The Option Investor Newsletter Sunday 08-15-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Blame Game Futures Wrap: See Note Index Trader Wrap: CRUDELY PUT Editor's Plays: See Note Market Sentiment: No Reason Ask the Analyst: The TRIN and Daily Pivot Analysis levels (day trader's only) Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 8-13 WE 8-06 WE 7-30 WE 7-23 DOW 9825.35 + 10.02 9815.33 -324.38 10139.7 +177.49 -177.56 Nasdaq 1757.22 – 19.67 1776.89 -110.47 1887.4 + 38.27 - 34.06 S&P-100 520.72 - 1.11 521.83 - 15.84 537.67 + 7.29 - 5.52 S&P-500 1064.80 + 0.83 1063.97 - 37.75 1101.72 + 15.52 - 15.20 W5000 10304.66 - 3.18 10307.84-393.81 10701.7 +147.83 -178.04 SOX 366.65 – 20.23 386.88 - 29.55 416.43 + 10.85 - 4.88 RUT 517.39 - 2.26 519.65 - 31.64 551.29 + 12.07 - 16.26 TRAN 2966.92 + 0.84 2966.08 -145.61 3111.69 + 68.25 - 44.89 ****************************************************************** Blame Game Linda Piazza Jim is out of town through next week, attending a conference. Dell's after-Thursday's-close earnings report was slated to be the big news Friday, sending tech-related indices higher. Pre- market articles talked about the bounce that was to come, but the day didn't unfold that way. Instead, countries across the globe traded blame for disappointing economic numbers reported Friday. Commentators and economists blamed lower U.S. consumer demand for discouraging GDP numbers in Japan and the eurozone countries. In the U.S., commentators blamed lower demand for goods exported to Japan and the eurozone for the widening of the U.S. trade gap. Those economic releases revealed plenty of blame to parcel among the various countries. That blame settles on consumer demand in the world's three largest economies, or more properly on the impact of rising crude costs on consumer spending habits. Japan's GDP number proved to be a shocker. GDP growth for the second three months of this year surprised to the downside, at 0.4 percent falling far short of the forecasted 1 percent growth. The annualized GDP rose by 1.7 percent, with some suggesting that assessments for the Japanese economy's growth would require adjustment. It was just Wednesday that the International Monetary Fund raised its forecast for Japan's 2004 economic growth to 4.5 percent from the previous 3.4 percent. Both private consumption and corporate capital expenditures disappointed. Corporate capital expenditures had been expected to grow by 10 percent, but instead were flat. The GDP deflator indicated that Japan still suffers from "unwanted disinflation," as our FOMC members might have described it. While some economists disputed both the private consumption and corporate capital expenditures numbers, they tanked the Nikkei, with that index plunging lower by 270.87 points or 2.46 percent, to 10,757.20, its lowest close since May 18. U.S. futures held up well while the Nikkei tanked. Although they stumbled slightly as the European Union released figures showing the eurozone's GDP rising 0.4 percent against an expectation of a 0.5 percent rise, the U.S. futures still gave hope of a bounce. The International Monetary Fund, the IMF, already estimates that Europe's growth will be the lowest among the three largest economies in the world, with Japan and the U.S. being the other two. In Germany in particular, stagnant consumer spending leads the economy to depend on exports. Clearly, consumer demand isn't rising as needed or expected. Last month, the Commerce Department released figures showing slowing consumer spending. In the eurozone as well as in the U.S., companies center hope on emerging markets, China, and Russia to provide the needed growth in demand. After the release of the eurozone's GDP and the resultant commentary, the FTSE 100, CAC 40, and DAX all headed lower, as did most eurozone bourses. Still, after that slight stumble, U.S. futures regained their footing and had attempted a couple of bounces by the release of July's U.S. PPI and June's Trade Balance. In June, the PPI headline number had fallen 0.3 percent, but the ex-food-and- energy number had risen 0.2 percent. Expectations for July's headline number had ranged from a decrease of 0.1 percent to a rise of 0.2 percent, depending on the source, while expectations for the ex-food-and-energy number had been for a rise of 0.1-0.2 percent, also depending on the source. The released numbers showed PPI rising 0.1 percent, with the ex-food-and-energy number rising 0.1 percent, both numbers in line with expectations. Dropping food costs offset rising energy costs, but companies reported raising prices due to energy costs. As quoted in one article, an economics professor at Harvard raised the specter of rising crude prices causing higher inflation coupled with slower growth. It was June's trade balance that started the blame game on the U.S. side of the pond, though. May's trade balance had measured -$46 billion, with economists forecasting a $46-47 billion shortfall for June. Instead, the gap widened to a record $55.8 billion as the U.S. paid more for crude oil and other industrial supplies and exported less. The number revealed a widening trade gap with Japan, Western Europe, Canada, and China, among other countries. Economists placed the blame for the biggest decline in exports since September 2000 on lower demand from Japan and the eurozone countries. As happened with Japan's disappointing economic release, market watchers began speculating that growth estimates for the U.S. economy might need revision. Some commented that the lower estimate for June's trade gap had probably been folded into the calculations for economic growth. A dissection of the number revealed that inventories rose, a comment that we've heard recently from reporting companies, too. As Jim Brown commented in an earlier Market Wrap this week, building inventories can be viewed in both a positive and a negative light. They can be a sign that sales have slumped, making it difficult to move that inventory. As Jim commented earlier in the week, some information suggests that may be a cause behind those building inventories, and the market treated companies reporting building inventories as if that were the case. They can also be a sign that companies expect growing sales, too, as they look forward to a period of expected expansion and are ramping up inventories to enable them to fulfill orders. In an effort to put the best spin on this morning's widening trade balance, some commentators embraced the latter interpretation today. Those optimists also viewed rising imports as a sign of increasing domestic demand rather than a function of higher crude costs. Despite the blows delivered by disappointing economic releases across the globe, the Dow, TRAN, Nasdaq, S&P 500, OEX, and SOX all opened in the green. Early morning articles sported titles such as "Stocks aim higher" and "Stocks bounce," featuring Dell's likely positive effect on the markets. Dell did perform strongly, closing 4.19 percent higher, but its positive effect on other than a few key sectors was dampened by the University of Michigan Consumer Confidence number released soon after the open. July's number had been 96.7, and expectations for August's preliminary number had been for a rise to 97.00-97.50. Instead the sentiment index fell to 94.0. The main culprit appeared to be the component that measures future expectations. Although the behaviors of the U.S. futures overnight and the cash markets on the open had been those of steadiness in the face of a number of adverse economic releases, the University of Michigan report sent indices into their first declines of the day. Some had already seen their high of the day and would decline steadily throughout the rest of the day. The Dow Jones Transportation Index proved to be one, with this oil-sensitive and economic- recovery-sensitive index succumbing to dual pressures. The TRAN hit its 200-sma, bouncing minimally from that average into the close and erasing all of this week's 110-point gain. Producing two reversal signals within one week, the TRAN made a round trip back to that average from Friday to Friday. Although the Dow's sister index held up well while crude prices rose this week, Friday it returned to its typical trading pattern of late, trading in direct opposition to the movement of crude futures. Annotated Five-Minute Charts of the TRAN and Crude Futures: The TRAN appears poised to bounce from its 200-sma or tank beneath it next week. If the inverse relationship to the movement of crude futures is to continue next week, making a prediction proves particularly difficult. This weekend includes a close recall election in Venezuela, with violence possibly escalating if the incumbent wins. A historical basis for such a concern exists, since output was trimmed during the last upheaval involving President Chavez. In addition, a BP plant in Indiana suffered a fire that cut output; Russia's Yukos may be put on the bidding block with uncertainty over whether the successful bidder could meet the company's previous output, and worries about developments in Iraq persist. Hurricane Charley's threat to oil and gas production had reportedly lessened at the time this report was prepared, but traders pumped the crude futures with event premium in case one or all of the threats to production materialize. If a truce is managed with Shiite militants in Iraq, other terrorists vow to leave Iraq's pipelines alone, Venezuelan elections proceed peacefully, and the markets find assurance that Yukos can keep up production, some of that premium may seep out, deflating crude prices. Such a deflation might allow indices to bounce, at least for a few days, but if crude prices continue higher, pressures on equities could escalate. Those believing that $40.00/barrel prices were temporary and the pressures on the economy transitory might be shocked out of that belief if crude hits $50.00/barrel. A CNBC Europe commentator mentioned a couple of weeks ago that crude prices would likely reach $47.50 in the short term and $57.00 ultimately, a claim that seemed unlikely at the time. He may be right about that $47.50 price, at least. Crude futures came within a point of that figure on Friday. It all sounds like doom and gloom, doesn't it? It wasn't. Across the U.S. markets, advancing issues and up volume proved stronger than declining issues and down volume. Adv:dec ratios stood at 19:13 for the NYSE and 15:15 for the Nasdaq. Total volume was a light 1.2 billion for the NYSE and 1.3 billion for the Nasdaq. The Dow, Nasdaq, S&P 500, OEX, SOX, and Russell 2000 all ended the day flat or slightly higher. Only the transports, insurance sector, pharmaceuticals and biotechs declined significantly. Homebuilders, the XAU, the HMO, and some computer-related indices performed strongly, as did the oil services and natural gas sectors. This article could have been titled "The Bounce that Almost Happened." Nevertheless, many indices teetered on the edge of a more severe drop Friday, including the S&P 500. Annotated Daily Chart of the SPX: The SPX's daily chart presents a clear picture of an index poised to bounce from bottom support on its descending regression channel or to fall from that channel. The SPX broke minimally below the bottom support of its possible "b" distribution pattern Friday, but was caught by 1060. The bounce did not prove convincing ahead of the weekend's uncertainty. The big-cap OEX has broken below the bottom support of its "b" distribution pattern and spent Friday trying to climb back inside the bulb of the "b," without success. The OEX did find support near 520, but closed just below the 520.80 figure that has proven to be support/resistance in the past. Markets appear to have long memories. Annotated Daily Chart of the Russell 2000: Like the SPX, the Russell 2000's daily MACD remains in full bearish mode. Stochastics have long been trending in levels depicting oversold conditions, a state that often accompanies steep declines. Stochastics produced another bearish kiss. Note, however, the equal lows on the RSI as the Russell 2000 hit first the July low and then headed down to a lower low in August. That's bullish divergence if it continues. Note also that RSI currently measures a higher level than at the August 9 low. RSI often serves as a leading indicator, but it's a fickle indicator, too. It should warn those in bearish positions to make plans to protect profits, something that should have been done anyway as indices approached key support levels, but it does not yet promise a bounce. Let RSI warn you and price action guide you. The Nasdaq also balances on a key level. Annotated Daily Chart of the Nasdaq: Wednesday, I pointed out the approach of the 38.2 percent retracement level drawn on the Nasdaq's daily chart, and the Nasdaq did spend the rest of the week balancing on that line, reinforcing its importance. Despite Dell's influence, the Nasdaq was not able to mount a bounce, instead producing an inside-day candle. If the Nasdaq does bounce early next week, first resistance should be expected at 1800 and the gap level from August 6. If the Nasdaq drops, round-number support should perhaps be expected near 1750, and slight support appears to exist near 1748 and again near 1740, but stronger support lies nearer 1690-1700. The Dow's chart shows some of the same characteristics seen on other daily charts. Annotated Daily Chart of the Dow: The Dow's chart (using the DJX as a proxy to obtain all the daily candles sometimes omitted on my daily chart) shows the new bearish stochastics kiss, the full bearish mode of the MACD, and the potential bullish price/RSI divergence. One commentator on the crude markets commented that crude could be $50 Monday or could be $40.00, depending on weekend developments. Those weekend developments and crude's resultant price could drive our markets, too. It appears difficult to imagine that indices could make strong advances if crude prices do not drop significantly, but Monday begins option expiration week, with all the attendant inexplicable market movements. As Jim Brown has mentioned in previous articles this week, the good news is that volatility has returned to the markets. Although all of us at OIN care about the health of our economy and so would prefer seeing markets move higher, we options traders can benefit from movement any direction as long as there's movement. We're in a good place for a bounce, but we're also in a good place for a rollover down to a new leg down, a great opportunity to profit from options plays. Until we get past some of the event risk, including the upcoming Olympics and perhaps even the upcoming elections, and have evidence that the prevailing downtrend has reversed, selling rallies remains the preferred tactic, so at least part of next week could be spent sitting out while markets bounce up to test resistance. If a bounce begins, many indices will be trading up through the bulb of a possible "b" distribution pattern, a pattern that is deemed bearish until proven otherwise. That bulb portion may produce choppy trading conditions. In addition, another factor may work against the aggressive trader willing to risk a countertrend play up through a likely choppy zone: options expiration week. Unfortunately, although once a bounce has begun, pent-up pressure may send indices high enough to profit in a bullish play, it's not yet a play I can recommend for any but the most adept scalpers who don't need advice anyway. Crude prices should be watched carefully Monday morning for signs that some of that event premium is evaporating or that crude prices instead are building. Watch crude's effect on the TRAN, with the TRAN so near the 200-sma that it should be easy to say "bounce" or "drop." Other indices' positions near key levels also offer that ability, although Friday's trading proved that even apparent breakdowns could whipsaw those entering bearish trades. Be prepared to be whipsawed if entering directional plays. Another index might offer guidance as to whether a bounce could begin. Although many indices produced doji or near-doji Friday, only one among the ones charted here produced that doji at the bottom of a steep decline. The others produced doji at the bottom of consolidation zones, not producing as strong a possibility of those doji being reversal signals. The SOX, however, produced its doji at the bottom of a steep decline. Annotated Daily Chart of the SOX: Although a classic morning-star reversal signal requires a tall red candle before the doji, we might give the SOX the benefit of the doubt, as indices sometimes don't produce as classic candlestick patterns as individual stocks might. Those hoping for a bounce want to see the SOX open Monday at or above its Friday close, and then produce a strong white candle. The mauve horizontal line on the chart represents the 50 percent retracement of the rally off the October 2002 low, an important Fibonacci retracement level the SOX violated this week. Those hoping for a bounce want to see the SOX close above that mauve line and above the bottom of the former descending regression channel. Otherwise the bounce remains suspect. Those hoping for a Nasdaq recovery also want to see the biotechs bounce, too. Companies reporting Monday include Lowe's Companies (LOW), Sysco Corporation (SYY), and Tandy Brands (TBAC), and possibly KMart (KMRT), although I'm finding conflicting information about its reporting date. Each of those offers a measure of consumer spending. They might be closely watched. Next week's economic releases number fewer than this week's, with Tuesday being a heavy-weight day with regard to those releases. Monday starts out slowly, with only the NY Empire State Index at 8:30 and the August NAHB Housing Market Index at 1:00. Tuesday's 8:30 releases include Building Permits, Housing Starts, Capacity Utilization, and Industrial Production, and Tuesday also includes chain store sales, Redbook Retail Sales, and the ABC/Money Consumer Confidence. Wednesday has become a volatile day as the Department of Energy and API release their disparate figures for crude, distillate and gasoline inventories, and Wednesday has also long been known as a possible trend-reversal day. Thursday rounds up the week's releases, with initial claims, natural gas inventories, leading indicators and the Philadelphia Fed's release. Have a safe weekend. Our thoughts and prayers go out to all subscribers who live in areas affected by Hurricane Charley or who have loved ones who live in those areas. ************ FUTURES WRAP ************ 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 ******************** INDEX TRADER SUMMARY ******************** CRUDELY PUT By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – Similar to what a certain President said about the economy being all-important: "it's the oil surge stupid". It may not be so smart in retrospect to have bought all those gas guzzling SUV's or fast sportive cars with big engines like mine – not when oil pipelines are being blown up, Russian oil supply gets chaotic and Venezuela goes in turmoil again – all conspiring to drive up oil prices to record levels during our big driving season. What this has to do with stocks of course is that, when concern already exists about any slowdown in consumer spending and the strength of the economic recovery, such a spike in oil prices could well put the brakes on a rebounding earnings trend. Since earnings growth expectations that developed before this energy price surge are priced in, the market has to adjust downward. I anticipated rally potential last week but once again the rebound was very short-lived. However, by week's end bad news had not driven at least the S&P indices to new closing lows – Nasdaq went to a slightly lower weekly low and has now retraced a full Fibonacci 38% of the late-'02 to early-'04 advance. Holders of Index puts should be concerned about how much downside is left here as time premiums erode in a sideways trend. Rally potential is probably not big, but all my major Index indicators are at or below the kind of oversold extremes which does signal ongoing potential for a short-covering type rally, along with some bargain hunting buying. Specifics further on. FRIDAY'S TRADING ACTIVITY – THE NUMBERS – The S&P 500 (SPX) gained 1.57 points (+0.1%) to 1,064.8, for a gain of less than a point on the week. The Dow Jones 30 (INDU) Average closed up 10.7 points to close at 9,825.35. The Dow (INDU) only gained +0.1% on the week – but I see some significance that the week to week decline stopped for now. The Nasdaq Composite Index (COMP) gained 4.7 points (+0.3%) to 1,757.22, but well off its 1768 intraday top. Over the course of the week, all three of the major indexes touched new lows for the year. COMP fell on the week by 1.1%. REPORTS & ECONOMIC NEWS – The bombshell of the day was the U.S. Commerce Department report that the U.S. trade (current account) deficit increased by 19% in June to a record $55.8 billion, well above the consensus estimate for around $47 billion. This was the biggest 1-month jump in our trade gap since early-99. This is the kind of thing that is not watched a lot by consumers who like low prices above all, but is a long-term concern for our economy if all those excess dollars come out of where they are mostly parked: in the T-Bonds that finance our burgeoning federal debt. The Labor Department estimated that prices paid to U.S. producers (PPI) increased only 0.1% in July, less than the 0.2% rise expected. Core prices, excluding the more volatile food and energy prices, rose 0.1% in July and consistent with expectations. Consumer sentiment was below expectations in another report from the University of Michigan - it's August consumer sentiment index fell to 94 from July's 96.7, versus expectations of 96.4. OTHER MARKETS – Oil futures broke above $46 a barrel Friday to an historic high, for a gain of 6% on the week - traders bid up prices on September futures in New York due to weekend concerns related to a presidential recall vote in Venezuela and a possible battle against Shiite militants in Najef in Iraq, site of the most holy shrine for Shias everywhere. Such a battle could inflame the country. Such shrines can't be compared to anything we are accustomed to, as physical place and pilgrimage is a very big deal in Islam. Traders were saying the lead futures contract could be up to $50 or back to $40 in short order depending on these events. September crude futures closed at $46.58 a barrel, up $1.08 for the day – wild to see dollar up a buck in a single day after rising so much already: the gain was $2.63 for the week! Sunday's recall referendum in Venezuela and its uncertain outcome has caused the shorts to scramble to cover and high prices to get traders to take the other side of those wanting to buy ahead of the weekend. The fear for the oil market is a close vote that could start a cycle of violence, and violence could hinder oil exports to the U.S. Even a victory by President Chavez could see oil workers going on strike again, due to their animosity to him. The oil market remembers well the last time there was a major uproar regarding President Chavez – a strike by oil workers cut the country's output to 700,000 barrels per day in January '03 from a daily average of over 3 million barrels – the country is the 5th-largest oil exporter globally. In the currency market, the euro ran up a full percent to a 3- week peak of $1.2373 as the U.S. trade data hurt the dollar. The dollar was down 0.1 percent versus the yen at 110.07 yen. U.S. Treasury bonds closed higher after the same trade data and the PPI release. The 10-year T-Note closed up 15/32 to 100 9/32 for a yield of 4.22% and down from 4.28% Thursday. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: Last week I assessed the S&P as not having a large further downside potential: ".. a mild rebound and then another slide to the lows or a bit lower such as 1060-1058.." I wish these things would "behave" that well all the time in terms of predictability! I also suggested that to .. "anticipate a rally back to the gap area around 1080 .. which would then be met with renewed selling.." I still see a close above 1080 as key to an ability to get much of a rally going. 1090 is next resistance. [Note how selling pressure or resistance comes in at some of these key points – most recently, at the downside gap area – before that, at the 200-day moving average which was former support. The indices act pretty "technically" in terms of turning points – individual stocks are more tricky.] Support/buying interest has shown up around 1060 – next support I estimate at 1050. Another bullish reading occurred this past week on my Call to Put daily CBOE equities options model. Because there are sometimes clusters of these readings, as bearishness generates more put activity, I tend to rely most on a overdone or bullish indication in this Indicator only when the other key Index indicators line up also, along with price action of course – the batch of my key index technical indicators is shown further along. While the S&P 500 (SPX) can certainly see lows "hugging" the lower envelope line for some time, it more common for there to be 2-3 touches to it then a rebound – such as, at least, a rally back up to the 21-day average such as seen week before last. S&P 500 Index (SPX) – Hourly chart: The hourly chart better highlights the downtrend channel that SPX has been in, as well as resistance around 1080 - then in the 1090-1092 area. Yah man, this Index is oversold. This usually precedes at least a limited rally such as occurred last week. And, right into that minor downside price "gap" area from awhile back - the area where sellers didn't get much stock off (sold) before on the decline. When it comes back to this zone, more (selling) comes in. PRICE/KEY INDICATORS SUMMARY – S&P: I know this chart is a bit of scroll, but it helpful to see em lined up. Price or the price pattern shows the recent closes at the low end of my downtrend channel. The slight turn up on Friday is of interest. I figure key closing level resistance ("R") at 1082-1083. A close under 1060 might suggest a new down leg but I think the market's two oversold for that – it has to go at least sideways for a while most likely. The S&P (both SPX and OEX) is oversold and the RSI oscillator has a minor bullish divergence with the higher low made by the indicator. Very important on the chart above is that the 10-day average of NYSE Up Volume is back at its recent "baseline" – a turn up in the 10-day average would suggest some rally potential from here. Lastly, my "Sentiment" indicator has had another bullish reading as discussed above. The indicators taken together suggest a low probability for much of a further decline and moderate to good potential for another rally. S&P 100 Index (OEX) – Hourly chart: I didn't see the OEX slipping much under 520 and that looked again like an area to exit puts and do some limited call buying, looking for about a 10-point rebound to the 530 area. I peg resistance ("R") at 529-532. Support at 519-520, down to perhaps 513, at the low end of the hourly downtrend channel. If there was a further drop to this area, buying some more OEX calls should create a good average price. Unless the Venezuela situation results in a bigger immediate crisis leading to a final spike to the $50 area in crude, there's better upside Index potential than downside, technically. Dow 30 (INDU) – Daily chart: As is often the case with the Dow 30 (INDU), there is a well- defined price channel that can be drawn, with support suggested around 9800 currently and with likely strong sell pressure coming in between 10100 and 10200. As is the case with other indices, there is slight bullish divergence shaping with oscillators type indicators like Stochastics and RSI as they have not gone to a lower low, at least not yet. However, I don't see this as signifying much more than potential for an oversold rally at this juncture. A close above 10200 might suggest potential to the top end of the channel around 10400, where I would like to re-purchase DJX puts. Nasdaq Composite (COMP) – Price/Key Indicators – Daily: I was anticipating another rally attempt by this past Tuesday, then another decline back toward the prior lows which then carried on to a new low – so far, a bottom may have been reached if my downtrend channel is valid. Besides price considerations, always number 1 on my list, the same oversold readings are seen in the RSI oscillator and the 10- day average of Nasdaq daily Advancing (Up) Volume. The Nasdaq Up Volume indicator doesn't have the same record of predictability as the NYSE, but it's one I watch for upside reversals when the other main indicators also get bullish, such as in March and May. I use the same Call to Put ratio for the Nasdaq that I employ to attempt to measure bullish or bearish extremes in "sentiment" in the S&P and Dow Indices. The two extremes seen recently could be joined by other such readings of course. You never exactly know with this Indicator, but it’s a good indication when the Volume average also turns up which could happen within a day or two into this coming week. Nasdaq 100 (NDX) Index – Daily: I thought that "further lows around 1315-1310 will offer some call buying potential, for at least a rally back up the 1350-1355 area at some point." My view is pretty much unchanged. The top end of the overhead "gap" is at 1350; i.e., occurring on the downside break as the next day(s) highs fell short of the prior low. Nasdaq looks weak, weak, weak overall. The tech believers are getting hammered – a recent example was provided by the pounding that HPQ (Hewlett-Packard) took on their earnings warning and the slowdown/shortfall from two key business units. Hard to know if its time to exit puts, but it has been a 200- point drop in a short while. Every dog has its day. Watch the 21-day moving average: a close above it (1369 currently) would suggest rally potential back to the 1400-1410 area. Nasdaq 100 tracking Stock (QQQ) Daily: Hey, I like it when I don't have to think of much more to say, such as what I wrote last week, accompanied by the chart below – 34 is key resistance; it was the line of prior support – also, the gap area that is outlined; that (the gap area) stopped this past week's rally cold: " The downside gap area is typically a place that prices come back to." I also anticipated a 32 to 34 price range for a while. QQQ has reached the top bit of an area of support that extends to 21 – this based on a number of prior lows going back a few months. Volume seemed to be drying up some on the decline, suggesting that those long have done significant liquidation and that the shorts may be done covering many of their positions for now. I would still go with my prior suggestion to do some buying in the 32 area if reached, looking for a rebound back to 33.50-34. Not a huge upside potential – some would prefer to see if there is a greater rally (such as back into the 35-36 zone) to sell (short) into again. Good Trading Success! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Jim Brown is on vacation this week so there will be no update to the Editor's plays column. Please look for the next update to appear on Sunday, August 29th. Thank you. **************** MARKET SENTIMENT **************** No Reason - J. Brown The markets have suffered over the last few weeks because investors have no reason to buy stocks right now. The Q2 earnings season is essentially over and Wall Street is facing new concerns that corporate profits may slide faster than previously expected if the economy truly is slowing. Traders are also worried about rising geo-political tensions as the world listens to reports of fierce fighting in Najaf (in Iraq), violence in Palestine and news that Iran may have new missile capable of hitting Europe and U.S. bases. The threat of a terrorist event in Athens during the Olympics or somewhere else in the world targeting the global oil supply doesn't inspire confidence. Traders saw crude prices close at new all-time highs above $46 a barrel as they worried about the outcome of elections in Venezuela, one of the world's largest exporters, and the ongoing drama with Russian oil giant Yukos. Here at home there were reports of a fire at an Indiana oil refinery while down in Florida tropical storm Bonnie and hurricane Charley forced evacuations from oil rigs and hampered production along the coast. The economic data on Friday was less than inspiring as well. The June trade gap hit a new high at $55.82 billion. This suggests that the final Q2 GDP numbers could be revised lower. Meanwhile latest University of Michigan consumer confidence number slipped to 94 while economists were looking for a rise to 97.5. If consumer confidence is sagging then that could weigh heavily on the retailers and GDP since consumer spending represents more than two-thirds of our economy. Look for a number of retailers to report Q2 earnings this week. I seem to read or hear more and more stock and market analysts reaching the same conclusion Jim did a couple of weeks ago. There really is no catalyst to spark a market rally/turnaround until after Labor Day. Yes, we might see another oversold bounce but at best we'll probably trade sideways for the next 2 1/2 weeks and at worse we'll resume hitting new lows. Looking ahead to this week we have economic data coming out on Tuesday and Thursday. Most of it is second tier data but Wall Street will be watching the July CPI, the housing starts and the industrial production/capacity numbers which all come out on Tuesday. Thursday brings the Philly Fed index numbers. Of course next week will also host the bulk of the Olympics in Athens, which began Saturday. While there is not an easily quantifiable affect on the markets it does create an undercurrent of caution. The high number of people throughout this event causes a logistical nightmare despite of an impressive amount of security. On Thursday I mentioned the Stock Trader Almanac's factoid that the last week of August has historically been very bearish for six out of the last seven years. It is certainly something to consider when planning your trades and reinforces the issue that investors have no reason to buy stocks now when they can probably by them cheaper in September. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 9825 Moving Averages: (Simple) 10-dma: 9986 50-dma: 10133 200-dma: 10238 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 983 Current : 1064 Moving Averages: (Simple) 10-dma: 1079 50-dma: 1101 200-dma: 1108 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1246 Current : 1307 Moving Averages: (Simple) 10-dma: 1343 50-dma: 1402 200-dma: 1444 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 17.98 –1.10 CBOE Mkt Volatility old VIX (VXO) = 18.77 –0.39 Nasdaq Volatility Index (VXN) = 27.46 –0.82 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.02 575,679 585,383 Equity Only 0.75 418,869 314,266 OEX 1.03 35,052 35,952 QQQ 0.62 28,162 17,391 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 52.9 + 0 Bear Confirmed NASDAQ-100 25.0 - 1 Bear Confirmed Dow Indust. 46.7 + 0 Bear Confirmed S&P 500 46.8 + 0 Bear Confirmed S&P 100 45.0 + 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: 1.32 10-dma: 1.63 21-dma: 1.39 55-dma: 1.26 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 1526 1478 Decliners 1224 1492 New Highs 38 15 New Lows 108 126 Up Volume 732M 724M Down Vol. 650M 570M Total Vol. 1404M 1322M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 08/10/04 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 There has been almost no change in the commercial traders' positions for the large S&P 500 futures contracts. They remain marginally bearish. Meanwhile small traders have upped their bets in both longs and shorts but remain net bullish. Commercials Long Short Net % Of OI 07/22/04 404,828 419,017 (14,189) (1.7%) 07/27/04 397,354 422,914 (25,560) (3.1%) 08/03/04 401,619 419,429 (17,810) (2.2%) 08/10/04 397,576 419,734 (22,158) (2.7%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 07/22/04 138,123 94,990 43,133 15.5% 07/27/04 135,136 90,433 44,703 19.8% 08/03/04 128,510 88,833 39,677 18.3% 08/10/04 135,689 93,897 41,792 18.2% 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 stakes in both their long and short positions but the net results was a small decrease in bearishness. Small traders pared back their longs and added to their shorts to decrease their bullish stance some but they remain net bullish (albeit the least bullish in a month). Commercials Long Short Net % Of OI 07/22/04 309,972 428,240 (118,268) (16.0%) 07/27/04 337,615 429,477 ( 91,862) (12.0%) 08/03/04 340,053 428,736 ( 88,683) (11.5%) 08/10/04 369,547 441,055 ( 71,508) ( 8.8%) 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 07/22/04 212,078 62,416 149,662 54.5% 07/27/04 186,211 68,930 117,281 46.0% 08/03/04 195,105 68,717 126,388 47.9% 08/10/04 179,940 89,239 90,701 33.7% 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 was very little movement from the commercial traders. They did add positions on both sides but the result was a small move closer to neutral. Small traders are really undecided and a very close to a dead heat. Commercials Long Short Net % of OI 07/22/04 45,069 37,975 7,094 8.5% 07/27/04 43,042 35,935 7,107 9.0% 08/03/04 42,771 36,863 5,908 7.4% 08/10/04 43,968 38,351 5,617 6.8% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 07/22/04 9,398 11,776 (2,378) (11.2%) 07/27/04 14,543 14,518 25 0.0% 08/03/04 8,995 13,901 (4,906) (21.4%) 08/10/04 10,081 10,858 ( 777) ( 3.7%) Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders reduced their short positions but a few thousand which increased their bullish stature. Small traders naturally moved the opposite direction and increased their shorts to boost their bearish outlook. Commercials Long Short Net % of OI 07/22/04 27,957 20,389 7,568 15.7% 07/27/04 27,577 21,427 6,150 12.5% 08/03/04 30,118 25,029 5,089 9.2% 08/10/04 30,634 22,994 7,640 14.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 07/22/04 4,857 7,297 (2,440) (20.1%) 07/27/04 5,310 6,099 ( 789) ( 6.9%) 08/03/04 4,325 5,212 ( 887) ( 9.3%) 08/10/04 6,450 8,488 (2,038) (13.6%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** The TRIN and Daily Pivot Analysis levels (day trader's only) I've read various day trading articles on how to use the "Trin" indicator, and quite frankly, I've had mixed results trying to interpret the Trin and initiate a successful trade. I've noticed that you post the Trin in your market snapshots and from time to time, you pill post an "alert" regarding Trin, and sometimes follow that with a trade profile. Some of your trades have been quite successful, capture the bulk of the day's move in a rather short period of time. What do you see, that I'm not seeing? Have you written any articles on the Trin? How to interpret it? If so, could you tell me where? Reply: Well, I'm not an expert on the TRIN by any means. In fact, I think I've mentioned it once in an Ask the Analyst, but all be darned if I can remember what article at this point. But! You're correct in your observation that I've mentioned the TRIN trading above, and below a certain "level" the past couple of weeks, and here's something I found by accident. Let me know what you think. First things first. For those of us that aren't all that familiar with what the TRIN is, its an indicator that combines the component of volume to advance/decline statistics. The formula is rather simple (that's what I like to hear!); divide advancing issues by declining issues to generate the numerator of the equation (A). Then divide the upside volume by downside volume for the denominator of the equation (B). TRIN is equal to A divided by B. So, my mind is rather scrambled during a trading day as it is, and I don't know of anyone who could possibly calculate the TRIN on a second-by-second, or minute-by-minute basis. Aha! I know computers can calculate it on a second-by-second basis. Hmmmmm..... If I were a market maker, or a specialist, I'll bet I could get a feel for ORDER FLOW (buy or sell induced trade) and not unlike the TREN, get a sense, or feel for buy side pressure versus sell side pressure. Isn't that what the TRIN is actually trying to measure? Up volume versus down volume tied in with the advance decline line? I think so. Now, I've always said that a market maker and specialist has an advantage over most of us, as they are able to "sense" buying or selling pressure, because buy and sell orders are coming to them on a continual basis. They "know" for the most part if a stock is under accumulation or distribution base on order flow. Since YOU and I aren't necessarily privy to this information, traders will try and use the TRIN as a way to get a feel for buy/sell pressure on the MARKET during any given point in time. As each second, minute or hour passes, more observations can be made. Like YOU, I too have read some articles on the TRIN, and like you, some of it seems practical in theory, but when put to use, doesn't always pan out. However.... here's something I stumbled upon a couple of weeks ago, have been testing, and started profiling some day trades from in the market monitor. I can't say it is fool proof. Like they say.... create something that is fool proof, and only a fool will end up using it. A couple of weeks ago, I had my QCharts-derived daily and weekly pivot analysis levels turned on as I was looking at a stock to trade. The major indices were hovering at some correlative support levels in the Pivot Matrix, and I wanted to see where this stock was trading, relative to its DAILY pivot levels. Long story short, I had to get an intra-day update written, so I never profiled the stock, and sure enough, the stock I "wished" I had profiled moved in the direction I thought it might. Later that night, when I was reviewing the day's internals, I noticed a sudden intra-day spike in the TRIN, and that's right when the stock I was looking at shorting fell apart and headed lower. I then looked at the TRIN chart, and I was rather "amazed" at what I found. Here's a comparison study of a TRIN chart, and the S&P 500 Index (SPX.X), where I'm using last week's trade as the study set. The following charts are on 10-minute intervals, so we can look at several days of trade, and make some observations. Before we look at the charts, here is a simple train of thought a TRIN trader might want to use. 1)IF TRIN is ABOVE 1.0, then bias is more bearish. (Think of 1.0 as a waterline; above 1.0 bearish, below 1.0 bullish). This makes sense if we understand how TRIN is calculated/derived. 2)IF TRIN is ABOVE its DAILY PIVOT, then bias is further bearish. If TRIN is BELOW its DAILY PIVOT, then bias is bullish. This makes sense if we believe that as TRIN rises, stocks should be falling as more VOLUME is to the downside, with decliners outnumbering advancers. 3)The DAILY PIVOT analysis levels, EVEN FOR TRIN, can give UPSIDE and DOWNSIDE TRIN targets, should TRIN violate a DAILY PIVOT analysis level. Think about this. If you are a computer, and you're calculating buy/sell volume, at what point does the computer limit its buying, if inventory is full, but sell volume is increasing? A LEVEL from TRIN could be used. Remember, computers don't "think," they operate as programmed, and are unemotional. 4) Now watch/observe, the security you're trading (index, specific stock). Is it trading at a LEVEL that is correlative to what the TRIN is doing? If the TRIN is saying "bearish" and the security you're looking at trading is sitting on a level of support, or better yet a level of resistance, then perhaps sell volume is going to have that stock falling. Conversely, if TRIN is saying "bullish" and the security you're looking at trading is sitting below a level of resistance, or better yet a level of support, then perhaps buy volume is going to have that stock rising. Comparison of TRIN and SPX.X - 10-minute intervals Let's start with the "basics" of TRIN again. In the upper left hand corner of the TRIN chart, I show the 1.0 level, with bearish and bullish bias. On the TRIN chart, you also see a "bold pink" line running horizontal across the screen at 1.0 (this is you waterline). I also show DAILY Pivot on the TRIN chart, with bearish and bullish bias. Now, the lower chart is the S&P 500 Index (SPX.X). Here I mark Daily Pivot with "bullish" above the pivot, and "bearish" below the pivot. Those of you that are using the daily pivot analysis have come to learn that each level above a prior level is your "risk" level, or your target level. In essence, if you've fallen from the Pivot to S1, then that's a potential lasting level of support, until it is broken. If S1 is broken to the downside, then S2 becomes "in play" as a next level of support, or a target if you're trading short/bearish. Now, I'm lazy tonight, so I'm using the QCharts' derived pivot levels. I will note that these aren't "always the same" as what I post in the OptionInvestor.com Index Trader Wraps, as I go through each chart every night, and filter out any "bad ticks" that can sometime throw off the pivot levels by a point or two (as it relates to the SPX.X). Now, lets look at point (A) on the TRIN chart. On August 2, the TRIN was either side of 1.0. Hmmm.... am I bullish or bearish? TRIN doesn't seem to help that day. Neither does the DAILY PIVOT analysis levels on the TRIN chart where the TRIN Daily S1 is also at about 1.0. Now look at the SPX.X chart. Boom! SPX finds resistance most of the day at SPX.X DAILY Pivot, then a nice little break higher. What happened? Maybe computers were selling the DAILY Pivot, but just ran out of SPX.X to sell at that programmed level, then "turned themselves off." Let's move to August 3. New day so TRIN starts anew. TRIN opens BELOW zero, so bullish bias. Ooops! TRIN moves ABOVE zero, so "bearish bias" to at least the TRIN's DAILY Pivot. Hmmmm.... BELOW TRIN Pivot is supposed to be bullish! OK, one bearish (above 1.0) and one bullish (below pivot). Is a trader doing anything at this point? Turn to the SPX.X chart. Yuck! Either side of its DAILY Pivot. Can't do much here, I'm confused. But as the session progresses, what happens? TRIN moves ABOVE its DAILY Pivot (OK, now I'm above 1.0, and I'm above TRIN DAILY Pivot) now I've got "bearish" and "bearish." See what happens to the SPX later in the afternoon? It slips below its (SPX.X) Daily Pivot .... again, but on the re-test...."whacko!" What happened? See how TRIN moved higher to its DAILY R1 and SPX moved LOWER to its DAILY S1? OK.... now we might be onto something. We're getting the feel for TRIN, tying it in with TRIN pivot levels and correlating it with SPX.X pivot levels. Let's move to August 4. New day so TRIN starts anew. TRIN opens sharply higher ABOVE 1.0 (bearish) and its DAILY Pivot (bearish). See how TRIN seemed to trade a range between its DAILY Pivot and DAILY R1? Hmmmm, now look at the SPX.X. Bugger falls to its DAILY S2 and trades either side for BULK of session. Suddenly TRIN falls BELOW its DAILY Pivot (bullish) at Point C and moves toward 1.0 (as TRIN moves lower to 1.0, this means volume picking up on the BUY side), look at the SPX.X! Boom! Breaks above DAILY S1 and goes right to DAILY Pivot. Hmmmm TRIN broke below a pivot analysis level, gravitated to 1.0, the next level of importance; SPX.X trades above a level, moves to next level. On this day, I profiled a bullish trade in Microsoft (MSFT) at $28.08, just BELOW its DAILY Pivot ($28.17) as it was "certainly" going to break higher and trade its DAILY R1 ($28.34). Nope, got stopped at $28.04 as the session drew to a close. Let's move to August 5. New day so TRIN starts anew. TRIN opens BELOW 1.0 so bullish, but TRIN also opens below DAILY Pivot, so bearish. SPX.X opens right at its DAILY Pivot. Ah-oh! TRIN moves above 1.0 so bearish, SPX moves below pivot so bearish. Question... Where could TRIN rally to? Answer: DAILY Pivot is next level higher. Goodness .... look at the SPX.X decline. First S1, then S2 and close at the lows. TRIN rose as high as its DAILY R1! Doesn't it seem like even though there were BUYERS at SPX.X DAILY S2, the mounting sell side volume (rising TRIN) simply exhausted computers that were set for buying? This day, it was as if computer were set to buy DAILY S2 again (like they were on August 4), but sell volume (continued rising TRIN) was simply overwhelming. On this day, I profiled a short in Protein Design Labs (PDLI) at $16.80, just ABOVE its DAILY Pivot ($16.72) "certain" that TRIN and SPX action would find a gain. Hey, not bad to close out at $16.47 before the close for a 1.96% gain. Let's move to August 6. New day so TRIN starts anew. TRIN Opens ABOVE 1.0 so bearish, and also opens above its PIVOT and also bearish. SPX.X gaps lower between its DAILY S1 and DAILY S2. OK, TRIN finds support at DAILY Pivot, SPX.X finds resistance at DAILY S1. Maybe we're shorting SPX.X with a stop just above DAILY S1 and see what happens should TRIN try and trade up to DAILY R1. On this day, I profiled a short in Biogen/Idec (BIIB) late in the afternoon (after it had bounced from below its DAILY S2 to just under its DAILY Pivot of $57.57) at $57.10 "certain" that BIIB would close at its lows of the session, and closed out at $56.35, back below its DAILY S2 ($56.60) just before the close. Hey, not bad to close out with a 1.31% gain. Let's move to August 9. New day so TRIN starts anew. TRIN Opens at 1.0 so rather neutral. Ugh! I'm not sure if TRIN below its DAILY S2 should be interpreted as bearish or not. However, SPX opens below its DAILY Pivot and for other than about 15-minutes in the afternoon, stays pegged just below its DAILY Pivot. Hmmm, but with some success from fellow biotech trades in PDLI and BIIB, a late session short in Amgen (AMGN) as it and the Biotech Index ($BTK.X) started slipping below respective DAILY Pivots ($54.24 and 452.62) seemed appropriate. Hey, not bad to short AMGN at $53.95, close out below its DAILY S1 ($53.40) just before the close at $53.32 for a 1.17% gain. Conclusion: I've read where "this level of TRIN" is bullish or oversold, or "this level of TRIN" is bearish or overbought, and sometimes it is, sometimes it isn't. What I found interesting was how the TRIN itself seems to trade DAILY Pivot levels, as well as the 1.0 level, which many traders will automatically use as a waterline for bullish or bearish bias. Certainly there are going to be some days, where the MARKET doesn't give a trader that much to work with, but there are days where a nice trend in both the TRIN and a stock, or index just plays out beautifully in the trader's favor. What seems to be apparent to me is that the TRIN DAILY Pivot analysis levels gives a trader the OBSERVATION of a RANGE that the TRIN might be capable of trading that day. Certainly, a setup like that found on August 5 is the "ideal" bearish setup. It would also seem to me that it may not necessarily MATTER that the TRIN is at 2.0 and signaling "oversold" or "too bearish" if the darned thing has just broken above a pivot analysis level of "resistance" when the TRIN has room to a HIGHER level of TRIN, where the security you're trading has further DOWNSIDE to a pivot level of support. Just the opposite is true. So what if TRIN is edging up the entire session at 1.6, 1.65, 1.70, 1.75 when the darned thing opened up 3.75, while the security you're looking to trade is solid as a rock at a level of support. Be more alert to a rebound and be ready to trade it if a TRIN level of intra-day support finds the security you're looking to trade make the move up from its level of support and next level of resistance. What I find nice about the QCharts trading software and their development of both DAILY and WEEKLY Pivot levels, is the trader can make an interpretation of the TRIN, then a market like the SPX, find a sector that is either leading the decline/advance, and then quickly start "clicking" through some of your favorite stocks in that sector to trade, where the QCharts software will immediately be displaying the DAILY and even WEEKLY Pivot levels, where a trader can then make a quick assessment of the stock's technicals, to then trade upon. Hey! The TRIN is signaling some bullish implications as it falls below its DAILY Pivot and there's room to TRIN 1.0. Oooo! The Retail Index (RLX.X) has been holding unchanged, bucking some early broader market weakness, now they're turning green. Hey! The RLX.X is moving above its DAILY Pivot and there's some upside to DAILY R1. Hey, their session low didn't come close to DAILY S1. Good gravy! Look at Wal-Mart (WMT)! It's holding above its DAILY Pivot and there's some correlative upside to its DAILY R1 where a bullish trade is in order. If WMT trades its DAILY R1 and TRIN is still falling with room to go to either 1.0 or the TRIN DAILY S1, then WMT might still have some upside to its DAILY R2. Here's a comparison chart of TRIN and Wal-Mart (WMT) Comparison of TRIN and Wal-Mart - 5-minute intervals (08/02/04) Crazy! Why did TRIN peg 1.74 at its open? Was a decline below its DAILY Pivot bullish? What about TRIN falling below its 1.0 level and correlative DAILY S1? Remember how the SPX found immediate support at its DAILY S1? Ooooo.... "Wally World" looked rather bullish at its DAILY Pivot (stronger than SPX that day? A potential leader of a pending rally?) We traded this one bullish as profiled in the above chart. What's really cool is when we use our day trader's 5-minute retracement technique I've discussed in prior Ask the Analyst columns (09/21/2003, 11/16/2003), on top of the Daily Pivot levels. TRIN / WMT with 5-MRT added - 5-minute intervals (08/02/04) Now, Jim Brown like to tease me from time to time about my "5- MRT" (5 Minute Retracement Technique) as Linda Piazza has so eloquently named it, but I tell you what, it and the Pivot Matrix levels really allow for traders to identify some zones. I'm only showing the "upper 5-MRT" but you can probably see how I used it to establish the entry point (just above BLUE #1), the stop, and the target (BLUE #5), which helped create the bullish target zone. There were NO guarantees that WMT could get above that little sliver zone, but that's where TRIN analysis might have been needed. One could probably assume if TRIN rose back above its DAILY Pivot, then WMT wasn't going to get above $53.42. The TRIN can almost be thought of as "gas pedal," accelerating or decelerating. It fascinates me to no end how sometimes the "stars align," and correlations really become rather clear. Now, a WMT bull new a test was underway at around $53.40. What's TRIN going to do? TRIN was in no man's land wasn't it? Was it BEARISH that TRIN had moved above 1.0? Or was it still bullish as it had fallen below TRIN DAILY Pivot, then 1.0 and TRIN Daily S1? I count 2 bulls and 1 somewhat bearish (TRIN above 1.0). OK, so a day trader knows the test is upon the trade at WMT's DAILY R1. See how the 5-MRT and "Blue #2" serves the needed support to allow the trader to give the trade time to work to the eventual target zone? Why does Blue #2 come into play? Probably because computers sold Blue #2 to feed some stock out. But when TRIN turned BULLISH, perhaps computers sensed the "buy side volume" and when BLUE #2 was broken to the upside, then that break of resistance then became the near-term support. Not only were day trade bulls looking at $53.72-$53.81 as a target, but it appears computers were doing the same and once they started distributing stock lower, the gig was up. Anyway.... try some of this on your own. I encourage traders to always back test, as this back testing will hopefully have traders picking up on things. When does it work the best? When doesn't it work? What's the sign? Too many traders that do use TRIN think that TRIN by itself, and some pulled out of the air level is "the level" to signal bullishness and bearishness. I think it depends on "where TRIN has been, where it is, and where it is potentially going" that is key to the use of TRIN. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- POS Catalina Mrktng CorpMon, Aug 16 -----N/A----- 0.16 TEU CP Ships Mon, Aug 16 -----N/A----- 0.40 DYS Dist Servicio D&S SAMon, Aug 16 -----N/A----- N/A KMRT Kmart Mon, Aug 16 -----N/A----- 0.14 LBTYA LIBERTY MEDIA INTL Mon, Aug 16 -----N/A----- -0.24 LOW Lowe's Companies Mon, Aug 16 Before the Bell 0.91 SRV Service Corp IntrntlMon, Aug 16 -----N/A----- 0.06 SYY SYSCO Corporation Mon, Aug 16 Before the Bell 0.45 VAL Valspar Mon, Aug 16 Before the Bell 0.87 ------------------------- TUESDAY ------------------------------ AMAT Applied Materials Tue, Aug 17 After the Bell 0.25 BJ BJ's Wholesale Club Tue, Aug 17 -----N/A----- 0.37 BGP Borders Group Inc. Tue, Aug 17 After the Bell 0.07 DE Deere & Company Tue, Aug 17 Before the Bell 1.50 DKS Dick's Sport Goods Tue, Aug 17 Before the Bell 0.33 HD Home Depot Inc Tue, Aug 17 Before the Bell 0.64 JCP JCPenney Tue, Aug 17 Before the Bell 0.23 NTAP Network Appliance Tue, Aug 17 After the Bell 0.12 SKS Saks Incorporated Tue, Aug 17 Before the Bell -0.12 SPLS Staples, Inc. Tue, Aug 17 -----N/A----- 0.22 EL Estie Lauder Co Tue, Aug 17 Before the Bell 0.32 TJX The TJX Companies Tue, Aug 17 Before the Bell 0.24 ------------------------ WEDNESDAY ----------------------------- BHP BHP Billiton Ltd Wed, Aug 18 Before the Bell 0.59 BLI Big Lots, Inc. Wed, Aug 18 Before the Bell -0.07 BRCD Brocade Comm Sys Wed, Aug 18 After the Bell 0.04 CAI CACI International Wed, Aug 18 After the Bell 0.58 DV DeVry Wed, Aug 18 After the Bell 0.23 EV Eaton Vance Corp . Wed, Aug 18 Before the Bell 0.49 HAR Harman Intntl Ind Wed, Aug 18 -----N/A----- 0.68 INTU Intuit Wed, Aug 18 After the Bell -0.07 LII Lennox InternationalWed, Aug 18 After the Bell 0.53 MDT Medtronic Inc. Wed, Aug 18 -----N/A----- 0.43 PETC PETCO ANIMAL SUPPLY Wed, Aug 18 After the Bell 0.29 ROST Ross Stores, Inc. Wed, Aug 18 Before the Bell 0.29 SQM Soc Quimica Minera Wed, Aug 18 -----N/A----- N/A SNPS Synopsys Wed, Aug 18 After the Bell 0.32 TLB Talbots Wed, Aug 18 -----N/A----- 0.33 ------------------------- THUSDAY ----------------------------- ARO Aeropostale, Inc. Thu, Aug 19 After the Bell 0.17 AMCR Amcor Limited Thu, Aug 19 -----N/A----- N/A ADSK Autodesk, Inc. Thu, Aug 19 After the Bell 0.30 BKS Barnes&Noble Thu, Aug 19 Before the Bell 0.15 CLE Claire's Stores, IncThu, Aug 19 -----N/A----- 0.32 FLO Flowers Foods Thu, Aug 19 Before the Bell 0.35 FL Foot Locker, Inc. Thu, Aug 19 -----N/A----- 0.29 GPS Gap Inc. Thu, Aug 19 After the Bell 0.22 HRL Hormel Foods Corp Thu, Aug 19 Before the Bell 0.34 LANC Lancaster Colony Thu, Aug 19 Before the Bell 0.55 LTD Limited Brands Thu, Aug 19 Before the Bell 0.25 MRVL Marvell Semicon Inc Thu, Aug 19 After the Bell 0.19 NAV Navistar Intntnl Thu, Aug 19 Before the Bell 0.69 JWN Nordstrom Thu, Aug 19 After the Bell 0.77 NOVL Novell, Inc. Thu, Aug 19 After the Bell 0.05 PETM PetsMart Thu, Aug 19 Before the Bell 0.23 ------------------------- FRIDAY ------------------------------- WPPGY WPP Group PLC Fri, Aug 20 -----N/A----- 1.32 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable QCOM Qualcomm Inc 2:1 Aug 13th Aug 16th RNT Aaron Rents, Inc 3:2 Aug 16th Aug 17th WIRE Encore Wire Corporation 3:2 Aug 16th Aug 17th BOCH Bank of Commerce Holdings3:1 Aug 16th Aug 17th IMGC Intermagnetics Gen Corp 3:2 Aug 17th Aug 18th POT Potash Corp Saskatchewan 2:1 Aug 17th Aug 18th JOSB JoS A. Bank Clothiers Inc 5:4 Aug 18th Aug 19th HTLD Heartland Express 3:2 Aug 20th Aug 23rd TOX MEDTOX Scientific, Inc 3:2 Aug 20th Aug 23rd IVX IVAX Corporation 5:4 Aug 24th Aug 25th ZBRA Zebra Tech Corp 3:2 Aug 25th Aug 26th WOOF VCA Antech, Inc 2:1 Aug 25th Aug 26th PGTV Pegasus Comm Corp 2:1 Aug 26th Aug 27th BAC Bank of America 2:1 Aug 27th Aug 28th -------------------------- Economic Reports This Week -------------------------- Believe it or not we still have some Q2 earnings reports coming out. Wall Street will focus on the economic data due out on Tuesday and Thursday. Of course most of the world will probably be watching the Olympics in Athens all week. ============================================================== -For- ---------------- Monday, 08/16/04 ---------------- NY Empire State Index (BB) Aug Forecast: 32.3 Previous: 36.5 ----------------- Tuesday, 08/17/04 ----------------- Housing Starts (BB) Jul Forecast: 1890K Previous: 1802K Building Permits (BB) Jul Forecast: 1950K Previous: 1945K CPI (BB) Jul Forecast: 0.1% Previous: 0.3% Core CPI (BB) Jul Forecast: 0.2% Previous: 0.1% Industrial Production (BB) Jul Forecast: 0.5% Previous: -0.3% Capacity Utilization (BB) Jul Forecast: 77.5% Previous: 77.2% ------------------- Wednesday, 08/18/04 ------------------- None ------------------ Thursday, 08/19/04 ------------------ Initial Claims (BB) 08/14 Forecast: N/A Previous: 333K Leading Indicators (DM) Jul Forecast: 0.0% Previous: -0.2% Philadelphia Fed (DM) Aug Forecast: 30.0 Previous: 36.1 SEMI Book to Bill Report ---------------- Friday, 08/20/04 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 08-15-2004 Sunday 2 of 5 In Section Two: Watch List: Oil to Fashion to Homes and more! Dropped Calls: None Dropped Puts: CAT, DGX ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Oil to Fashion to Homes and more! ___________________________________________________________________ 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. ___________________________________________________________________ ChevronTexaco - CVX - close: 95.60 change: +1.23 WHAT TO WATCH: CVX has been consolidating along support at its rising 40 and 50-dma's. Friday's rally back above $95.00 looks like a potential entry point for calls. Bulls could target a run toward the $100 level. CVX's bullish P&F chart points to a $111 target. There was some talk on Friday about how oil analysts are still using $30 a barrel for their earnings estimates on all the big oil companies. Now that $30 a barrel looks too low they'll be forced to raise estimates, which should boost the stock. Chart= --- Chicos FAS - CHS - close: 39.20 change: -0.39 WHAT TO WATCH: Retail stocks haven't been doing that well and the recent consumer confidence numbers don't inspire a lot of confidence in the sector. CHS has been slipping lower on rising volume and that's never a good sign. Thursday's failed rally at the 21-dma and 200-dma represent another lower high and Friday's drop was a close under its exponential 200-dma. The P&F chart is bearish and points to a $29 target. We believe that traders might be able to target a drop toward $35.00 over the next four to six weeks. Chart= --- Linear Technology - LLTC - close: 35.44 change: -0.61 WHAT TO WATCH: If you believe the SOX semiconductor index is oversold enough to produce a bounce soon then keep an eye on LLTC. Shares have fallen to the bottom of their five-month trading range and they're trying to bounce. If the SOX does begin to bounce then traders could target a move to the simple 200-dma (near $39-38.50) in LLTC. Use a stop under the recent low. Chart= --- Pulte Homes - PHM - close: 56.57 change: +1.27 WHAT TO WATCH: There's not much weakness in homebuilder PHM. Most of the market has gone south in August and PHM has broken out over the $55 level. Now we're seeing a bounce from $55 after some consolidation. Readers might want to consider bullish positions if PHM can breakout over the $58 level. The P&F chart is bullish and points to a $72 target. Chart= --- Netease.com - NTES - close: 30.01 change: -1.25 WHAT TO WATCH: The Chinese Internet stocks look sick again. After six weeks of consolidating above the $30.00 mark NTES broke through it on Friday. It did manage to rebound back above this pivotal level by the closing bell but only by the slimmest of margins. Consider new bearish positions if NTES trades under $28.50. The bottom of the wide descending channel appears to be the $20.00 region. P&F chart readers will note that Friday's drop produced a quadruple-bottom breakdown sell signal with a $19 target. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- SI $66.02 +0.54 - Electronics conglomerate Siemens is slowly fading toward support at the $65.00 level. If it breaks it consider buying puts with an immediate target of $60. HSY $47.71 +0.38 - Hershey is holding on to its gains pretty well. This might be a covered call candidate. KO $44.37 +0.53 - Dow-component Coca-Cola is trying to put in a bottom. Consider long positions on a push through the $45 level. OSIP $53.71 -1.86 - Traders can watch OSIP for a breakdown under support at $50.00 and target a drop toward support at $40. AVE $81.36 +0.82 - We've been waiting and watching for AVE to breakout over resistance and top of its trading range near $81.00. It finally happened. Yet we hesitate to suggest it as a call play because stock volume is light and option volume is light as well. Only aggressive traders should consider it. PIXR $69.93 +0.49 - PIXR has tried to breakout over the $71.00 level again and failed again but it's getting closer. It may be important to wait for a close over this level instead of an intraday spike. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ Caterpillar - CAT - close: 71.75 change: -0.01 stop: 73.25 We're suggesting caution is the better part of valor here. The lack of participation in the Industrials recent declines is unnerving. CAT may still be trading under minor resistance at $72.00 but we don't like the bullish "buy" signal in its MACD indicator. Should CAT turn around and trade back under the $70.00 or $69.00 levels we may reconsider put plays. More speculative traders may want to keep a very small position open on the chance that the UAW labor union rejects CAT's last proposal. Expect losses in any bearish position should UAW agree to CAT's offer. Picked on August 5th at $70.75 Change since picked: + 1.01 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 2.4 million Chart = --- Quest Diagnostic - DGX - close: 82.38 chg +0.72 stop: 82.51 We're cutting DGX loose. The stock is still in a trend of lower highs but it's not showing the kind of weakness we want to see given the current market environment. DGX never broke support at the $79.00 mark so we were never triggered. Picked on August xth at $xx.xx <-- see TRIGGER Change since picked: - 0.00 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 602 thousand Chart = *********** DEFINITIONS *********** OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. 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The Option Investor Newsletter Sunday 08-15-2004 Sunday 3 of 5 In Section Three: Current Calls: POT, SYMC, TXT New Calls: AET Current Put Plays: AMZN, AZO, HIG, LM, RIMM, WHR New Puts: SPW ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Potash - POT - close: 99.92 change: +0.06 stop: 97.51 Company Description: Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, fourth largest in phosphate and third largest in nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and one of only three North American suppliers of industrial phosphates. (source: company press release) Why We Like It: We initially added POT to the call list this past week as a momentum play. The stock has been bucking the downtrend in the markets and broken out above major resistance at the $100 mark. The stock is due to split 2-for-1 on Wednesday August 18th and we expected the momentum to continue. Unfortunately, the sharp drop in the major indices has prompted some profit taking in POT and shares have slipped back under the $100 mark. This is discouraging but not a mortal wound. We can still play a bounce from the $98.00 level but we'd prefer to consider new plays on a move over the $101 level. Normally we don't like to hold over a split because some stocks can undergo a post-split depression if they enjoyed a decent pre-split run up. At this point we might hold the play due to POT's bullish fundamentals. Suggested Option: We're going to suggest the September calls. We like the September 100s. Remember that after the split the September 100s will become calls at the $50 strike. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY CALL SEP 95 POT-IS OI= 74 current ask $6.50 BUY CALL SEP 100 POT-IT OI= 72 current ask $3.80 BUY CALL SEP 105 POT-IA OI=102 current ask $1.85 Annotated Chart: Picked on August 10th at $102.17 Change since picked: - 2.25 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 180 thousand Chart = -- Symantec - SYMC - close: 45.22 change: -0.49 stop: 44.49 Company Description: Symantec is the global leader in information security providing a broad range of software, appliances and services designed to help individuals, small and mid-sized businesses, and large enterprises secure and manage their IT infrastructure. Symantec's Norton brand of products is the worldwide leader in consumer security and problem-solving solutions. Headquartered in Cupertino, Calif., Symantec has operations in more than 35 countries. (source: company press release) Why We Like It: SYMC has made a valiant effort to maintain its gains throughout the month of August. The GSO software index has slipped about 7 percent while SYMC has only fallen 3 percent. Furthermore SYMC has managed to remain above support at the $44 and $45 levels. However, we're starting to see signs of fatigue. The technicals are rolling over and SYMC's MACD indicator is very close to producing a new "sell" signal. Right now we're somewhat torn. This is not a positive environment to be considering bullish plays and while SYMC has held up pretty well it may end up playing catch up with its peers, especially if the GSO keeps dropping. We are NOT going to suggest new bullish positions at this time unless SYMC can trade over $46.50. Conservative traders may even go so far as to exit now in an effort to preserve their capital. We're going to keep the play open and leave our stop loss at $44.49 for now but inching it up another quarter to $44.74 wouldn't hurt either. If the GSO can mount any sort of oversold rebound then SYMC might be free to rally again.. The P&F chart remains bullish with a $60 target. Suggested Options: We are not suggesting new bullish positions at this time unless SYMC can trade above $46.50. !Alert - August options EXPIRE this Friday, Aug. 20th! Annotated chart: Picked on July 27 at $ 44.91 Change since picked: + 0.31 Earnings Date 07/21/04 (confirmed) Average Daily Volume: 5.4 million Chart = --- Textron - TXT - close: 61.79 change: +0.09 stop: 59.99*new* Company Description: Textron Inc. is a $10 billion multi-industry company with more than 43,000 employees in nearly 40 countries. The company leverages its global network of aircraft, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna Aircraft, Kautex, Lycoming, E-Z-GO and Greenlee, among others. (source: company press release) Why We Like It: We remain impressed by TXT's relative strength in the face of so much weakness in the Dow Industrials. TXT has held support at the $61.00 level and is now slowly building a new trend of higher lows. The technical picture is mixed as TXT consolidates but if the market manages to bounce at all we expect TXT to out perform. Aggressive traders may want to consider new positions but we suggest confirming a bullish market direction in the major averages first. There's no reason to buy calls if the Dow is sinking again. We're going to raise our stop loss to $59.99. The P&F chart remains bullish with a $76 target. Suggested Options: Our favorites are currently the September strikes. The 60s look good. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY CALL SEP 55 TXT-IK OI= 586 Current Ask $7.20 BUY CALL SEP 60 TXT-IL OI= 446 Current Ask $2.85 BUY CALL SEP 65 TXT-IM OI=1465 Current Ask $0.60 Annotated Chart: Picked on July 26th at $60.72 Change since picked: + 1.07 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 622 thousand Chart = ************** NEW CALL PLAYS ************** Aetna - AET - close: 90.72 change: +1.12 stop: 87.50 Company Description: As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 13.4 million medical members, 11.4 million dental members, 8.1 million pharmacy members and 12.6 million group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost- effective health care through a nationwide network of more than 633,000 health care professionals, including over 377,000 primary care and specialist doctors and 3,866 hospitals. (source: company press release) Why We Like It: There's a definite lack of weakness in shares of AET. The market may be slipping lower but it's not affecting Aetna. The company reported strong Q2 results in late July that beat estimates by 11 cents. Management then followed up by raising its full year 2004 outlook. Business is improving with higher premiums and increases membership. Plus the company said they would spend a good chunk of its $740 million tax refund on stock buybacks. Wall Street approved. On August 3rd Merrill Lynch upgraded AET from a "neutral" to a "buy". On August 12th Bear Stearns upgraded AET from "peer perform" to an "out perform". Investors have responded by pushing shares through resistance at $88.00 and again through round-number resistance at $90.00. We certainly like the technical breakout over $90.00. The bullish P&F chart shows a fresh triple-top breakout buy signal with a $106 price target. We believe that bulls could probably target the $100 level while short-term traders may want the easy exit near $95. We're going to start the play at current levels with a $100 target. Suggested Options: We like the September calls. Our favorites are the $90 strikes although the $95s work well too. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY CALL SEP 90 AET-IR OI=4313 current ask $3.80 BUY CALL SEP 95 AET-IS OI=6267 current ask $1.55 BUY CALL SEP 100 AET-IT OI= 203 current ask $0.55 Annotated Chart: Picked on August 15th at $90.72 Change since picked: + 0.00 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 1.4 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Amazon.com - AMZN - close: 36.13 change: -0.16 stop: 37.51*new* Company Description: Amazon.com, a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, kids and baby, and home and garden. (source: company press release) Why We Like It: Is AMZN ready for its next leg down? We had suspected that the $35.00 level would be support and that its simple 10-dma would act as the first level of overhead resistance. Both proved to be true but after two days of testing resistance at the 10-dma AMZN managed to breakout to the upside, on an intraday basis, on Thursday. Fortunately, that rally faded and now AMZN looks ready to test the $35.00 level again. This would appear to be a failed rally worth shorting again but we're feeling a bit cautious. Initiating new bearish positions this close to support at $35.00 doesn't make sense. Readers looking for new positions can wait for the breakdown under support. Those readers who already have positions will want to consider lowering their stop losses. We're going to lower ours to $37.51, which is several cents above the recent high. We're still looking for a drop toward $32.50-30.00 but AMZN needs to reverse the new bullish "buy" signal in its MACD (this development should deter new bearish positions). AMZN's P&F chart helps eliminate some of this noise and continues to point to a $15 target. Suggested Options: We're not suggesting new plays until AMZN trades under the $35 level. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 32.50 ZQN-UZ OI= 4018 Current Ask $0.95 BUY PUT SEP 35.00 ZQN-UG OI=11715 Current Ask $1.70 BUY PUT SEP 37.50 ZQN-UU OI= 5594 Current Ask $2.95 BUY PUT SEP 40.00 ZQN-UH OI= 2888 Current Ask $4.70 Annotated chart: Picked on August 3rd at $37.61 Change since picked: - 1.48 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 8.3 million Chart = --- AutoZone - AZO - close: 74.15 change: +0.55 stop: 76.51 Company Description: As of May 8, 2004, AutoZone sells auto and light truck parts, chemicals and accessories through 3,337 AutoZone stores in 48 states plus the District of Columbia in the U.S. and 60 AutoZone stores in Mexico. Each store carries an extensive product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items and accessories. Many domestic stores also have a commercial sales program that provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers and service stations. AutoZone also sells ALLDATA brand diagnostic and repair software. (source: company press release) Why We Like It: It has been a volatile week for shares of AZO. The stock continued to bounce from last Friday's rebound and actually broke back above the pivotal $75.00 level. After failing at resistance near $76 the stock quickly dropped back below $75.00 offering traders another chance to consider bearish positions. Friday's rebound appears to be a smaller oversold bounce from Thursday's drop. As long as AZO remains under the $75.00 mark bears should be okay. We continue to see AZO at current levels as an entry point for bearish plays. The stochastics have already rolled over into a new sell signal. Our short-term target remains the $70.00 region but we suspect AZO can trade even lower. The bearish P&F chart points to a $51 target (it used to be $59). We're not going to change our stop loss just yet. Suggested Options: We are suggesting the September puts. Right now our favorite is the SEP 75s. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 80 AZO-UP OI= 763 current ask $6.70 BUY PUT SEP 75 AZO-UO OI=1532 current ask $3.40 BUY PUT SEP 70 AZO-UN OI=2098 current ask $1.50 Annotated chart: Picked on August 4th at $74.60 Change since picked: - 0.45 Earnings Date 05/26/04 (confirmed) Average Daily Volume = 1.0 million Chart = --- Hartford - HIG - close: 58.54 change: -0.63 stop: 62.01 Company Description: The Hartford is one of the nation's largest financial services and insurance companies, with 2003 revenues of $18.7 billion. The company is a leading provider of investment products, life insurance and group benefits; automobile and homeowners products; and business property-casualty insurance. (source: company press release) Why We Like It: (Original Play from Thursday) We were drawn to HIG as a put play based on its bearish breakdown under support at the $60.00 level. The stock had been trading in a wide range between $61 and $67 for months and has now fallen through the bottom of this trading range. The move has produced a very bearish quadruple-bottom breakdown sell signal on its P&F chart with a $53.00 price target. We're further drawn toward HIG as a put because we know why investors are selling. Florida is currently facing the possibility of two hurricanes hitting at the same time with the larger threat from Hurricane Charley, which is currently a category 2 storm. The IUX insurance sector index is trading lower on the news with State Farm and AllState as the two biggest insurers to be hit by these storms in Florida. HIG has a large presence in Florida as well and if Charley turns into a category 3 storm as meteorologists suspects it will then investors may choose to sell first instead of wait it out. We're going to start the play with a stop loss at $62.01 and a target in the $55-53 range. Weekend Update: It will be interesting to see how insurance stocks trade on Monday as authorities and insurance companies try to assess the damages caused by Hurricane Charley. The storm had been upgraded to a category 4 hurricane before it hit the Florida coast. At least 10 people lost their lives as 145 MPH winds ripped across the western edge of the state. Damage estimates have varied widely from $10 billion to $25 billion. Should HIG bounce look for the $60 level to act as the first level of overhead resistance. Suggested Options: We're going to suggest the September puts. It would appear that our only choices are the $65s and $60s. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 60 HIG-UL OI= 494 current ask $3.00 BUY PUT SEP 65 HIG-UM OI= 388 current ask $7.00 Annotated Chart: Picked on August 12 at $59.17 Change since picked: - 0.63 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 1.4 million Chart = -- Legg Mason - LM - close: 75.87 chg: -0.48 stop: 80.01 Company Description: Legg Mason, Inc., headquartered in Baltimore, is a holding company that provides asset management, securities brokerage, investment banking and related financial services through its subsidiaries. (source: company press release) Why We Like It: (Thursday's Original Update) The XBD broker-dealer index is trading lower in a descending channel. More importantly it has been consolidating near the top of the channel and it looks ready to drop lower. Looking over the various broker/investment stocks to find an appropriate play to capture a drop in the group we found LM. The company's recent earnings report was disappointing and management tried to soften the sting by announcing an increase in their cash dividend and a 3-for-2 stock split for the end of September. It would appear that investors aren't buying it. The stock consolidated under the $80.00 level for a couple of weeks and is now edging lower. The daily chart also offers traders a bearish Head & Shoulders pattern that should point to a $60.00 target (give or take a few points). The Point & Figure chart is bearish and points to a $57 target. Given the outlook we feel confident shorting the recent bounce and new lower high. More conservative traders may want to look for some confirmation with a drop under $75.00. We're going to start the play with a stop loss at $80.01 and a short-term target of $70.00 but we believe LM could trade lower. Weekend Update: So far so good. LM continues to sink under its trendline of resistance and is now approaching the $75.00 level. Once LM breaks under $75 the decline could pick up speed. Suggested Options: We're going to suggest the September puts. Our favorites would be the $80s, 75s and 70s. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 80 LM-UP OI= 67 current ask $5.60 BUY PUT SEP 75 LM-UO OI= 367 current ask $2.65 BUY PUT SEP 70 LM-UN OI= 16 current ask $1.00 Annotated Chart: Picked on August 12 at $79.35 Change since picked: - 0.48 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 508 thousand Chart = -- Research In Motion - RIMM - close: 53.29 chg: -0.07 stop: 57.01 Company Description: Research In Motion is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive information including email, phone, SMS messaging, Internet and intranet-based applications. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services with wireless connectivity to data. RIM's portfolio of award-winning products, services and embedded technologies are used by thousands of organizations around the world and include the BlackBerry. wireless platform, the RIM Wireless Handheld(TM) product line, software development tools, radio-modems and software/hardware licensing agreements. Founded in 1984 and based in Waterloo, Ontario, RIM operates offices in North America, Europe and Asia Pacific. (source: company press release) Why We Like It: The overall weakness in the NASDAQ and tech stocks in general continues to weigh on shares of RIMM. Investors seem to be rotating out of high P/E stocks and RIMM certainly qualifies with a P/E of 86, at least that's the case for now. There are probably bulls out there just waiting to jump on another momentum filled run in RIMM. Currently the trend is down and we're encouraged by the lack of bounce in RIMM on Friday when most of the technology-related sectors managed to close in the green. We're also encouraged by RIMM's drop under its simple 100-dma, which acted as support back in May. Short-term traders can target the $50.00 level but we feel that RIMM could drop toward $47.50. See chart for details. Suggested Options: We like the September strikes. We think the 57.50s, 55s, 52.50s and even the 50s can work well for this play. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 57.50 RUP-UY OI=5322 current ask $6.70 BUY PUT SEP 55.00 RUP-UK OI=6658 current ask $5.10 BUY PUT SEP 52.50 RUP-UX OI=3124 current ask $3.90 BUY PUT SEP 50.00 RUP-UJ OI=9086 current ask $2.80 Annotated Chart: Picked on August 6th at $54.50 Change since picked: - 1.21 Earnings Date 06/29/04 (confirmed) Average Daily Volume = 6.7 million Chart = --- Whirlpool - WHR - close: 59.49 change: +0.54 stop: 61.51 Company Description: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances, with annual sales of over $12 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers around the globe. 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: WHR continues to suffer from investor fears of an economic slow down and the weaker than expected consumer confidence numbers on Friday certainly don't help matters. The stock continues to sink under a trend of lower highs and remains under the $60.00 support-resistance level. Readers may consider new bearish positions at current levels or at a failed rally under the $61.00 mark although if WHR did rally to $61 we'd prefer to see it fall back under $60 before initiating positions. The bearish P&F chart points to a $53 target but given the trendline of long-term support we're going to target a drop to $55 (see chart). Suggested Options: We're going to suggest the September 60 and 55 puts. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 60 WHR-UL OI=1936 current ask $2.85 BUY PUT SEP 55 WHR-UK OI= 361 current ask $1.00 Annotated Chart: Picked on August 6th at $58.71 Change since picked: + 0.78 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 849 thousand Chart = ************* NEW PUT PLAYS ************* SPX Corp - SPW - close: 36.50 change: -0.83 stop: 38.26 Company Description: SPX Corporation is a global provider of technical products and systems, industrial products and services, flow technology, cooling technologies and services, and service solutions. (source: company press release) Why We Like It: It would be misleading to say the troubled started on August 2nd. That is when shares of SPW traded sharply lower and broke support at the $40.00 level as investors reacted to its disappointing earnings report. The company misses analysts' expectations by 6 cents as operations suffered from higher material costs and productivity issues. The next day (Aug. 3rd) Bank of America reiterated its "sell" rating on the stock and Standard & Poor's lowered its credit/debt outlook on SPW from "stable" to "negative". The following session (Aug. 4th) Lehman Brothers downgraded SPW from "over weight" to "equal weight". Now after producing an oversold bounce from the $36 level shares of SPW look ready for its next leg lower. Technicals are all negative and its P&F chart points to a $32 target. We believe SPW can trade lower. Our target is the $31-30 area, which appears to be support on SPW's weekly chart. Readers have a couple of choices for entry points. More aggressive traders may consider entries now at current levels under $38.00. More conservative traders might feel better waiting for a new relative low under $35.76. We're going to choose the latter and issue a TRIGGER to buy puts at $35.75. We'll start the play with a stop loss at $38.26. Suggested Options: We like the September puts. Our favorites are the $37.50s and $35s. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 37.50 SPW-UU OI=3336 current ask $2.55 BUY PUT SEP 35.00 SPW-UG OI=1140 current ask $1.35 BUY PUT SEP 32.50 SPW-UZ OI= 23 current ask $0.65 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: - 0.00 Earnings Date 08/02/04 (confirmed) Average Daily Volume = 814 thousand Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 08-15-2004 Sunday 4 of 5 In Section Four: Leaps: Rally Ahead Option Spreads: It’s August “Hypothetical Quickie” Time Traders Corner: Nasdaq Up Volume at bottoms ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Rally Ahead I know it is out there somewhere but it could be weeks before it makes an appearance. My target would be for a post labor day bounce that takes us off the lows and a post election bounce that takes us into 2005. Now if only my targets came to pass we would all make a lot of money. I think we can be assured that baring any serious terror event between now and the election we will see those rally appear, only the strength will be in question. I am preparing this section on Thursday night this week. I am leaving for vacation and a seminar and wanted to get this ready before I left. The prices will be a day old when you get this but the opportunities will still be ahead of us. Juniper $20.19 LEAP Calls Our target price on JNPR was $20.00 and at $20.19 today I am going to call it triggered and you should enter the position when ready. Juniper was knocked for a loss after the Cisco earnings but managed to hold a few cents over $20 for two days in a very negative market. It may go lower and those wishing to wait may want to set a buy stop at $21 in case the market surprises us and then enter when you feel it has bottomed. JNPR 2006 $25 call WBW-AE $3.70 Insurance = SEP-$17.50 Put JUX-UW @ 50 cents http://members.OptionInvestor.com/leaps/Lp_072504_1.asp JNPR Chart ******************* Hoping for another drop The market weakness over the last week has not done much to good companies. Techs have been getting killed on a daily basis but the really big giants are barely moving. High liquidity and strong profits provide a refuge in times of stress. I mentioned WMT and GE last week and I am making it official this week. ******************* WMT - Wal-Mart $52.65 Target $51.00 I should have taken the Wal-Mart entry last week at $51.20. The consumer king said on Thursday that profits rose +8.6% and beat the street by a penny. Despite the slow consumer WMT continues to add revenue and profits. I may be taking a risk with WMT at $51 in a down trending market but options are cheap and we can get a Sept $50 insurance put for only 65 cents. This allows us almost no risk other than the price of the put and we will be ready to profit from an end of year rebound. 2006 $55 LEAP Call WW-TAK 5.00 Insurance = Sept-$50 Put WMT-UJ @ 65 cents WMT Chart ******************** GE $31.60 LEAP Call I know GE has no sex appeal but they have promised to produce double digit profits in 2005. I know they promised it in 2003 and 2004 but this time I think they will make it. GE is big enough to control their own fate and they appear to be doing just that. They are dumping slow growth businesses in favor of adding high growth, high margin businesses. The are getting out of high risk products like insurance in this age of terrorist events. GE may not have any sex appeal but it refuses to drop below $30 despite all the market challenges. Options are very cheap and with a solid uptrend in place we should not have any trouble profiting from any post election rebound. If GE falls back to our $30 target I would suggest the $30 leap as the best value. Target GE at $30 to enter the position. 2006 $30 LEAP Call WGE-AF $4.20, target $3.50 2006 $35 LEAP Call WGE-AG $2.00, target $1.75 I am not suggesting insurance on GE but the December $27.50 put is only 40 cents. We would need a serious national disaster to see GE break $30 and I think it would only be temporary. GE Chart ******************** Portfolio Updates: HD - Home Depot - $32.92 ** Dropped ** Leap Put After all the negative market sentiment, complaints about slow consumer demand and drop in home sales HD has failed to move off the same $32.90 level it held last week. Their recently announced increased share buyback may be holding them up. Either way I have grown tired of this dead money and I am dropping it. 2005 $35 LEAP Put HD-MG cost $2.95 current $3.30 2006 $35 LEAP Put WHD-MG cost $4.50 current $4.70 May $40 Insurance put - expired - cost $.55 HD Chart TYC - Tyco - $30.11 ** STOP CHANGE ** LEAP Call TYCO is holding the line in a down market but Thursday it was stretched almost to the breaking point. I like TYCO and I want to keep this play if at all possible. I am lowering the stop to $28.00 and the 200dma. RHAT - RedHat - $14.08 (stop $12.50) LEAP Call RHAT was knocked backwards on the Cisco earnings but we are in no danger of being stopped. Holding on for the September rebound. SMH Holders $28.78 Puts - Target $28 So far so good. The SOX continues to fall and our puts continue to rise. No complaints here. **************************** Current Portfolio: SMH - Semiconductor Holders $28.78 Entry $32.50 August 2nd Profit Target = SMH $28 Current position: Nov-$30 Put SMH-WF cost $1.40 current $2.85 Nov-$35 Put SMH-WG cost $3.80 current $6.40 Initial play description: http://members.OptionInvestor.com/leaps/Lp_080104_1.asp SMH Chart RHAT Red Hat $14.08, stop $12.50 Entry $14.81 Recommended July-18th Current position: 2006 $20 LEAP Call YFX-AD cost $2.75 Current $2.50 Sept $12.50 ins put RCV-UV cost $0.55 Current 0.65 Initial play description: http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Red Hat Chart TYC Tyco $30.22 Stop $28.00 Entry $28.32 2005 $30 LEAP Call TYC-AF cost $2.15 current $2.50 2006 $30 LEAP Call WPA-AF cost $4.00 current $4.50 July $25 insurance put - expired - cost $.55 Tyco Chart Position Summary Graph LEAPS Watch List **Editors Note** In the event of a market drop due to a terrorist attack on U.S. soil all entry targets should be immediately cancelled. Watch List Update: With the market dropping sharply and creating bargains on a daily basis we are very close to our entry points on nearly all of the watch list candidates. I would be a buyer of these leaps if our targets are hit despite the market weakness. EBAY - EBAY $77.51 target entry $71.00 2006 $80 LEAP Call YEU-AP currently $13.70 http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart MER - Merrill Lynch $48.02 target entry $46.00 2006 $50 LEAP Call WZM-AJ Currently $5.97 target $5.80 http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart INTC - Intel $21.24 target entry $20.00 2006 $22 LEAP Call WNL-AX currently $3.30 2006 $25 LEAP Call WNL-AE currently $2.20 http://members.OptionInvestor.com/leaps/Lp_071804_1.asp INTC Chart MMM - 3M Company - $77.79 Target entry $75, add to position at $70. 2006 $80 LEAP Call VMU-AP current $10.10 target $8.00 2006 $85 LEAP Call VMU-AQ current $8.00 target $6.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp MMM Chart C - Citigroup $43.88 LEAP Call Citigroup rebounded from the last Friday lows and moved as high as $44.50 before beginning to decline once again. Enter 1/2 position at $42.50 Enter 1/2 position at $40.00 2006 $45 LEAP Call WRV-AI current $3.80, target $3.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp Citigroup Chart SYMC - Symantec - $45.71 - Target $41 Symantec dipped on various news stories last week but did not break under $44.80. Still hoping to see another strong drop. 2006 $45 LEAP Call YAG-AI current $9.20, target $6.00 2006 $50 LEAP Call YAG-AJ current $7.10, target $5.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC 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 ************************************************************** ************************ Option Spread Strategies ************************ It’s August “Hypothetical Quickie” Time By Mike Parnos Thanks for all the “welcome back” emails. I was all choked up. Not entirely from the emails. It was partially due to a piece of piece of fried chicken that took a wrong turn on its way to the black hole I call my stomach. Needless to say, it eventually found its way to fried chicken nirvana. ___________________________________________________________ Plans For Adjustment Two of our portfolio positions are at risk. RUT is slightly below our short strike price (520) and BBH is slightly above its short strike ($130). What am I going to do if these continue down? Well, I’ve scoped out different positions to roll into. You have to do this ahead of time. When the time comes to close out a failing position, it’s going to be pretty chaotic – at least emotionally. If you have a plan in place, you know what you’re going to. It makes it easier to pull the trigger. As for a position to roll into, I like a September SPX Iron Condor consisting of a 995/975 bull put spread and the 1125/1140 bear call spread. It has a huge range and offers reasonable premiums. You’ll have to adjust the number of contracts you’ll trade to how much you have to replenish from closing out a failing position. Keep in mind, also, that those traders with limited trading accounts may not be able to make up the entire amount in one month. Don’t get aggressive. Maintain a wide range on your condors or you may find yourself right back in a similar situation next month. Don’t use up all your trading capital in a single month. Keep some powder dry. You never know when you’re going to need it. ____________________________________________________________ AUGUST QUICKIES The market has been trending down. That makes it particularly difficult to select quickies. For these quickies to be successful, we much prefer a market that is consolidating. It looks like the market is at a support level and has been trying, for the past few days, to hold it. For our purposes, it only needs to hold it for another four-five days. It’s risky. Also, remember that the prices below are based on Friday’s closing figures. On Monday, there will likely be less premium available. Arbitrarily, placing orders with the prices below is rather foolish (that’s nicer than “stupid”). Take a look at what the current bids and asks are for the options you’re trading and adjust your requests accordingly. If you take in a little less, the trades still have good potential and decent chances of success. The figures below also include a small shaving of premium from the bid/ask spreads. Don’t get too greedy or you won’t get filled? August Quickie #1 – OEX Siamese Condor – 520.72 Sell 10 August OEX 520 puts @ $3.50 ($3,500) Sell 10 August OEX 520 calls @ $4.80 ($4,800) Total credit of $8,300 Buy 10 August OEX 500 puts @ $.45 ($450) Buy 10 August OEX 540 puts @ $.25 ($250) Total debit of $700 Total net credit of $7.60 ($7,600). The closer OEX finishes near 520, the more money you will make. Your profit parameters at expiration are from 512.40 to 527.60 – a 15-point range. Those should also be your bailout points. Let your risk tolerance be your guide. The maintenance required will be $20,000, but it will only be for a week. Remember, if you have a chance to close out the position with a 70% profit, it’s a good idea to grab it. There’s no point in risking your 70% to get the other 30%. August Quickie #2 (Plan A) – RUT Iron Condor – 517.39 Sell 10 August RUT 510 puts Buy 10 August RUT 500 puts Credit of about: $1.65 ($1,650) Sell 10 August RUT 530 calls Buy 10 August RUT 540 calls Credit of about: $1.05 ($1,050) Total net credit of $2,700. Maximum profit range: 510 to 530. Safety range, at expiration: 507.30 to 532.70. Maintenance: $10,000. Potential return on risk: 37%. August Quickie #2 (Plan B) – RUT Iron Condor – 517.39 For those who have a slightly bearish bias or who want to be more aggressive, you can lower the bear call spread to 520/530. Sell 10 August RUT 510 puts Buy 10 August RUT 500 puts Credit of about: $1.65 ($1,650) Sell 10 August RUT 520 calls Buy 10 August RUT 520 calls Credit of about: $3.10 ($3,100) What this does is to allow you to take in more premium, but your max profit range is narrowed by 10 points. It gives you roughly two additional points of protection on the downside, but reduces your cushion to the upside. Your maximum catastrophic loss is $5.25 ($5,250). Total net credit of $4,750. Maximum profit range: 510 to 520. Safety range, at expiration: 505.25 to 524.75. Maintenance: $10,000. Potential return on risk: 90% Tempting, isn’t it? Well, you should let your risk tolerance be your guide. All of the above hypothetical “quickie” positions should be monitored closely. When you have an opportunity to take a significant portion of your profits, go for it. If the trade goes against you, know your exit points – and adhere to them. If you can’t adhere to them, you won’t be trading much longer. ___________________________________________________________ Putting Life Into Perspective Q: What's the difference between a girlfriend and a wife? A: 45 lbs. Q: What's the difference between a boyfriend and a husband? A: 45 minutes. Q: What is it when a man talks nasty to a woman? A: Sexual harassment. Q: What is it when a woman talks nasty to a man? A: $3.99 a minute. ___________________________________________________________ AUGUST POSITIONS August Position #1: SPX Iron Condor – 1064.80 We sold 5 SPX August 1050 puts and bought 5 SPX August 1025 puts For a credit of about $2.40 ($1,200). Then we sold 5 SPX August 1155 calls and bought 5 SPX August 1180 calls for a credit of about $1.60 ($800). Potential profit of $2,000. Maximum profit range: 1050 to 1155. Breakeven points: 1046 & 1159. Maintenance: $12,500. August Position #2 – RUT Iron Condor – 517.39 We sold 10 RUT August 520 puts and bought 10 RUT August 510 puts for a credit of about $1.20 ($1,200). Then we sold 10 RUT August 600 calls and bought 10 RUT August 610 calls for a credit of about $.75 ($750). Potential profit: $1,950. Maximum profit range: 520 to 600. Breakeven points: 518.05 & 601.95. Maintenance: $10,000. Note: Recently, it’s become increasingly difficult to get fills on the RUT. So, I repeat, the idea is to not get too greedy. It’s better to get filled than to spend half the day cursing at the market makers. August Position #3 – BBH Iron Condor - $130.50 We sold 10 BBH August $130 puts and bought 10 BBH August $120 puts for a credit of about $.60 ($600). Then we sold 10 BBH August $150 calls and bought 10 BBH August $160 calls for a credit of about $.70 ($700). Profit potential: $1,300. Maximum profit range: $130 to $150. Breakeven points: $128.70 & $151.30. Maintenance $10,000. With BBH trading so close to the short strike, stay on your toes. August Position – SPX – 1063.23 Don’t forget that our “Credit Spread Boogie” position was rolled out to August. That should be fun to watch. And, be alert. We have to be prepared to adjust when necessary. Originally we had a July bullish position, we then adjusted it to a bearish August position. If the SPX closes below 1125 (which seems likely), we will keep our accumulated profit of $2,370. ___________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $32.52 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here’s what we’ve done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750. May $34 calls and $37 puts – credit of $800. June $34 calls and $37 puts -- total net credit of $750. We rolled out to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a credit of $.80 ($800). We rolled to the August $34 calls and $37 puts, taking in a credit of $900. For the September cycle, we rolled to the Sept. $34 calls and $37 puts, only yielding $.45 or $450 for the cycle. Our new total credit is now $11,750. Note: We haven’t included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It’s a bonus! And it’s a great cash flow generating strategy. ZERO-PLUS Strategy. OEX – 520.72 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We’re trading the remaining $26,000 to generate a “risk free” return on the original investment. Our current position: We own 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of May expiration was $4,390 plus unused $1,700 = $6,090. From the June option cycle, we are able to officially add $1,175 to our cash position – that now stands at $6,265 As of July expiration we were able to add $1,350 to our previous balance of $6,090 for a total of $7,440. New Zero Plus Positions For August August bull put spread 515/505 for credit of $.80 x 5 contracts = $400. Short 565 call for credit of $1.10 x 5 = $550. If all goes well, we’ll be able to add $950 to our cash position as we wait for the market to move up. ________________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, first look under "Education" on the OI home page and click on "Traders Corner." For more recent columns, you can look under "Strategies" and click on "Spreads & Combos." They're waiting for you 24/7. _________________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Mike Parnos Options Therapist and CPTI Master Strategist Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************** TRADERS CORNER ************** Nasdaq Up Volume at bottoms By Leigh Stevens lstevens@OptionInvestor.com As I said in my last Trader's Corner article, there is a Nasdaq Up volume pattern associated with bottoming action when used in conjunction with some other key index indicators of Price (patterns), Oscillator extremes (e.g., 14-day RSI at or below 30) and "Sentiment"; i.e., the same CBOE daily call to put ratio I use for the S&P. By the way, the aforementioned prior article can be perused at – http://www.OptionInvestor.com/traderscorner/tc_080504_2.asp The way I remember to go down my checklist of these indicators for bottoms is by remembering "POVS" – Price, Oscillator, Volume and Sentiment. The reason I say "for bottoms" is that my "volume" indicator is an NYSE or Nasdaq daily Up Volume 10-day average and mostly useful in sizing up a major or intermediate-term bottom only. When the market has been trending higher for a long time and could be making a top, I may look at the 10-day Up Volume average line but it does not have a reliability in pointing out topping action - I rely for this mostly on Price action/patterns, Oscillator extremes (e.g., overbought readings), and Sentiment (i.e., extremes of bullishness in daily call to put option ratios for equities. Back to Volume – I use either a 10-day average of NYSE total daily Up Volume ($UVOL) for the S&P and Dow indices and a 10-day average of Nasdaq Up Volume ($UVOLQ) for the Nasdaq and look for when the average pulls back to a "baseline" and then turns up. This has to happen along with extremes in two other indicators – the trigger is pulled on buying index puts or calls when price action has reversal type action; e.g., a key reversal: a decisive new low followed by a close higher than the prior day's close; e.g., a double bottom - a bottom is made at a prior significant low. [More on the use of a 10-day average of Up Volume is found at – http://www.OptionInvestor.com/traderscorner/tc_072204_2.asp ] Price is number one, so of course it comes first in finding market turning points. For example, is there a possible double bottom (or top) shaping up or did a key upside (or downside) reversal occur, etc. Oscillator extremes refer to when a Stochastic or RSI indicator of at least 14-days duration is at or below 30 or above 65/70 in the case of the RSI. Oscillators are this type of indicator that fluctuates between 1 and 100 – as opposed to the MACD for instance. Sentiment extremes or bullish or bearish readings in my CBOE equities options Call to Put ratio. More on this is found at - http://www.OptionInvestor.com/traderscorner/tc_021904_2.asp To look at where this "model" so to speak is at based on today's close, when yet another rally this week fell apart in a pretty relentless 6-week decline, can be examined on the chart below – The Index is the Nasdaq Composite (COMP) on a closing price only basis (a line chart). Prices may be near the low of a downtrend channel but this is only a possibility – there is none of the more definite signs of a bottom like I spoke about, such as an apparent upside reversal, etc. Next in my "POVS" checklist for the conditions that would be fertile for a bottom or upside reversal is to look at whether there is an oscillator extreme, such as with the 14-day RSI (Relative Strength Index), which is the 2nd part of the chart below. COMP is showing an oversold RSI reading. One indicator is at the condition for a typical bottom. Next, and a key indicator for a bottom is what is showing in a 10-day average of daily Nasdaq Up Volume in relation to a "baseline" where this index has tended to bottom in recent months. This average is in the territory where significant bottoms have tended to occur when the other indicators are also at extremes, especially my Call/Put ratio, and price action concurs. Keep in mind that the Up Volume indicator tends to bottom sometime ahead of the others – "volume precedes price". The requirement is that it reach the baseline area and then trend higher from there. Last but not least is the same daily ratio of CBOE Call to Put volume for equities (excludes index option volume) that I use for the S&P. Such extreme readings have usually suggested turning points in both Nasdaq and the S&P if the other indicators have also lined up. Notice that after the July instance shown above when Nasdaq up volume pulled back to its baseline (extreme), accompanied by a price rebound and RSI extreme, the Call/Put reading did not also drop to a bullish area. This broad trading "model" is self- correcting in that sense. If one indicator does not line up, especially if it is the Volume or Sentiment reading, it is most often not a major tradable turning point – it often suggests a good short-term trade trigger however. Summing up the current snapshot of Price action and my indicators shown above, I can reasonably predict that when the 10-day up volume average for Nasdaq turns up and, thereafter, there is a indication of an upside reversal price action, a significant call buying opportunity will exist for Nasdaq index calls like the NDX or in QQQ. Of more immediate importance is that such action will suggest exiting index puts. Does it mean that this will mean the absolute most profit? – no, but it does suggest that the probability of an upside reversal is quite high so the risk to reward potential in staying in is not favorable. Of course, many traders, especially those with fat profits, will prefer to wait until a reversal is more assured – there have been two short-term rebounds in as many weeks, but nothing sustained yet. I was going to also go into the so-called broadening formation, as in a broadening top or broadening bottom, but the subject is a bit large to go fully into here and should be the focus of a entire article – also, the examples of broadening formations tends to occur in the indices more often on hourly charts. For example, the broadening top seen in the Dow hourly chart – This pattern is of special interest, as pointed out in my book (Essential Technical Analysis), due to a study done on technical chart patterns that had a good degree of predictability by Dr. Andrew Lo, an MIT professor and researcher in the area of the financial markets. He and a group of MIT assistants working under him, made a comprehensive study of whether technical price "patterns" had future predictive value – assuming you could define the characteristics of a chart pattern well enough to set up the conditions for a computer search of historical stock market data – they used individual stocks. By the way, the 5 technical patterns that yielded "statistically significant test results" (for predicting a trend change) were the Head & Shoulders (H&S) top and bottom pattern, 2.) a double top, 3.) rectangle top, 4.) a rectangle bottom and 5.) the Broadening bottom formation – they didn't find the top pattern to have the same degree of reliability as the bottom formation of this type. I used a broadening top pattern illustration above as it was the last broadening index pattern that came up in the indices, but more on all this next time on Trader's Corner. Maybe by that time I could point to a broadening bottom. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 08-15-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: "No Reason To Be Buying Stocks..." Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* "No Reason To Be Buying Stocks..." By Ray Cummins That observation was made Friday by Joe Liro, equity strategist at Stone & McCarthy Research Associates, and it appears to echo the sentiment of most investors in the current market. He went on to say, "There's nothing on the horizon that would get me excited right now. Holding cash isn't a bad strategy until some of the geopolitical risks are settled down or there's a better read on whether the economy is going to reaccelerate." Despite another record high for crude and a widening U.S. trade deficit, the Dow Jones Industrial Average closed up 10 points at 9,825 with Coca-Cola (NYSE:KO), Wal-Mart (NYSE:WMT), ExxonMobil (NYSE:XOM), Boeing (NYSE:BA) and IBM (NYSE:IBM) among the few bullish issues. The NASDAQ Composite Index finished up 4 points at 1,757 after Dell (NASDAQ:DELL) reported Thursday that profit rose 29% from year-earlier levels, meeting expectations for the quarter. The S&P 500 added 1 point to end at 1,064 with metal, oil & gas, homebuilding, and department store stocks enjoying small gains. In the broader market, advancers paced decliners 3 to 2 on the New York Stock Exchange but breadth was neutral on the NASDAQ. Big Board volume ended near 1.2 billion shares and technology volume topped 1.3 billion shares. Treasuries closed higher after the soft economic data. The benchmark 10-year note gained 15/32 to 100 9/32, yielding 4.22%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 08/13/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Mon L/P S/P Credit CB G/L Status FRE 63.57 66.15 AUG 55.0 60.0 0.55 59.45 0.55 Open POT 98.08 99.92 AUG 85.0 90.0 0.60 89.40 0.60 Open FAST 54.74 59.33 AUG 45.0 50.0 0.60 49.40 0.60 Open PD 79.00 76.68 AUG 65.0 70.0 0.60 69.40 0.60 Open FSH 58.66 57.00 AUG 50.0 55.0 0.65 54.35 0.65 Open? WBSN 38.19 38.38 AUG 30.0 35.0 0.45 34.55 0.45 Open RTP 105.00 100.45 AUG 95.0 100.0 0.55 99.45 0.55 Open? FRE 65.04 66.15 SEP 55.0 60.0 0.40 59.60 0.40 Open FPL 67.73 67.67 SEP 60.0 65.0 0.45 64.55 0.45 Open MCO 67.33 66.50 SEP 60.0 65.0 0.65 64.35 0.65 Open BSTE 44.14 42.95 SEP 35.0 40.0 0.55 39.45 0.55 Open ISCA 53.40 51.77 SEP 45.0 50.0 0.55 49.45 0.55 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Issues on the "watch" list include: Fisher Scientific (NYSE:FSH) and Rio Tinto (NYSE:RTP). Spreads on Apple Computer (NASDAQ:AAPL), Anyss (NASDAQ:ANSS), and Gilead Sciences (NASDAQ:GILD), which are currently profitable, as well as Anthem (NYSE:ATH), BJ Services (NYSE:BJS), University of Phoenix Online (NASDAQ:UOPX), and Wellpoint (NYSE:WLP), have previously been closed to limit losses. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status LLTC 36.74 35.44 AUG 42.5 40.0 0.30 40.30 0.30 Open XLNX 31.53 27.08 AUG 37.5 35.0 0.25 35.25 0.25 Open MERQ 46.17 34.01 AUG 55.0 50.0 0.65 50.65 0.65 Open SMH 34.58 28.95 AUG 42.5 40.0 0.30 40.30 0.30 Open TLB 33.04 26.26 AUG 40.0 35.0 0.60 35.60 0.60 Open VAR 77.24 32.12 AUG 90.0 85.0 0.50 85.50 0.50 Open KLAC 43.33 35.78 AUG 50.0 47.5 0.25 47.75 0.25 Open NVLS 29.23 23.85 AUG 35.0 32.5 0.20 32.70 0.20 Open BZH 90.65 93.03 AUG 105.0 100.0 0.45 100.45 0.45 Open LLY 64.67 61.57 AUG 75.0 70.0 0.65 70.65 0.65 Open ACS 51.80 49.43 AUG 60.0 55.0 0.45 55.45 0.45 Open DIGE 33.08 23.50 AUG 40.0 35.0 0.55 35.55 0.55 Open SRCL 48.00 46.32 AUG 55.0 50.0 0.30 50.30 0.30 Open PDCO 73.40 75.39 SEP 85.0 80.0 0.55 80.55 0.55 Open CDWC 59.25 57.20 SEP 65.0 60.0 0.45 60.45 0.45 Open KMRT 64.60 64.90 SEP 80.0 75.0 0.60 75.60 0.60 Open VIP 85.00 84.56 SEP 100.0 95.0 0.45 95.45 0.45 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 DVN 69.40 66.10 AUG 70.00 70.00 5.00 5.00 Open TBL 60.26 53.45 AUG 60.00 60.00 4.75 6.75 Open? The Timberland (NYSE:TBL) straddle recently traded near a credit of $6.75 for the bearish portion of the straddle, thus providing a favorable "early-exit" opportunity in the position. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ LEND - Accredited Home Lenders $33.89 ** Interest-Rate Play! ** Accredited Home Lenders Holding (NASDAQ:LEND) is engaged in the business of making mortgage loans to borrowers across the United States. The company's business includes originating, selling and servicing first and junior-lien mortgage loans primarily secured by single-family (one- to four-family) residences. Accredited Home focuses on borrowers who do not meet conforming underwriting guidelines because of higher loan-to-value ratios, the nature or absence of income documentation, limited credit histories, high levels of consumer debt or past credit difficulties. LEND - Accredited Home Lenders $33.89 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-25.00 QFW-UE OI=278 ASK=$0.30 SELL PUT SEP-30.00 QFW-UF OI=830 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$29.40 __________________________________________________________________ PIXR - Pixar $69.93 *** Approaching 2004 Highs! *** Pixar (NASDAQ:PIXR) is a digital animation studio with the creative, technical and production capabilities to create a new generation of animated feature films and related products. Pixar's objective is to develop and produce computer-animated feature films with a three-dimensional appearance. Since its inception, Pixar has created and produced a large number of full-length animated feature films, Toy Story, A Bug's Life, Toy Story 2, Monsters, Inc., and Finding Nemo, most of which were marketed and distributed by The Walt Disney Company. PIXR - Pixar $69.93 PLAY (conservative - bullish/credit spread): BUY PUT SEP-60.00 PQJ-UL OI=1753 ASK=$0.40 SELL PUT SEP-65.00 PQJ-UM OI=1678 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$64.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BGG - Briggs & Stratton $69.80 *** Downtrend Underway! *** Briggs & Stratton (NYSE:BGG) is a producer of gasoline engines for outdoor power equipment. The company designs, manufactures, markets and services these products for customers worldwide. These engines are primarily aluminum alloy gasoline engines ranging from three to 31 horsepower and are marketed under various brand names, including Classic, Sprint, Quattro, Quantum, INTEK, I/C, Industrial Plus and Vanguard. Through its wholly owned subsidiary, Briggs & Stratton Power Products Group, LLC, the firm designs, manufactures and sells portable generators, pressure washers and related accessories. BGG - Briggs & Stratton $69.80 PLAY (conservative - bearish/credit spread): BUY CALL SEP-80.00 BGG-IP OI=30 ASK=$0.30 SELL CALL SEP-75.00 BGG-IO OI=14 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$75.45 __________________________________________________________________ DNA - Genentech $44.23 *** Avastin Warning = Sell-Off! *** Genentech (NYSE:DNA) is a biotechnology firm using human genetic information to discover, develop, manufacture and commercialize biotherapeutics for significant unmet medical needs. The company manufactures and commercializes biotechnology products directly in the United States. The company also licenses other products to various partners and its development efforts, including those of its collaborative firms, cover a range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. DNA - Genetech $44.23 PLAY (less conservative - bearish/credit spread): BUY CALL SEP-52.50 DNA-IX OI=3436 ASK=$0.35 SELL CALL SEP-50.00 DNA-IJ OI=5454 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$50.35 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ SHRP - The Sharper Image $17.80 *** Earnings Speculation! *** The Sharper Image (NASDAQ:SHRP) is a retailer of products in the electronics, recreation and fitness, personal care, houseware, travel, toy, gifts and other categories. The Sharper Image designs and develops its Sharper Image Design products, while Sharper Image branded products are generally designed by the company with third parties. It markets its merchandise through three integrated sales channels: The Sharper Image stores, The Sharper Image catalog, which includes revenue from all direct marketing activities and TV infomercials, and the Internet. The company's quarterly earnings report is due August 19, 2004. SHRP - The Sharper Image $17.80 PLAY (speculative - neutral/debit straddle): BUY CALL AUG-17.50 SAU-HW OI=30 ASK=$0.80 BUY PUT AUG-17.50 SAU-TW OI=1 ASK=$0.55 INITIAL NET-DEBIT TARGET=$1.20-$1.25 INITIAL TARGET PROFIT=$0.40-$0.75 __________________________________________________________________ UTSI - UTStarcom $15.00 *** 10Q Filing Delay! *** UTStarcom (NASDAQ:UTSI) designs, manufactures and markets telecommunications equipment and products, and provides services associated with their operation. Its products and technologies, which are based on global communications standards, fall into three major categories: Wireless, a technology that enables end users, or subscribers, to send and receive voice and data while mobile and using wireless devices; Wireline, a technology that satisfies customer demand for high-speed, cost-effective data, voice and media transport and carriage, and Switching, a diverse assembly of software- and hardware-based networking elements designed to replace central office telephone switches. UTSI - UTStarcom $15.00 PLAY (very speculative - neutral/debit straddle): BUY CALL AUG-15.00 UON-HC OI=1619 ASK=$0.55 BUY PUT AUG-15.00 UON-TC OI=1279 ASK=$0.50 INITIAL NET-DEBIT TARGET=$0.90-$1.00 INITIAL TARGET PROFIT=$0.35-$0.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** 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 08/13/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 NFI AUG 30.00 29.20 37.84 0.80 5.99% 2.74% PETD AUG 25.00 24.35 28.15 0.65 4.86% 2.67% NFI AUG 30.00 29.40 37.84 0.60 4.68% 2.04% SCHN AUG 30.00 29.00 27.04 (1.96) 0.00% 0.00% FRO AUG 30.00 29.30 36.71 0.70 4.97% 2.39% GIVN AUG 30.00 29.45 31.45 0.55 4.21% 1.87% ATI AUG 15.00 14.50 16.93 0.50 7.89% 3.45% BEIQ AUG 25.00 24.00 25.85 1.00 7.61% 4.17% AMHC AUG 25.00 24.25 26.39 0.75 5.98% 3.09% VTS AUG 22.50 21.85 22.34 0.49 4.31% 2.97% ATI AUG 15.00 14.75 16.93 0.25 4.68% 1.69% EYET AUG 30.00 29.55 33.30 0.45 3.85% 1.52% CTSH AUG 22.50 22.05 24.85 0.45 4.61% 2.04% STLD AUG 30.00 29.60 30.03 0.40 3.50% 1.35% SRDX AUG 20.00 19.50 23.80 0.50 7.27% 2.56% NFI AUG 35.00 33.85 37.84 1.15 9.90% 3.40% ISG AUG 30.00 29.05 29.50 0.45 3.60% 3.27% DHB AUG 12.50 12.15 12.16 0.01 0.24% 2.88% MSO AUG 10.00 9.65 11.35 0.35 9.88% 3.63% EENC AUG 12.50 12.25 13.75 0.25 4.83% 2.04% IDCC AUG 17.50 17.05 14.82 (2.23) 0.00% 0.00% NFI AUG 35.00 34.25 37.84 0.75 7.63% 2.19% CERN AUG 35.00 34.35 43.55 0.65 6.54% 1.89% VLCCF AUG 25.00 24.35 26.06 0.65 8.65% 2.67% KRON AUG 40.00 39.40 40.23 0.60 6.74% 1.52% UTHR AUG 22.50 22.20 28.54 0.30 6.05% 1.35% CYTC AUG 22.50 22.10 22.55 0.40 7.64% 1.81% TOY AUG 15.00 14.75 14.97 0.22 6.55% 1.69% IDCC AUG 17.50 17.20 14.82 (2.38) 0.00% 0.00% KYPH AUG 25.00 24.50 23.90 (0.60) 0.00% 0.00% TOY AUG 15.00 14.75 14.97 0.22 7.30% 1.69% KIND AUG 22.50 22.10 25.23 0.40 8.57% 1.81% ODSY AUG 17.50 17.25 17.64 0.25 6.78% 1.45% NFI AUG 30.00 29.55 37.84 0.45 9.02% 1.52% KYPH AUG 25.00 24.35 23.90 (0.45) 0.00% 0.00% AH AUG 35.00 34.60 32.79 (1.81) 0.00% 0.00% ING AUG 22.50 22.25 23.25 0.25 7.30% 1.12% IVX SEP 20.00 19.55 23.60 0.45 5.52% 2.30% MCIP SEP 15.00 14.30 16.60 0.70 8.50% 4.90% PAAS SEP 12.50 12.05 13.57 0.45 6.87% 3.73% UTHR SEP 25.00 24.70 28.54 0.30 3.01% 1.21% AMED SEP 25.00 24.25 28.10 0.75 6.54% 3.09% PHM SEP 50.00 49.25 56.57 0.75 3.32% 1.52% KOSP SEP 30.00 29.25 35.22 0.75 5.48% 2.56% GLBCE SEP 12.50 11.90 15.28 0.60 11.90% 5.04% ECLP SEP 12.50 12.10 13.71 0.40 6.90% 3.31% OMM SEP 12.50 12.10 12.58 0.40 6.51% 3.31% CNCT SEP 25.00 24.10 27.13 0.90 7.11% 3.73% TOY SEP 15.00 14.45 14.97 0.52 7.10% 3.81% ACF SEP 20.00 19.25 19.57 0.32 3.06% 3.90% KYPH SEP 25.00 24.60 23.90 (0.70) 0.00% 0.00% PLMO SEP 30.00 29.45 38.00 0.55 5.05% 1.87% ION SEP 25.00 24.50 25.05 0.50 4.17% 2.04% ESLT SEP 20.00 19.20 20.68 0.80 7.95% 4.17% Some new stocks are now on the "early exit" list including: AH, KYPH, IDCC and SCHN. They join ACF, BEIQ, CYTC, DHB, ION, ISG, KRON, OMM, ODSY, STLD, TOY, VLCCF and VTS on a list of issues to "watch" closely. A long list of plays; ARXX, BLUD, BR, CRK, CACS, CBST, CRDN, ELN, ERES, ESIO, EYET, FARO, GPRO, KWK, JCOM, JNPR, LCAV, MGAM, NVTL, OSTK, TECH, and TASR, have previously been closed to limit potential losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield SLAB AUG 50.00 51.00 30.39 1.00 5.30% 1.96% SINA AUG 40.00 40.85 19.78 0.85 7.85% 2.08% ATRS AUG 30.00 30.85 23.50 0.85 6.52% 2.76% MRVL AUG 27.50 27.85 19.77 0.35 3.98% 1.26% MACR AUG 25.00 25.40 18.65 0.40 4.55% 1.57% ISIL AUG 20.00 20.45 15.70 0.45 5.72% 2.20% FLML AUG 25.00 25.50 14.97 0.50 8.15% 1.96% OTEX AUG 30.00 30.65 21.63 0.65 6.12% 2.12% TELK AUG 25.00 25.45 15.93 0.45 5.60% 1.77% ASKJ AUG 40.00 40.50 23.98 0.50 5.97% 1.23% DRIV AUG 30.00 30.85 22.97 0.85 7.92% 2.76% SINA AUG 35.00 35.45 19.78 0.45 6.42% 1.27% BSX AUG 40.00 40.50 32.37 0.50 3.58% 1.23% ICUI AUG 30.00 30.80 27.58 0.80 8.64% 2.60% WMGI AUG 35.00 35.65 24.68 0.65 5.46% 1.82% LSCP AUG 30.00 30.70 16.33 0.70 11.15% 2.28% ERICY AUG 30.00 30.65 24.11 0.65 8.01% 2.12% NTES AUG 40.00 40.45 30.01 0.45 6.31% 1.11% SPW AUG 45.00 45.40 36.50 0.40 5.03% 0.88% MXIM AUG 50.00 50.45 43.31 0.45 5.06% 0.89% YHOO AUG 32.50 32.70 27.49 0.20 4.20% 0.61% MRVL AUG 25.00 25.30 19.77 0.30 8.23% 1.19% CRDN SEP 40.00 40.50 31.80 0.50 5.29% 1.23% SWIR SEP 35.00 35.60 23.80 0.60 7.40% 1.69% AVID SEP 50.00 50.50 41.52 0.50 3.56% 0.99% USPI SEP 37.50 38.05 33.34 0.55 3.90% 1.45% BDY SEP 25.00 25.75 22.41 0.75 7.42% 2.91% DRIV SEP 30.00 30.30 22.97 0.30 4.51% 0.99% SINA SEP 30.00 30.35 19.78 0.35 5.84% 1.15% There was no viable position in Eon Labs (NASDAQ:ELAB), Accredo Health (NASDAQ:ACDO) or Ultralife Batteries (NASDAQ:ULBI), due to "gap-down" trading activity after those plays were listed. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield WBSN 38.38 SEP 35.00 DQH-UG 1.25 263 33.75 34 3.3% 8.5% NTMD 17.52 SEP 12.50 QNR-UV 0.35 61 12.15 34 2.6% 8.1% UTHR 28.54 SEP 25.00 FUH-UE 0.70 1120 24.30 34 2.6% 7.3% CNCT 27.13 SEP 25.00 UXU-UE 0.70 1055 24.30 34 2.6% 6.6% DDS 22.35 SEP 20.00 DDS-UD 0.50 79 19.50 34 2.3% 6.3% MEE 25.76 SEP 22.50 MEE-UX 0.50 50 22.00 34 2.0% 5.9% FOSL 26.45 SEP 25.00 FUA-UE 0.65 95 24.35 34 2.4% 5.9% HUM 18.67 SEP 17.50 HUM-UW 0.40 693 17.10 34 2.1% 5.3% SCSC 57.23 SEP 50.00 UHI-UJ 0.60 338 49.40 34 1.1% 3.3% Abbreviations: LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis without margin), MY-Maximum Yield (monthly basis with margin), TS-Target Shoot. __________________________________________________________________ WBSN - Websense $38.38 *** A Big Day! *** Websense (NASDAQ:WBSN) provides employee Internet management products that enable organizations to analyze, report and manage how their employees use computing resources, including Internet access, instant messaging, peer-to-peer file sharing, network bandwidth and desktop applications. The company's primary product offering is the Websense Enterprise software application, its central policy engine and management console. Websense Enterprise also serves as a platform for related Websense add-on modules such as Client Application Manager, Bandwidth Optimizer, instant message Attachment Manager and Client Policy Manager, and supports a variety of reporting options that allow organizations to document patterns of employees' use of computing resources. WBSN - Websense $38.38 SEP 35.00 DQH-UG LB=1.25 OI=263 CB=33.75 DE=34 TY=3.3% MY=8.5% __________________________________________________________________ NTMD - NitroMed $17.52 *** Premium-Selling Only! *** NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company with substantial expertise and intellectual property in nitric oxide-based drug development. The firm is applying its nitric oxide technology to develop new pharmaceuticals, as well as safer and more effective versions of existing pharmaceuticals to target diseases and commercial markets. Its lead nitric oxide-enhancing medicine, BiDil, which is being developed to reduce mortality and hospitalization and to improve quality of life for African Americans diagnosed with heart failure is the subject of a Phase III confirmatory clinical trial. SEP 12.50 QNR-UV LB=0.35 OI=61 CB=12.15 DE=34 TY=2.6% MY=8.1% __________________________________________________________________ UTHR - United Therapeutics $28.54 *** New Entry Point? *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C or other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. UTHR - United Therapeutics $28.54 SEP 25.00 FUH-UE LB=0.70 OI=1120 CB=24.30 DE=34 TY=2.6% MY=7.3% __________________________________________________________________ CNCT - Connetics $27.13 *** Bullish Profit Outlook! *** Connetics Corporation (NASDAQ:CNCT) is a specialty pharmaceutical company focusing exclusively on the treatment of dermatological conditions. It markets two pharmaceutical products: OLUX Foam and Luxmq Foam. On February 9, 2004, the company announced that it had entered into a binding purchase agreement with Roche to acquire exclusive U.S. rights to Soriatane-brand acitretin, an approved oral medicine for the treatment of severe psoriasis in adults. Soriatane, a once-a-day oral retinoid approved in the United States, is used for the treatment of severe psoriasis in adults. CNCT - Connetics $27.13 SEP 25.00 UXU-UE LB=0.70 OI=1055 CB=24.30 DE=34 TY=2.6% MY=6.6% __________________________________________________________________ DDS - Dillard's $22.35 *** Strong Sector! *** Dillard's (NYSE:DDS) operates retail department stores located primarily in the Southwest, Southeast and Midwest United States. The company's stores are located in suburban shopping malls and offer a wide selection of fashion apparel and home furnishings. Dillard's markets products under the following merchandising categories: cosmetics, women's and juniors' clothing, children's clothing, men's clothing and accessories, shoes, accessories and lingerie and home. SEP 20.00 DDS-UD LB=0.50 OI=79 CB=19.50 DE=34 TY=2.3% MY=6.3% __________________________________________________________________ MEE - Massey Energy $25.76 *** Energy Sector Hedge! *** Massey Energy (NYSE:MEE) produces, processes and sells bituminous, low sulfur coal of steam and metallurgical grades through its 19 processing and shipping centers, called resource groups, many of which receive coal from multiple coal mines. The firm's resource groups or mining complexes blend, process and ship coal that is produced from one or more mines, with a single complex handling the coal production of as many as eight distinct underground or surface mines. These mines are at strategic locations in close proximity to the Massey preparation plants and rail facilities. Coal is transported from its mining complexes to customers by means of railroad cars or trucks. Massey operates 30 underground mines and 13 surface mines in West Virginia, Kentucky and Virginia. The company's steam coal is primarily purchased by utilities and industrial clients as fuel for power plants. MEE - Massey Energy $25.76 SEP 22.50 MEE-UX LB=0.50 OI=50 CB=22.00 DE=34 TY=2.0% MY=5.9% __________________________________________________________________ FOSL - Fossil $26.45 *** A Timely Stock! *** Fossil (NASDAQ:FOSL) designs, develops, markets and distributes contemporary, fashion watches and accessories. The company's brands in its line of fashion watches include Fossil (which it developed), Relic, Zodiac, Burberry, Diesel, DKNY and Emporio Armani. It offers a range of accessories including small leather goods, belts, handbags and sunglasses under the Fossil and Relic brands, jewelry under the Fossil and Emporio Armani brands and Fossil brand apparel. SEP 25.00 FUA-UE LB=0.65 OI=95 CB=24.35 DE=34 TY=2.4% MY=5.9% __________________________________________________________________ HUM - Humana $18.67 *** Bottom-Fishing In Healthcare *** Humana (NYSE:HUM) offers coordinated health insurance coverage and related services through traditional and Internet-based plans for employer groups, government-sponsored programs and individuals. The company has approximately 6 million members in its medical insurance programs and nearly 2 million members in its specialty products programs. Approximately 70% of its premiums and administrative services fees result from members in Florida, Illinois, Texas, Kentucky and Ohio. HUM - Humana $18.67 SEP 17.50 HUM-UW LB=0.40 OI=693 CB=17.10 DE=34 TY=2.1% MY=5.3% __________________________________________________________________ SCSC - ScanSource $57.23 *** Solid Earnings = Rally! *** ScanSource (NASDAQ:SCSC) is a wholesale provider of specialty technology products, providing both value-added distribution sales to technology resellers and e-logistics services to specialty technology markets. The company markets automatic identification and data capture and point-of-sale products through its ScanSource sales unit; voice, data and converged communications equipment through its CatalystTelecom sales unit, and converged communications products through its Paracon sales unit. In addition to the basic order fulfillment and credit services that conventional wholesale distributors typically provide to resellers, the company differentiates itself by providing an array of value-added services and business tools that assist resellers to provide more complete solutions and improve customer service. SEP 50.00 UHI-UJ LB=0.60 OI=338 CB=49.40 DE=34 TY=1.1% MY=3.3% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DKS - Dick's Sporting Goods $26.88 *** Pre-Earnings Slump? *** Dick's Sporting Goods (NYSE:DKS) is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment. The company offers a full range of sporting goods and active apparel at each price point in order to appeal to the beginner, intermediate and enthusiast sports consumer. Sales of hard-line items such as hunting and fishing gear, sporting goods equipment and golf equipment account for over 50% of revenue. The quarterly earnings report is due Tuesday, August 17, 2004. DKS - Dick's Sporting Goods $26.88 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 30 DKS-IF 802 0.40 30.40 4.5% 1.3% _________________________________________________________________ ERES - eResearch Technology $18.64 *** Near 2004 Lows! *** 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. The company's Diagnostics Technology and Services group provides centralized diagnostic services and clinical research operations, including clinical trial and data management services, while the Clinical Research Technology and Services offers marketing and support of clinical research technology and services. ERES - eResearch Technology $18.64 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 22.5 UDB-IX 627 0.30 22.80 6.7% 1.3% _________________________________________________________________ MRVL - Marvell Technology $19.77 *** Earnings Speculation! *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. Earnings are due 8/19/04. MRVL - Marvell Technology $19.77 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 25 UVM-IE 1718 0.40 25.40 8.2% 1.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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