The Option Investor Newsletter Tuesday 04-06-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Wrong Number Futures Markets: See Note Index Trader Wrap: Nokia's warning gives reason for pause Market Sentiment: Stocks Catch Their Breath Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 04-06-2004 High Low Volume Adv/Dcl DJIA 10570.81 + 12.40 10570.81 10505.11 1.79 bln 1175/2087 NASDAQ 2059.90 - 19.20 2068.27 2053.32 1.78 bln 1092/2076 S&P 100 561.58 - 1.28 562.86 559.07 Totals 2267/4163 S&P 500 1148.17 - 2.40 1150.57 1143.30 W5000 11239.80 - 40.10 11279.90 11200.54 SOX 508.07 - 10.60 518.70 502.36 RUS 2000 599.33 - 7.06 606.39 599.28 DJ TRANS 2974.84 + 19.20 2982.45 2947.97 VIX 15.32 + 0.35 15.53 15.07 VXO (VIX-O)14.49 + 0.61 14.96 14.34 VXN 22.23 + 1.12 22.24 21.28 Total Volume 3,786M Total UpVol 1,242M Total DnVol 2,474M Total Adv 2494 Total Dcl 4637 52wk Highs 421 52wk Lows 58 TRIN 1.00 NAZTRIN 1.06 PUT/CALL 0.82 ************************************************************ Wrong Number by Jim Brown Nokia dialed a wrong number for the markets on Tuesday and the result was a serious drop in tech stocks. Apparently more cell phone buyers are opting for the cheap phones instead of those laden with expensive and profitable features. This is simply a case of the market looking for an excuse to take profits. Dow Chart - Daily Nasdaq Chart - Daily Russell Chart - Daily Wilshire 5000 - Chart While it may sound strange to claim that the warning was just an excuse I believe the facts are clear. Nokia said their Q1 revenue would be almost $8 billion. That is a lot of phones and it is only -2% below last years levels. That may not seem like a positive sign but there were other points that bear mentioning. Nokia said industry growth rose +25% for the quarter. This is a huge number considering the saturation level of phones already. Nokia was killed on the news as well as chip companies supplying the internals for the phones. The entire market was taken down a notch. Think about it for a second. If the market grew +25% then somebody got the business. Odds are good Motorola picked up significant share with Ericsson and Qualcomm also gaining points. The chip companies that were cut on the news still produced chips for that +25% growth only they did not sell them to Nokia. The problem as I see it is a Nokia problem. They simply did not have the right product mix and the little guys chipped away at their market share and profits. If the sector grew at a +25% rate that cannot be bad news. The markets closed right at strong resistance yesterday after more than a week of a strong rebound. The Asian markets were not weak with the Nikkei hitting a 32 month high overnight. The Nokia warning was just a trigger for funds who were already nervous and had their finger on the trigger. The economic reports today were positive and did not add to the negative bias. Retail Sales were weak at +0.3% but still better than last weeks -1.9% drop. The better news was the Challenger Layoff Report which showed layoffs fell -12% in March to only 68,034 and the lowest level since June-2003. This should be good for the April Jobs report. The year over year change was a drop of -20%. The sector with the biggest drop was not manufacturing but financial services. This could be due to the wave of acquisitions in the sector and the resulting layoffs. Just yesterday Banc America announced a cut of -12,500 jobs as the result of the Fleet Boston merger. Cost cutting is still the motivating factor and the current productivity surge will continue to require fewer workers. The continued drop in layoffs despite the rising growth in productivity is a positive sign the economy is still growing. After the bell Alcoa missed estimates by two cents with earnings that were +135% over the same period last year. The stock dropped in after hours in yet another example of traders looking for an excuse to sell. A +135% jump in earnings and the stock was punished because analysts were over aggressive with their estimates. The AA CEO said demand for aluminum fabricated products was the highest level in three years and that was driving prices even higher. He said this trend would provide even higher profitability in the second quarter. Alcoa's revenue rose to $5.7 billion and the highest in nearly three years. This was NOT a bad earnings report yet the futures dove in after hours. The biggest impact to the after hours futures drop came from Seagate Technology. They are the biggest disk drive maker for computers. STX warned for the second time in the last five weeks and cut estimates to seven cents from 20 to 30 cents they had predicted in January. This is the killer comment. They said demand for computer disk drives had fallen far below guidance primarily in notebooks. They said notebook demand for the quarter was one million drives less than previously expected. That is a -7% drop from the 14-14.5 million drives and they said the backlog from the weak demand would probably carry over into the June quarter. Remember Intel getting killed over the last month because of weak notebook sales? Looks like the problem has not been resolved. They said full size PC drives were also weak and could be another million drives below plan. This is a major blow to the expanding IT spending theory. Removing two million drives from actual Q1 demand could mean two million fewer PCs will be sold. Obviously this is not a direct one-to-one correlation but it would be close. The number of drives sold as components into the retail market would be only a small fraction of the total demand. We had other warnings from techs EPNY and BRKT yesterday but this CTX warning is much higher profile. The markets are showing a much weaker opening tomorrow from the after hours news events above. That is not the whole story. The markets ended weak today, far weaker than the Dow was showing at +12 for the day and a close right at the high of the day. The problem came from the Russell. The Russell was also weak on Monday and only rallied on a broad based buy program at the close. The Nokia warning this morning intensified that weakness. We talked all last week about the window dressing and the strong rally in small caps from that dressing. We discussed the potential for window undressing this week if retirement fund flows were weak. The Nokia warning simply gave those wanting to lighten up an excuse to hurry. The Russell had closed at significant resistance on Monday and right at the all time closing high. It has failed here on each attempt since March of 2000. Many had high hopes it would break through on this attempt and lead the rest of the index higher into the April earnings period. After the close today the STX warning sent the Russell futures plunging even farther. What I thought we were seeing on Tuesday was a rotation out of small caps and into the big caps as evidenced by the Dow breaking out to a new high while the Russell was setting new lows. This would indicate that funds were still interested in being long the market but were moving to the safety of liquidity. That theory could be tested on Wednesday if the big caps fall as well. Another event after the bell was the 7E7 engine award by Boeing. GE and Rolls Royce were awarded the contracts and UTX Pratt and Whitney was the loser. This could put some pressure on the Dow at the open with minor gains going to GE because the size of the contract is still unknown. It could put more pressure on UTX because it lost out on what is expected to be more than 2,000 aircraft over the life of the product. Because the Dow is price weighted the impact to $89 UTX will more than offset the minor gain to $31 GE. Boeing will likely be neutral. GE has earnings on Thursday and that could weigh on the stock. The Dow also should begin to see pressure from the Dow rebalancing as funds increase selling in EK, IP and T. There are not a lot of funds indexed to the Dow with only about $20 billion according to current estimates. By comparison there is $1.2 trillion indexed to the S&P 500. The changeover occurs on Thursday and $20B of EK, IP and T is a lot of stock to sell. Earnings due out tomorrow include DNA, YHOO, RIMM, CBK, CKR and PERY. Clearly the big gun is YHOO and it was downgraded on Tuesday. There are quite a few analysts that think the increasing competition and over valuation from the strong rebound will clash with their announcement tomorrow night. The Dow moved slowly closer to the 10600 level at the close and very close to the 10600-10650 resistance range. With the news after the close we probably will open much closer to the 10500 range. The overhead resistance is very strong and the cracks in the foundation could make it tough to move higher. This suggests that should we actually make a higher move it would be strong confirmation that the bulls are back to stay. The Nasdaq is going to be the weakest link on Wednesday based on the STX. The Nasdaq closed at 2077 yesterday and 2057 today. The overnight decline in disk drives, chips and PC stocks is going to make 2000 a real target if this weakness catches on. The Russell failed at 605 and is trading at the lows at 595 overnight. This is going to be a real drag on the Nasdaq. The key for the rest of the week is going to be expectation. If the expectations for the April earnings have been damaged then we have a rough road ahead. I think the Alcoa earnings would be ignored and even cheered tomorrow but the STX stink bomb could linger. While the Russell and Wilshire had been rising to their highs the Nasdaq and Dow were still well below equivalent resistance. There needs to be some strong earnings performance over the next couple days to provide assurance that these were random events or the house of cards may crumble. This is normally a bullish week with Thursday a strong day. That sets up a potential for a dip buy at tomorrow's open and a rally into Thursday afternoon. Then what? A late news flash just said 12 marines were killed in Iraq in the strongest fighting since the end of the war. There is talk about sending more soldiers to Iraq instead of reducing the force. This will not help sentiment going into the Easter holiday. Also, what happened to the terrorist threat? Would a three day Easter holiday provide an opportunity to strike at the predominately Christian population in the US on a high profile religious holiday? I am not speculating that traders will dump stocks before the weekend with a strong earnings schedule next week but it is possible. We saw no fear last weekend on top of a week of gains but there was no excitement on Friday either. I am thinking we lost a lot of bullish sentiment over the last couple days and the April earnings run could be losing traction. That is not to suggest it won't return with a bang on Monday but the rest of this week could be a coin toss. I plan on buying the dip on Wednesday for a quick two day trade but then my risk profile is different than most. One thing I will not be doing is shorting TASR. The stock was hit with a drop at 12:30 on news that some bad guys hit with a Taser eventually died in custody. The company quickly responded that NONE of the deaths had been attributed to the Taser and there was no correlation. Then, in what appeared to be a pure stock price manipulation scheme they announced a 2:1 split 30 min later. The stock jumped +$15 on the news and shorts got killed once again. 40% of the stock was short for the latest available period. It currently has a PE of 247 and insiders are dumping stock. The CFO just sold 100% of his according to one report today. While this is a highly visible short target the company has shown no reluctance to manage the price. I will pass. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Nokia's warning gives reason for pause A pre-market quarterly earnings warning from the world's largest cell phone maker Nokia (NYSE:NOK) $17.21 -18.62% gave investors a reason for pause, where the major indices saw a mixed to lower trade, with technology sectors showing their first sign of rest in over a week. Market Snapshot / Internals - 04/05/04 Close The Dow Industrials (INDU) 10,570.81 +0.12% scratched out a gain by the close, while the small-cap Russell-2000 Index ($RUT.X) 599.33 -1.16%, which looked set to trade all-time highs never did muster a gain, or show signs of follow through bullishness. Treasuries did find some buying after sharp selling, which began on Friday, with the 10-year YIELD ($TNX.X) falling 4.9 basis points to 4.171%, while the longest-dated 30-year YIELD ($TYX.X) edged back a more modest 2.7 basis points to 5.016%. Despite the recent run higher for the Semiconductor Index (SOX.X) 508.07 -2.05%, an intra-day low of 502.36 found buyers holding firm above its WEEKLY Pivot of 501.86. Pivot Analysis Matrix As the S&P Banks Index (BIX.X) 345.64 +0.31% tried to see trade higher at its WEEKLY Pivot, the SOX.X came close to testing its WEEKLY Pivot, with handset chipmakers seeing some defensive selling on Nokia's warning. I couldn't come up with any correlative support levels in tomorrow's pivot matrix, but marked those levels of resistance where some correlations can be found. iShares Cohen & Steers Realty Majors (AMEX:ICF) - Daily Intervals There was definitely some continued fallout, or negativity shown to interest-rate sensitive stocks in today's trade, where the iShares Cohen & Steers Realty Major (AMEX:ICF) $108.50 -4.44% lead today's list of iShare percentage decliners. I'm also seeing where the NYSE-listed shares of Cohen & Steers REIT (NYSE:RTU) $18.54 -3.98% traded a 52-week low, as did Apartment Investment & Management Company (NSYE:AIV) $29.32 -2.91%, Government Property (NYSE:GPP) $12.25 -3.92%, Capital Lease Funding (NYSE:LSE) $12.35 -2.75%, Affordable Residential Community (NYSE:ARC) $17.96 -1.75%. One investor noted that many high yield closed end fund, similar to Pacholder High Yield Fund (NYSE:PHF) $9.15 -3.37% have been hit hard the past two sessions. In this weekend's "Ask the Analyst" column, I discussed the Pacholder High Yield Fund (PHF) per a couple of e-mails received during the week. I'm noting tonight that today's trade did see a break below the $9.41 level, where today's lows of $8.90 did find some buyers at the rising 200-day SMA ($8.96), but an investor that is starting to count any investment's decline in "months of dividends gone" is probably too OVERLEVERAGED in this asset class, and needs to get things under control. ANY investor that owns a closed-end fund, regardless of asset class may want to review their asset by visiting http://www.closed-endfunds.com where you can get a quick snapshot glance at some of the funds top holdings. While the Pacholder High Yield (PHF) is actively managed with a portfolio turnover of 51% (meaning what's was there last year at this time, half of it has probably been sold). Pacholder High Yield (PHF) as discussed previously has traded at a premium to its current NAV (Net Asset Value) of $8.72 ($8.75 last week). Top SECTOR weightings can be found for your holdings. PHF's top sector weighting is in media/telecom (27.23%). I looked at one of their top holdings where these company's trade publicly with the underlying shares of Rural Cellular (NASDAQ:RCCC) $10.12 +3.79% gaining in today's trade, but Charter Communications (NASDAQ:CHTR) $4.36 -2.24% fell back to test its 200-day SMA. I also checked an OPEN-END high yield fund with the AIM High Yield Fund (AMHYX) $4.42 (unch) and American Funds High-Income Trust A (AHITX) $12.30 +0.16%, where there NAV's (Net Asset Values) are tabulated each day. Still, a weekly bar chart of the American Funds High-Income Trust A (AHITX) shows the OPEN-END fund traded a high of $12.61 in mid- January, where at today's close, would represent a 2.45% decline. Here I might note a difference as it relates to the CLOSED-END fund of PHF versus the OPEN-END fund AHITX, is that we may well be seeing the PREMIUM of the PHF, which the MARKET built into PHF, unwinding back to its published NAV (Net Asset Value). Index traders and investors are urged to review a June 15, 2003 Ask the Analyst column "Sector/Index Trading with HOLDRs and iShares," which lists some resources of information on these products. http://www.OptionInvestor.com/ask/ask_061503_1.asp Dow Industrials (INDU) Chart - Daily Intervals The Dow Industrials (INDU) 10,570.81 +0.11% came just shy of testing its WEEKLY R1, but traded strong relative to the other major indices. Alcoa (NYSE:AA) $36.50 +1.69% traded strong, but fell to $35.05 in extended hours after reporting quarterly EPS of $0.41, which matched consensus estimates, on revenues that rose 11% year-over-year to $5.7 billion. S&P 500 Index Chart - Daily Intervals The morning lows found support at the MONTHLY 38.2% retracement, where despite an earning's pre-announcement from Nokia (NYSE:NOK) $17.21 -18.62%, which triggered profit taking among Semiconductors (SOX.X) 508.07%, especially handset chip makers, the SPX showed resilience. Many analysts look for first quarter earnings to be impressive, as there are some "easy" comparables to last year, when the U.S. was just going to war with Iraq, and corporate spending was very weak. Everything looked fine for Nokia (NOK) as it had bounced from the $19.50 to test its starting to round lower 50-day SMA of $21.25 in yesterday's trade. Until they told analysts that earnings and revenues were going to be shy of expectations. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals Yahoo! Inc (NASDAQ:YHOO) $48.77 -2.44% traded off its 52-week high set on Monday after being downgraded based on "valuation" and was first day YHOO traded below its prior session's low in 8 sessions. Almost identical pattern to the QQQ. Yahoo! reports earnings after tomorrow's close, with consensus estimates at $0.11 per share, compared to year-ago quarter's EPS of $0.08. At a 52-week high, there's usually little room for disappointment and if tech decides to take a rest, a break below today's lows could see the QQQ pull back to our WEEKLY 61.8% retracement, which would tie in with the backfilling of the nonfarm payroll gap higher. I'm just noticing that Monday's gains came on some very light volume, which might suggest there's not as much interest in the QQQ up at these levels. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** **************** MARKET SENTIMENT **************** Stocks Catch Their Breath - J. Brown Stocks finally paused after an eight-day sprint higher from their late March lows. Overall the profit taking, which was focused on tech stocks, wasn't that bad and certainly overdue. Wall Street's focus is turning to earnings season and so far the first stocks out of the gate are stumbling. Aloca (AA) missed by 2 cents while Nokia (NOK) pre-announced an earnings warning that profits would fall toward the low end of their guidance. This is not encouraging news but investors seem hopeful that these "misses" are stock-specific. Currently First Call predicts that earnings this season will be up 17% to 20% over last year. The focus tomorrow will be on YHOO's and RIMM's earnings reports after the closing bell and GE's report on Thursday. My concern is that the market has bounced so strongly from its March lows that investors will use any news (good or bad) as an excuse to take profits. Thankfully April is historically a bullish month and a number of market forecasters believe positive earnings news will actually fuel the next leg higher in stocks. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8145 Current : 10570 Moving Averages: (Simple) 10-dma: 10352 50-dma: 10458 200-dma: 9862 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 862 Current : 1148 Moving Averages: (Simple) 10-dma: 1125 50-dma: 1133 200-dma: 1061 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1018 Current : 1493 Moving Averages: (Simple) 10-dma: 1449 50-dma: 1460 200-dma: 1390 ----------------------------------------------------------------- Volatility indices gapped higher at the open but faded lower through most of the session. They remain near their lows and suggest investors remain confidently bullish. CBOE Market Volatility Index (VIX) = 15.32 +0.35 CBOE Mkt Volatility old VIX (VXO) = 14.49 +0.61 Nasdaq Volatility Index (VXN) = 22.23 +1.12 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.82 846,971 692,316 Equity Only 0.69 728,128 505,325 OEX 1.61 18,173 29,200 QQQ 1.26 193,327 243,849 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 74.1 + 1 Bull Correction NASDAQ-100 53.0 + 3 Bear Correction Dow Indust. 83.3 + 0 Bear Confirmed S&P 500 76.8 + 0 Bear Confirmed S&P 100 79.0 + 0 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.78 10-dma: 0.76 21-dma: 1.31 55-dma: 1.14 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 1116 1015 Decliners 1721 2078 New Highs 129 127 New Lows 35 12 Up Volume 629M 540M Down Vol. 1070M 1170M Total Vol. 1716M 1768M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 03/30/04 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 Not much change in the commercial traders' positions this past week. Small traders turned a little less bearish. Commercials Long Short Net % Of OI 03/09/04 418,394 433,237 (14,843) (1.7%) 03/16/04 454,635 449,505 5,130 0.6% 03/23/04 401,456 418,732 (17,273) (2.1%) 03/30/04 407,987 420,624 (12,673) (1.5%) 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 03/09/04 155,947 88,317 67,630 27.7% 03/16/04 159,054 115,023 44,031 25.3% 03/23/04 130,648 89,943 40,705 18.5% 03/30/04 130,112 81,937 48,175 22.7% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Almost the same holds true here. Commercial traders edged up their short positions but not by much. Small traders turned a little less bullish. Commercials Long Short Net % Of OI 03/09/04 431,623 485,268 (53,645) ( 5.9%) 03/16/04 472,809 574,241 (101,432) ( 9.7%) 03/23/04 268,647 294,930 (26,283) ( 4.7%) 03/30/04 265,492 305,797 (40,305) ( 7.1%) 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 03/09/04 135,233 76,558 58,675 27.7% 03/16/04 192,136 96,691 95,445 33.0% 03/23/04 131,879 59,210 72,669 38.0% 03/30/04 123,494 59,550 63,944 35.0% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Whoa! Commercials turned bearish on the NASDAQ just before it broke out over resistance. Unless that's a typo by the COT it will be interesting to see how that number changes next week. Small traders turned more bearish. It's been a painful week for everyone here. Commercials Long Short Net % of OI 03/09/04 57,368 46,082 11,286 10.9% 03/16/04 68,285 54,899 13,386 10.9% 03/23/04 52,014 34,017 17,997 20.9% 03/30/04 52,749 67,967 (15,218) (12.6%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 13,386 - 03/16/04 Small Traders Long Short Net % of OI 03/09/04 15,533 8,070 7,463 31.6% 03/16/04 27,859 18,333 9,526 20.6% 03/23/04 9,884 12,887 (3,003) (13.2%) 03/30/04 8,928 16,551 (7,623) (30.0%) 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 Very little change in commercial traders' positions while small traders pared back their longs. Remember, these numbers are prior to the jobs report on Friday. Commercials Long Short Net % of OI 03/09/04 26,867 12,845 14,022 35.3% 03/16/04 32,317 17,514 14,803 29.7% 03/23/04 23,048 22,119 929 2.1% 03/30/04 23,642 22,180 1,462 3.2% 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 03/09/04 7,053 19,159 (12,106) (46.2%) 03/16/04 10,002 20,970 (10,968) (35.4%) 03/23/04 8,344 6,734 1,610 10.7% 03/30/04 7,020 6,711 309 2.3% Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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The Option Investor Newsletter Tuesday 04-06-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: BBY, CAT, EBAY, ESRX, MGG, NEM, NSM, PDCO, TK New Calls Plays: None Put Play Updates: AHC, UTSI New Put Plays: CFC, LEH **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Best Buy Company - BBY - close: 53.47 change: -0.63 stop: 50.75 The rise in the broad market hasn't been enough to break BBY out of its recent trading range and our $55 trigger remains untouched. The Retail index (RLX.X) broke out to new highs yesterday and that is one factor in favor of the bulls here, but we need to see that breakout before committing to the play. Wait for the breakout and then enter according to your risk tolerance. Aggressive traders can enter on the initial breakout, while those with a more conservative stance can look for either a subsequent pullback to confirm $54 as new support or a continued breakout over $55.50, which would move the stock into the December gap, paving the way for a rally up to $58 and then the $60-62 area to test the recent highs. Our coverage stop remains at $50.75, just under the 50-dma ($51.05) and the 200-dma ($51.12). Picked on April 4th at $53.92 Change since picked: -0.45 Earnings Date 6/16/04 (unconfirmed) Average Daily Volume = 3.83 mln Chart = --- Caterpillar - CAT - close: 82.91 change: +0.50 stop: 78.95 CAT has been one of the better performers in the Dow these last couple of days as its rally above the $80 mark continues. We're only a couple of points away from our planned exit point near resistance at $85.00 so traders should be preparing for it. If by chance CAT does pull back again we'd look for new entry points near the $81.00 level. However, keep in mind that we only have about two weeks before CAT announces earnings and we don't plan to hold over the event. Picked on April 02 at $ 80.25 Change since picked: + 2.66 Earnings Date 04/22/04 (unconfirmed) Average Daily Volume: 2.5 million Chart = --- eBay Inc - EBAY - close: 74.10 change: -0.03 stop: 68.95 Internet stocks, like most of the tech sector, hit some profit taking on Tuesday but shares of EBAY stood their ground. EBAY has churned mostly sideways after gapping higher on Monday morning. Odds are investors are being cautious ahead of YHOO's earnings report tomorrow after the close. We suspect that YHOO will see some "sell-the-news" profit taking on Thursday even if earnings are good. That could inspire some weakness in EBAY. Even though we only have about two weeks before EBAY's earnings a dip heading into the weekend is probably an entry point. In the news Deutsche Bank issued some positive comments on Monday stating their expectation for EBAY's global listings will soar 46% in the second quarter over last year. Picked on April 01 at $ 72.25 Change since picked: + 1.85 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 7.0 million Chart = --- Express Scripts - ESRX - cls: 77.45 chng: -0.50 stop: 74.00*new* Wasting no time, ESRX broke out strongly on Monday, vaulting through the $76 level on solid volume. Today's action was a bit more muted, with the stock consolidating near the top of Monday's range on very light volume. That certainly looks like a good sign for the bulls and traders that missed the initial breakout entry can now look for a move over $78.75 (comfortably above today's high) to join the party. In the event of a significant pullback, the $75 level should now offer strong support for traders willing to buy a dip into the $75-76 area. Note that we've raised our stop to $74 today, which is just below the 30-dma ($74.17). Picked on April 4th at $75.36 Change since picked: +2.09 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 1.05 mln Chart = --- MGM Mirage - MGG - close: 47.85 change: -0.72 stop: 46.75 MGG started the week off with a bang and shot to $48.57 on Monday after rival Mandalay Resort Group (MBG) pre-announced a higher earnings outlook. Stronger slot machine revenues and a higher revenue-per-available-room were cited as the positive influences. Odds are good that if MBG is doing well so is MGG. Today's 72- cent drop in MGG is merely profit taking. A dip to $47 would fill the gap from Monday and offer more aggressive traders another entry point. Since we're only targeting $50 and MGG has earnings in two weeks more conservative traders may want to avoid new plays. Yesterday we raised our stop loss to $46.75. Picked on March 25 at $ 45.69 Change since picked: + 2.16 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 597 thousand Chart = --- Newmont Mining - NEM - close: 45.30 change: +0.45 stop: 43.50 As would be expected, gold and gold shares got knocked back in response to the rebound in the dollar caused by the blowout Jobs numbers on Friday and that trade continued on Monday. But as has been the case lately, the dollar stalled today and gold shares stabilized somewhat. We've been looking for NEM to provide a solid entry on a dip into the $44.50-45.00 area before continuing its upward trek and that's precisely what we were handed this week. Yesterday saw NEM dip to exactly $44.50 before a feeble rebound into the close and then the stock headed higher this morning. It wasn't a very strong rebound and faltered a bit at the close, but this looks like a good area to establish bullish positions ahead of the uptrend reasserting itself. Traders looking for more reassurance before playing may want to wait for a renewed push over $46 before opening new positions. Confirmation of a resumption of the uptrend will come with a breakout over $47.50 (clearing last week's highs) and setting the stage for the move back towards the $50 resistance level we're targeting. Maintain stops at $43.50, just under the 50-dma. Picked on March 28th at $46.15 Change since picked: -0.85 Earnings Date 2/04/04 (confirmed) Average Daily Volume = 6.46 mln Chart = --- National Semi. - NSM - cls: 47.10 chng: -0.39 stop: 45.00 After a very strong rebound from the March lows, Semiconductor stocks decided to take a breather on Tuesday, with the SOX losing more than 2% and coming to rest just above the $500-505 zone, which should now act as support. NSM plunged sharply at the open, falling just far enough to fill the gap from last Friday before bouncing strongly in the afternoon session, actually closing with a fractional gain. There were definitely some nervous moments when it looked like our $45 stop might be tested this morning, but by the closing bell, it was clear that the new stop location made a lot of sense. Aggressive traders could even have initiated new positions on the morning dip once it looked like the rebound was for real. Now that we got the profit taking out of the way, the next likely entry point will come on a breakout over yesterday's high ($47.54). By tomorrow, the 10-dma ($44.63) will be above $45 and that should help to protect our stop. Remember, our target for the play is $50 and we would suggest aggressively harvesting gains if that level is traded. Picked on March 30th at $44.43 Change since picked: +2.67 Earnings Date 6/10/04 (unconfirmed) Average Daily Volume = 4.19 mln Chart = --- Patterson Dental Co - PDCO - cls: 75.07 chg: -0.79 stop: 69.99 Wow! The rally, powered by rising volume, that began last week exploded on Monday with a big gain and a new high near $76.00. PDCO closed above the $75 mark and within a couple of points of our exit range ($77.50-80.00). Adding fuel to the move was news that PDCO was buying ProVet, a veterinary supply company, from LexTron Inc. ProVet would join PDCO's existing vet supply company Webster Veterinary Supply. A Reuters report said ProVet should add $50-$60 million in annual sales. We were very encouraged by the move and today's intraday bounce off the $74 level but it makes is challenging to add new bullish positions. If PDCO does pull back we'd probably look for a bounce from the $72.50 region. Picked on April 04 at $ 72.14 Change since picked: + 2.93 Earnings Date 02/19/04 (confirmed) Average Daily Volume: 493 thousand Chart = --- Teekay Shipping - TK - close: 67.40 change: -1.33 stop: 65.95 The consolidation between $65 and $70 continues and we remain un- triggered in this play. Remember that we're not suggesting new long positions until TK can trade at or above $70.05. However, more aggressive traders might want to consider buying a bounce from its 50-dma near the $65 mark. In the news TK announced a cash dividend this evening. The Board of Directors approved a dividend of 25 cents per share payable on April 30th, 2004 to shareholders on record as of April 16th. Picked on April xx at $ xx.xx <-- see trigger Change since picked: + 0.00 Earnings Date 02/25/04 (confirmed) Average Daily Volume: 374 thousand Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Amerada Hess Corp. - AHC - cls: 62.57 chng: -0.26 stop: 65.50*new* Each of the past three days has seen AHC testing and holding support at the 50-dma (now $62.27), but the rebounds certainly have not looked convincing. The price action continues to look weak and gives the impression that the stock is setting up for another leg down as soon as the near-term oversold condition is worked off. Our entry trigger at $61.75 is clearly doing its job by keeping us out of the play until the bears prove they're serious about driving the stock lower. Entries still look favorable on the initial break below that trigger, although more conservative traders may want to wait for a break under the next possible level of support at $61 before playing. A subsequent rebound and rollover below the $62-63 area after the initial break is also a possible entry scenario, but given the way the stock has been trolling along support the past few days, the initial break may continue too far to allow such an entry. Note that we've slightly lowered our stop to $65.50 tonight, which is just over the highs from last week. Picked on April 1st at $63.15 Change since picked: -0.58 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 919 K Chart = --- UTStarcom, Inc. - UTSI - close: 30.25 change: +0.28 stop: 32.25 After last week's fractional dip below our $29 trigger, shares of UTSI have been grudgingly working their way higher in what has all the earmarks of an oversold bounce. Volume is continuing to decline, as price gradually rises to meet strong resistance, first at the descending trendline ($31.10) and then at the 30-dma ($31.35). The ideal setup for new entries will come on a rollover below this band of resistance, as USTI resumes its downward trend. Traders looking for more bearish conviction before playing will wan to see a break below last week's low ($28.73) before opening new positions. For now, we'll maintain our stop at $32.25, just over the most recent reaction high and the 50-dma ($32.47) is steadily dropping to help reinforce that resistance at $32. Once UTSI decisively breaks the lows near $28.75-29.00, we'll look for a drop through $28 and then $26 levels of support on the way to our $24-25 target. Picked on March 30th at $29.38 Change since picked: +0.87 Earnings Date 4/27/04 (unconfirmed) Average Daily Volume = 3.69 mln Chart = ************* NEW PUT PLAYS ************* Countrywide Financial - CFC - close: 88.50 chg: +0.58 stop: 91.51 Company Description: Founded in 1969, Countrywide Financial Corporation is a member of the S&P 500, Forbes 500 and Fortune 500. Through its family of companies, Countrywide provides mortgage banking and diversified financial services in domestic and international markets. Mortgage banking businesses include loan production and servicing principally through Countrywide Home Loans, Inc., which originates, purchases, securitizes, sells, and services primarily prime- quality loans. Also included in Countrywide's mortgage banking segment is the LandSafe group of companies that provide loan closing services. Diversified financial services encompass capital markets, banking, insurance, and global, largely through the activities of Countrywide Capital Markets, a mortgage- related investment banker; Countrywide Bank, a division of Treasury Bank, NA, a banking entity offering customers CDs, money market accounts, and home loan products; Balboa Life and Casualty Group, whose companies are national providers of property, liability, and life insurance; Balboa Reinsurance, a captive mortgage reinsurance company; and Global Home Loans, a European mortgage banking joint venture in which Countrywide holds a majority interest. (source: company press release) Why We Like It: We're suggesting a new bearish play in CFC mainly due to the technical breakdown in the share price but the fundamental picture may have changed as well. Interest rate sensitive stocks like mortgage lenders and homebuilders have been getting dumped the last three sessions because last Friday's job's report immediately sparked the threat of higher interest rates sooner than expected. Higher rates mean higher mortgage rates and that should mean slower business for lenders like CFC. The stock has already dropped $8.00 from its recent highs and yesterday we felt it looked too short-term oversold even though it broke down through support at $90.00 and its simple 50-dma. However, today's action looks like a failed rally at $90.00 (now new resistance) so we're willing to speculate on a move lower. CFC has some support in the $81.50-82.50 region and that's where we plan to target an exit point. Currently its P&F chart is in a bearish sell signal and points to a $77 price target. Coincidentally CFC appears to have produced a (bearish) double- top at $97. Earnings are April 21st and we don't plan to hold over the event. Traders should also note that CFC does have a 3-for-2 split on April 13th but given the current environment we don't think it will be a factor. Suggested Options: April options expire soon so we suggest using the May puts even though we plan to close the play before April 21st. Our favorites are the May 90s. BUY PUT MAY 90 CFC-QR OI= 653 at $5.60 SL=3.25 BUY PUT MAY 85 CFC-QQ OI= 793 at $3.30 SL=1.65 Annotated Chart: Picked on April 06 at $ 88.50 Change since picked: - 0.00 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 2.5 million Chart = --- Lehman Brothers - LEH - close: 81.77 change: -0.11 stop: 84.75 Company Description: Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Why we like it: Following the selloff into the March lows, the Brokerage sector (XBD.X) staged a strong rebound from the $660 level and managed to push through the $700 resistance level before beginning this week's consolidation. In sharp contrast to that bullish move, shares of LEH stalled just below the 50-dma ($84.60) in its rebound attempt and then sold off sharply on Friday in response to the better than expected jobs data. That weakness persisted yesterday, with the stock falling almost to the $81 level before the bulls attempted a feeble rebound. This is the third time since early February that LEH has tested support in the $80-81 area, but this time things look more favorable for the bears. The key to that bearish view is the picture provided by the PnF chart, which is currently on a Sell signal, with a bearish price target of $72, just under the bullish support line. In addition to the horizontal support at $80, LEH has potential support in the form of the 100-dma ($80.31), making that level an ideal point to place our trigger. We're going to require a break below $80 to trigger the play and momentum trades below that level look favorable for a downside move at least to the 200-dma (currently $74.04). More conservative traders might want to look for a subsequent failed bounce below the $82 level, as the 10-dma ($82.75) falls to reinforce that horizontal resistance. A downward move to the $72-74 area seems likely once support is broken, with the bearish PnF price target of $72, the bullish support line at $73 and the 200-dma at $74. We'll err on the side of caution and target a drop to the $74 level, which is the first point where historical support should come into play. Initial stops should be placed at $84.75, just over the top of the last failed rally, as well as the 50-dma. Suggested Options: Aggressive short-term traders will can use the April 85 Put, but with April options so close to expiration, the May strikes make more sense. The more conservative approach will be to use the May 80 put. Aggressive traders looking for more insulation against time decay will want to utilize the May 75 strike. Our preferred option is the May 80 strike, as it will be at the money when the play is triggered and should provide ample time for the play to move in our favor. ! Alert - March options expire in less than 2 weeks! BUY PUT APR-80 LES-PP OI=5484 at $0.75 SL=0.35 BUY PUT MAY-80*LES-QP OI=1791 at $2.35 SL=1.25 BUY PUT MAY-75 LES-QO OI= 825 at $1.00 SL=0.50 Annotated Chart of LEH: Picked on April 6th at $81.77 Change since picked: +0.00 Earnings Date 3/16/04 (confirmed) Average Daily Volume = 2.23 mln Chart = ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 04-06-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Defense, Financial, Medical & Software Spreads & Straddles: Time For A Breather... Premium-Selling Plays: Naked Puts & Calls: Traders Corner: How I find Support and Resistance. Traders Corner: Assessing the key technical patterns and price "gaps" ********** WATCH LIST ********** Defense, Financial, Medical & Software ___________________________________________________________________ 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. ___________________________________________________________________ Northrop Grumman - NOC - close: 101.30 change: +0.29 WHAT TO WATCH: We've watch listed NOC before but this time the stock has broken out above resistance at the $100 mark and its 50-dma. Its MACD is bullish and its short-term oscillators also point higher. This looks like an entry point for a run toward resistance at $105 but dips back to $100 probably work too. Earnings should be April 27th. Chart= --- Capital One Financial - COF - close: 76.82 change: +0.62 WHAT TO WATCH: Yes, we're still following COF. The stock has been consolidating in a tight $2 range after breakout out to new highs a few days ago. Technicals are a little mixed but its MACD is in a buy signal and so is its P&F chart. The company is due to report earnings on April 21st. We would consider bullish positions at current levels or bounces above the $74 mark, target $80. Chart= --- Guidant Corp - GDT - close: 68.14 change: +2.29 WHAT TO WATCH: GDT issued some positive earnings comments this morning and sent the stock up another 3.47%. This was a strong follow through to Monday's breakout over resistance at $65.00 and its simple 40 & 50-dma's. Strong volume certainly lends the move some credibility and its MACD just produced a new buy signal. Traders can watch GDT for a dip back toward $66 as an entry point for a run toward its March highs. Earnings should be on April 22nd. Chart= --- Adobe Systems - ADBE - close: 41.46 change: +0.11 WHAT TO WATCH: When we consider bullish candidates ADBE continues to come up for discussion but never seems to make to the play list. The stock tends to move a little slow for options so plan your strategy accordingly. Right now we like the bullish breakout over the $40.00 level but there is some congestion and possible resistance near $42.50. Its P&F chart looks more bullish with a breakout over resistance and a $54 price target. Earnings are not until June. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- STJ $74.65 +1.07 - Medical device makers have been a strong group and STJ might be setting up for a run toward $80.00, especially with its MACD producing a fresh buy signal today. However, be careful. A roll over from here and STJ will be painting what could be the right shoulder on an H&S pattern. Earnings are in two weeks. CBE $58.24 +0.14 - CBE has produced a big bounce from its March lows and is quickly approaching resistance in the $59 region. A breakout would set new two-year highs. GD $93.17 +1.51 - Like its sector-mate NOC, GD is in rally mode and has broken out above resistance at its 50-dma. This looks like an entry point for a run toward its highs near $96.50 and dips to $90.00 are probably entry points but earnings are in two weeks. ************************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 ************************************************************** ******************* SPREADS & STRADDLES ******************* Time For A Breather... By Ray Cummins Stocks ended mixed Tuesday amid mild profit-taking after wireless telecom giant Nokia (NYSE:NOK) warned of declining sales. The Dow Jones Industrial Average was up 12 points at 10,570 with Alcoa (NYSE:AA), AT&T (NYSE:T) and Eastman Kodak (NYSE:EK) among the best performers. The NASDAQ dropped 19 points to 2,060 on weakness in telecom-equipment and semiconductor shares. The S&P 500 index fell 2 points to 1,143 with REITS enduring another day of selling pressure. Volume reached 1.4 billion on the New York Stock Exchange and 1.79 billion on the NASDAQ. Breadth was poor on both exchanges with decliners ousting advancers nearly 2 to 1. Treasury prices were almost unchanged in quiet trading, with the yield on the 10-year treasury closing at 4.17%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 04/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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. PUT-CREDIT SPREADS Symbol Pick Last Month L/P S/P Credit C/B G/L Status APOL 77.82 90.97 APR 65 70 0.60 69.40 0.60 Open BZH 111.90 102.30 APR 95 100 0.70 99.30 0.70 Open? KBH 78.71 76.60 APR 65 70 0.55 69.45 0.55 Open COF 73.50 74.99 APR 60 65 0.50 64.50 0.50 Open HUG 52.95 53.65 APR 45 50 0.50 49.50 0.50 Open SYMC 44.64 46.96 APR 37 40 0.35 39.65 0.35 Open DNA 106.82 110.70 APR 90 95 0.60 94.40 0.60 Open FDX 71.59 76.07 APR 65 70 0.85 69.15 0.85 Open LLL 56.67 60.06 APR 50 55 0.50 54.50 0.50 Open TASR 61.80 85.00 APR 45 50 0.60 49.40 0.60 Open DE 68.23 70.18 APR 60 65 0.40 64.60 0.40 Open FFIV 31.87 34.74 APR 25 30 0.55 29.45 0.55 Open MRVL 42.67 46.98 APR 37 40 0.20 39.80 0.20 Open CFC 95.90 91.25 APR 85 90 0.55 89.45 0.55 Open? KBH 80.80 76.60 APR 70 75 0.40 74.60 0.40 Open? NCEN 48.56 47.50 APR 40 45 0.45 44.55 0.45 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Hughes Supply (NYSE:HUG), although positive, has previously been closed to limit potential losses. Positions in Beazer (NYSE:BZH), Countrywide Financial (NYSE:CFC), and the new KB Home (NYSE:KBH) spread are candidates for "early exit" on any further downside movement. New Century Financial (NASDAQ:NCEN) is on the "watch" list. CALL-CREDIT SPREADS Symbol Pick Last Month L/C S/C Credit C/B G/L Status DISH 35.50 32.99 APR 42 40 0.30 40.30 0.30 Open NVLS 31.15 33.67 APR 37 35 0.35 35.35 0.35 Open VSEA 40.85 44.83 APR 50 45 0.60 45.60 0.60 Open? SFA 31.96 34.16 APR 40 35 0.55 35.55 0.55 Open? BBBY 39.04 39.61 APR 45 42 0.25 42.75 0.25 Open MSTR 52.64 54.44 APR 65 60 0.60 60.60 0.60 Open NTLI 53.12 59.14 APR 65 60 0.60 60.60 0.60 Open? SINA 35.96 38.79 APR 45 40 0.70 40.70 0.70 Open AFCO 27.85 29.67 APR 35 30 0.55 30.55 0.55 Open CAM 43.90 43.91 APR 50 45 0.50 45.50 0.50 Open CCMP 42.13 42.41 APR 50 45 0.45 45.45 0.45 Open XLNX 37.76 39.97 APR 42 40 0.25 40.25 0.25 Open? L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Bearish spreads on Adobe (NASDAQ:ADBE) and Cognos (NASDAQ:COGN), which is positive, have previously been closed to limit potential losses. NTL Inc. (NASDAQ:NTLI) remains an "early exit" candidate and is joined by Varian Semiconductor (NASDAQ:VSEA), Scientific Atlanta (NYSE:SFA) and Xilinx (NASDAQ:XLNX). Spreads on Applied Films (NASDAQ:AFCO) and Sina Corp (NASDAQ:SINA) are now on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status GLBC 13.86 20.44 APR 15 12 1.80 5.50 Open? SNP 40.74 38.80 APR 40 40 5.70 5.70 Open? CCMP 44.55 42.41 APR 45 45 5.90 5.75 Open? AMX 35.66 39.50 MAY 35 35 3.65 5.00 Open AIG 74.28 74.30 MAY 75 75 5.60 7.80 Open SLB 65.13 61.79 MAY 65 65 6.75 6.50 Open BSTE 30.63 33.85 JUL 30 30 6.00 6.50 Open MKSI 23.10 25.94 JUL 22 22 4.70 5.25 Open New straddle plays in MKS Instruments (NASDAQ:MKSI) and Biosite (NASDAQ:BSTE) are off to a good start. The speculative position in Global Crossing (NASDAQ:GLBC) has provided a large short-term gain for traders who paid a small premium to enter the straddle. Prices for the new positions in American International (NYSE:AIG) and Schlumberger (NYSE:SLB), as well as any potential gains (max. value) for straddles in play during my recent absence from the market, will not be accurate. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ HSIC - Henry Schein $75.81 *** New Multi-Year High! *** Henry Schein (NASDAQ:HSIC) is a major distributor of healthcare products and services to office-based healthcare practitioners in the combined North American and European markets. HSIC has operations in the United States, Canada, the United Kingdom, The Netherlands, Belgium, Germany, France, Austria, Australia, Spain, and New Zealand, and conducts its business through two segments, healthcare distribution and technology. Healthcare distribution consists of the dental, medical, veterinary and international groups. The international group is comprised of the company's healthcare distribution business units located primarily in Europe, and offers products and services to dental, medical and veterinary customers located in their respective geographic regions. The technology segment consists primarily of the company's practice management software business and also certain other value-added products and services. HSIC - Henry Schein $75.81 PLAY (very conservative - bullish/credit spread): BUY PUT MAY-65.00 HQE-QM OI=0 ASK=$0.35 SELL PUT MAY-70.00 HQE-QN OI=18 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$69.55 __________________________________________________________________ NAV - Navistar $49.90 *** Strong Sector! *** Navistar International (NYSE:NAV) is a holding company for its principal operating subsidiary, International Truck and Engine Corporation. Navistar operates in three industry segments: truck, engine and financial services. The truck segment is engaged in the manufacture and marketing of Class Five through Eight trucks, including school buses, and operates primarily in the United States, Canada, Mexico and other selected export markets. The engine segment is engaged in the manufacture of mid-range diesel engines and primarily operates in the United States and Brazil. The financial services segment provides wholesale, retail and lease financing for sales of trucks sold by the company and its dealers in the United States and Mexico. NAV - Navistar $49.90 PLAY (conservative - bullish/credit spread): BUY PUT MAY-40.00 NAV-QH OI=73 ASK=$0.30 SELL PUT MAY-45.00 NAV-QI OI=191 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$44.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SOHU - Sohu.com $25.46 *** China Internet Slump! *** Sohu.com (NASDAQ:SOHU) is an Internet portal in China. The firm's portal consists of sophisticated Chinese language Web navigational and search capabilities, 15 main content channels, Internet-based communications and community services, and a unique platform for e-commerce and short messaging services. Each of the company's interest-specific main channels contains multi-level sub-channels that cover a wide range of topics; news, business, entertainment, sports and careers. The firm also offers free Web-based e-mail. Sohu.com offers a universal registration system, and the company's portal attracts consumers and merchants alike. One of its primary features is a proprietary Web navigational and search capabilities that reflects the cultural characteristics and thinking and viewing habits of the People's Republic of China Internet users. SOHU - Sohu.com $25.46 PLAY (less conservative - bearish/credit spread): BUY CALL MAY-35.00 UZK-EG OI=102 ASK=$0.30 SELL CALL MAY-30.00 UZK-EF OI=1708 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$30.65 __________________________________________________________________ SFNT - SafeNet $31.65 *** A Big "Down" Day! *** SafeNet (NASDAQ:SFNT) designs, manufactures and markets network security technology and systems. The firm operates through two security business units, the Embedded Security division and the Enterprise Security division. The Embedded Security division is comprised of hardware, chips, software and intellectual property designed and manufactured in the United States and Europe for sale to companies that will embed SafeNet's products into their products for ultimate sale to end users. The Enterprise Security division includes hardware, software and network security systems designed and manufactured in the United States for direct sales to end users. SFNT - SafeNet $31.65 PLAY (less conservative - bearish/credit spread): BUY CALL MAY-40.00 UUI-EH OI=0 ASK=$0.30 SELL CALL MAY-35.00 UUI-EG OI=32 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.70-$0.75 POTENTIAL PROFIT(max)=16% B/E=$35.70 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 04/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NAKED PUTS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield APPX APR 33 32.48 44.43 0.90 5.98% 2.77% NEOL APR 15 14.65 20.00 0.35 5.57% 2.39% OSTK APR 25 24.30 32.34 0.70 7.25% 2.88% APPX APR 33 32.73 44.43 0.65 5.76% 1.99% ASKJ APR 25 24.15 37.94 0.85 9.04% 3.52% CLZR APR 11 11.07 14.12 0.17 4.72% 1.54% JNPR APR 22 21.85 27.10 0.65 7.82% 2.97% NEOL APR 15 14.65 20.00 0.35 6.74% 2.39% PDII APR 22 21.80 25.90 0.70 8.31% 3.21% SWIR APR 22 22.15 40.96 0.35 5.03% 1.58% APPX APR 33 33.03 44.43 0.35 4.71% 1.06% BRCM APR 35 34.55 41.40 0.45 4.64% 1.30% ELN APR 15 14.65 21.47 0.35 9.84% 2.39% OSTK APR 22 22.25 32.34 0.25 4.47% 1.12% PCLN APR 20 19.75 27.20 0.25 4.90% 1.27% SYMC APR 40 39.40 46.96 0.60 4.89% 1.52% XMSR APR 25 24.40 29.86 0.60 7.74% 2.46% YHOO APR 40 39.40 50.15 0.60 5.13% 1.52% APPX APR 35 34.45 44.43 0.55 6.27% 1.60% ASKJ APR 25 24.55 37.94 0.45 7.51% 1.83% CMC APR 30 29.60 31.60 0.40 4.72% 1.35% CSGS APR 15 14.65 17.35 0.35 7.65% 2.39% ECLG APR 17 17.20 21.53 0.30 6.26% 1.74% JILL APR 17 17.15 21.53 0.35 6.38% 2.04% MGAM APR 22 22.05 23.78 0.45 6.80% 2.04% PBY APR 25 24.50 28.41 0.50 5.97% 2.04% SUPG APR 7 7.15 8.62 0.35 16.86% 4.90% AGI APR 30 29.55 33.75 0.45 5.39% 1.52% ASKJ APR 25 24.60 37.94 0.40 6.62% 1.63% ENDP APR 20 19.75 26.65 0.25 4.98% 1.27% NFLD APR 12 12.15 15.81 0.35 12.17% 2.88% PBY APR 25 24.55 28.41 0.45 6.18% 1.83% PLMO APR 15 14.65 23.55 0.35 9.66% 2.39% RSAS APR 15 14.55 18.47 0.45 10.23% 3.09% SHFL APR 40 39.60 46.50 0.40 4.13% 1.01% SYMC APR 40 39.35 46.96 0.65 5.79% 1.65% ASCA APR 30 29.70 34.86 0.30 4.73% 1.01% ASKJ APR 30 29.40 37.94 0.60 9.72% 2.04% ERJ APR 30 29.40 32.45 0.60 8.22% 2.04% IMM APR 15 14.70 19.85 0.30 11.43% 2.04% INSP APR 30 29.70 39.26 0.30 5.70% 1.01% MICC APR 18 16.90 24.32 0.60 15.59% 3.55% MNST APR 22 22.20 28.26 0.30 5.95% 1.35% TKTX APR 15 14.50 17.14 0.50 17.25% 3.45% APPX APR 43 42.63 44.43 0.75 8.92% 1.76% ASKJ APR 30 29.70 37.94 0.30 6.44% 1.01% COCO APR 30 29.75 33.69 0.25 4.55% 0.84% FWHT MAY 17 17.15 21.60 0.35 4.27% 2.04% MICC MAY 17 17.15 24.32 0.35 4.39% 2.04% MNST MAY 22 21.95 28.26 0.55 4.48% 2.51% PLMO MAY 17 16.90 23.55 0.60 6.80% 3.55% TTN APR 17 17.25 20.06 0.25 8.43% 1.45% TTWO APR 35 34.55 36.99 0.45 6.40% 1.30% Some of the new positions may not have been available at the listed prices, due to the recent market rallies. Plays on Amylin (NASDAQ:AMLN) and Nektar (NASDAQ:NKTR), although positive, have been closed to limit potential losses. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield SEAC APR 20 20.40 15.84 0.40 7.86% 1.96% ERES APR 35 35.30 28.23 0.30 4.73% 0.85% FARO APR 30 30.40 23.70 0.40 7.33% 1.32% AFCI APR 25 25.50 22.87 0.50 8.84% 1.96% FLSH APR 22 22.75 21.07 0.25 5.62% 1.10% ADTN APR 35 36.30 31.36 0.80 9.56% 2.20% DISH APR 35 35.65 32.99 0.65 6.34% 1.82% MTLM APR 40 40.60 39.00 0.60 9.68% 1.48% BRL APR 50 50.40 47.50 0.40 4.08% 0.79% OVTI APR 30 30.50 28.81 0.50 10.89% 1.64% SNDK APR 32 32.75 30.00 0.25 6.38% 0.76% The "early-exit" candidates listed last Wednesday: NII Holdings (NASDAQ:NIHD) and Schnitzer Steel (NASDAQ:SCHN), were closed to limit losses. The bearish position in Career Education (NASDAQ:CECO) has previously been closed. M-Systems Flash Disk (NASDAQ:FLSH), Omnivision Technologies (NASDAQ:OVTI) and Sandisk (NASDAQ:SNDK) are on the "watch" list, and conservative traders should consider closing the bearish position in Metal Management (NASDAQ:MTLM). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ACCL - Pharmacopeia $22.07 *** Near Multi-Year Highs! *** Pharmacopeia (NASDAQ:ACCL) is engaged in enabling science and technology that accelerates and improves drug discovery and chemical development processes. The firm's software segment, Accelrys, develops and commercializes molecular modeling, simulation, informatics and decision support software for the life sciences and materials research markets. The company's Drug Discovery segment, Pharmacopeia Drug Discovery, integrates proprietary small molecule combinatorial and medicinal chemistry, high-throughput screening, in-vitro pharmacology, computational methods and informatics to discover and optimize lead compounds. ACCL - Pharmacopeia $22.07 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 17.5 ICQ QW 64 0.25 17.25 4.1% 1.4% TS SELL PUT MAY 20 ICQ QD 2 0.90 19.10 8.9% 4.7% __________________________________________________________________ ADEX - ADE Corporation $22.73 *** On The Rebound! *** ADE Corporation (NASDAQ:ADEX) is engaged in the design, building, marketing and service of production metrology and inspection systems for the semiconductor wafer, semiconductor device, magnetic data storage and optics manufacturing industries. The company's products have evolved from single instruments used in offline engineering analysis to full, 100% inline, automated metrology solutions throughout the wafer, semiconductor device and hard disk drive manufacturing processes. Its systems analyze and report product quality at critical manufacturing process steps, sort wafers and disks and provide manufacturers with certification data upon which they rely to manage processes and accept incoming material. Semiconductor wafer, device and magnetic data storage manufacturers use the firm's systems to improve yield and capital productivity. ADEX - ADE Corporation $22.73 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 20 QDE QD 0 0.55 19.45 6.1% 2.8% * SELL PUT MAY 22.5 QDE QX 0 1.60 20.90 11.6% 7.7% __________________________________________________________________ IMM - Immtech International $20.26 *** Drug Speculation! *** Immtech International (NYSE:IMM) is a pharmaceutical company focused on the development and commercialization of oral drugs to treat fungal, parasitic, bacterial and viral diseases. The company has development programs that include fungal infections, malaria, tuberculosis, hepatitis, pneumocystis carinii pneumonia and tropical medicine diseases, including the African sleeping sickness (a parasitic disease also known as trypanosomiasis) and leishmaniasis (a parasitic disease that destroys the liver). One of its most significant research developments was the discovery of oral drug delivery technology for dication drugs. This unique proprietary technology temporarily masks the positive charges of the dication, enabling the active compound to move easily across digestive membranes into blood circulation. IMM - Immtech International $20.26 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 15 IMM QC 100 0.30 14.70 5.2% 2.0% * SELL PUT MAY 17.5 IMM QW 100 0.80 16.70 9.9% 4.8% __________________________________________________________________ IPXL - IMPAX Laboratories $25.24 *** Another 2004 High! *** IMPAX (NASDAQ:IPXL)) is a unique, technology-based pharmaceutical firm focused on the development and commercialization of generic and brand name pharmaceuticals, utilizing its controlled-release and other in-house development and formulation expertise. In the generic pharmaceuticals market, IMPAX is primarily focusing its efforts on selected controlled-release generic versions of brand name pharmaceuticals. The firm is also developing other generic pharmaceuticals that present one or more competitive barriers to entry, such as difficulty in raw materials sourcing, complex formulation or development characteristics, or special handling requirements. In the brand-name pharmaceuticals market, IMPAX is developing products for the treatment of central nervous system disorders. IPXL - IMPAX Laboratories $25.24 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 20 UPR QD 565 0.35 19.65 4.9% 1.8% * SELL PUT MAY 22.5 UPR QX 82 0.90 21.60 8.3% 4.2% __________________________________________________________________ JBLU - JetBlue Airways $27.29 *** Recovery In Progress! *** JetBlue Airways (NASDAQ:JBLU) is a low-fare, low-cost passenger airline that serves point-to-point routes between destinations in 11 states and Puerto Rico. The company focuses on serving underserved markets and/or large metropolitan areas that have high average fares. It has a geographically diversified flight schedule that includes both short-haul and long-haul routes. JBLU - JetBlue Airways $27.29 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 22.5 JGQ QX 616 0.35 22.15 4.1% 1.6% * SELL PUT MAY 25 JGQ QE 2722 0.85 24.15 6.8% 3.5% __________________________________________________________________ LSCP - Laserscope $27.01 *** Rally Mode! *** Laserscope (NASDAQ:LSCP) designs, manufactures, sells and services, on a worldwide basis, an advanced line of medical laser systems and related energy devices for the medical office, outpatient surgical center and hospital markets. The firm pioneered development and commercialization of lasers and advanced fiber-optic devices for a variety of applications. The company's product portfolio consists of more than 150 medical laser systems and related energy delivery devices. The firm's primary medical markets include dermatology, aesthetic surgery and urology. Its secondary markets include ear, nose & throat surgery, general surgery, gynecology, photo-dynamic therapy and other surgical specialties. LSCP - Laserscope $27.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 25 LXQ PE 76 0.30 24.70 10.0% 1.2% SELL PUT MAY 22.5 LXQ QX 26 0.55 21.95 6.1% 2.5% * SELL PUT MAY 25 LXQ QE 18 1.35 23.65 10.1% 5.7% __________________________________________________________________ PDII - PDI Incorporated $27.35 *** New Trading Range? *** PDI (NASDAQ:PDII) is an innovative healthcare sales and marketing provider to biopharmaceutical and medical devices companies and and the diagnostics industry. Its three business units offer service and product-based capabilities for companies seeking to maximize profitable brand sales growth. The three units include PDI Pharmaceutical Products, PDI Sales and Marketing Services, and PDI Medical Devices and Diagnostics. PDII - PDI Incorporated $27.35 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 25 PKU PE 10 0.45 24.55 15.0% 1.8% * SELL PUT MAY 22.5 PKU QX 1 0.65 21.85 7.3% 3.0% SELL PUT MAY 25 PKU QE 1 1.35 23.65 10.3% 5.7% __________________________________________________________________ TINY - Harris & Harris Group $21.28 *** Entry Point? *** Harris & Harris Group (NYSE:TINY) is a venture capital investment company that is operating as a business development company. The company's investment objective is to achieve long-term capital appreciation, rather than current income, from its investments. The company has invested a substantial portion of its assets in privately held start-up companies and in the development of new technologies in various industry segments. These privately held businesses generally tend to be thinly capitalized, unproven, small companies based on risky technologies that lack management depth and have not attained profitability nor have any history of operations. TINY - Harris & Harris Group $21.28 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 17.5 QJT QW 90 0.50 17.00 7.3% 2.9% * SELL PUT MAY 20 QJT QD 173 1.35 18.65 12.0% 7.2% __________________________________________________________________ USG - USG Corp. $17.92 *** Premium-Selling Only! *** USG Corporation (NYSE:USG) produces a range of products for use in new residential, new non-residential and repair and remodel construction, as well as products used in certain industrial processes. Its operations are organized into three operating segments: North American Gypsum, which manufactures Sheetrock brand gypsum wallboard and related products in the United States, Canada and Mexico; Worldwide Ceilings, which manufactures ceiling tile in the United States and ceiling grid in the United States, Canada, Europe and the Asia-Pacific region, and Building Products Distribution, which distributes gypsum wallboard, drywall metal, ceiling products, joint compound and other building products throughout the United States. USG - USG Corp. $17.92 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 17.5 USG PW 979 0.45 17.05 19.1% 2.6% SELL PUT MAY 12.5 USG QV 3968 0.20 12.30 4.0% 1.6% TS SELL PUT MAY 15 USG QC 4913 0.75 14.25 11.5% 5.3% * __________________________________________________________________ XMSR - XM Satellite Radio $29.56 *** Consolidation Underway! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1 million subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with over 100 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. XMSR - XM Satellite Radio $29.56 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 25 QSY QE 855 0.50 24.50 4.9% 2.0% * SELL PUT MAY 27.5 QSY QY 402 1.15 26.35 8.0% 4.4% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AFCI - Advanced Fibre Comm. $22.59 *** In A Trading Range? *** Advanced Fibre Communications (NASDAQ:AFCI) develops, manufactures and supports a family of telecommunications access products and services. The firm's products and services enable the connection between the central office switches of telecommunications service providers and their end users for voice and high-speed Internet, data and video communications. Their products include integrated multi-service access platforms, central office switching platforms, optical add-drop multiplexers, integrated access devices, network element management systems and cabinets, as well as many related professional services. AFCI - Advanced Fibre Comm. $22.59 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 25 AQF EE 516 0.75 25.75 7.7% 2.9% * SELL CALL MAY 22.5 AQF EX 3186 1.75 24.25 12.2% 7.2% __________________________________________________________________ QLGC - QLogic $32.25 *** A Recent Slump! *** QLogic Corporation (NASDAQ:QLGC) designs and supplies storage network infrastructure components and software for server and storage subsystem manufacturers. The company's products are based on SCSI, iSCSI, Fibre Channel and Infiniband standards. The company is the only end-to-end supplier of Fibre Channel network infrastructure components that aid in the transfer and acquisition of data within the SAN. Their products include its SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool Kit management software. QLogic is the only HBA vendor that supports SCSI, Internet Protocol, Virtual Interface and FICON protocols with the same Fibre Channel HBA. In addition, the company designs and supplies controller chips used in a variety of hard drives and tape drives as well as enclosure management and baseboard management chip solutions that monitor the health of the physical environment within a server or storage enclosure. QLGC - QLogic $32.35 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 35 QLC DG 9108 0.20 35.20 5.9% 0.6% * SELL CALL MAY 37.5 QLC EU 2625 0.45 37.95 4.2% 1.2% TS SELL CALL MAY 35 QLC EG 4320 0.95 35.95 6.5% 2.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************** TRADERS CORNER ************** How I find Support and Resistance. By Jane Fox I have been trading for over five years now and have come to appreciate the value of watching price and price only. I have used many different indicators and to tell you the truth I am starting to lose faith in them. I have yet to find an indicator or any combination of indicators that will give clear and concise trading signals that are give me an edge or a greater probability of profit than if didn't use them. But I digress for this article is not about indicators it is about how I use price to determine support and resistance. I have developed a system I use to build support and resistance zones each and every day that has been working so well it amazes me. High and lows Data Points I start by keeping a database of all the INTRADAY highs and lows and then clumping price levels together that have multiple data points, highs or lows from different dates. This is what I do. At the end of each day on an Excel spreadsheet I place a date by the high and low in the NDX e-minis (NQ) and the S&P e-minis (ES). When I see multiple dates clumped together at one or two prices I build a "zone" and each data point is a layer. For example ES currently has 10 different dates, ranging from February 9th to April 5th, where price either made a high or a low within 1141- 1144. This is a zone. I call the zones my roadmap. When I post my roadmap in the Market Monitor each morning I also report the number of layers the zone currently has and the more layer (dates) the more significant the zone. I currently only do NDX and S&P e-minis for I have found the database does not work for the DOW and Russell e-minis. There are just too many price levels. I have tried folding in the pivot points from daily, weekly and monthly but found these to not add a lot to the analysis so I quit and no longer try to use these numbers. Overnight markers Next I take note of the overnight high and low and see if they confirm the zones I have already identified. You may know from previous articles that I don't put a lot of importance to overnight levels because the volume is so light but I will use them if they confirm a zone or to build a zone once I see what the first hour markers come in at. First Hour (FH) Markers In 90% of all trading days, a market's high or low will be made within the FH and many days a market will only trade within this range. With this kind of information in front of me I couldn't ignore these very important levels and started using them to not only verify the zones but to build new zones that did not show up in the database. Let's take April 5th as an example. My database showed a large number of layers between 1141-1144 but a three- point zone is just a little wide for daytrading so I decided to wait for the FH markers to redefine this zone. The FH high came in at 1144.75 so I redefined the resistance zone as 1144-1145 and pegged my support at FH lows of 1140.25. ES used this zone as resistance until volume came into the market and it was able to break through its resistance at 1:10PM ET. But just to show you how important these FH levels are take a look at how well the FH lows defined support. ES made a 1140.25 low at 9:35ET and did not make another low before 10:30 so 1140.25 became the FH low. From 11:00 to 11:20 ES touched 1140.25 five times and never broke through. Now that is well-defined support. These are numbers you do not want to ignore. Previous Day markers The next thing I will fold into this analysis is the previous day highs, lows and close. I have found when you have a FH and previous day marker close together it is usually an excellent resistance or support zone. On April 5th YM had a previous day high at 10481 and a FH high at 10491 so I built a zone at 10481- 10491, which served to hold back price until 3:05ET when volume came in and this resistance zone broke with a vengeance. You can see this resistance in the next image. How I use this information First of all I look for reversal price patterns where I have defined zones, price patterns like a head and shoulders or reverse head and shoulders. Although I have found that these patterns intraday are not has potent as they are on say a daily or weekly chart, they become more important when they occur at a resistance or support zone. The other thing I will look for is divergences. Price divergence to MACD is the one I use the most but you could use divergences to stochs or RSI just as well. However, be careful of price divergences to indicators for they don't always work or even work often enough for me to trade them so I use them for information only. Here is what I mean. As I mentioned earlier, on April 5th I built a YM resistance zone from previous day and FH highs at 10481-10491. Although price bumped up against this resistance all day, MACD was telling us failure was imminent because it was making lower highs and heading down. if YM broke down below this resistance confirming the MACD divergence I would have used that information to setup a trade in the weakest market of the day. However, if you were only looking at this divergence you may have been on the wrong side of a trade for here is what happened. So be careful with divergences and use them for information only or to verify an observation. What I use these levels for mostly is comparing the markets to one another and determining which market is stronger or weaker. On a 5-minute chart I draw a blue trendline at the previous day high and low. I draw a cyan line at previous day close and magenta lines for FH highs and lows. I then have one workspace with four markets: NDX e-minis, S&P e-minis, Dow e-minis (YM) and Russell 2000 e-minis (ER) and at a glance I can tell you where the strength is. Which market is strongest and which is weakest from this April 5th image? YM was above the previous day high so above the previous day range but still within the FH range. It was also above the previous day close. NQ was above the previous day high so above the previous day range but still within the FH range. It was also above the previous day close. At this point NQ and YM were pretty well neck and neck for strong market. ES was within its previous day and FH range but above its previous day close so it came in next for strength. Then bringing up the rear was ER, which was below the FH range but still within its previous day range. It was also below the previous day close. Here's how the day ended. I was expecting that price would stay within the FH range on April 5th because it was the week before Easter and low volume days tend to be sideways trading days and not trend. However, if one market did break through its resistance, you would have to wait for the others to break out also before you would make a trade to ensure it was not a head fake, which we see many times. YM broke out first then NQ almost at the same time. ES was a little later but did break resistance also. ER never did break out of its previous day range but did break the FH range. This analysis is invaluable when you have a sideways day but becomes useless in trending days because if a market is trending it leaves these levels in the dust and will probably not revisit them. However, studies have proven that we have about 2 trending days a month so I'm not worried about them not working on those few and far between trending days. Remember plan your trade and trade your plan. Jane Fox ************** TRADERS CORNER ************** Assessing the key technical patterns and price "gaps" By Leigh Stevens lstevens@OptionInvestor.com OIN SUBSCRIBER QUESTION: "You had an objective to 1900 in the Nasdaq for some time before it got there, but to 1060 I think in the S&P and it only got to a little under 1100. What was different in the way that you arrived at one very accurate prediction versus the other which was not as close?" RESPONSE: I usually find that the predictions that are most accurate will use or take advantage of multiple ways of calculating possible price targets. When I get too focused on just one technique, pattern or indicator, there is greater likelihood that the prediction will not pan out or is a bit off as to a price target. For example, with the suggestion that an S&P 500 (SPX) downside target was to around 1060, I got focused on SPX falling back to its 200-day moving average (wrong!) - which is what I thought the Nasdaq Composite would do(right!). This idea also fit with this same price area being an objective implied by a bear "flag" pattern that got traced out. It is easy to be mistaken if you think that Nasdaq will have the same kind of move as the S&P in a mixed market like has been the case with the divergent economic trends. And, to figure an objective based on mostly one chart pattern by itself. More chances to be wrong if the implied target doesn't jive with other, even more reliable, longer-range chart considerations. In the S&P I was looking at the upside down (bear) "flag" and measuring the length of the first drop. Then saw a second downswing that could be (more or less) equal to the first, once SPX fell under the lower end of the outlined flag - What was misleading about relying on this analysis alone was that, to achieve an objective to as low as 1060 would mean that SPX would have to break rather far under a trendline drawn from the early-August to early-Oct lows. There is a sort of ranking that you can do about chart patterns one that measures the longer term rate of change or the longer- term uptrend ranks "higher" than short-term patterns. Moreover, a dip to 1060 was "too far" (to make sense) under a longer-term weekly up trendline that intersected in the 1100 area - Another thing that I could have paid more attention to is the tendency for the even 100 levels to often mark turning points or areas of significant support/resistance - 1100 in the case of the S&P. The low was 1087 but it bobbed back above 1100 like a cork. The even-1900 objective and the "test" of the 200-day moving average in the Nasdaq Composite (COMPX) did mark the likely bottom and a turning point in that Index. The Composite had been falling more than the S&P Index, but it had also gone up further in the months before also. From the Oct '02 bottom to the Jan peak of this year the Nasdaq almost doubled! (In just 16 months, COMPX went from 1100 to 2150.) Moreover the Composite seemed more likely to test its 200-day moving average given its prior movement in relationship to this key average - When the Composite finally cleared and closed decisively above its 200-day moving average in March-April of 2003, the moving average then defined an area of buying interest (support) on the first correction back to the area of the average - what was resistance "became" support. A good chance that history would repeat itself in regard to COMPX finding support at the 200-day average. 1900 in the Composite was also the approximate area of some prior relative highs and lows of significance and this price area was where its longer-term weekly trendline intersected per the weekly chart below - There is a reason I do a post-mortem to see where downside or upside objectives could have been more precisely predicted after the fact. I find that technical analysis nearly always can pinpoint where a correction will get to and where the turning points will come in - but, you have got to apply the right analysis and the most predictable aspects of the chart or indicators or a combination thereof. It pays to go back and look for things that might have been overlooked initially. Doing this look-back rear view mirror sort of thing often makes for a sharper analysis next time and can give that little extra bit of confidence. If I am anticipating a bottom, or top, in a certain price area, I am quicker to see the other signs of that top/bottom on the day that it happens. Hey, a small edge like this really helps! - especially when buying Index options at a bottom, or puts at a top, when the media talking heads are mostly suggesting more of the same trend, not a trend reversal ahead. CHART GAPS – A day after the recent upside market reversal, there were price "gaps" noticeable in the Nasdaq Composite and Nasdaq 100 (NDX) Indexes. A price gap is formed when an index or stock has a low that is the above the prior days high – an upside gap – or when a stock or index high is below the previous day’s low, creating a downside gap. Gaps are price areas where no trading took place from one session to the next. This space between two consecutive day’s price ranges, as seen on a bar or candlestick chart, has various degrees of significance in terms of helping predict or confirm what is going in with the trend. Many price gaps occur on overnight news or news that came out before the opening. In the recent example, a report on a long- anticipated job expansion (nonfarm payrolls) produced a sharp jump in stock prices after its release. The upside chart gap apparent on a daily chart of the Nasdaq Composite was not seen on the S&P 500 index (SPX) or Dow Industrial (INDU) daily charts – why? Gap "events" caused a similar jump in many S&P stock prices relative to the prior day. S&P futures prices will show a chart gap. Not so in the "cash" index. When order imbalances show up in a number of S&P stocks - in this recent case it involved substantially more buy orders than sell orders - the specialist (firm or individual) involved with making an orderly market for that stock on the New York Stock Exchange, will often delay the opening of the stock or stocks involved. Since the specialists are charged with maintaining an "orderly" market, they delay an opening to gain some time for more orders to come in and/or so they can calculate what they have to buy or sell to maintain an orderly market. It's not uncommon to have delayed openings for a number of key stocks in the S&P and Dow 30. As the exchange also wants to publish an "open", the convention for the S&P and the Dow is to calculate an index Open, that accounts for stocks not immediately trading, by taking the "last" price; i.e., the prior close. Based on this convention, there is typically no apparent chart "gap" in the S&P or Dow "Open" as the opening price is at or very close to the closing price. The Nasdaq indices reflect an open based on the first trade of the stocks that make up that index and on the daily chart of the Composite, the recent (upside) chart gap looked like this - GAP SIGNIFICANCE - Generally, gaps below the market tend to act as support areas and gaps above the market suggest resistance and areas of likely selling interest. Since a consensus expectation is "built into" the last traded price or close of every stock, index or commodity, significant new influences affecting the market’s perceptions of what the current and/or future price level for that item should be, causes an immediate adjustment in the opening price during regular exchange hours. Buyers will either be willing to pay more and potential sellers will want higher levels to induce them to sell or sellers will be aggressive in offering the item at lower levels and buyers will not be interested in purchasing unless prices drop especially in the early trading (open) which often becomes the high or low. Upside gaps are price areas where buyers were unable to make any purchases, as selling occurred only above the gap area. Downside gaps are price areas where sellers were unable to make any sales as they could only transact at levels below the gap. This is what is behind the notion that gaps below the market will tend to act a support and gaps above the market, will tend to act as resistance. A move back down to an upside gap often brings in additional buying interest at this lower level from earlier. Similarly a rebound back up to an overhead (downside) gap can attract interested sellers that would have sold more, in the area where prices had previously "gapped" down, had they been able to. There is a common saying that gaps get "filled in". After a market settles down in subsequent days and weeks after the gap "event", a trend correction may take prices back into the gap area. It's better to say that gaps tend to get filled in – as gaps don’t always get filled. Where gaps do not get filled, is where the gap indicates a shift or jump to a faster rate of upside or downside momentum. Gaps here can signal where a correction to the prior trend (a countertrend move) is definitely over. When there is this kind of momentum shift, these gaps are sometimes referred to as runaway or "measuring gaps. Why "measuring"? When gaps occur after the trend has been underway for a time, it may measure about mid-point in a move. It seems hard to believe that this could be the case in the Nasdaq if you look at the move from the low of months ago and think that the recent resumption of an uptrend could be halfway in an advance to say 3000 in the Composite. However, we could also just take this recent upside Nasdaq gap as at least suggesting a test of the prior relative high in the 2150 area. After a strong rebound from 1900 to 2025, followed by appearance of a chart gap, it's not hard to then figure that the current renewed uptrend would carry to at least 2150 or back to test the prior top. Sometimes gaps are part of a reversal pattern such as when buying or selling interest gets exhausted and are called in fact, "exhaustion gaps" - an example is seen in the Nasdaq chart above of a type of exhaustion gap - I'm stretching the definition some as this was not the end of a trend, only the end, or exhaustion of, a correction. Gaps that are part of ongoing trends and that tend to act as a signal of an acceleration of upside or downside momentum are part of "continuation" patterns. That is what I think was marked by the gap above in the Nasdaq chart. The substantial upside gap that occurred provided a pretty good clue technically that this index was back in an uptrend. Good Trading Success! ************************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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