The Option Investor Newsletter Tuesday 05-04-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Fed Raising Rates Futures Markets: See Note Index Trader Wrap: Trader's logbook, April 21, 2004 Market Sentiment: Listening to the Fed Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 05-04-2004 High Low Volume Adv/Dcl DJIA 10371.20 + 3.20 10386.04 10266.17 2.01 bln 1869/1377 NASDAQ 1950.48 + 11.80 1968.70 1933.60 1.87 bln 1855/1266 S&P 100 547.15 + 1.30 551.03 543.59 Totals 3724/2643 S&P 500 1119.51 + 2.02 1127.65 1112.89 W5000 Problem with data feed SOX 448.31 + 7.40 454.76 440.87 RUS 2000 569.64 + 4.16 575.18 565.18 DJ TRANS 2915.63 - 7.50 2935.02 2902.28 VIX 16.55 - 0.07 17.13 15.97 VXO (VIX-O)16.36 - 0.27 17.52 15.88 VXN 25.14 - 0.58 25.89 24.36 Total Volume 4,245M Total UpVol 2,767M Total DnVol 1,362M Total Adv 4247 Total Dcl 2978 52wk Highs 134 52wk Lows 224 TRIN 0.87 NAZTRIN 0.69 PUT/CALL 0.67 ************************************************************ Fed Raising Rates by Jim Brown Using Fedspeak Greenspan said they were ready to raise rates but they are not raising them now. The Fed left rates unchanged but said they could begin raising rates at a measured pace in the near future. The market was not sure if they liked the new Fed policy stance despite getting everything they wanted from the statement. Dow Chart - Daily Nasdaq Chart - Daily The morning started off great with Chain Store Sales jumping to +1.5% for last week compared to -0.5% for the prior week. No real excitement there with tax refunds fueling the buying. The real excitement came from the Factory Orders, which soared +4.3% for March compared to +1.1% for Feb. That Feb number was revised up from only +0.3%. Consensus for March was only +2.3% and it was widely assumed to be optimistic. The blowout at almost twice what was thought to be optimistic really gave traders some positive economic ammo but they failed to hold any morning gains. Nondurable goods rose +3.5% which completely erased the -1.8% decline in February. Shipments rose +3.8%, unfilled orders rose +1.2% but most important was nondefense capital goods, that is normal business equipment, rose +4.5%. The upward revision to a weak February and the blowout in March suggests the economy may actually be exploding. While traders were excited with the initial release their fears that the strong numbers would excite the Fed weighed on the bulls. The morning bounce to 10330 on the news was sold into the pre Fed lull. Worry, worry everywhere and not a buy program in sight. Helping fan the economic flames was a very minor +6.1% jump in layoffs from 68K to 72K in April according to the Challenger Layoff report. Better news showed that the private sector was firming and the government sector was responsible for the majority of the cuts. The number of layoffs has been moving steadily down for months with only a couple spikes in Oct and Jan. Challenger also found that small business hiring actually grew +25% in the first quarter. Companies of less than 500 employees are doing the most hiring. The big news was of course the Fed announcement that they were not going to raise rates today BUT they are ready to raise rates at a pace that is likely to be measured. (Their words) They cleaned up their policy statement to remove any hint of economic weakness and any reluctance to act on their part. The dumped the comments that either "inflation" or "unwelcome disinflation" were likely and adopted a "risks are equally balanced" posture. This was a key point they tried to make. No inflation. The mentioned inflation in one form or another several times. "Long term inflation expectations appear to have remained well contained." "Price stability is in balance." "Inflation low and resource use slack." All of these comments were made to tell us that the Fed is not worried and not in a rush to raise rates. When they do begin to raise rates it will be at a "measured pace" meaning they are not going to try and shock the market or make any large sudden moves. It was a picture of a Fed trying to be patient in an election year without actually saying so. In Fedspeak it is all "read between the lines". They have left us with an economy that is "robustly growing productivity", "output expanding at a solid rate" and "hiring appears to have picked up", all their words. They like what they see and see no reason to raise rates despite the lowest rates in decades. The markets rallied to new highs for the week on the news then crashed back to pre Fed announcement levels. The Dow ended up +3 and the Nasdaq +11. What in earth happened? Fear of the unknown. The Fed left the cloud over the market and left traders guessing about when the rate hikes would begin. There was actually a strong contingent of traders hoping for a hike today. Traders in the Chicago pits and on the floor of the NYSE booed when the announcement was made. Amazing when you think about it. The Fed statement gave everyone a present, strong economy, no inflation and no rate hikes on the horizon. If the market was afraid of rate hikes last week then today should have been a breath of fresh air. Unfortunately it did not give them any view of the future other than the Fed is ready to act if needed. That can happen as soon as next Monday or six months from now. It is like riding down the highway with a bubble on your tire. You know it could pop at any time and you are afraid to go very fast. That is the market today. We have a Fed cloud over our car and lightning could strike at any time. The outlook shifted to events in the future that could cause the Fed to react. The immediate threat is the Jobs report on Friday. The Fed has been known to react between meetings on the Monday after an employment report. If the Layoff report is any clue then the Jobs report this Friday could be decent. The +25% growth in small business hiring as indicated by Challenger is the key. Last months report showed an increase of +308,000 jobs and a similar report this month would just about guarantee a rate move in June if not before. Should the jobs from last month be revised down significantly it could put the Fed on hold that much longer. It is a very confusing scenario for institutions and for bond traders. When confusion reigns nothing happens. That is exactly what we saw today. The Dow had been uptrending slightly from last weeks severe depression. The post Fed spike sent the Dow to near 10400 once again but that level was very short lived and we fell to close back near 10300. The slight uptrend is still intact but just barely. Resistance is still 10325 and it has held for three days. Support is 10265 and it has held for two days. Odds are good we are going to break one of those levels on Wednesday. The Nasdaq is exhibiting the same very slight uptick although it was the strongest index today. We saw a spike to 1970 after the announcement, a solid retrace of those gains but a stubborn hold at 1950 at the close. After three days of concentrated selling last week the Nasdaq is refusing to give ground. Current support has turned into 1933 and that is also the 200dma as we discussed last weekend. It is right on the edge of a real rebound or a real failure. The buyers appeared at the right level but so far have not been able to get enough traction to move it higher. This brings us to the rest of the week. Just like we went into hold mode for the announcement today we could just as easily maintain this mode into the Jobs report on Friday. The Fed stance put the bulls back into bad news mode where they want any economic news to be just good enough to prove there is an economic pulse and not strong enough to require a Fed sedative. Instead of wanting another +300K of new jobs on Friday the bulls would be perfectly happy with a number less than consensus, say in the +150K range. Too much good news now could activate the Fed either at or before the June 29th meeting. The goal for traders now will be to somehow get through the June-29th meeting with no hike and that gives them a potential free pass into August. This makes everything that happens between now and the June FOMC meeting of greater than normal importance. Personally I think the markets received a free pass until Fall as long as the jobs do not continue at the +300K pace. The Fed is clearly watching for inflation but not currently concerned due to the weakness of the recovery until now. The Fed does not want to crash the housing market before summer and they realize that the stock market also contributes to overall good will and economic prosperity. With everything running so smoothly AND with the bond market already pricing in a rate hike, the Fed only needs to keep up the tough talk and the credit markets will keep rates at a reasonable level. This will allow the carry traders plenty of time to unwind their trades and the home builders to produce a record summer. The economy will benefit from both and in an election year that can't be bad. Besides, if a little economic slowdown appears over the summer the Fed will not be making it worse. Now, all I need to do is make the market see it my way. For Wednesday I would look to be long over 10330/1960 and short under 10275/1940 and simply follow what the market gives us. The funds could begin to reenter the market tomorrow but remember we are still in a down trend. Until the pattern of lower highs is broken we are just range bound at a lower level with risk to the downside. Earnings are still decent but declining in quality and frequency and the summer doldrums are just ahead. There is no real catalyst to send us higher but there is no specific risk either. The Fed should already be priced into the market. We are likely to see some volatility at the open as the various forces do battle so don't look for direction until after 10:00. 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 ******************** Trader's logbook, April 21, 2004 I was never much of a fan, or constant watcher of the Star Trek TV series, but the other night I watched one of the Star Trek movies on TV (Star Trek III: The Search for Spock), where Captain Kirk and some of his old crewmembers decided to go looking for Spock. I didn't see the ending of the movie, but do remember Captain Kirk recollecting something Spock had said as he (Spock) was trapped in the ships engine chamber, which eventually caused his death, that served an important clue for which I'm sure Captain Kirk and crew eventually found Spock. Again, I didn't watch the end of the movie, but having seen Spock on some recent TV commercials for Priceline.com (NASDAQ:PCLN) $25.42 +2.21%, Captain Kirk must have found him. Trader's logbook, April 21, 2004. Hmmmm... sounds a bit like the beginning of most Star Trek movies, where Captain Kirk is explaining the setting, what's been going on, and what the next mission will be. In a trading session that may have been as difficult for me to follow, make sense of, and similar to the complex yet interesting Star Trek movie plots, there are some things I think we can draw from today's session, which I found, and you might also find, somewhat similar, if not almost IDENTICAL, to April, 21, 2004. In this afternoon's Market Monitor, it hit me. While I wasn't around last week, today's plethora of buy/sell program premium alerts (6 buy and 6 sell), which were generated just after the Federal Open Market Committee announced its decision to keep interest rates unchanged, had me remembering the subtleties of the April 21, 2004 trading session, where a plethora of buy/sell program premium alerts were found. For those that would like a quick refresher of the Index Trader Wrap, here's the link: http://members.OptionInvestor.com/Itrader/marketwrap/iw_042104_1.ASP While we witnessed some wild volatility after the FOMC meeting, the major indices finished higher, but well off their post FOMC meeting highs. After trading as high as 10,386.32 (up 76 points from yesterday's close, and 105 points from where it was trading just second before the FOMC announcement) the "slower moving" Dow Industrials (INDU) 10,317.20 +0.03% finished up a fractional 3.2 points. The more volatile QQQ $35.25 +0.42% didn't disappoint on the volatility side of things, and traded a session high of $35.75 (up 1.56% from its $35.20 trade just seconds before the FOMC release) to still muster a 15-cent gain on the session, but again, well off its post FOMC high. Here's a quick look at my Premium of S&P 500 Futures ($PREM.X) chart, so you get a feel for today's buy/sell program premium alerts. If you feel any confusion at the end of today's trade, you're probably not in the minority. Again, buy/sell programs if measured on 5-minute intervals were evenly matched at 6 buy and 6 sell from 02:15 PM EDT to the close. Premium of S&P 500 Futures ($PREM.X) - 5-minute intervals I went back and looked at the 04/21/04 Index Trader wrap, and sure enough, it was Alan Greenspan's testimony before Congress that had some buy/sell program premiums being triggered. Kirk to Bones: Hey Bones! (Bones was the doctor on Star Trek). Didn't the Dow Industrials close at 10,317.27 on April 21, 2004? Hmmm.... today's close for the INDU was 10,317.20. Coincidence? Perhaps. Now Captain Kirk begins to think. What was it that Spock was saying? Market Snapshot / Internals - 05/04/04 Close Here's a quick look at our market snapshot/internals. In PINK boxes I make note of the INDU closing value, and the closing value of Spot Gold. On April 21, 2004, Spot Gold closed at $390.65. I make note of this tonight, as I had made a brief comment about it in the April 21, 2004 Index Trader Wrap. Now, I'm also going to make note that as of tonight's close, the NYSE Composite ($NYA.X) 6,531, NASDAQ Composite (COMPX) 1,950.48, S&P 500 (SPX.X) 1,119.55, S&P 100 Index (OEX.X) 547.15, Russell- 2000 Index (RUT.X) 569.64, NASDAQ-100 Tracker (QQQ) $35.25 and Semiconductor Index (SOX.X) 448.31 all trade below their 04/21/04 closing values. ONLY the INDU trades closest to its 04/21/04 close. I will note that in percentage terms, tonight's closing values aren't all that much different, but late this afternoon, I started posting and commenting about some things I saw in this afternoon's trade, which I think tie in VERY close with April 21. Check this out, and make two notes to yourself, and check my thinking, and see if this observation might help clear some of today's action up. A bit of history first, which you can review in the Index Trader Wraps. On April 20, Fed Chairman Alan Greenspan testified before the Senate Banking Committee late that afternoon, and from his comments (Green-speak might be equivalent to Vulcan-ees) the equity markets trade notably lower to the close, when it may have been interpreted that Mr. Greenspan was hinting at Fed tightening. It was on April 21 that Mr. Greenspan then testified before Congress and the Joint Economic Committee, where Mr. Greenspan delivered an upbeat message on the economy, put to rest worries of deflation, and mentioned little sign of inflation. In essence, Mr. Greenspan smoothed over some of his comments, or the MARKET's interpretation of his April 20 testimony to the House Banking Committee. The best chart to begin putting some of these timelines together will the a 60-minute interval chart of the QQQ. Check this out. For now, FOCUS on the current WEEKLY and MONTHLY Pivots. Then think about April 20, then April 21, and now today. NASDAQ-100 Tracking Stock (QQQ) - 60-minute interval See the yellow horizontal "zone" which is between the WEEKLY and MONTHLY Pivot? I've tried to mark the 04/20/04 late afternoon trade in the QQQ (Greenspan testimony to Bank Committee), then the 04/21/04 session (Greenspan testimony to Economic Committee) where we noted a bunch of buy/sell program premium alerts, then a very bullish upside day on 04/22/04. Difference: QQQ closes below $35.66 today, whereas on April 20 and even April 21, QQQ closes above. Now, does this MEAN the QQQ stays below $35.66? Nope, but it may suggest a bearish bias from the market, if not institutional computers at this point. See how the QQQ did trade right back up to its April 20 close and pretty close to its April 21 session trade, but for WHATEVER reason (unhappy the Fed didn't raise rates today, or still not comfortable with the thought of future Fed tightening) there was some type of selling triggered at that level. Now, a trader that wipes the above chart free of the pivot analysis retracement, and simply draws a horizontal line at the "zone" between the WEEKLY and MONTHLY Pivots would still view that as some type of resistance, where over the past month, this level (say $35.66) did serve some support (April 20 and 21), but when broken on April 29 (Thursday of last week) now provides some resistance. I did draw what I consider to be a "cheater's upward trend" from the recent March 23 relative lows to Friday's session low, where combined with the downward trend we've had represents a wedge. Analysis: A move much above today's highs in the QQQ gives a near-term bullish bias. Current bias somewhat bearish below $35.66, while break below trend has $34.00 in play (WEEKLY S1 at $33.90 and MONTHLY S1 at $33.83). S&P 500 Index (SPX.X) Chart - 60-minute intervals Here's a similar 60-minute interval chart of the SPX.X. Buyers weren't strong enough to get a close above its MONTHLY Pivot (1,121.61), and I might begin to think that the only reason the SPX reversed from its late session high of 1,127.74, is that the QQQ trading its MONTHLY Pivot, which may have been the trigger for the late session sell programs had something to do with it. This might be an important observation/thought for us to keep in mind as it relates to these markets right now. Until QQQ can show some strength back above MONTHLY Pivot, then SPX may try and lead higher in the pivot matrix, but gains could be capped if QQQ isn't confirming. S&P 100 Index (OEX.X) Chart - Daily Intervals At times, the WEEKLY 38.2% retracement shown in the OEX chart has had some type of trade significance. My main observation with the OEX would be this. Point one: With just 100 stocks, it may trade cleaner, or neater than the broader S&P 500 (100 stocks versus 500 stocks), where program trading may show a more accurate trade. Point two: And this would be a more important point tonight, is some similar Stochastics positioning found tonight as found back on March 15. On March 15, the OEX closed at its low of the session (542.57 which is this week's 61.8% retracement) and while Stochastics turned up and continued to rise, the OEX popped the next two sessions to 551.56 (current weekly 38.2% retracement) and then reversed rather sharply back lower. At that time, MACD was below zero and still below its Signal. Similar to tonight. In my opinion, with both the 21-day SMA and 50-day SMA trending lower, I don't see a good bullish trade, or at least not a lot of bullish reward at this point. Dow Industrials (INDU) Chart - Daily Intervals I'm carrying over some of the Stochastics notes from the OEX chart to the INDU chart. Stochastics turned up on the INDU on 03/16 from the current MONTHLY S1, INDU rallied for nice gain on 03/17, stalled at current MONTLY Pivot/WEEKLY Pivot, then reversed rather quickly back lower. The bigger rally really came once MACD crossed above its Signal, where the steeper downward trend then reversed. Here's an intra-day chart of the INDU that I was trying to verbally describe in this afternoon's market monitor. Then our servers went down, or something happened as just after I made comment that the INDU was pounding up against its WEEKLY Pivot like the big bad wolf blowing at the 3-little pigs' door, I couldn't post anything in the market monitor. Dow Industrials (INDU) Chart - Daily Intervals That notable move above the WEEKLY Pivot in the INDU came from 02:45-02:50 PM. In today's 03:15 intra-day update, I thought intra-day action began to look like a "Big battle taking place." There's definitely some type of selling, or has been some selling taking place at the INDU's WEEKLY Pivot, and it did get broken to the upside, only to then fade into the close, where sellers won out. In the DAILY interval chart (lower right corner) I noted that on April 21, the INDU fell early in the morning only to make a bold move back higher to the close. Let's plant that seen in our mind for tomorrow. It doesn't matter if YOU are bullish or bearish. What a trader may want to monitor for is SIMILARITY or DIVERGENCE. One major DIVERGENCE a trader might monitor for is a INDU bounce higher at the open, and failure back lower. Pivot Analysis Matrix - The Dollar Index (dx00y) 89.81 showed the dollar taking a hit lower today, and boy it was a very volatile trade just after the FOMC meeting for the greenback too. The dollar finds selling and suggests some market participants may have actually been looking for Fed tightening today. It would also depict an interpretation from the MARKET that the FOMC statement did NOT suggest of any near-term rate hikes. In this afternoon's Market Monitor, Jan Fox made some notes from John Murphy regarding the dollar's relationship in the markets. I'm running way behind and need to get this Wrap to traders, but will review tomorrow, as it is quite informative. I'll look to see if there are any correlative levels of support/resistance in the DAILY matrix (compared to WEEKLY and MONTHLY), but I just ran out of time. 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 **************** Listening to the Fed Jonathan Levinson During the past several weeks, as bond yields have continued their strong rally, we've seen a great deal of bearishness on bonds and bullishness in the dollar. Metals and commodity prices, as well a equities corrected as traders anticipated the abandonment by the Fed of its aggressive reflationary policy. You'll recall statements by Bernanke and Greenspan along the way, beginning to acknowedge what they referred to as a decrease in the risk of unwelcome deflation and hinting at tighter monetary policy. As we've seen during recent years, central banks prefer to move the markets with words instead of money, and today's action was a fine example of just that. Indeed, the ten year yield had increased almost 100 basis points during the previous two months, far exceeding anything that the Fed might have done to its overnight rates today. While this seems obvious in retrospect, the moves following today's FOMC annoucement indicate some surprise, as equities, metals, and bonds all whipsawed to the upside following the 2:15 statement and then levelled out again, giving back their gains. Whether these trends continue or not remains to be seen. However, I will continue to be dubious of any direct action by the Fed to shock the markets with higher rates. Simply put, the level of personal, mortgage and corporate debt makes higher rates a dangerous formation in the financial landscape, and were I a central banker, I would be seeking as much as possible to allow a gradual, unexciting move higher in rates without panicking the markets with sudden moves. I'm guessing we will see a range develop as traders seek direction. Equities, bonds, commodities and foreign currencies should firm up as the dollar softens. The drop in the volatility indices following the announcement indicates general bullishness increasing based on the prospect of further stimulation from the Fed. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8416 Current : 10317 Moving Averages: (Simple) 10-dma: 10364 50-dma: 10383 200-dma: 9985 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 912 Current : 1119 Moving Averages: (Simple) 10-dma: 1125 50-dma: 1129 200-dma: 1074 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1103 Current : 1422 Moving Averages: (Simple) 10-dma: 1451 50-dma: 1448 200-dma: 1410 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 16.55 CBOE Mkt Volatility old VIX (VXO) = 16.36 Nasdaq Volatility Index (VXN) = 25.14 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.67 698,925 467,344 Equity Only 0.50 583,332 291,348 OEX 0.81 25,970 21,135 QQQ 0.38 167,368 64,122 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.3 + 0 Bull Confirmed NASDAQ-100 42.0 - 1 Bear Confirmed Dow Indust. 80.0 + 0 Bear Confirmed S&P 500 69.0 - 1 Bear Confirmed S&P 100 70.0 + 0 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.36 10-dma: 1.30 21-dma: 1.09 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 1643 1822 Decliners 1178 1258 New Highs 55 51 New Lows 82 38 Up Volume 1276M 1211M Down Vol. 694M 556M Total Vol. 2005M 1829M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 04/27/04 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 Commercials aren't making any big moves and remain net bearish. Small trades are relatively flat from last week as well and remain net bullish. Commercials Long Short Net % Of OI 04/06/04 409,429 419,471 (10,042) (1.2%) 04/12/04 412,827 419,910 ( 7,083) (0.9%) 04/20/04 409,729 421,456 (11,727) (1.4%) 04/27/04 406,927 416,244 ( 9,317) (1.1%) 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 04/06/04 130,262 80,174 50,088 23.8% 04/12/04 135,840 89,090 46,750 20.8% 04/20/04 136,699 92,982 43,717 19.0% 04/27/04 133,775 90,535 43,240 19.3% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercial traders have upped their bets on both longs and shorts but remain net bearish. Small traders have decreased the size of their long positions but are still strongly bullish. Commercials Long Short Net % Of OI 04/06/04 270,904 328,862 (57,958) ( 9.7%) 04/12/04 261,889 341,163 (79,274) (13.1%) 04/20/04 275,985 355,555 (79,570) (10.1%) 04/27/04 291,365 370,549 (79,184) (12.0%) 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 04/06/04 148,737 46,235 102,502 52.6% 04/12/04 172,473 52,274 120,199 53.5% 04/20/04 186,799 69,137 117,662 46.0% 04/27/04 175,788 69,613 106,175 43.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is virtually zero movement in the positions for commercial traders but luck would have it the little movement we did get pushed them to a new bullish high. Small traders are also stuck in limbo. Commercials Long Short Net % of OI 04/06/04 54,862 34,762 20,100 22.4% 04/12/04 54,144 34,432 19,712 22.3% 04/20/04 54,852 35,964 18,888 20.8% 04/27/04 54,196 33,948 20,248 23.0% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 20,248 - 04/27/04 Small Traders Long Short Net % of OI 04/06/04 7,971 20,721 (12,750) (44.4%) 04/12/04 8,297 20,746 (12,449) (42.9%) 04/20/04 8,538 19,431 (10,893) (39.0%) 04/27/04 9,008 20,347 (11,339) (38.6%) Most bearish reading of the year: (12,750) - 04/06/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders aren't changing their bets on the Dow either and remain marginally net long. Small traders remain net bearish but they have reduced their short positions. Commercials Long Short Net % of OI 04/06/04 23,101 22,108 993 2.2% 04/12/04 23,501 22,748 753 1.6% 04/20/04 24,156 22,009 2,147 4.7% 04/27/04 23,676 22,009 1,667 3.6% 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 04/06/04 7,316 8,085 (769) (5.0%) 04/12/04 6,136 7,450 (1,314) (9.7%) 04/20/04 5,997 9,631 (3,634) (23.3%) 04/27/04 5,998 8,868 (2,870) (19.3%) 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 05-04-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: ASD Call Play Updates: AU, BBY, DGX, GDW, MIK New Calls Plays: OMC Put Play Updates: AMZN, COF, LTR, SLAB New Put Plays: WHR **************** 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: ***** American Standard Co - ASD - cls: 106.50 chg: +0.27 stop: 107.51 This week, ASD following through on the bounce suggested by Friday's potential reversal signal after ASD hit support near $104. It popped just high enough to hit our stop exactly before falling back before the close. This bounce may be nothing more than a bear-flag bounce off support, but it's already turned RSI higher, and has produced a bullish stochastics kiss. Those stochastics lines have not yet moved above signal, however, so the commitment to the upside remains tentative. Picked on April 29 at $104.80 Change since picked: + 1.70 Earnings Date 04/14/04 (confirmed) Average Daily Volume: 495 thousand Chart = ************************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 ******************** Anglogold - AU - close: 34.20 change: +2.34 stop: 31.84*new* Since the day it released earnings, AU has been rising off the low reached the previous day, April 28. Today, AU gapped higher. That breakaway gap was reassuring to those eyeing the weekly chart and noting some vulnerability down to $37, the target of the H&S on that weekly chart. We advised that this was a risky play because it may well be a play on a countertrend oversold bounce. It could be more than an oversold bounce, but many retracement levels and historical resistance levels now pile up above the current price. One of those resistance levels resulted from a swing high in 2002, and that marked the top of AU's advance today. We've raised the stop to the bottom of the gap that was created this morning, giving AU a couple of cents leeway. In addition, we're going to set a quick upside target, still eyeing that downside vulnerability and the approaching resistance. The 38.2 percent retracement of the April plunge lies at 35.16 and the 50 percent retracement crosses at 36.62. We want to set the official profit target below that 50 percent retracement as that's a danger point for our bullish play. We're going to set the profit target at $35.49, just below the swooping-lower 21- dma. We would not suggest new entries at this point. Picked on April 30 at $ 32.25 Change since picked: + 1.95 Earnings Date 04/29/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- Best Buy Co - BBY - close: 53.59 change: -0.33 stop: 51.99 BBY spent late last week and the early part of this week moving lower to retest the neckline of its reverse H&S. Today it plunged through the 21-dma but then bounced back above that average. Although we were glad to see that bounce, BBY closed back below that neckline. That's concerning, as is the bearish configuration of the oscillators. Next support exists from today's low down to 52.21, so we hope to see a bounce from above our stop, but we'd really like to see BBY back above $54.00 and then showing other signs of strength. On Monday, BBY made two new additions to its board. The company also announced additions to its customer centricity initiative with that program intended to focus attention on BBY's best customers and attract new groups of customers. Tuesday, Deutsche Bank reiterated its buy rating and said that the customer centricity initiative was "clearly working." So far, these positives have not produced the hoped-for bounce, but we hope to see it do so soon. Because of the fall back below the H&S neckline and the configuration of the oscillators, as well as rising volume on today's decline, we would not suggest new entries at this time. Picked on April 23 at $ 55.05 Change since picked: - 1.46 Earnings Date 03/31/04 (confirmed) Average Daily Volume: 3.6 million Chart = --- Quest Diagnostics - DGX - close: 85.16 change: -0.78 stop: 82.00 Since its post-earnings breakout, DGX has been consolidating near its highs, trying to build up enough strength to continue that breakout move. Yesterday's strong rally looked encouraging, but then the stock traded in a narrow consolidation pattern again today, building a clear inside day pattern. That means a breakout over yesterday's high ($86.10) could be used for an aggressive bullish continuation entry, while a break below yesterday's low ($84.23) would be a bearish development. The stock has been finding solid support near the $84 level, so any rebound above the lows of the past week still looks like a viable entry point. Conservative traders will want to see a breakout over $86.70 to new highs before adding new positions. For now, we'll maintain our stop at $82, which is well below the 50-dma ($82.79) and just under the bottom of the post-earnings gap. Picked on April 25th at $86.15 Change since picked: -0.99 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 611 K Chart = --- Golden West Fin. - GDW - cls: 105.10 chng: -0.94 stop: 101.75*new* In typical fashion, Financial stocks saw a good deal of volatile whipsaw action in the wake of the announcement following the FOMC meeting. Earlier in the day, GDW had pushed over the $106 level, satisfying our entry trigger for the play. After the announcement, the stock surged above $106 one more time before heading back to the $105 price magnet near the close. The jury is still out on whether the stock will be able to extend its rebound above the 100-dma ($106.09) on a closing basis, but it isn't encouraging that the stock has failed to move much higher over the past few days, while at the same time daily Stochastics have almost reached overbought territory. This sets up clear bearish divergence on the daily chart and the bulls will need to show some conviction soon. Because of this potentially bearish situation that is developing, we're getting more aggressive with our stop tonight, raising it to $101.75, just under last Thursday's intraday low. A successful rebound from t he $104-105 area tomorrow can still be used for new entries, but make sure to abide by those stops. More conservative traders will want to wait for a decisive breakout over today's high before playing. Picked on April 29th at $104.99 Change since picked: +0.11 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 660 K Chart = --- Michaels Stores - MIK - cls: 49.90 chng: +0.39 stop: 48.50 Bullish traders in shares of MIK are certainly having their patience tested in recent days. After a convincing breakout over the $49.50 level, the stock stalled out near $52.50 and has retraced back to test the site of the original breakout. The past three sessions have seen an intraday dip near $49 before the stock rebounded into the close. Daily Stochastics are finally starting to turn up and so far, price hasn't been able to break support at the 50-dma ($48.73), so entries on this weakness still look viable. But it should be understood that MIK is skating on thin ice. A break below the 50-dma will almost surely fall far enough to trigger our $48.50 stop and that would be the end of the play. We'd prefer to see the stock break above the top of the intraday range of the past 3 days with a move over $50.50 before adding to current positions. Picked on April 20th at $51.23 Change since picked: -1.33 Earnings Date 5/26/04 (confirmed) Average Daily Volume = 323 K Chart = ************** NEW CALL PLAYS ************** Omnicom Group - OMC - close: 82.78 change: +1.24 stop: 79.25 Company Description: Omnicom Group is a marketing and corporate communications company. The company has grown its strategic holdings to over 1500 subsidiary agencies operating in more than 100 countries. OMC's wholly and partially owned businesses provide communications services to clients on a global, pan-regional and national basis. The company's agencies provide an extensive range of marketing and corporate communications services, including advertising, brand consultancy, crisis communications, custom publishing, database management, digital and interactive marketing, business-to-business advertising, employee communications and environmental design. OMC also provides field marketing, healthcare communications, marketing research, promotional marketing and sports and event marketing. Why we like it: The first 10 weeks of the year were not a pleasant affair for OMC investors, as the stock peaked just south of $89 in the first week of January and headed persistently lower until reaching its low point near $75 in the middle of March. Since then, things have really started to improve. First the stock rebounded from its lows, moving steadily upwards until running into stiff resistance near the 100-dma ($82.05) and backing off over the next few weeks. Last week, OMC finally managed to stabilize again, this time right on top of the 50-dma ($79.54) and 100-dma ($79,43) and it has launched sharply higher in the past two sessions, drawing very near to a key breakout. The stock had already issued a PnF Buy signal with the rally off the March lows that printed at the $83 box. That gave a bullish price target of $100, but after running into stiff resistance at the bearish resistance line, a slight retracement was logical. This rally has already moved through the resistance line (now at $82) and looks poised to deliver a major breakout. Looking at the daily chart, today's trade above $83.20 could certainly be labeled as a breakout. But the fact that the bulls couldn't hold above the early April highs suggests that we're still waiting for the real breakout. Looking at the PnF chart, it looks like a trade at $84 will be necessary to achieve that milestone, so we're going to use an $84 entry trigger. Aggressive traders can enter on the initial break, while those with a more conservative approach will want to wait for a subsequent pullback to what should be strong support near $82 before playing. There's likely to be some mild resistance found near $86, but we're going to set our target a bit higher at $89, looking for a retest of the January highs. Initial stops will be set at $79.25, just under the site of the converged 50-dma and 200-dma. Suggested Options: Shorter Term: The May $80 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the June $85 Call, while the more conservative approach will be to use the June $80 Call. Our preferred option is the June $80 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. BUY CALL MAY-80 OMC-EP OI=1063 last traded @ $3.60 BUY CALL MAY-85 OMC-EQ OI= 936 last traded @ $0.70 BUY CALL JUN-80*OMC-FP OI= 160 last traded @ $4.30 BUY CALL JUN-85 OMC-FQ OI= 195 last traded @ $1.60 Annotated Chart of OMC: Picked on May 4th at $82.78 Change since picked: +0.00 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 1.21 mln Chart = ************************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 ******************* Amazon.com - AMZN - close: 43.95 chg: -0.46 stop: 46.35 AMZN closed below its 50-dma, an encouraging event for play participants. AMZN continues trading within a pattern that may well be a "b" distribution pattern. This week's candles have been closing below the midpoint of Friday's tall red candle. Next, AMZN bears want to see a move below Friday's low, and particularly a close below that level. Those seeking new entries could target a breakdown out of that possible "b" distribution pattern, with that break occurring on a drop below Friday's low. Remember, however, that such an entry will not give short-term traders much leeway, as those traders should consider an exit just above either $41.00 or $40.00. Picked on May 02 at $ 43.60 Change since picked: + 0.35 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 8.4 million Chart = --- Capital One - COF - close: 66.81 chg: +1.19 stop: 67.81*new* On Monday, COF announced its dividend payable on May 20 to holders of record on May 10. That day produced a small-bodied candle with upper and lower shadows, a possible reversal signal. Tuesday, COF bounced, but fell back from the day's high. The bounce turned RSI up through the signal line, but produced no other oscillator commitment to the upside. However, COF may be beginning a bear-flag bounce from just above historical support near $63.50. The 10-dma has been dropping quickly along with the price, and we lowered our stop accordingly, placing it just above that average. Because COF's decline has been so prolonged, we think a potential bear-flag bounce could take COF past our stop, so would not suggest new entries at this time. Picked on April 26 at $ 67.99 Change since picked: - 1.18 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 2.2 million Chart = --- Loews Corp - LTR - close: 57.72 chg: -0.38 stop: 60.01 LTR hit our trigger Monday. Now it needs to break below $57.25. It's been holding at or above months-long support near $57.70 -57.80. A break below $57.00-57.25 signals a break below the horizontal trendline that defines support on LTR's possible bearish right triangle. Without that break, however, LTR may bounce again. That bounce would probably be a bounce into a lower high in accordance with its pattern of lower highs, but we'd rather it didn't bounce at all. New entries could be found on a bounce and rollover from a lower high or on a break below $57.00-57.25. Picked on May 03 at $ 57.74 Change since picked: - 0.02 Earnings Date 04/29/04 (confirmed) Average Daily Volume: 419 thousand Chart = --- Silicon Labs. - SLAB - close: 48.48 change: +1.34 stop: 50.40 Semiconductor stocks finally found a bit of buying interest yesterday afternoon, with the SOX recovering to the $440 level by the close and inching a bit higher today. We saw similar price action in our SLAB play, with the stock rebounding from below $46 on Monday and putting in a pretty bullish performance today, closing back over $48, but just below the 200-dma ($48.73). The past 3 days leave behind a bullish looking candle pattern and that doesn't bode well for our play at all. The key will be whether the stock is able to climb back over the $50 level or if it rolls over below there. A rollover can be used for aggressive entries, while a break above the $50 mark will more than likely have our $50.40 stop in danger of being clipped. We're still looking for that rollover to send the stock back south, but we'll adhere to our stop, just in case. With our final target for the play at $43, it doesn't seem reasonable to consider new entries on a breakdown below yesterday's low. Rollover entries are the only way to go right now, but we need to see confirmation of sector weakness with the SOX rolling over in tandem with SLAB before taking that plunge. Picked on April 29th at $50.03 Change since picked: -1.55 Earnings Date 4/26/04 (confirmed) Average Daily Volume = 1.30 mln Chart = ************* NEW PUT PLAYS ************* Whirlpool Corp - WHR - close: 65.05 chg: -1.09 stop: 68.96 Company Description: Whirlpool is one of world's leading manufacturers and marketers of major home appliances, with annual sales of more than $12 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers. The company markets Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other major brand names to consumers in more than 170 countries. (Source: Company Press Release.) Why We Like It: Tuesday, WHR announced the retirement of its CEO of the past 17 years, but we suspect that the recent decline has more to do with the specter of rising interest rates than with that CEO's retirement. Rising interest rates means fewer new homes purchased, but probably impacts refinancings and remodeling even more than it does those new home sales. Tuesday, WHR touched the probable neckline of H&S on the weekly chart, with that formation taking most of this year to form. While we wouldn't be surprised to see a reflexive bounce up from this neckline, we're setting a breakdown entry, with that entry at $64.69, just below Tuesday's low. The downside target of that H&S lies near $50.00, but we see possibly significant support just under $58, so we're setting our profit target at $58.01. Because of the possibility of that reflexive bounce, we'll initially set a wide stop at $68.96, just above the 50-dma. Suggested Options: While aggressive traders might choose May options, the possibility that WHR could see a reflexive bounce after hitting that neckline, June options might be better. We suggest the June 65. BUY PUT JUN-70 WHR-RN OI= 918 Last traded @6.00 BUY PUT JUN-65 WHR-RM OI= 1,649 Last traded @2.50 Annotated Daily Chart for WHR: Picked on May xx at $ xx.xx (See Trigger) Change since picked: - 0.xx Earnings Date 04/21/04 (confirmed) Average Daily Volume: 555 thousand 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 05-04-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Real Bounce or Technical Bounce? Tomorrow May Answer. Spreads & Straddles: FOMC Decision Leaves Stocks In A Drift... Premium Selling Plays: Naked Puts & Calls Traders Corner: RING THAT BELL ********** WATCH LIST ********** Real Bounce or Technical Bounce? Tomorrow May Answer. _________________________________________________________________ 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. ___________________________________________________________________ Schlumberger Ltd. - SLB - close: 59.18 change: -0.39 WHAT TO WATCH: Last week, SLB tumbled below support near $60.80, falling all the way to a 38.2 percent retracement of its rise off the October lows. That was a natural place to see a bounce, and SLB has been bouncing over the last few days. That bounce looks suspiciously like a bear-flag rise into the broken resistance, however. We suspect that SLB may bounce up toward that resistance and then roll over somewhere near $60.50-61.00. Look for a rollover entry. There's gap support, with that support confirmed by Friday's bounce, but we suspect that the next rollover will see a deeper dip. Target $55-56.00. Chart= --- Adobe Systems Inc. - ADBE - close: 45.90 change: +1.90 WHAT TO WATCH: With a P&F upside target of $66.00 and a confirmed reverse H&S on the weekly, and with the neckline already tested, this looks like a bullish candidate. There's a problem with that conclusion. ADBE has resistance at the current level, resistance that may mean it's building a double-top formation rather than an impending breakout. That's not what volume says, however. That supports the bullish view. Look for a pullback toward the top of this week's gap and a bounce from there. ADBE is scheduled to release earnings June 17, so we've got a while for this play to work. A breakout entry would occur on a move above Tuesday's high, although that's a riskier play, we think. Those who are interested in an unbiased view could also watch for a rollover entry, on a break below $40.70. Chart= --- C A C I Int. - CAI - close: 41.45 change: -3.83 WHAT TO WATCH: With Tuesday's big move, CAI fell all the way to support near $40, and then bounced. We think some technical damage may have been done, however, with new sellers now lurking near $43.50-44.00. Watch for a bounce up to that level and a rollover entry. Make sure that such a bounce occurs on low volume, however. Tuesday's big volume drop may have signaled that most who want to sell already have. Chart= --- Motorola Inc. - MOT - close: 18.65 change: +0.43 WHAT TO WATCH: MOT has been trading in a wide shallow bowl on the weekly chart, looking as if it's getting ready to break out. It's been testing its mid-April gap, finding support on the 50- dma. We like the way that volume dropped as MOT pulled back to test that gap. Aggressive traders could risk a long entry here, while others might wait for a break over the top of April's gap or over the early April highs. Breakout plays may be risky in the current environment, especially heading into the summer doldrums, so make sure that any breakout is attended with rising volume. Pass up the play if that doesn't happen. Chart= ************************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 ******************* FOMC Decision Leaves Stocks In A Drift... By Ray Cummins The major equity averages ended little changed Tuesday after the Federal Reserve said it was preparing to raise interest rates, but also commented that any increases would come at a "measured" pace. The Dow Jones industrial average added 3 points to 10,317 as Alcoa (NYSE:AA) led the blue-chip group higher while Wal-Mart (NYSE:WMT) limited its gains. The NASDAQ Composite closed up 11 points at 1,950 amid a late buying spree in communications equipment shares. The Standard & Poor's 500 Index finished 2 points higher at 1,119, with commodities-related stocks among the day's best performers. Trading volume was moderate with 1.67 billion shares changing hands on the Big Board while 1.85 billion shares crossed on the technology exchange. Advancing issues led declining stocks by roughly 3 to 2 on both the NYSE and the NASDAQ. Treasury prices drifted lower with the 10-year note down 11/32 while its yield climbed to 4.54%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/03/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Stock Pick Last Month L/P S/P Credit C/B G/L Status HSIC 75.81 70.76 MAY 65 70 0.45 69.55 0.45 Open? NAV 49.90 45.60 MAY 40 45 0.60 44.40 0.60 Open? DNA 112.00 122.45 MAY 95 100 0.50 99.50 0.50 Open EBAY 75.94 81.85 MAY 65 70 0.65 69.35 0.65 Open HDI 55.63 56.94 MAY 47 50 0.25 49.75 0.25 Open PDCO 74.97 75.50 MAY 65 70 0.65 69.35 0.65 Open CME 116.11 118.28 MAY 100 105 0.60 104.40 0.60 Open MATK 65.12 66.55 MAY 55 60 0.60 59.40 0.60 Open MTG 74.42 74.50 MAY 60 65 0.50 64.50 0.50 Open BJS 47.30 45.04 MAY 42 45 0.30 44.70 0.30 Open? NBR 47.03 45.49 MAY 42 45 0.30 44.70 0.30 Open? AVP 84.00 84.98 MAY 75 80 0.45 79.55 0.45 Open MUR 68.50 70.20 MAY 60 65 0.50 64.50 0.50 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Silicon Labs (NASDAQ:SLAB) has previously been closed to limit potential losses. Bullish spreads on BJ Services (NYSE:BJS), Nabors Industries (NYSE:NBR), Navistar (NYSE:NAV), and Henry Schein (NASDAQ:HSIC) are on the "watch" list and should be closed on any further downside activity. CALL-CREDIT SPREADS Stock Pick Last Month L/C S/C Credit C/B G/L Status SOHU 25.46 17.07 MAY 35 30 0.60 30.60 0.60 Open SFNT 31.65 22.18 MAY 40 35 0.70 35.70 0.70 Open GENZ 46.40 44.07 MAY 55 50 0.60 50.60 0.60 Open PRX 55.25 39.80 MAY 65 60 0.65 60.65 0.65 Open MERQ 45.59 43.11 MAY 55 50 0.60 50.60 0.60 Open NEM 42.86 37.38 MAY 50 47 0.25 47.75 0.25 Open RYL 77.41 79.03 MAY 90 85 0.60 85.60 0.60 Open AMZN 45.20 44.41 MAY 55 50 0.65 50.65 0.65 Open BOBJ 27.85 21.84 MAY 35 30 0.75 30.75 0.75 Open NTES 51.43 41.60 MAY 65 60 0.50 60.50 0.50 Open VECO 27.43 23.28 MAY 35 30 0.55 30.55 0.55 Open BSX 40.25 40.47 MAY 45 42 0.25 42.75 0.25 Open RIMM 97.54 89.53 MAY 115 110 0.50 110.50 0.50 Open MRVL 38.92 38.05 MAY 45 42 0.30 42.80 0.30 Open OVTI 22.38 22.73 MAY 30 25 0.55 25.55 0.55 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status SSYS 20.88 20.87 MAY 22 20 2.10 2.25 Open? ZMH 80.84 82.08 MAY 80 80 4.90 6.15 Open? AH 35.78 33.33 MAY 35 35 3.10 2.90 Open QLTI 29.60 27.18 MAY 30 30 3.00 4.50 Open? HOTT 22.26 22.41 MAY 22 22 1.80 1.60 Open LF 19.67 21.09 JUN 20 20 3.50 5.25 Open? BSTE 30.63 39.90 JUL 30 30 6.00 11.50 Open? MKSI 23.10 19.85 JUL 22 22 4.70 5.50 Open Biosite (NASDAQ:BSTE) has been the best performing position in recent weeks, but Zimmer Holdings (NYSE:ZMH), LeapFrog (NYSE:LF), MKS Instruments (NASDAQ:MKSI) and QLT Inc. (NASDAQ:QLTI) have been active as well, providing favorable short-term gains. The position in Corinthian Colleges (NASDAQ:COCO) was not available at the target entry price, due to the "gap-up" on the day after the straddle was listed as a new candidate. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ERES - eResearch Technology $32.29 *** 3-For-2 Split Coming! *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. ERES - eResearch Technology $32.29 PLAY (conservative - bullish/credit spread): BUY PUT MAY-27.50 UDB-QY OI=814 ASK=$0.25 SELL PUT MAY-30.00 UDB-QF OI=434 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$29.75 __________________________________________________________________ ZBRA - Zebra Technologies $74.62 *** Uptrend Intact! *** Zebra Technologies Corporation (NASDAQ:ZBRA) and its wholly owned subsidiaries design, manufacture and support a broad range of direct thermal and thermal transfer bar code label and receipt printers, plastic card printers, related accessories and support software. The company's main products consist of a broad line of computerized printers for the production of bar code labels, receipts and tags, and plastic cards, specialty bar code labeling materials, ink ribbons for bar code and card printers, and bar code label design software. ZBRA - Zebra Technologies $74.62 PLAY (conservative - bullish/credit spread): BUY PUT MAY-65.00 ZBQ-QM OI=203 ASK=$0.20 SELL PUT MAY-70.00 ZBQ-QN OI=231 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.40-$0.45 POTENTIAL PROFIT(max)=8% B/E=$69.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AMZN - Amazon.com $43.95 *** Downtrend Resumes? *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $43.95 PLAY (conservative - bearish/credit spread): BUY CALL MAY-50.00 ZQN-EJ OI=16971 ASK=$0.15 SELL CALL MAY-47.50 ZQN-EW OI=18230 BID=$0.35 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$47.75 __________________________________________________________________ CHIR - Chiron $45.58 *** Failed Rally? *** Chiron Corporation (NASDAQ:CHIR) is a global pharmaceutical firm that is focused on developing products for cancer and infectious disease. Chiron continues to build upon its cancer franchise, which has three dimensions, including immune system modulators, monoclonal antibodies and novel anti-cancer agents. In the area of infectious diseases, the company has a range of products. The company commercializes its products through three business units, which include biopharmaceuticals, vaccines and blood testing. Chiron Biopharmaceuticals discovers, develops, manufactures and markets a range of therapeutic products. CHIR - Chiron $45.58 PLAY (conservative - bearish/credit spread): BUY CALL MAY-50.00 CIQ-EJ OI=1377 ASK=$0.15 SELL CALL MAY-47.50 CIQ-ET OI=2043 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$47.75 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 05/3/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 FWHT MAY 17 17.15 20.85 0.35 4.19% 2.04% MICC MAY 17 17.15 24.53 0.35 4.31% 2.04% MNST MAY 22 21.95 25.85 0.55 4.39% 2.51% HNT MAY 22 22.00 25.50 0.50 4.76% 2.27% IPXL MAY 20 19.50 21.35 0.50 5.43% 2.56% SSNC MAY 22 21.60 24.43 0.90 7.85% 4.17% TINY MAY 15 14.70 17.29 0.30 4.60% 2.04% IMM MAY 15 14.70 18.25 0.30 4.66% 2.04% IPXL MAY 20 19.65 21.35 0.35 4.38% 1.78% JBLU MAY 22 22.15 28.79 0.35 3.65% 1.58% LSCP MAY 22 21.95 31.33 0.55 5.43% 2.51% TINY MAY 17 17.00 17.29 0.29 3.75% 2.94% XMSR MAY 25 24.50 25.32 0.50 4.35% 2.04% ASKJ MAY 30 29.50 38.28 0.50 4.47% 1.69% BRCM MAY 37 36.70 37.61 0.80 4.83% 2.18% FWHT MAY 20 19.35 20.85 0.65 7.29% 3.36% IMM MAY 17 17.05 18.25 0.45 6.91% 2.64% HOLX MAY 20 19.50 20.18 0.50 5.51% 2.56% HSII MAY 22 22.25 25.57 0.25 2.61% 1.12% IMM MAY 17 17.25 18.25 0.25 4.16% 1.45% LF MAY 20 19.55 21.09 0.45 5.16% 2.30% TSAI MAY 20 19.80 21.28 0.20 2.99% 1.01% TSO MAY 20 19.50 20.85 0.50 5.60% 2.56% APPX MAY 35 34.40 42.43 0.60 5.81% 1.74% BLDP MAY 10 9.75 10.57 0.25 6.55% 2.56% ELN MAY 17 17.30 22.03 0.20 4.01% 1.16% ERES MAY 25 24.50 32.31 0.50 6.05% 2.04% HOLX MAY 20 19.65 20.18 0.35 4.54% 1.78% LSCP MAY 22 22.10 31.33 0.40 5.49% 1.81% PDII MAY 22 21.75 26.09 0.75 8.99% 3.45% TELK MAY 22 22.20 23.76 0.30 4.32% 1.35% TNOX MAY 15 14.50 17.10 0.50 8.35% 3.45% APPX MAY 35 34.65 42.43 0.35 3.75% 1.01% EYE MAY 17 17.20 22.19 0.30 5.00% 1.74% JCOM MAY 22 22.30 23.28 0.20 2.82% 0.90% MGAM MAY 22 21.90 23.29 0.60 7.17% 2.74% MICC MAY 22 22.10 24.53 0.40 5.16% 1.81% NIHD MAY 33 32.88 35.50 0.50 4.38% 1.52% PXLW MAY 17 16.95 17.97 0.55 7.81% 3.24% SNIC MAY 17 17.15 17.90 0.35 5.76% 2.04% CAMD MAY 15 14.60 14.48 (0.12) 0.00% 2.74% DNDN MAY 12 12.25 13.54 0.25 6.83% 2.04% FWHT MAY 20 19.60 20.85 0.40 7.10% 2.04% MICC MAY 25 24.45 24.53 0.08 1.06% 2.25% NIHD MAY 35 34.50 35.50 0.50 5.01% 1.45% OSTK MAY 30 29.25 37.43 0.75 9.75% 2.56% SNIC MAY 17 17.20 17.90 0.30 6.05% 1.74% TINY MAY 17 17.20 17.29 0.09 1.98% 1.74% UTHR MAY 20 19.65 25.61 0.35 6.71% 1.78% ALKS MAY 15 14.70 15.42 0.30 6.80% 2.04% ATRS MAY 25 24.55 25.98 0.45 7.08% 1.83% DRTE MAY 17 17.20 16.81 (0.39) 0.00% 1.74% FWHT MAY 20 19.65 20.85 0.35 6.77% 1.78% INSP MAY 30 29.50 33.13 0.50 7.20% 1.69% ISPH MAY 15 14.50 16.61 0.50 11.39% 3.45% PTEN MAY 35 34.65 35.93 0.40 4.13% 1.01% UTHR MAY 22 22.10 25.61 0.40 6.82% 1.81% ARTC MAY 22 22.20 22.98 0.30 5.52% 1.35% CPKI MAY 20 19.70 20.84 0.30 6.19% 1.52% HEW MAY 30 29.50 32.09 0.50 6.70% 1.69% ISPH MAY 15 14.55 16.61 0.45 12.90% 3.09% MGM MAY 20 19.65 20.98 0.35 7.24% 1.78% SONO MAY 20 19.60 22.62 0.40 8.71% 2.04% USPI MAY 35 34.35 37.51 0.65 7.48% 1.89% Positions in ADEX, CLZR, ESIO, GNTA, GVHR, INSP ($35 strike), MRVL, NET, NFLX, PLMO, TOMO, and USG have previously been closed to limit losses. Pharmacopeia (NASDAQ:ACCL), which is positive, has been removed from the portfolio because the company has completed its planned spin-off of Pharmacopeia Drug Discovery (NASDAQ:PCOP) and the play involves tracking positions in two separate issues. Due to the recent bearish activity, virtually all of the portfolio issues are on the "watch" list. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AFCI MAY 25 25.75 16.73 0.75 7.73% 2.91% QLGC MAY 37 37.95 26.89 0.45 4.22% 1.19% AVCT MAY 37 38.15 32.10 0.65 4.61% 1.70% INTU MAY 47 48.00 42.95 0.50 2.80% 1.04% PPCO MAY 20 20.30 17.83 0.30 6.92% 1.48% SINA MAY 45 45.55 28.89 0.55 6.61% 1.21% NANO MAY 20 20.40 11.65 0.40 10.66% 1.96% PHTN MAY 35 35.60 31.00 0.60 7.03% 1.69% SFA MAY 35 35.55 32.49 0.55 6.17% 1.55% SOHU MAY 25 25.75 17.07 0.75 11.61% 2.91% SWIR MAY 35 35.60 21.50 0.60 9.26% 1.69% HOV MAY 42 42.90 36.24 0.40 4.07% 0.93% NFI MAY 45 45.40 32.83 0.40 7.16% 0.88% PHTN MAY 35 35.30 31.00 0.30 6.07% 0.85% RMBS MAY 25 25.30 18.25 0.30 7.84% 1.19% FLSH MAY 20 20.25 17.82 0.25 8.55% 1.23% BRCM MAY 42 42.80 37.61 0.30 4.46% 0.70% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Strike Strike Cost Stock Option Max. Simple Symbol Month Price Basis Price Price Yield Yield DRIV MAY 25 24.75 27.67 0.25 5.17% 1.01% GPRO MAY 35 34.70 38.22 0.30 4.34% 0.86% JILL MAY 20 19.60 21.70 0.40 9.70% 2.04% MVSN MAY 20 19.65 22.74 0.35 9.34% 1.78% ORBZ MAY 25 24.75 27.00 0.25 4.94% 1.01% PDII MAY 25 24.55 27.30 0.45 8.88% 1.83% SYMC MAY 45 44.65 49.15 0.35 3.95% 0.78% VXGN MAY 15 14.50 16.71 0.50 16.34% 3.45% __________________________________________________________________ DRIV - Digital River $27.67 *** Next Leg Up? *** Digital River (NASDAQ:DRIV) is a provider of electronic commerce outsourcing solutions. As an application service provider, the company enables its clients to access its proprietary electronic commerce system over the Internet. Their technology platform allows the company to provide a suite of electronic commerce services such as e-commerce development and hosting, transaction processing, fraud screening, digital delivery, integration to physical fulfillment and customer service. Digital River also offers analytical marketing and merchandising services to assist clients in increasing Web page view traffic to, and sales through, their Web commerce systems. DRIV - Digital River $27.67 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 DQI QE 253 0.25 24.75 5.2% 1.0% __________________________________________________________________ GPRO - Gen-Probe $38.22 *** A Big Day! *** Gen-Probe (NASDAQ:GPRO) is a leader in the development, production and marketing of rapid, accurate and cost-effective nucleic acid testing products used for the clinical diagnosis of human diseases and for screening donated human blood. Using its patented NAT technology, Gen-Probe has received FDA approvals or clearances for products that detect a variety of infectious microorganisms, such as those causing sexually transmitted diseases, tuberculosis, strep throat, pneumonia and fungal infections. Additionally, the firm developed and manufactures the only FDA-approved blood screening assay for the simultaneous detection of HIV-1 and HCV, which is marketed by Chiron Corporation. Gen-Probe has 20 years of nucleic acid detection research and product development experience, and its unique products are used daily in laboratories and blood collection centers throughout the world. GPRO - Gen-Probe $38.22 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 35 PSU QG 1488 0.30 34.70 4.3% 0.9% __________________________________________________________________ JILL - J. Jill Group $21.70 *** Awesome Earnings! *** The J. Jill Group (NASDAQ:JILL) is a specialty retailer of women's apparel, accessories and footwear. The firm markets its products in catalogs, retail stores and on an e-commerce Website. J. Jill has two business segments, direct and retail, and each segment is separately managed and utilizes distinct distribution, marketing and inventory management strategies. The direct segment markets merchandise through catalogs and on the website while the retail segment markets merchandise through retail stores. The company's target customers are active, affluent women ages 35 to 55 who buy clothing styles from relaxed career wear to sophisticated casual weekend wear. JILL - J. Jill Group $21.70 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 JUI QD 67 0.40 19.60 9.7% 2.0% __________________________________________________________________ MVSN - Macrovision $22.74 *** Rally Mode! *** Macrovision (NASDAQ:MVSN) develops and licenses rights management and copy protection technologies. The company's customers include Hollywood studios, independent video producers, enterprise and consumer software vendors, digital set-top box manufacturers and digital pay-per-view (PPV) network operators. Macrovision provides content owners with the means to market, distribute, manage and protect video, software and audio content. The company also is in the business of consumer software copy protection. Macrovision offers CD-ROM copy protection and rights management technologies to a wide variety of software publishers in the personal computer games, education, information publishing and desktop applications software markets. MVSN - Macrovision $22.74 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 MVU QD 28 0.35 19.65 9.3% 1.8% __________________________________________________________________ ORBZ - Orbitz $27.00 *** Earnings Speculation! *** Orbitz (NASDAQ:ORBZ) is an online travel company that enables travelers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages. On its website, consumers can search over two billion flights on hundreds of airlines, as well as rates at over 45,000 lodging properties and at 23 car rental companies. Its search results are presented in an unbiased, easy-to-use matrix display that provides a vast array of options to consumers without favoritism toward any supplier, enabling consumers to select the price and supplier that best meets their individual travel needs. Earnings are due May 5, 2004. ORBZ - Orbitz $27.00 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 IRQ QE 260 0.25 24.75 4.9% 1.0% __________________________________________________________________ PDII - PDI Incorporated $27.30 *** Volatility = Premium! *** 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 $27.30 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 PKU QE 152 0.45 24.55 8.9% 1.8% __________________________________________________________________ SYMC - Symantec $49.15 *** Testing 2004 Highs! *** Symantec (NASDAQ:SYMC) provides content and network security software and appliance solutions to enterprises, individuals and service providers. The firm provides client, gateway and server security solutions for virus protection, firewall and virtual private network, security management, intrusion detection, e-mail filtering and Internet content, remote management technologies and security services to enterprises and service providers worldwide. The company views its business in five operating major segments: enterprise security, enterprise administration, consumer products, services and other activities. SYMC - Symantec $49.15 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 45 SYQ QI 7003 0.35 44.65 3.9% 0.8% TS __________________________________________________________________ VXGN - VaxGen $16.71 *** Entry Point? *** VaxGen (NASDAQ:VXGN) is a biopharmaceutical company engaged in the development, manufacture and commercialization of biologic products for the prevention and treatment of human infectious disease. The company is developing preventive vaccines against anthrax, smallpox and HIV/AIDS and is the largest shareholder in Celltrion Inc., a joint venture to build biopharmaceutical manufacturing operations. Celltrion was formed by VaxGen and certain South Korean investors to provide manufacturing of complex proteins made through mammalian-cell fermentation. This type of manufacturing is used to make many of the drug products developed by the biotechnology industry, including monoclonal antibodies and therapeutic proteins. Products under development by VaxGen include an anthrax vaccine, a smallpox vaccine and the AIDSVAX AIDS vaccine. VXGN - VaxGen $16.71 "SPECULATIVE" 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 UWG QC 293 0.50 14.50 16.3% 3.4% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ APPX - American Pharma Partners $40.06 *** Trend Reversal? *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX - American Pharma Partners $40.06 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 50 AQO EJ 5670 0.55 50.55 11.5% 1.1% * SELL CALL MAY 45 AQO EI 9424 1.40 46.40 20.1% 3.0% __________________________________________________________________ KG - King Pharmaceuticals $16.40 *** Premium-Selling Only! *** King Pharmaceuticals (NASDAQ:KG) is a vertically integrated pharmaceutical company that develops manufactures, markets and sells branded prescription pharmaceutical products. The firm's branded pharmaceutical products can be divided primarily into the cardiovascular; endocrinology/women's health; orthopedic; critical care; neurology/central nervous system; anti-infective; respiratory, and bio-defense therapeutic areas. King markets its branded pharmaceutical products to general/family practitioners, internal medicine physicians, cardiologists, endocrinologists, obstetrician/gynecologists and hospitals across the U.S. and in Puerto Rico. KG - King Pharmaceuticals $16.40 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 20 KG ED 8566 0.25 20.25 12.7% 1.2% * SELL CALL MAY 17.5 KG EW 9831 0.75 18.25 21.7% 4.1% __________________________________________________________________ SHRP - Sharper Image $28.05 *** Sell-Off Underway! *** Sharper Image (NASDAQ:SHRP) is a specialty retailer of products in the electronics, recreation and fitness, personal care, houseware, travel, toy, gifts and other categories. The firm's merchandising philosophy focuses principally on proprietary Sharper Image Design products and exclusive Sharper Image branded products and, to a lesser extent, on third-party branded products. The firm designs and develops its Sharper Image Design products, while Sharper Image branded products are designed by third parties or jointly designed with the Company. The company markets its merchandise primarily through three integrated sales channels: The Sharper Image stores, sharperimage.com and The Sharper Image catalog, which includes any revenue from direct marketing activities and infomercials. SHRP - Sharper Image $28.05 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 30 SAU EF 525 0.45 30.45 8.3% 1.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************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 ************************************************************** ************** TRADERS CORNER ************** RING THAT BELL By Leigh Stevens lstevens@OptionInvestor.com There is a concept relating to a bell ringing as signaling danger or something to stop and pay attention to that is often quite meaningful in relation to trading index options. That is the concept of a bellwether stock or a bellwether sector, that by its price action, can tip us off as to when a top or bottom is forming in the Index. In the Nasdaq, there are certain companies and market sector (e.g., semiconductor stock – SOX index) indexes that by virtue of their size or relative importance will be virtual "stand-ins" for, or will be closely linked to, a market index or average. And example I use in my book is of the earliest bellwether I know of - the role the Dow Transportation average plays as a linked average to the Dow Industrials -- if one average or the other fails to also move to a new high or low, this is a bullish or bearish divergence. I've often written about the idea of where an Indicator, such as the Relative Strength Index (RSI) fails to also make a new high, or low, relative to what is happening with the price of the Index itself – such divergences are often very good tip offs to an impending top or bottom. Having a good idea that a top, or bottom, is forming is one of the most helpful things that can occur in terms of buying index puts or calls before the market breaks sharply from the existing trend. An example of a bearish Price/RSI Divergence in the S&P Index is highlighted in the following chart – This is color coded so to speak. While SPX was going up and making new highs (green line), the 14-day RSI was making lower relative lows as seen along the red down-sloping line at bottom – a bearish price/RSI divergence. While this doesn't tell you exactly where to start buying Index puts, the worst that happened in this situation was that you could have been early into them. With a divergence like this after such a long strong run up, you would not want to play front-month puts anyway. The third high was the charm – quite a break followed. And, the best profits were made by buying puts before the first day or two of the sharp break. A bullish price/RSI divergence set up at the bottom, with the green up-sloping line at bottom highlighting the higher low made by the RSI versus the lower price low (new low) that occurred in the Index. Back to the bellwether idea, for a stock – the idea is that as a bellwether goes, "so goes the market". For example, Cisco Systems (CSCO) has been a key or bellwether stock to follow if you wanted to track just one specific stock in the Nasdaq versus the Nasdaq Indices. CSCO, along with Nasdaq biggies, Microsoft Inc. (MSFT) and Intel Corp. (INTC), accounted at one time for close to 25% of the entire value of the Composite Index. Size is not the only criteria for assuming a "bellwether" status. As important, it must be a company that represents the leading edge business that exemplifies that exchange – in the case of Nasdaq, the need for internet and communications hardware has Cisco still in forefront in very key and necessary tech equipment. Besides a key individual stock like Cisco, a related stock index that is also a bellwether for Nasdaq, is the Russell 2000 (RUT). You might figure that it was not too good in this role as RUT went to new highs while the Nasdaq indices were falling to lower lows – but, then the Russell also made a classic "rounding top" pattern, so this Index was not saying that everything was go in the Nasdaq. This chart is not shown – its "homework" to look it and imagine the rounding top pattern. The Semiconductor Index (SOX), as calculated by the Philadelphia Options Exchange, in also a key related and underlying component of high tech. But back to the stock we want to look at. I like to look at bellwether stocks for some added they give – namely that I can study volume for it. Volume is a good secondary indicator – for example, a drive to a new high is accompanied by a decline volume trend – LOOK OUT. NEXT CHART: Cisco (CSCO) versus the Nasdaq 100 (NDX) – There are certain things that Cisco's price and volume action pointed to that was not apparent in the NDX. First, was the churning around that the Index did at the top – but Cisco's On- Balance Volume (OBV) was headed down-down-down (dark green line at bottom) for at least 4-days while the Index was going sideways. [I'll say something about OBV further on - ] So, our bellwether stock had a bearish volume divergent pattern. This and the other divergence mentioned was a helpful tip off for what was coming. Next – the down trendlines have the same pattern on the decline, "confirming" that the Nasdaq was in a downtrend; i.e., had a pattern of lower rally highs. There was one meaningful divergent pattern with the 50 and 200-day moving averages however – CSCO fell and stayed under its 50-day average, suggesting that the rally in NDX late in April was not likely to "work" or last. Now, the stock, unlike the NDX Index is trading under its 200-day moving average – this may suggest that NDX will follow suit. Stay tuned on that! During the rally in the Nasdaq 100 and in Cisco Systems into early-April, the daily volume (noted by the red down-sloping line) trend was of trading volume that was declining, suggesting a short-covering type rally without new net buying. Interesting clues – perhaps enough to keep a trader out of jumping into Index calls too soon, at least for anything longer than very short-term trading. While the bellwether stock will often have the same technical patterns or the index will sometimes lead the bellwether stock, it’s the occasional instances where the bellwether leads or goes against the pattern being made by the index that makes them valuable for comparison. The points where the bellwether is a leading "indicator" can occur at a key turn or shift in the trend. About the OBV Indicator - On Balance Volume is a cumulative running volume figure that adds ALL the volume on an up date and subtracts ALL the trading volume on down day. If there is more trading volume on up days then there is on down days, OBV rises. What we are concerned with is the direction of line, up or down, not the actual number. This indicator uses daily stock trading volume for its construction. The insight it makes furthered Charles Dow’s concept that volume should INCREASE in the direction of the dominant trend. On-Balance Volume provides some further assessment of this idea. For the NYSE Composite Index (NYA), the Dow 30 Average (INDU) and the S&P Indices, a key bellwether stock is General Electric (GE). This company is a major player in major areas of activity in the mainstream economy (e.g., power, appliances, etc.) that is represented by these averages. There are some noteworthy comparisons to be made between GE and the OEX in the next chart – While the S&P 100 (OEX) was making a double, then triple top in February – March, GE was in a definite downtrend, suggesting that OEX would reverse to the downside at some point and probably reverse significantly lower at that. If traders were wondering if OEX was going to break out to the upside at the blue arrow within the circle, as the Index popped up above the down trendline on two days running – NOT! – at least based on what GE was doing as it never got close to doing the same. Last but not least is a note about the break below the 200-day moving average seen now twice in the stock, but not in the Index. The first break (see circled price action in GE) was showing such weakness that it was doubtful that the OEX was going to get far in its rally after that. Most recently in the price action shown above, GE is having a difficult time getting back above the 200- day moving average. With such a key bellwether (GE), widely held in fund portfolios, not able to get back above the most widely watched moving average (200-day), its suggestive of institutional money not coming back into it strongly. Such action in this bellwether stock has me doubtful that the OEX is going to get much of a rally going – and, suggests another down swing lies ahead after the recent oversold rebound. Stay tuned on this of course, as more of this picture will be filled in during the days and weeks ahead. Something that has been strong in recent weeks, and is an important bellwether sector index is the NYSE Financial Stock Index ($NF or $NF.X are common quote symbols). This bellwether bears watching and may turn out to be showing a more bullish path ahead for the S&P. 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