 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 is about $1.20 (x 10 = $1,200). Maximum profit: $1,200. Closed trade @ $.20 ($200). Profit: $1,000. ____________________________________________________________ A Few Errors That’ll teach you to get me up off the couch. In my Thursday column, I screwed up in a few places. Nothing major. CPTI students should know what an Iron Condor is by now and what kind of options make it up. I cleaned it up and below is the corrected version. _____________________________________________________________ MARCH CPTI POSITIONS Position #1 – OEX (S&P 100 Index) Iron Condor – 564.87 Sell 12 OEX March 595 calls and buy 12 OEX March 605 calls for a credit of about: $.45 ($540). Sell 12 OEX March 540 puts and buy 12 OEX March 530 puts for a credit of about: $.75 ($900). Total net credit: $1.20 ($1,440). Maximum profit range: 540 – 595. Maintenance: $12,000 less $1,440 = $10,560. Position #2 – RUT (Small Cap Index) Iron Condor – 579.89 Sell 8 RUT March 610 calls and buy 8 RUT March 620 calls for a credit of about $1.55 ($1,240). Sell 8 RUT March 550 puts and buy 8 RUT March 540 puts for a credit of about $1.20 ($960). Total net credit: $2.75 ($2,200). Maximum profit range: 550 - 610. Maintenance: $8,000 less $2,200 = $5,800. Position $3 – MNX (Mini-NDX Index) Iron Condor - $148.21 Sell 20 MNX March $157.50 calls and buy 20 XAU March $160 calls for a credit of about $.45 ($900). Sell 20 MNX March $142.50 puts and buy 20 MNX March $140.00 puts for a credit of about $.45 ($900). Total net credit of $.90 ($1,800). Maximum profit range: $142.50 - $157.50. Maintenance: $5,000 less $1,800 = $3,200. Position #4 – BBH (Biotech Index) - Siamese Condor - $143.35 Sell 10 BBH March $145 calls and sell 10 BBH March $145 puts for a credit of about $6.95. Buy 10 BBH March $160 calls and buy 10 BBH March $130 puts for a debit of about $.70. Total net credit of about $6.25 ($6,250). Our profit (safety) range is $138.75 to $151.25. These are also our bailout points. The closer BBH finishes to $145, the more money we will make. ______________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $36.98 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 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. March: Mar. $34 calls and $37 puts – credit of $1,150. Total credit: $7,300. Note: We haven't included 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. ZERO-PLUS Strategy. OEX – 564.87 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds that will mature in seven years at a value of $100,000. In essence, that guarantees the principal $100,000 investment. We are trading the remaining $26,000 to generate a “risk free” return on the original investment. We bought 3 OEX Jan. 2006 540 calls at a cost of $24,300. Then we sold 3 OEX March 2004 585 calls for a credit of $930. We also put on a bull put spread, selling three OEX March 535 puts an buying three OEX March 525 puts for a credit of $330. Our total credit is $1,260. Our current cash position is $2,960 ($1,260 plus the unused $1,700). This one is going to drag on for seven years, so get comfortable. We’re going to make some money. _____________________________________________________________ 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. ************************Advertisement************************* No time to follow the Market Monitor? 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The Option Investor Newsletter Sunday 02-22-2004 Sunday 5 of 5 In Section Five: Covered Calls: Understanding The Mechanics Of The Market Naked Puts: Know Your Market! Know Your Issue! Know Your Strategy! Spreads/Straddles/Combos: Market Bears Gaining Strength? ************************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: Understanding The Mechanics Of The Market By Mark Wnetrzak A common question among new readers concerns the techniques used by option specialists to "make a market" for retail traders. The primary job of the options specialist is to maintain a fair and orderly market in a particular security. To ensure that trading is efficient, with fluid price fluctuation, the options specialist will occasionally need to step in against the market trend. The majority of strategies employed by these individuals to cushion temporary imbalances and to avoid unreasonable price variations are based on option pricing theory and probability. The concept of put-call parity helps the specialist identify a miss-priced relationship between call options, put options, and the stock. If the call is overpriced relative to the put, the put is purchased and a synthetic put, made up of a short call and long stock, is sold. This technique is called a conversion. If the call option is under-priced relative to the put, then the call is bought and a short synthetic call, made up of a short put and short stock, is sold. The opposite of a conversion is often called a reversal (reverse conversion). Specialists also favor box spreads; two call options with different strike prices and two put options with strike prices equivalent to the calls. Box spreads are only initiated when the options are miss-priced on a relative basis. A covered-call writer has some leverage in the options market because the most profitable transactions for specialists are often deep-in-the-money calls and puts (these options usually have large bid/ask spreads, due to the lack of liquidity). An example of the trade: If an individual places an order to sell a deep-in-the-money call, then the floor broker uses a reversal, or reverse conversion with a short synthetic call (short stock and short put) to offset the purchased call. If the bid-ask spread is $1 and the specialist pays the retail trader bid price only, the position will yield a profit. Recall that the basis for this transaction is the market-maker can buy the call at a discount and, at the same time, sell the synthetic call at fair value to generate a risk-free position. Obviously, this assumes the put option is fairly priced (which is generally the case when stock is in a bullish trend) and the stock can then be sold short at the current bid. Any delay in the execution of the remaining components will put the position at risk for the specialist. If the share price changes or the up-tick rule (in most cases, stocks can be shorted only on an upward move) prevents the specialist from selling (shorting) the stock in a timely manner, the profit will quickly disappear. Fortunately, there are no up-front funds needed for this method, but because of the difficulty in shorting stock, specialists occasionally do not receive all of the profit from the initial transaction. However, specialists have another method of offsetting potential losses. In the case of a reversal, the funds received from the sale of the stock are placed in a risk-free, short-term investment. Thus interest rates, along with the difference between the market prices and the fair value of the options, and the amount of funds received in the short sale, all have some effect on the eventual profitability of the position. One thing to be aware of is that all option trades do not result in a conversion or reversal. Since the majority of retail traders buy options, and since a large portion of these positions are redeemed at a lower value (or expire worthless), market-makers will often take a short position in these options. Then they wait until the option price declines, to purchase an offsetting position. In the case of a short call option, they may eventually construct a long synthetic call (a much easier transaction, with shorting of stock) to offset the sold position. Regardless of the situation or type of arbitrage, their basic goal is to profit from disparities in option pricing and by trading inside the bid/ask spread. 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 MXT 5.89 5.70 FEB 5.00 1.05 0.16* 7.2% ZIXI 10.93 12.06 FEB 10.00 1.80 0.87* 6.9% NEOL 18.73 20.04 FEB 17.50 1.70 0.47* 5.9% SIRI 3.15 2.88 FEB 2.50 0.80 0.15* 5.7% AFFX 31.23 32.87 FEB 30.00 2.35 1.12* 5.6% VXGN 10.92 10.01 FEB 10.00 1.40 0.48* 5.5% ALVR 13.09 13.93 FEB 12.50 1.45 0.86* 5.4% AKSY 10.87 10.40 FEB 10.00 1.10 0.23* 5.1% NANO 20.14 18.72 FEB 17.50 3.20 0.56* 4.8% IPXL 18.90 18.96 FEB 17.50 1.95 0.55* 4.7% NEOL 19.10 20.04 FEB 17.50 2.30 0.70* 4.5% TIVO 10.75 11.40 FEB 10.00 1.05 0.30* 4.5% CREE 20.49 23.59 FEB 20.00 1.65 1.16* 4.5% GSF 27.77 29.44 FEB 27.50 1.35 1.08* 4.4% PAAS 16.10 17.13 FEB 15.00 1.95 0.85* 4.4% CHINA 11.05 11.45 FEB 10.00 1.60 0.55* 4.2% NANX 12.39 10.62 FEB 10.00 2.90 0.51* 3.9% CLTK 8.54 7.96 FEB 7.50 1.35 0.31* 3.9% ATSN 10.90 10.35 FEB 10.00 1.30 0.40* 3.7% SEAC 18.40 18.04 FEB 17.50 1.75 0.85* 3.7% WEBM 10.93 10.66 FEB 10.00 1.25 0.32* 3.6% DDS 17.53 17.16 FEB 17.50 0.45 0.08 1.0% ZIXI 14.67 12.06 FEB 12.50 2.70 0.09 0.8% CNET 10.75 9.61 FEB 10.00 1.15 0.01 0.1% ACLS 12.60 11.76 FEB 12.50 0.65 -0.19 0.0% TKLC 20.35 18.73 FEB 20.00 1.20 -0.42 0.0% LTXX 19.12 16.07 FEB 17.50 2.45 -0.60 0.0% KERX 12.62 13.77 MAR 12.50 1.30 1.18* 9.3% MWY 5.04 5.53 MAR 5.00 0.50 0.46* 9.1% ASIA 7.80 7.58 MAR 7.50 0.90 0.60* 6.3% GMST 7.67 7.35 MAR 7.50 0.80 0.48 6.3% NEOL 20.08 20.04 MAR 17.50 3.60 1.02* 5.5% TIBX 7.95 8.27 MAR 7.50 0.90 0.45* 4.6% CRYP 16.38 16.46 MAR 15.00 2.00 0.62* 3.9% SKX 11.38 12.09 MAR 10.00 1.75 0.37* 3.4% PMSI 5.72 5.69 MAR 5.00 0.90 0.18* 3.3% CNET 10.72 9.61 MAR 10.00 1.30 0.19 1.5% * Stock price is above the sold strike price. Editor's Comments: Selling On Good News Could Be Bad News! Still, the NASDAQ ended the week right at its 50-day MA. Both the DJ-30 and S&P-500 as well as the Russell-2000 are testing their 30-day MAs. Next week should be interesting indeed. As for the covered-call portfolio, a few February expiry positions suffered from increased selling pressure the last couple days. Time to re-evaluate your outlook and act accordingly: sell the stock, sell new calls for next month (or longer time frame), or maybe just hold the stock for a trade, etc. Decisions! Previously Closed: Centillum Communications (NASDAQ:CTLM), Ceina (NASDAQ:CIEN), Sycamore Networks (NASDAQ:SCMR) and Adaptec (NASDAQ:ADPT). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 NFLD 10.65 MAR 10.00 DHQ CB 1.25 505 9.40 28 6.9% VICL 7.60 MAR 7.50 VAQ CU 0.55 20 7.05 28 6.9% MWY 5.53 MAR 5.00 MWY CA 0.80 1196 4.73 28 6.2% NEOL 20.04 MAR 17.50 UOE CW 3.30 381 16.74 28 4.9% OSTK 23.63 MAR 20.00 QKT CD 4.30 269 19.33 28 3.8% WEBM 10.66 MAR 10.00 UUW CB 1.00 99 9.66 28 3.8% BVSN 8.67 MAR 7.50 QVB CU 1.40 1153 7.27 28 3.4% 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). __________________________________________________________________ NFLD - Northfield Labs $10.65 *** A Big Move! *** Northfield Laboratories (NASDAQ:NFLD) is engaged in the development of a safe and effective alternative to transfused blood for use in the treatment of acute blood loss. Its PolyHeme blood substitute product is a solution of chemically modified hemoglobin derived from human blood. PolyHeme simultaneously restores lost blood volume and hemoglobin levels and is designed for rapid, massive infusion. PolyHeme requires no cross-matching and is therefore immediately available and compatible with all blood types. It has an extended shelf life compared to blood. Northfield Labs purchases indated and outdated blood from The American Red Cross and Blood Centers of America for use as the starting material for PolyHeme. It uses a proprietary process of separation, filtration and chemical modification to produce PolyHeme. Northfield Labs has rallied sharply higher over the last couple weeks and traders who have done their due diligence on PolyHeme can use this position to establish a "relatively" low-risk entry point in the issue. MAR-10.00 DHQ CB LB=1.25 OI=505 CB=9.40 DE=28 TY=6.9% __________________________________________________________________ VICL - Vical $7.60 *** New Drug Speculation *** Vical (NASDAQ:VICL) researches and develops biopharmaceutical products based on its DNA delivery technologies for preventing and treatment of serious or life-threatening diseases. Vical also has gained access to enhancing technologies through licensing and collaborative agreements. The company and its associates are developing a number of vaccine and therapeutic protein product candidates aimed at preventing and treating infectious diseases, cancer, and cardiovascular diseases. Its independent development focus is on novel DNA vaccines for cytomegalovirus and anthrax, as well as the cancer immunotherapeutic, Allovectin-7. Traders who wouldn't mind owning Vical near $7 can use this position to speculate on the company's future share value. MAR-7.50 VAQ CU LB=0.55 OI=20 CB=7.05 DE=28 TY=6.9% __________________________________________________________________ MWY - Midway Games $5.53 *** Rally Mode! *** Midway Games (NYSE:MWY) develops and publishes interactive entertainment software. The company and its predecessors have published over 400 titles. It develops and publishes games for play on new-generation home videogame consoles and hand-held game platforms, including Sony's PlayStation 2 computer entertainment system, Microsoft's Xbox and Nintendo's GameCube and Game Boy Advance. The company's titles include game genres such as action, adventure, driving, extreme sports, fighting, role-playing, sports and strategy. Mortal Kombat is the company's most profitable videogame franchise, with over 20 million units sold. Midway Games has also licensed two TV and two film adaptations of Mortal Kombat and granted merchandising licenses for toys, clothing, comic books, strategy guides and other product lines. Midway Games appears to be completing a long-term bottom and recently has rallied higher on heavy volume. With earnings due on Wednesday, February 25, this position offers investors a great method to target-shoot an entry price with a favorable cost basis. MAR-5.00 MWY CA LB=0.80 OI=1196 CB=4.73 DE=28 TY=6.2% __________________________________________________________________ NEOL - NeoPharm $20.04 *** Next Trading Range? *** 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 appears to be moving up to a higher trading channel after several months of activity near $16. This position offers favorable reward with a cost basis near technical support. MAR-17.50 UOE CW LB=3.30 OI=381 CB=16.74 DE=28 TY=4.9% __________________________________________________________________ OSTK - Overstock.com $23.63 *** On The Move! *** Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer offering discount, brand-name merchandise for sale primarily over the Internet. The company's merchandise offerings include bed-and-bath goods, kitchenware, watches, jewelry, electronics, sporting goods and designer accessories. Overstock offers its customers an opportunity to shop for bargains conveniently, while offering an alternative inventory liquidation distribution channel to its suppliers. The company typically offers around 5,000 non-media products and over 100,000 media products (books, CDs, DVDs, video cassettes and video games) in seven departments on its Websites, www.overstock.com, www.overstockb2b.com and www.worldstock.com. OSTK has been in a lateral trading range for almost a year and has recently rallied above resistance near $18 on heavy volume. Now the stock has stepped up once again on heavy volume to move above resistance around $20. We simply favor the technical support near the cost basis in this position and investors who are interested in a long-term portfolio holding in the Internet retail segment should consider this issue. MAR-20.00 QKT CD LB=4.30 OI=269 CB=19.33 DE=28 TY=3.8% __________________________________________________________________ WEBM - WebMethods $10.66 *** Stage I Speculation *** WebMethods (NASDAQ:WEBM) is a provider of software and services for comprehensive end-to-end integration solutions. WebMethods' integration platform is a comprehensive solution for linking business processes, enterprise and legacy application software products, databases, human workflows and Web services within and across business enterprises and government organizations. In addition, the company offers a variety of software support and maintenance options designed to meet its customers' varied needs. WebMethods has been forging a Stage I base for over a year with a strong support area near $9. Investors who believe the company's share value will rally in the future can use this position to profit from that outcome. MAR-10.00 UUW CB LB=1.00 OI=99 CB=9.66 DE=28 TY=3.8% __________________________________________________________________ BVSN - BroadVision $8.67 *** Earnings Rally! *** BroadVision (NASDAQ:BVSN) is a company that develops, markets and supports enterprise portal applications that enable their customers to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners and customers through a personalized self-service model that increases revenues, reduces costs and improves productivity. The company also provides a full spectrum of global services to help ensure success for businesses, including strategic services, implementation services, migration services and ongoing training and support. BroadVision has been on a steady volume-supported rally since its January earnings report and has moved above its June high. Investors can use this position to establish a reasonable cost basis in a bullish technology issue. MAR-7.50 QVB CU LB=1.40 OI=1153 CB=7.27 DE=28 TY=3.4% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 AKSY 10.40 MAR 10.00 KQK CB 0.95 82 9.45 28 6.3% GTW 5.13 MAR 5.00 GTX CA 0.40 11354 4.73 28 6.2% BDY 24.20 MAR 22.50 BDY CX 2.90 1662 21.30 28 6.1% KERX 13.77 MAR 12.50 QKY CV 1.90 154 11.87 28 5.8% TIVO 11.40 MAR 10.00 TUK CB 1.90 1495 9.50 28 5.7% OPSW 8.84 MAR 7.50 UWA CU 1.70 199 7.14 28 5.5% INSP 36.57 MAR 35.00 IOU CG 3.20 184 33.37 28 5.3% SWIR 26.87 MAR 25.00 IYQ CE 3.00 288 23.87 28 5.1% DNDN 13.80 MAR 12.50 UKO CV 1.85 337 11.95 28 5.0% CHINA 11.45 MAR 10.00 UIH CB 1.80 6493 9.65 28 3.9% VISG 5.40 MAR 5.00 TUM CA 0.55 304 4.85 28 3.4% PXLW 16.50 MAR 15.00 PUO CC 1.95 106 14.55 28 3.4% CRYP 16.46 MAR 15.00 UFW CC 1.90 37 14.56 28 3.3% NTES 49.98 MAR 45.00 NQG CI 6.30 5224 43.68 28 3.3% ********** NAKED-PUTS ********** Options 101: Know Your Market! Know Your Issue! Know Your Strategy! By Ray Cummins Wisdom gives someone the ability to evaluate a situation and choose a superior course of action. But, before you can have wisdom you must have knowledge. For traders, the only objective of participating in the market is profit. The easiest way to achieve this result is to form a view that eventually proves to be accurate. At the same time, one must also be positioned to obtain the greatest return from the correct forecast of future market trends. That step requires a complete mastery of trading techniques and the ability to correctly apply a specific strategy to any particular situation. With this simple approach, the route to consistent profits is simply a matter of identifying the trend and using a proven trading system to exploit each position for maximum potential. Before an investor can successfully initiate a position, there are a number of factors to consider. The most important being the overall condition of the market and the economy in general. What types of indications are bonds, basic commodities and currencies offering in relation to the outlook for equities? Is the stock market rebounding due to lower interest rates and when will the Fed's prolonged battle to bolster the U.S. economy expend its maximum effect? Will the recent influence of the weakening dollar significantly reduce profits in the leading American corporations over the long-term and more importantly, will their bottom-line growth be restored in the course of renewed demand and economic expansion? Finally, is all the available information reflected in the current share values or is the market's recovery simply due to the public's present interpretation of the most popular news items. As you can see, a successful trader must possess a comprehensive understanding of market fundamentals to interpret and act upon the numerous statistical releases and ongoing analysis of financial trends. Technical and sentimental analyses are also very effective means to determine the future direction of the market. The key is to identify situations in which the "trend is (really) your friend" and conversely, when it is more appropriate to have a contrarian approach. Some questions that should be answered include: Is the market currently in a strong trend and if so, how far can it go? Has the ideal opportunity already passed or is it viable to enter a new position at this time? In short, how many traders have the same outlook and have they previously acted on that assessment or is there additional potential for favorable activity in the issue? A common a rule of thumb is that when all the retail participants finally begin to support the movement, it is generally a good time to think about exiting the position. One concept that cannot be overlooked is the value of historical indicators. Professional traders pay serious attention to them and they have too great an impact on equity markets to be disregarded. All investors should understand at least the basic chart patterns, such as support and resistance and simple moving averages. Complex indicators such as Stochastics and Moving Average Convergence/Divergence (MACD) can be used, as a trader gains experience, to help identify overbought and oversold situations. In addition, information sources need to be studied as part of the process of market awareness. Analysis from well known gurus, screening services, charting products and statistics and other related data can provide valuable assistance. Stocks and their respective industries, and the overall condition of the market are so intertwined that in most cases, the need to remain in tune with current attitudes is paramount to success. Determining the future direction of the market is only the first step in profiting from a particular position. Investors need to consider a variety of issues that will affect the strategy used to achieve the highest return from an accurate forecast of market trends. First, what is the time frame of the expected movement and is it critical to enter the trade at specific point or can the position be initiated gradually as the activity progresses? What constitutes the ideal “buy” or “sell” signal and is there a chance the indications will be incorrect? What is the likely size of the movement, and is the market expected to gap or move slowly in the predicted direction? Is there any limitation to the magnitude of the movement (resistance/support) and are there any upcoming events or circumstances that might cause a reversal in the market? If the position is based on technical analysis, where should the stop-loss orders and profit targets be placed? Will it be practical to exit the trade incrementally, achieving some profit from future favorable movement, or will quick actions and minimal exposure be more successful overall? Finally, how convinced are you that the outlook for the position is correct and that the risk is worth the potential reward? 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 LSCP 19.53 23.56 FEB 17.50 0.40 0.40* 5.1% 14.1% ADAT 16.80 17.35 FEB 12.50 0.40 0.40* 3.6% 11.6% NVDA 22.76 24.14 FEB 20.00 0.30 0.30* 3.3% 9.8% AMR 16.05 15.15 FEB 15.00 0.25 0.25* 3.7% 9.7% RMBS 31.16 33.60 FEB 25.00 0.45 0.45* 2.7% 9.7% ADAT 16.95 17.35 FEB 12.50 0.40 0.40* 3.0% 9.4% SEPR 27.99 28.29 FEB 22.50 0.65 0.65* 2.7% 9.1% XING 12.80 12.15 FEB 10.00 0.35 0.35* 2.6% 8.7% IMCL 43.41 39.90 FEB 35.00 0.75 0.75* 2.4% 8.4% ASKJ 22.82 21.00 FEB 20.00 0.25 0.25* 2.8% 8.3% AZR 23.35 22.24 FEB 22.50 0.60 0.34 3.4% 8.1% NEOL 18.26 20.04 FEB 15.00 0.40 0.40* 2.5% 8.1% INSP 34.15 36.57 FEB 30.00 0.55 0.55* 2.7% 7.9% OPWV 15.18 13.97 FEB 12.50 0.40 0.40* 2.4% 7.6% PMCS 23.80 21.05 FEB 20.00 0.50 0.50* 2.3% 7.2% SEPR 27.25 28.29 FEB 22.50 0.65 0.65* 2.2% 6.9% ASKJ 23.83 21.00 FEB 20.00 0.60 0.60* 2.2% 6.9% SINA 45.69 43.17 FEB 35.00 0.45 0.45* 1.9% 6.8% MU 16.11 15.57 FEB 15.00 0.25 0.25* 2.5% 6.5% IDCC 24.36 26.48 FEB 20.00 0.25 0.25* 1.8% 6.4% BLTI 21.14 20.13 FEB 17.50 0.30 0.30* 1.9% 6.4% NKTR 17.12 18.47 FEB 15.00 0.45 0.45* 2.2% 6.3% TER 26.77 24.87 FEB 25.00 0.40 0.27 2.4% 6.3% IDCC 24.46 26.48 FEB 20.00 0.50 0.50* 1.9% 6.2% RMBS 34.60 33.60 FEB 25.00 0.50 0.50* 1.8% 6.0% ERICY 23.01 27.93 FEB 20.00 0.25 0.25* 1.8% 5.6% JNPR 22.00 25.53 FEB 20.00 0.55 0.55* 2.0% 5.4% AFFX 28.29 32.87 FEB 25.00 0.50 0.50* 1.8% 5.2% AFFX 28.40 32.87 FEB 25.00 0.40 0.40* 1.8% 5.2% RDWR 30.73 27.52 FEB 25.00 0.35 0.35* 1.3% 4.5% SPRT 16.40 12.35 FEB 12.50 0.25 0.10 0.7% 2.5% NGEN 12.59 9.35 FEB 10.00 0.30 -0.35 0.0% 0.0% BLUD 23.52 20.30 FEB 22.50 0.25 -1.95 0.0% 0.0% ADAT 16.94 17.35 MAR 12.50 0.45 0.45* 3.3% 10.5% IBIS 15.30 14.25 MAR 12.50 0.40 0.40* 3.0% 9.6% LSCP 23.07 23.56 MAR 20.00 0.60 0.60* 2.8% 7.9% CRYP 16.38 16.46 MAR 12.50 0.30 0.30* 2.2% 7.5% DNDN 14.49 13.80 MAR 12.50 0.30 0.30* 2.2% 6.5% WEBX 26.12 25.25 MAR 22.50 0.50 0.50* 2.0% 6.1% * Stock price is above the sold strike price. Editor's Comments: Rally At An End? Stocks drifted lower Friday as investors wrestled with inflation prospects and valuation concerns. Despite the broad retreat, the month of February was great for market bulls and our portfolio enjoyed a large number of winners. Among the "watch" list issues, Immucor (NASDAQ:BLUD) fared the worst with Thursday's drop taking the position well into negative territory. Nanogen (NASDAQ:NGEN) also slumped Thursday after the company posted a quarterly net loss on declining revenue. All of the March positions are holding up relatively well, however any further selling pressure in the broader market will affect even the most technically favorable stocks. (So keep your stops close!) The new position in AT&T wireless (NYSE:AWE) was not available due to the "gap-up" at the opening bell on Tuesday morning. Positions Previously Closed: Wireless Facilities (NASDAQ:WFII), United Therapeutics (NASDAQ:UTHR), Altiris (NASDAQ:ATRS), and Retek (NASDAQ:RETK). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 OVTI 29.70 MAR 25.00 UCM OE 0.60 2577 24.40 28 2.7% 8.4% BRKT 18.75 MAR 17.50 BUQ OW 0.50 17 17.00 28 3.2% 8.0% CEGE 14.49 MAR 12.50 UCG OV 0.30 37 12.20 28 2.7% 7.9% NKTR 18.47 MAR 15.00 QNX OC 0.30 10 14.70 28 2.2% 7.7% WEBX 25.25 MAR 22.50 UWB OX 0.50 573 22.00 28 2.5% 6.9% RMBS 33.60 MAR 25.00 BNQ OE 0.35 6177 24.65 28 1.5% 5.4% SERO 18.51 MAR 17.50 HUS OW 0.30 25 17.20 28 1.9% 4.9% 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). __________________________________________________________________ OVTI - OmniVision $29.70 *** Post-Split Rally! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI shares soared after the specialty chip maker posted strong quarterly results, issued an earnings forecast above consensus estimates and split its common stock 2-for-1. Traders who like the outlook for Omnivision Technologies can use this position to establish a cost basis below $25 in the issue. MAR-25.00 UCM OE LB=0.60 OI=2577 CB=24.40 DE=28 TY=2.7% MY=8.4% __________________________________________________________________ BRKT - Brooktrout $18.75 *** Solid Earnings! *** Brooktrout (NASDAQ:BRKT) delivers communications hardware and software products that enable applications for the New Network; a Network born through the marriage of the telephone and data networks. Brooktrout's primary mission is to collaborate with its partners so they can bring innovative solutions to market quickly, increase business and expand into new markets. The company believes that a solid focus on customers, significant first-to-market products and key acquisitions are making it a partner of choice for today's hottest communications service and enterprise application providers. Shares of BRKT rallied Friday after the company reported fourth-quarter earnings above consensus estimates and revenue above the company's guidance. Brooktrout said its profitability and 26% revenue increase was due to its continuous investment in technology and its service and support initiatives. Investors who believe the company's recent success will continue can establish a conservative cost basis in the issue with this position. MAR-17.50 BUQ OW LB=0.50 OI=17 CB=17.00 DE=28 TY=3.2% MY=8.0% __________________________________________________________________ CEGE - Cell Genesys $14.49 *** A Big Day! *** Cell Genesys (NASDAQ:CEGE) is focused on research, development and commercialization of biological therapies for patients with cancer. The company is pursuing three cancer product platforms: cancer vaccines, oncolytic virus therapies and antiangiogenesis therapies. Clinical trials of its GVAX vaccines are under way in prostate cancer, lung cancer, pancreatic cancer, leukemia and myeloma. Clinical programs of oncolytic virus therapies include CG7870 for prostate cancer. Preclinical studies are in progress for additional GVAX cancer vaccines, oncolytic virus therapies and antiangiogenesis therapies for multiple types of cancer. A recent article in a medical journal that talked about how one of the company's experimental cancer vaccines demonstrated dramatic success in a small number of patients was the reason for Friday's sharp rally. With technical support near the cost basis, this position offers favorable risk/reward for conservative traders. MAR-12.50 UCG OV LB=0.30 OI=37 CB=12.20 DE=28 TY=2.7% MY=7.9% __________________________________________________________________ NKTR - Nektar Therapeutics $18.47 *** Entry Point? *** Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products based on its portfolio of technologies and expertise designed to improve drug performance throughout the drug development process. The company has developed three distinct technology platforms: Nektar Molecule Engineering, which uses advanced PEG (polyethylene glycol)ylation and PEG-based delivery systems to enable drug performance, Nektar Particle Engineering, which uses the company's expertise in pulmonary particle technology and supercritical fluids technology to design and manufacture optimal drug particles and Nektar Delivery Solutions, which uses advanced systems for pulmonary drug administration to improve therapeutic outcomes. On Wednesday, Merrill Lynch raised its rating on NKTR to "buy" from "neutral" and the stock climbed to a new two-year high. Investors who wouldn't mind owning this speculative issue can establish a cost basis below $15 with this position. MAR-15.00 QNX OC LB=0.30 OI=10 CB=14.70 DE=28 TY=2.2% MY=7.7% __________________________________________________________________ WEBX - WebEx Communications $25.25 *** A New Trading Range? *** WebEx (NASDAQ:WEBX) develops and sells services that allow users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. Integrated telephony and Web-based audio and video services are available using telephones, computer Web-cameras and microphones. The company's activities have been focused on continuing to enhance and market its WebEx Interactive Services and its WebEx Multimedia Switching Platform, developing and deploying new services, expanding its marketing organizations and deploying its global WebEx Media Tone Network. The company sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx Training Center, WebEx Support Center, WebEx OnStage and WebEx Enterprise Edition. It also provides a service called WebEx Business Exchange to existing customers. WEBX moved to a new trading range early in the month after the company reported strong quarterly results and issued a favorable first quarter profit outlook. Investors who expect continued bullish activity in WEBX should consider this position. MAR-22.50 UWB OX LB=0.50 OI=573 CB=22.00 DE=28 TY=2.5% MY=6.9% __________________________________________________________________ RMBS - Rambus $33.60 *** Favorable Judgment! *** Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip" interface solutions that enhance the performance and effectiveness of its client's chip and system products. These solutions include multiple chip-to-chip interface products, which can be grouped into two categories: memory interfaces and logic interfaces. Rambus' memory interface products provide an interface between memory chips and logic chips. In addition, the firm's logic interface products provide an interface between two logic chips. Rambus has two major memory interface products: Rambus dynamic random access memory and Yellowstone. Additionally, it offers a logic interface product for high-speed serial chip-to-chip communications between logic chips in a range of computing, networking and communications applications. RMBS shares soared this week after the dismissal of an FTC antitrust case against the firm for allegedly manipulating processes in the memory market in order to promote its proprietary designs. The decision certainly improves Rambus' credibility on the legal front and traders who believe that will lead to favorable results in other ongoing litigation can speculate on that outcome with this position. MAR-25.00 BNQ OE LB=0.35 OI=6177 CB=24.65 DE=28 TY=1.5% MY=5.4% __________________________________________________________________ SERO - Serologicals $18.51 *** Biotech Speculation! *** Serologicals (NASDAQ:SERO) is a global provider of biological products and enabling technologies to life science companies. The firm's operations are organized into three major segments: biotechnology and molecular biology; diagnostic products and life science reagents, and therapeutic products. The current activities of the biotechnology segment include the manufacture and sale of cell-culture media components, as well as certain research products and technologies for life sciences research and in high-throughput drug screening. The activities of the diagnostic segment include Serologicals' monoclonal antibody production facilities and certain human-sourced, polyclonal antibodies, as well as blood protein products manufactured at the company's facilities in Kankakee and Toronto. SERO shares moved higher after a positive quarterly report and some traders say the stock is poised for a move to the $20 range. Investors who wouldn't mind owning a unique issue in the biotech segment should consider this position. MAR-17.50 HUS OW LB=0.30 OI=25 CB=17.20 DE=28 TY=1.9% MY=4.9% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 TIBX 8.27 MAR 7.50 PAV OU 0.25 1028 7.25 28 3.7% 9.7% BLTI 20.13 MAR 17.50 BQF OW 0.50 910 17.00 28 3.2% 9.2% SWIR 26.87 MAR 22.50 IYQ OX 0.50 87 22.00 28 2.5% 7.9% MOT 17.67 MAR 17.00 MOT OR 0.50 4716 16.50 28 3.3% 7.9% NFLX 35.38 MAR 30.00 QNQ OF 0.65 5257 29.35 28 2.4% 7.5% ISPH 14.85 MAR 12.50 JPU OV 0.25 322 12.25 28 2.2% 7.1% NEOL 20.04 MAR 15.00 UOE OC 0.25 252 14.75 28 1.8% 6.4% SEPR 28.29 MAR 17.50 ERQ OW 0.30 22 17.20 28 1.9% 5.5% OSTK 23.63 MAR 17.50 QKT OW 0.25 207 17.25 28 1.6% 5.5% UPL 25.10 MAR 22.50 UPL OX 0.40 2192 22.10 28 2.0% 5.5% NSCN 35.05 MAR 30.00 QKN OF 0.40 276 29.60 28 1.5% 4.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************ SPREADS/STRADDLES/COMBOS ************************ Market Bears Gaining Strength? By Ray Cummins The major equity averages retreated Friday as mediocre earnings from blue-chip stalwart Hewlett-Packard (NYSE:HPQ) pulled the Dow lower and the NASDAQ fell for the fifth straight week. The Dow Jones industrial average slipped 45 points to 10,619 with Alcoa (NYSE:AA), General Motors (NYSE:GM), Caterpillar (NYSE:CAT) and Walt Disney (NYSE:DIS) joining HPQ as the worst performers. The NASDAQ, which dropped 8 points to 2,037, endured the largest losses in semiconductor, data storage, computer peripherals, and electronic manufacturing shares. The broader market was plagued by renewed selling pressure in gold, aluminum, homebuilding, and auto manufacturing stocks. The Standard & Poor's 500 Index fell 2 points to 1,144. Volume on the options expiration for February was moderate with 1.47 billion shares changing hands on the NYSE and 1.91 billion shares crossed on the NASDAQ. Declining shares outpaced advancing issues 2 to 1 on the Big Board and 5 to 3 on the technology exchange. The bond market also slumped with the 10-year note closing down 16/32, bringing its yield up to 4.09%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 02/20/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 45.79 FEB 40 42 0.30 42.20 0.30 Closed NBR 44.11 45.91 FEB 37 40 0.30 39.70 0.30 Closed BIIB 43.19 56.87 FEB 35 40 0.55 39.45 0.55 Closed GENZ 54.26 53.10 FEB 47 50 0.30 49.70 0.30 Closed AVE 73.00 77.26 FEB 65 70 0.45 69.55 0.45 Closed DNA 96.40 95.32 FEB 85 90 0.70 89.30 0.70 Closed ADI 47.85 49.34 FEB 40 45 0.60 44.40 0.60 Closed KOSP 51.00 45.10 FEB 40 45 0.50 44.50 0.50 Closed MSTR 62.40 60.22 FEB 50 55 0.55 54.45 0.55 Closed CFC 85.54 88.15 FEB 75 80 0.50 79.50 0.50 Closed NFLX 38.32 35.38 FEB 32 35 0.27 34.73 0.27 Closed CERN 46.09 43.45 MAR 35 40 0.60 39.40 0.60 Open DNA 98.25 95.32 MAR 85 90 0.70 89.30 0.70 Open ESRX 70.58 66.95 MAR 60 65 0.65 64.35 0.65 Open NBR 46.97 45.91 MAR 40 42 0.25 42.25 0.25 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Positions in Cigna (NYSE:CI), which ended the expiration period at maximum profit, Cabot Micro (NASDAQ:CCMP) and Lam Research (NASDAQ:LRCX) have previously been closed for small losses. Express Scripts (NASDAQ:ESRX) and Genetech (NYSE:DNA) are now on the "watch" list. CALL-CREDIT SPREADS Symbol Pick Last Month LC SC Credit CB G/L Status ADBE 37.12 37.94 FEB 45 40 0.55 40.55 0.55 Closed ABT 43.25 43.38 FEB 47 45 0.25 45.25 0.25 Closed POWI 32.05 28.82 FEB 40 35 0.75 35.75 0.75 Closed SCHN 45.90 45.94 FEB 60 55 0.50 55.50 0.50 Closed OVTI 51.10 29.70 FEB 65 60 0.50 60.50 0.50 Closed VSEA 45.27 41.80 FEB 55 50 0.55 50.55 0.55 Closed OVTI 48.48 29.70 FEB 60 55 0.60 55.60 0.60 Closed CYBX 27.04 25.12 MAR 35 30 0.65 30.65 0.65 Open SOHU 29.05 27.56 MAR 40 35 0.60 35.60 0.60 Open KLAC 54.24 55.19 MAR 65 60 0.60 60.60 0.60 Open IACI 31.92 32.12 MAR 37 35 0.30 35.30 0.30 Open NVLS 33.26 33.01 MAR 40 37 0.30 37.80 0.30 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Bearish positions in Timberland (NYSE:TBL), Eli Lilly (NYSE:LLY) and Avocent (NASDAQ:AVCT), which finished the expiration period at maximum profit, have previously been closed for small losses. CALL-DEBIT SPREADS Symbol Pick Last Month LC SC Debit B/E G/L Status BRCM 36.78 41.18 FEB 30 32 2.20 32.30 0.30 Closed CREE 23.59 24.00 FEB 20 22 2.20 22.20 0.30 Closed TEVA 61.75 64.72 FEB 55 60 4.45 59.45 0.55 Closed INTU 50.37 45.39 FEB 45 47 2.20 47.20 (1.80) Closed KSS 48.64 49.90 MAR 40 45 4.45 44.45 0.55 Open SPF 49.75 48.76 MAR 40 45 4.45 44.45 0.55 Open AA 37.01 36.83 MAR 32 35 2.25 34.75 0.25 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss Intuit (NASDAQ:INTU), which was put on the "watch" list last week, plunged after a mediocre profit forecast. Traders who exited the play during Wednesday's session achieved a smaller than published loss. PUT-DEBIT SPREADS Symbol Pick Last Month LP SP Debit B/E G/L Status QLGC 47.16 42.93 FEB 55 50 4.20 55.80 0.80 Closed NVLS 39.89 33.01 FEB 45 42 2.20 42.80 0.30 Closed AVID 47.04 40.01 FEB 55 50 4.55 50.45 0.45 Closed AMKR 15.92 15.21 MAR 20 17 2.20 17.80 0.30 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss The position in Michael's Stores (NYSE:MIK) has previously been closed to limit potential losses. SYNTHETIC (BULLISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status MXT 6.04 5.70 MAR 7 5 0.10 0.00 Open? SKX 8.94 11.38 APR 10 7 (0.15) 2.30 Open? NEOL 20.08 20.04 APR 25 17 0.20 0.50 Open Neopharma (NASDAQ:NEOL) offered a favorable "early-exit" profit for conservative option traders during Wednesday's brief rally. Skechers (NYSE:SKX) was also a "big winner" for traders who chose to buy call options (or the stock). However, the issue did not offer the suggested debit, on a simultaneous order basis, before spiking 25% higher its recent rally. The profitable position in Cephalon (NASDAQ:CEPH) was closed after moving to a recent low on heavy trading volume, but the issue eventually rebounded to a new 52-week high. Previous plays in United Therapeutics (NASDAQ:UTHR) and Visx (NYSE:EYE) also achieved profitability, however they were eventually closed to limit losses. 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 Closed The bearish position in Dupont (NYSE:DD) has been closed to limit potential losses. CALENDAR & DIAGONAL SPREADS Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status AMHC 27.08 27.60 MAY-30C FEB-30C 1.25 1.90 Open? ABGX 15.60 15.20 APR-17C FEB-17C 0.60 0.75 Open MEDI 25.14 24.67 JUN-20C MAR-25C 4.35 4.25 Open Both American Healthways (NASDAQ:AMHC) and Fiserve (NASDAQ:FISV) offered favorable "early-exit" opportunities for conservative traders. The speculative spread in Sonus Networks (NASDAQ:SONS) has previously been closed. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status MATK 65.74 60.90 MAR 65 65 9.40 9.00 Open? BSC 84.10 85.72 MAR 85 85 5.25 6.10 Open? FRX 74.49 72.75 MAR 75 75 6.50 6.30 Open? LF 29.75 26.57 FEB 30 30 3.20 4.00 Closed MNST 25.13 21.55 FEB 25 25 2.60 3.70 Closed XMSR 22.86 21.68 FEB 22 22 2.15 2.15 Closed CMOS 12.75 12.77 FEB 12 12 1.00 1.75 Closed NTES 40.83 49.98 FEB 40 40 3.75 10.50 Closed SRNA 22.12 20.93 FEB 22 22 1.00 2.00 Closed The big winners this week were Serena Software (NASDAQ:SRNA) and Netease.com (NASDAQ:NTES), both offering large potential gains. Leapfrog (NYSE:LF) and Monster Worldwide (NASDAQ:MNST) provided favorable profits, however XM Satellite Radio (NASDAQ:XMSR) was not as volatile as expected after its earnings announcements. Straddle plays 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. __________________________________________________________________ BSX - Boston Scientific $41.94 *** Bullish Stent-Maker *** Boston Scientific (NYSE:BSX) is a global developer, manufacturer and marketer of less-invasive medical devices. The firm's unique products are offered by two major business groups, Cardiovascular and Endosurgery. The Cardiovascular segment focuses on products and technologies for use in the firm's interventional cardiology, interventional radiology, peripheral vascular and neurovascular procedures. The Endosurgery organization focuses on products and technologies for use in oncology, vascular surgery, endoscopy, urology and gynecology procedures. BSX - Boston Scientific $41.94 PLAY (conservative - bullish/credit spread): BUY PUT MAR-35.00 BSX-OG OI=1124 ASK=$0.30 SELL PUT MAR-37.50 BSX-OU OI=2227 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$37.25 __________________________________________________________________ CEC - CEC Entertainment $51.62 *** Food & Fun! *** CEC Entertainment (NYSE:CEC) is engaged in the family restaurant and entertainment center business. The company operates Chuck E. Cheese's restaurants, which offer a variety of pizzas, a salad bar, sandwiches, appetizers and desserts, and feature musical and comic entertainment by robotic and animated characters, family-oriented games, rides and arcade-style activities. The restaurants are intended to appeal to families with children between the ages of two and 12. The company and its franchisees operate in a total of 47 states and four countries. CEC - CEC Entertainment $51.62 PLAY (less conservative - bullish/credit spread): BUY PUT MAR-45.00 CEC-OI OI=269 ASK=$0.30 SELL PUT MAR-50.00 CEC-OJ OI=40 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$49.35 __________________________________________________________________ SNPS - Synopsys $35.57 *** Uptrend Intact! *** Synopsys (NASDAQ:SNPS) is a global supplier of electronic design automation software to the electronics industry. The company offers customers a comprehensive suite of products used in the logic synthesis and functional verification phases of chip design, including a broad array of reusable design building blocks. It also offered a set of physical synthesis and physical design products and a number of physical verification products. The company offers its customers products required to design a chip from concept to the point at which the manufacturer begins the fabrication process, as well as a wide array of design building blocks. It also offers professional services, including turnkey design services, design assistance and methodology consulting. SNPS - Synopsys $35.57 PLAY (conservative - bullish/credit spread): BUY PUT MAR-30.00 YPQ-OF OI=1643 ASK=$0.30 SELL PUT MAR-32.50 YPQ-OZ OI=3976 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$32.25 __________________________________________________________________ BBBY - Bed Bath & Beyond $40.62 *** In A Trading Range? *** Bed Bath & Beyond (NASDAQ:BBBY) is an operator of stores selling predominantly better quality domestics merchandise and other home furnishings typically found in better department stores. The company operates over 400 Bed Bath & Beyond stores in 44 states and one territory. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic house-wares and general home furnishings. BBBY - Bed Bath & Beyond $40.62 PLAY (less conservative - bearish/credit spread): BUY CALL MAR-45.00 BHQ-CI OI=1245 ASK=$0.15 SELL CALL MAR-42.50 BHQ-CV OI=1191 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$42.85 __________________________________________________________________ OSIP - OSI Pharmaceuticals $31.39 *** Tarceva Speculation! *** OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on the discovery, development and commercialization of oncology products that both extend life and improve the quality of life for cancer patients worldwide. The company has established a balanced pipeline of oncology drug candidates that includes both next-generation cytotoxic chemotherapy agents and novel mechanism based, gene-targeted therapies. The company's most advanced drug candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor of the epidermal growth factor receptor (HER1/EGFR). The protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is over-expressed or mutated in many major solid tumors. OSIP - OSI Pharmaceuticals $31.39 PLAY (less conservative - bearish/credit spread): BUY CALL MAR-40.00 GHU-CH OI=4548 ASK=$0.30 SELL CALL MAR-35.00 GHU-CG OI=4552 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$35.60 __________________________________________________________________ NBIX - Neurocrine Biosciences $51.95 *** Sell The News? *** Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based biopharmaceutical company focused on neurological and endocrine diseases and disorders. Their product candidates address some of the largest pharmaceutical markets in the world including insomnia, anxiety, depression, diabetes, multiple sclerosis, irritable bowel syndrome, eating disorders, pain, autoimmunity and certain female and male health disorders. The company has a large number of programs in various stages of research and clinical development. Its lead clinical development program is indiplon, a drug for the treatment of insomnia that is being evaluated in Phase III clinical trials. The company's other products under clinical development are altered peptide ligand, gonadotropin-releasing hormone antagonist, interleukin 4 fusion toxin and corticotropin-releasing factor. NBIX - Neurocrine Biosciences $51.95 PLAY (aggressive - bearish/credit spread): BUY CALL MAR-60.00 UOT-CL OI=636 ASK=$0.40 SELL CALL MAR-55.00 UOT-CK OI=1715 BID=$1.20 INITIAL NET-CREDIT TARGET=$0.85-$0.90 POTENTIAL PROFIT(max)=20% B/E=$55.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ OVTI - OmniVision $29.70 *** Earnings Surprise! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing unit called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI - OmniVision $29.70 PLAY (conservative - bullish/debit spread): BUY CALL MAR-20.00 UCM-CD OI=565 ASK=$9.90 SELL CALL MAR-25.00 UCM-CE OI=10289 BID=$5.40 INITIAL NET-DEBIT TARGET=$4.45-$4.50 POTENTIAL PROFIT(max)=11% B/E=$24.50 __________________________________________________________________ IMDC - Inamed $46.97 *** Next Leg Down? Inamed (NASDAQ:IMDC) is a global medical device company that develops, manufactures and markets a diverse line of products that enhance the quality of people's lives. The company has three principal product lines: breast aesthetics, consisting primarily of breast implants and tissue expanders sold largely for use in plastic and reconstructive surgery; facial aesthetics, consisting primarily of collagen and other dermal fillers sold largely to dermatologists and plastic surgeons, and obesity intervention, consisting of products for use in treating severe and morbid obesity. The company also offers collagen products for use by medical manufacturers. IMDC - Inamed $46.97 PLAY (less conservative - bearish/debit spread): BUY PUT MAR-55.00 UZI-OK OI=5 ASK=$8.30 SELL PUT MAR-50.00 UZI-OJ OI=75 BID=$3.90 INITIAL NET-DEBIT TARGET=$4.35-$4.40 POTENTIAL PROFIT(max)=14% B/E=$50.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ SEPR - Sepracor $28.29 *** Estorra Approval in 2004? *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $28.29 PLAY (speculative - bullish/diagonal spread): BUY CALL JUL-25.00 ERQ-GE OI=2785 ASK=$6.80 SELL CALL MAR-30.00 ERQ-CF OI=20066 BID=$2.45 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. __________________________________________________________________ HOV - Hovnanian Enterprises $74.99 *** Earnings Play *** Hovnanian Enterprises (NYSE:HOV) builds and sells single-family detached homes and attached condominium apartments and townhouses in more than 196 new home communities in New Jersey, Pennsylvania, New York, Virginia, Maryland, North Carolina, Texas and California. The firm offers a wide variety of homes that are designed to appeal to first-time buyers; first and second time, move-up buyers; luxury buyers; active adult buyers, and empty nesters. In addition, the company provides financial services, including mortgage banking and title services to the homebuilding operations' customers. The firm does not retain or service the mortgages that it originates, but rather sells the mortgages and servicing rights to investors. HOV - Hovnanian Enterprises $74.99 PLAY (speculative - neutral/debit straddle): BUY CALL MAR-75.00 HOV-CO OI=902 ASK=$3.70 BUY PUT MAR-75.00 HOV-OO OI=970 ASK=$3.70 INITIAL NET-DEBIT TARGET=7.20-$7.25 INITIAL TARGET PROFIT=$2.25-$3.90 __________________________________________________________________ SNP - China Petroleum & Chemical $40.74 *** Probability Play *** China Petroleum & Chemical Corporation (NYSE:SNP) is an oil and energy company that, through its subsidiaries, is engaged in fully integrated oil and gas and chemical operations in the People's Republic of China. Oil and gas operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil, natural gas and products through pipelines; refining crude oil into finished petroleum products, and marketing crude oil, natural gas and other refined petroleum products. Chemical operations include the manufacture and sale of various chemicals for industrial uses. SNP - China Petroleum & Chemical $40.74 PLAY (less speculative - neutral/debit straddle): BUY CALL APR-40.00 SNP-DH OI=108 ASK=$3.30 BUY PUT APR-40.00 SNP-PH OI=109 ASK=$2.70 INITIAL NET-DEBIT TARGET=5.70-$5.80 INITIAL TARGET PROFIT=$2.00-$3.15 __________________________________________________________________ TTWO - Take-Two Int. Software $32.03 *** Earnings Play *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $32.03 PLAY (speculative - neutral/debit straddle): BUY CALL MAR-32.50 TUO-CZ OI=1006 ASK=$1.45 BUY PUT MAR-32.50 TUO-OZ OI=452 ASK=$1.90 INITIAL NET-DEBIT TARGET=3.10-$3.25 INITIAL TARGET PROFIT=$1.50-$2.35 __________________________________________________________________ ************************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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