The Option Investor Newsletter Sunday 11-21-2004 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: Lame Duck Drop Futures Wrap: See Note Index Trader Wrap: WHAT ME WORRY Editor's Plays: Time to Roll the Dice Market Sentiment: Finally! Ask the Analyst: Is heating oil the leading indicator? 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 11-19 WE 11-12 WE 11-05 WE 10-29 DOW 10456.91 - 82.10 10539.0 +151.47 10387.5 +360.07 +269.66 Nasdaq 2070.63 - 14.71 2085.34 + 46.40 2038.94 + 63.95 + 59.85 S&P-100 559.69 - 6.53 566.22 + 8.32 557.90 + 17.25 + 15.49 S&P-500 1170.34 - 13.83 1184.17 + 18.00 1166.17 + 35.97 + 34.46 W5000 11480.63 -129.04 11609.7 +200.13 11409.6 +340.64 +320.91 SOX 431.88 + 8.07 423.81 + 5.98 417.83 + 5.58 + 17.09 RUT 613.44 - 8.54 621.98 + 17.69 604.29 + 20.50 + 16.02 TRAN 3567.65 - 60.55 3628.20 + 55.70 3572.50 + 75.08 +125.48 VXO 14.60 14.05 14.36 16.57 VXN 19.72 18.82 19.47 21.90 ****************************************************************** Lame Duck Drop by Jim Brown Lame duck Alan Greenspan took his market-crashing act on the road on Friday and comments made in Germany dropped our markets for the first weekly loss in four weeks. Alan is in his last term as Fed head and has recently been taking shots at the current status quo and generally rocking the economic boat. As a short timer he has adopted a Chicken Little attitude about things as diverse as Social Security, trade imbalances, deficits and hedge funds. As his term fades he is setting up his "I told you so" points for future use. Friday was a prime example. Dow Chart Nasdaq Chart SPX Chart - Weekly Friday morning Greenspan warned during a speech in Germany that the size of the U.S. current-account deficit should produce a diminished appetite for buying U.S. debt. While this is not news the strong warning while out of the U.S. and just in front of the G20 meeting in Berlin set off alarms for traders. With China and Japan currently holding the largest amount of all U.S. debt at 39% and another 10% liberally dispersed among other nations the blunt warning to those holders was a serious shock. That is like telling a potential house buyer that your house is over valued at the current price. Odds are good he will offer you less than he would have or immediately walk away. The fear is that those countries who fund our spending by buying our debt may rethink that concept if the chief banker thinks it is over priced and high risk. Should the demand for our debt decline then interest rates would have to rise in order to convince them to take the risk. Higher rates cost the U.S. more money and we are not talking chump change. With the deficit reportedly near $1 trillion for 2005 just a +1% rise in rates will cost a lot of money over the life of the notes. The House voted Thursday to raise the debt ceiling by +$800 billion to $8.2 trillion for 2005. Rates could easily rise much more than 1% given the Fed policy at present and no relief in sight to balance the budget. An even worse scenario would appear should those foreign holders of 50% of our debt decide to reduce positions and begin dumping that debt on the open market. Rates would not just rise but immediately skyrocket and the impact on the economy would be very severe. The falling dollar is worrisome at best and while it will help our trade balance it needs to come down at a controlled rate not a free fall. These comments by Alan shocked traders and a few raced to the exits. Currency fluctuations and implosions can appear out of nowhere and tank markets at will. Because 99% of equity traders have no clue how currencies affect equities or economies the retail traders are always caught off guard. Just when the sunshine seems brightest a lightning bolt from the blue shocks markets into cardiac arrest. The comments from Greenspan went on to suggest that the Fed may have to escalate their rate hike process to adjust to the continued dollar drop. That was just what markets on the verge of a breakout needed to hear. Faster rate hikes ahead could mean multiple tightenings, larger hikes and a rate parity around 6% instead of the current 3% target. With the Euro holding above 1.30 to the dollar and just fractions below the all time high set on Thursday the G20 meeting is not expected to fix the problem. In fact it could escalate the problem depending on the mood of the attendees in light of the Greenspan comments. The dollar index hit another multiyear low on Friday and Gold hit another 16 year high at $448.50. The concern about the dollar drop as well as some minor supply disruptions sent oil soaring back to close just under $49 and a +2.60 gain for the day. The 100-day average at 45.75 never broke as support and we could be at the beginning of another oil price cycle but it will take more than a one day spike to confirm. Dollar Index Chart Crude Oil Chart The twin deficits of budget and trade are keeping our rates artificially low according to some but others are more concerned. Doug Kass of Seabreeze Partners pointed out that the Leading Indicators this week have fallen for the fifth consecutive month and this is the first time in 45 years that it has happened outside of a recession. He pointed to the strong signs of a slowing consumer and corporate earnings still being met more on cost savings than revenue increases. The bulls view that slowdown as due to the weight of a highly contentious election and the record high oil prices. There will always be a difference of opinion between stock bulls and economic bears but having Alan weigh in on the side of the bears is not good for stocks. Greenspan's speech turned into a tirade against the U.S. where he verbally questioned the wisdom of other countries in allowing the U.S. to finance such a large deficit at more than 5% of GDP. He went so far as to caution that payments on large debt balances would eventually become burdensome to the U.S. and countries concentrating their assets in U.S. debt could be at risk. Can you believe this? Sounds like a dad lecturing a teenager about the evils of high car payments and their inability to pay in front of the loan officer deciding whether or not to make the loan. Later he literally told them that they should be demanding higher interest rates to offset the increasing risk. He basically said if they would buy less debt and demand higher rates the U.S. would be forced to import less and live on a budget. While I agree with the long term concept of balancing trade and living on a budget I don't believe Greenspan should go to the G20 and tell them to cut off our life support. While it is too early to tell if foreign banks will cut our allowance the impact of Greenspan's verbal tongue lashing was immediate. The markets imploded at the open and never looked back. None of the major indexes ever made a higher high for the entire day. It started out as an express elevator to the basement from the 100th floor and ended up pausing to let a few passengers off on the last several levels. The end result was a Dow that failed at support at 10550, 10500 and 10475 to slide to a stop at 10450 with only a minimal bout of short covering at the close. Should the slide continue on Monday there is substantial support from 10375 to 10400 and the likely bottom of any further selling. As much as everybody wanted the Dow to break 10600 it was exactly the right spot for a failure to occur. The Greenspan comments were just the extra push the bulls needed to take profits. By pausing to rest at 10600 the Dow will be stronger if it decides to tackle 10750 and the highs for the year. The Nasdaq gave up 2100 after only two days at that altitude and spent most of the afternoon fighting to cling to 2075. That battle was lost just before the close with the index going out at 2071. The equivalent support to Dow 10400 is Nasdaq 2040 and well below our closing level. The Nasdaq drop was accelerated by a chip downgrade by Goldman Sachs. The broker said there was more pain ahead for chips due to over capacity and lack of demand. Smith Barney immediately fired back that the worst was over and chips should be bought on weakness ahead of a rebound in 2005. Intel CEO Craig Barrett again said he sees chip demand increasing in 2005 and defended his planned capacity increases. Ultimately the markets listened to Goldman Sachs and sold chips faster than a peanut vendor at a ball game. The SOX had closed at a breakout high of 445 on Thursday and that move was completely erased with a drop to 432 by the close. It is still above downtrend resistance but it was a nasty retracement given the recent recovery talk. SOX Chart Russell Chart The Russell was hit especially hard with a drop from 622 to 613 but it was not as clear intraday. The morning drop was vertical but was over by 10:00. The Russell held 615 for the next five hours with a minor upward bias but a sell program just before the close completed the drop. The Russell has rebounded +22% from the low for the year at 516 set on August 13th. +12% of that bounce had been from the 562 low made on Oct-20th to the 628 high on Wednesday. The Russell was definitely due for a rest and the sudden appearance of Darth Greenspan Vader shook up those investors and they fled the scene. Considering the amount of profit on the table a -15 point drop from the Wednesday highs to the Friday close was only a hiccup. The SPX traded in a range from 1175-1185 for most of the week with the intraday spike on Wednesday the only real deviation. On Friday the opening drop knocked us back below 1175 and we never recovered. You might remember the 1175 level was critical on the advance as the 2002 resistance high that held for all of 2002. Due to the strength of the rally it only took two days to squeeze by on the way up. Now that it is five points above us again and the race to catch the rally train has slowed it might be a little harder to move back over that level. The SPX held 1170 at the close. That level did not have any significance on the way up and I think the sellers just ran out of stock on Friday. Remember we have had a complete lack of sellers for three weeks. There is nothing to suggest that conditions have changed. The really strong support is waiting at 1165 and it is strong enough to blunt anything but a concentrated bout of real selling on high volume. The most accurate measure of the market is the Wilshire 5000 and it lost -127 on Friday to close at 11483. The Wilshire has very strong support at 10375 and very strong resistance at 10620. This suggests we could see continued selling on Monday to retest the 10400 level but that retest should hold. Wilshire Chart For next week the historical trend is normally bullish. Of course that assumes the Grinch that stole Christmas is not running around Germany passing out business cards for collection agents in case of payment default by the U.S. When asked later if his position meant the Fed might raise rates more than the market expected he replied, "rising rates has been advertised for so long that anyone not currently hedged is desirous of losing money." In English, yes, you can bet we are going to continue to raise rates. The Fed fund futures are predicting a 91% chance of a hike in December and an 80+% chance of a hike in February. What happens next week is going to be dictated by what happens at the open on Monday. The odds are very good there are quite a few traders and mutual funds that are celebrating this weekend. The Friday drop took a lot of excitement out of prices without a material drop in the indexes. Biggest hit were the financials, home builders and any interest sensitive stock. Some of that money rotated back into oil and energy stocks despite any material reason for the price spike. Iraq production was slowed by weather and some terrorist attacks but nothing new there. The strike in Nigeria was cancelled again. That has been on and off so many times it resembles the Three Stooges caught in a perpetually revolving door. Russia says it will auction off assets of Yukos over the next 30 days to pay for back taxes but there is not expected to be any disruption in production. Oil production has mostly returned to normal from the Gulf and there has been a steady build in supplies to a more normal level. I see the smoke in the price hike but I don't see the fire that caused it. I suspect more than anything it was related to option expiration and short covering. That brings us back to equities once again and while there is economic unrest in the financial community from Greenspan's comments I see no real reason for the selling in equities to continue. I believe the knee jerk reaction triggered additional profit taking sell stops. Add in option expiration and mass confusion was the result. There are no material economic reports on Monday and volume may start to slow for the holiday week. Money is still flowing into the markets at an average of $1.2B per day since Nov-1st. $8.5B flowed in over the last eight days. Sucking up that $8.5 billion was over $6.5 billion in new offerings over just the last three days as well as money pouring into the new ETF for Gold. Over $500 million poured into the GLD shares on Friday. The very strong new offering calendar may have blunted the dip buying on Friday. PLAY priced 6.25 million shares at $17 Thursday night and the stock soared to $26.25 in its first day of trading on Friday. Over ten million shares traded with only six million priced. Who says day trading died? Google insiders filed with the SEC late Friday to sell 16.6 million shares. 7.2 million each for Larry Page and Sergey Brin and 2.2 million shares for CEO Eric Schmidt. Separately Kleiner Perkins, a venture capital firm that helped Google raise capital filed to sell 5.78 million shares. Kleiner Perkins bought the shares for 49 cents each in the early stages of Google financing. Definitely a windfall and I definitely don't fault them for selling. It is not real money until it is converted to cash. We are just over a week away from a massive injection of liquidity into the market and everybody should be planning for the bounce. On December 2nd Microsoft will pay out $32 billion in the form of a $3 per share dividend. According to the pencil pushers who analyze these things at least 40% will be put back into the market within a week. That 40% ($12.8 billion) is the portion owned by funds that automatically reinvest all dividends. Another 20% will hit the market over the next week from those funds that are discretionary in reinvestment. $3 billion will go to Gates and he is giving it to charity. That leaves $9 billion that will be paid to individual shareholders. Much of that will already be spent at the mall on plastic the weekend after Thanksgiving. Some will be reinvested in stock but estimates are for less than 50%. Using just the fund numbers at $19 billion going back into stocks over a two week period between Dec-2nd and 17th the market should be floating on some major liquidity. That $19 billion is in addition to the normal cash inflows during December. It should be a merry Christmas for everyone. Unfortunately we still have to get past Monday. If the Friday drop was just knee jerk reaction, sell stops and option expiration then Monday should be a consolidation day. Bulls will stagger to their feet, look cautiously around and start to move back up the hill before the close of business. Remember, funds will want to be in the market before that big liquidity balloon hits on Dec-2nd. This should cause them to buy the dip as well but I am sure there will be a lot of consternation at the open on Monday. Was the drop on real worry or just an imagined problem? Each fund will want somebody else to make the first buy and everybody will be looking for confirmation we are not going lower. There will be opening volatility from option settlement and we need those ripples to fade before wading back into the water. Those traders waking up with a hole in their account from being called away or suddenly finding stock in their account they did not expect will rush to adjust positions back to level. If a trader sold 10 contracts of the $55 puts on TASR thinking he would capture the $4 premium from out of the money options last week then you may be surprised to find 1000 shares of TASR in your account on Monday. That would set you back about $52,000 and crimp your trading style until you unloaded that stock. TASR dropped -$6 on Friday. Moral to that story is always have stops in place. That is the kind of option settlement adjustment that normally keeps OpEx Mondays from being too directional. If next week does not finish higher I would be surprised. The last five years have seen some major moves before and after Thanksgiving with Friday having the better chance of a positive finish than the beginning of the week. In 2002 the Tuesday before saw a -173 point drop and Wednesday saw a +255 point gain. Volatility has been strong and we are coming out of a string of negative days early in the week that started in 1998. With the bear market behind us we are due for a positive bounce. Last year the week before Thanksgiving was terrible with the Dow losing about -250 points to a Friday close at 9628. Beginning on Monday with a +125 point gain the holiday week was bullish and it was also the beginning of the strongest eight weeks of the year with the Dow topping out at 10701 on Jan-26th. The +1000 point romp was the finishing sprint to a market that had already rebounded from the March lows at 7416. After tacking on +2200 points in the prior eight months the November dip set the stage for another +1000 points with hardly a down day for the rest of the year. Will that happen in 2004? Nobody knows but the Friday drop came at exactly the right time to clear the profit stops and let new money back into the game. Dow Chart - Thanksgiving 2003 Personally I am looking forward to the next six weeks and I hope we see a repeat of 2003. All the bad news is behind us and according to most analysts there are good times ahead. Maybe not boom times but a good environment for good stocks to prosper. I believe this lure of a promising future will continue to attract money into the market until year end. Once past the year-end is where the mystery begins again. Until then continue to buy the dips above Dow 10350, SPX 1160. If those levels break then all bets are off and Santa may not be coming to the markets this year. Santa is coming to Option Investor! We are beginning our end of year renewal special this weekend and it is a super deal that I am sure you will enjoy. Please take a minute to read the details below! Sell Too Soon! Jim Brown ******************************************** 2005 Only Six Weeks Away! Option Investor End of Year Renewal Special We have gone to great lengths this year to provide you with a renewal package that could easily be our best ever. We have joined forces with several other top analysts to bring you a wide array of information that will make you money in 2005 and beyond. 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Plus, those energy stocks properly positioned for the coming shortages will explode in value. ******************************** Bonus Number Four! 2005 Option Expiration Calendar Mousepads As always you will get TWO Option Investor Expiration Calendar Mouse Pads! Use one at home and the other at the office. These make very handy reference guides and when not trading options they double as a calendar that does not take up any additional desk space. ******************************** Bonus Number Five! The 2005 Stock Traders Almanac The 2005 Stock Traders Almanac retails for $34.95 plus postage. For our End of Year subscribers we are passing our volume savings on to you and are offering the 2005 Almanacs for only $20.00. This is -43% off the retail price and postage inside the U.S. is included! This is not just a book or calendar. The Almanac is a practical investment tool. Its wealth of information is organized on a calendar basis to highlight the many seasonal trends. It alerts you to those little-known market patterns and tendencies on which shrewd professionals enhance profit potential. ******************************** Two Choices, Five Bonuses, One great Special! Don't delay, sign up today. Orders are shipped on a first come, first served basis. Click here for more information on this great offer: https://secure.sungrp.com/05renewal/ ************ 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 ******************** WHAT ME WORRY By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – Except for a few voices crying in the wilderness, the powers that seemed to have had a "what me worry" or at least silent attitude to our ballooning trade deficits, with its risk of an ever falling dollar. Voices in the wilderness no more when Chairman Greenspan spoke in his authoritative voice Friday, that our monster trade deficits risk cutting foreign demand for dollars – or, better to say dollar denominated assets. Namely, all those government IOU's (bonds) financing our burgeoning debt. Greenspan's comments started the inevitable reversal on Friday to a market that had gotten overheated. Sentiment had also gotten to the bullish extremes associated with market corrections. When the Chinese and the like see that their U.S. dollar assets are steadily loosing value, they can increase euro and yen buying. The falling dollar is inflationary as what we pay for imports rises. The danger then becomes the Fed having to tighten more and raise rates to choke off inflation and to make it more worthwhile for foreigners to keep buying U.S. T-bills and Bonds. The U.S. trade deficit is closing in on 6% of GDP, the most ever. So far, the U.S. has financed that gap by attracting foreign investment into its assets. Some $3-5 billion is needed each day to offset our current accounts deficit. Any abrupt reversal of these flows risks significant damage to the dollar and the U.S. economy. What does all this mean to opportunities in index options? Not much as long as there are trends to trade. But these conditions may make the current market advance shorter-lived (e.g., months, not years) than would otherwise be the case and start another bear market at some point. FRIDAY'S CLOSING NUMBERS – The S&P 500 Index (SPX) closed down 13.2 points to 1,170.3 and posted a weekly loss of 1.2%. The Dow 30 Average (INDU) had it biggest daily loss in a couple of months, ending down 115.6 points (-1.1%) to 10,456.9. INDU was off 0.8% for the week. The Nasdaq Composite Index (COMP) fell 33.6 points (-1.6%) to 2,071 and down 0.7% for the week. COMP of course was pressured by the fall in the semiconductors and pressure on the SOX index. FRIDAY'S TRADING – The market was off sharply. The Dow 30 (INDU) ended with a triple-digit loss, erasing its gain for the week, after Federal Reserve Chairman Alan Greenspan's remarks about the dangers of current account deficits sent the dollar on a renewed fall amid concern about higher inflation and rising interest rates. A surge in oil prices, sparked by renewed worries about tight supply, created additional bearish sentiment. Volume was heavy, and another influence on the market was expiration of options, index options and futures contracts – a triple-witching day. As they say, the Fed (the U.S. Federal Reserve Bank) starts the (economic) party and keeps it going with low interest rates, then takes away the punchbowl at some point – opps, party over! The dollar had stabilized to start the global trading day on Friday, even rallying after the Bank of France said it would use proceeds from selling gold over the next five years to boost its currency reserves. The currency (FX) market viewed this as a signal reserves would be used to counter a rising euro. FX traders were hoping for clues on the likelihood of intervention to slow or stop the dollar's decline in order to preserve the export position of U.S. trading partners – this, when officials of the world's largest 20 economies converge in Berlin this weekend. However, (here's goes the punchbowl!) Alan Greenspan said Friday, in remarks to a conference on the euro, that the impact of intervention is seldom long lasting. The dollar's slide accelerated as Greenspan spoke: "It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point". (I can hear him saying it, in that amazing but so dry way he has of speaking!) But he also said it was impossible to know when, or at what level, the dollar would lose its luster among the global currencies. Stay tuned on that. Hey, there's always an excuse that comes along to take some profits off the table. Over the last month, the S&P 500 (SPX) has gained just over 8%, the Dow (INDU) about 8 and half percent and the Nasdaq has 10%. Investors are usually happy to have an annual 10% appreciation. STOCKS AND OTHER STORIES – Disney (DIS) shares were a bright spot on the Dow after the company reported higher income and sales for the fourth quarter. Pharmaceutical stocks were back in the spotlight as an internal spat at the Food and Drug Administration left investors unclear on what might grow out of a controversy over the safety of a number of drugs. Pfizer (PFE) was off nearly 2%, while Abbott Labs (ABT) 1.4%. Oracle (ORCL) was in the news again as its hostile takeover bid for PeopleSoft (PSFT) gains momentum in the run-up to the expiration of its $9.2 billion hostile tender offer. Around 37% of PSFT's stock has been tendered in favor of the $24 per share offer, and PeopleSoft itself has warned employees a majority of its stockholders may well accept the deal. ORCL was off 1.7% and PSFT was up 1.1%. In other mergers/acquisition news, TheStreet.com (TSCM)'s stock rallied over 10% on speculation that the company may be for sale on the heels of the $520 million buyout of MarketWatch by Dow Jones & Co (DJ) and my old company. And, an old competitor, Reuters Group (RTRSY), denied reports that the company was in formal talks to sell its majority stake in Instinet Group (INGP). Semiconductor equipment makers were under selling pressure after Goldman Sachs moved its opinion on the sector to "cautious" from "neutral," reflecting expectations that the industry will have to correct for excess capacity built during the upturn. The Philly Semiconductor Index (SOX) was off 13.7 points, closing at 431.8, failing I might add to hold above its 200-day moving average after closing above this key average on Thurday. Goldman downgraded Applied Materials (AMAT) and Advanced Energy Industries (AEIS) to "underperform" from "in line" and both stocks were off. Advanced Micro Devices (AMD), ATI Technologies (ATYT) and Volterra Semiconductor (VLTR) were also downgraded. Goldman cut Micron Technology (MU) rating down a notch also. Only National Semi (NSM) was raised in Goldman's estimation -- to "outperform" (from "in line") – with their analyst saying that job growth will lead to increased demand and some upside for NSM earnings. OTHER MARKETS – The dollar fell on Greenspan's comments. The euro broke out over 1.30, to $1.3056, up 0.8%. The Pound was also up, adding 0.5% to $1.8581. Against the yen, the dollar fell to a 4-1/2 year low, down some 1%, to 103.32. Gold futures closed at a high not seen since mid-1988, up nearly $9 an ounce for the week, as the falling dollar made the yellow metal more attractive as an investment – gold being another alternative to going into paper assets, whether Euro, Yen, Sterling or Swiss francs. Oil prices rallied to the highest level since earlier in the month on renewed threats to global supplies emerging from Russia and Iraq – is this ever going to end! Concern over winter heating oil supplies and worries over the possibility the OPEC approving a production cut next month contributed to the rally. The December crude oil contract closed up $2.22, at $48.4 a barrel, up $1.12 or 2% for the week. As of Friday January futures become the lead-month contract and was up $2.51 to $48.9. T-bonds fell sharply after comments from Greenspan to the effect that investors not ready for higher interest rates are looking to lose money. Well, that's pretty clear! The 10-year note was off 25/32 to 100 11/32, to yield 4.2% MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: My upper trading band or percent envelope on the S&P 500 (SPX) reverts back to a more "normal" 4% - on average, the S&P trades within 3-4% above or below its 21-day moving average (at most, out to 5%). I thought that SPX could reach the 1200 area before a correction set in and this level is my expected major resistance, with near resistance at 1185. If those highs are retested, I don't think the index will churn through there again in the near-term, so will be looking to buy puts for a trade. As to support - buying interest is likely to develop around 1160- 1162, at the low end of the prior flag pattern or the low end of where prices backed and filled before the last and failed, breakout – a rally "failure" in the sense that the move was lower, not higher with the trend. Next lower support is anticipated around 1150, then at 1142, which is the lowest I see it going. For the S&P to break out above the high end of a multi-month trading range and then fall back into the range is the least likely occurrence – could happen but it's not likely. My maximum objectives to the 1200-1210 area mentioned last week were not realized and the downside penetration of the lower end of the consolidation suggests an interim top or a peak for a while. This past Monday's call-put, indicating a bullish extreme. Such extremes usually occur 1-5 trading sessions before downside reversals, so that it came on Friday is in line with historical norms for my indicator. Moreover, the readings for the rest of the week (except Friday) kept pulling the 5-day average up about as high as this indicator gets without a correction setting in as seen in the lower portion of the above SPX chart. S&P 100 Index (OEX) – Daily chart: So close yet so far to the cluster of prior tops (dashed line) from early this year. As with the S&P 500, my expectation of the S&P 100 (OEX) hitting a 5% (573-575) target above the 21-day average was too bullish of a case. However, a natural "target" in a move like this is always for a re-test of the prior top and that's likely to be ahead yet. Like the SPX already has done, I look for an eventual new 12-month high. I suggest call purchases in the 550-547 area if reached. Such a retest looked possible but, as is not uncommon in very strong moves where the underlying earnings trends are not yet as strong as price action, prices got ahead of the facts on the ground so to speak. I would say the same thing as the prior week about support likely to come in around 555, then 550, at the 21-day average, then at just a bit below at 547-546. OEX got finally registered enough of an overbought extreme, at 75 in the RSI, to signal a rest. Dow 30 Average (INDU) - Daily: The rally failed in the area of the April top in the Dow 30 (INDU). I previously pegged resistance as in the 10570 area and this was pretty close to where INDU reversed. Eventually, I anticipate a move to the 10700 area but after some backing and filling. I've got support identified (green arrow) around the prior top at 10363 – resistance, once exceeded, tending to become new support. The 10100 area is key technical support, with some likely buying interest around 10200. Somewhere in this zone (10100-10200), after some flip-flopping around should be come a good call buying opportunity. I don't call tops based on falling (NYSE) daily up volume, as measured by a 10-day moving average, the way bottom/buy signals are suggested when this average falls to a "baseline" (see the series of green up arrows above). But, since volume tends to "precede" price, this falling average and best measure of buying strength, was in retrospect suggesting the rally had limited upside. Nasdaq Composite (COMP) Index – Daily chart: The Nasdaq Composite (COMP) hit my 2100 objective and just a bit over, then reversed at the point where it seemed that sellers would have an interest in exiting some of their stock, and shorting too, on the first "bad news" event. After all the run up was very steep and the last I looked we are not back in the '90's! I peg near support around 2030-2033 still, with more key lower technical support in the 1950 area at the up trendline. A move back down to this area would put COMP back at the rate of change or ascent that it was in before the steep upside acceleration that started late-Oct. Steep trendlines like this are more characteristic of a falling trend (they slide faster than they glide!) than it is of a rising trend most often unless in a runaway bull phase. In a sign of the renewed upside momentum, for only the second time this year (the first being in early-April), COMP's 50-day average has achieved a bullish upside crossover of the long-term 200 day moving average. We'll see if this continues, but it is a milestone worth noting. Nasdaq 100 (NDX) Index – Hourly: The Nasdaq 100 (NDX) has been trading more or less within an uptrend channel in the hourly chart dating from August. Recent closing hourly highs reversed from resistance implied by the top end of this channel. I think NDX has to drop further before it take a further run up toward the top end of this channel. Whether support in the 1520 area will contain any decline is a further question. A pullback to the 1500 area currently, or to its intersection a bit higher (e.g., 1505-1510) over time, would test the lower end of this channel – assuming either or both of these expected support areas bring in buyers, it will offer an opportunity to jump into calls at that point. Until lower levels are seen I am no hurry for bullish plays such as buying calls. If long puts from the area of the double top around 1575-1580, I suggest staying with them. A daily close over 1580 would be an exit (stop) point for me. I previously suggested exiting calls and going into December puts if NDX got up to the 1600 area – close but now cigar. However, it there was a move that developed in the next 2-3 sessions that broke out above 1580 and carried up into that area – this suggestion still stands. And give thanks for would be a nice opportunity I think – and Happy Thanksgiving too! There's now more room on the upside for the 21-hour RSI before it's at an oversold extreme, which has been occurring when it got to the 35-30 area. Nasdaq 100 tracking Stock (QQQ) Daily chart: 39 was my upside objective on QQQ – then at the week wore on I thought it could get higher than this before coming down again. The move to a new high, followed by a fairly immediate downside reversal (a "bull trap" reversal) is bearish. A daily close back above 39 would say otherwise. Support is anticipated first at 37.75; then, if exceeded, around 37.25-37 at the rather steep up trendline. If the Qs dip under 36.75 on a closing basis, it suggests that the trend will moderate to a more gradual advance. As long as QQQ holds above the cluster of prior lows in the 35.25-35.40 area, the uptrend is still intact. Buying on pullbacks that hold this area, which retraces about half of the prior rally, looks promising for a longer-term buy of the stock. QQQ got quite overbought and is often the case in very strong rallies, it was the second reading at 75 which was the point to look for shorting/put buy opportunities. Volume in the stock was not as strong as in the earlier phase of the rally, but the OBV line continues to show that the better volume was coming in on up days, so has kept mildly bullish. Good Trading Success! ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ************** Editor's Plays ************** Time to Roll the Dice With Thanksgiving week upon us and the Microsoft dividend event a little more than a week away I feel it is time to take a little more risk. I believe the dividend event will provide some serious market liquidity in a time that is normally bullish in normal years. This extra liquidity to the tune of $19 billion in reinvestment cash could go a long way toward pushing the Dow over its 10750 resistance high. This is a simple play. Go long. I am suggesting using the January DIA options for this play. Pick the one you can afford and go long 1/2 position on Monday. Should the Dow drop to 10400 I would go long another 1/2 position. My profit target will be 10800 and above. I do not want to set a firm exit just in case we really get a post Thanksgiving rally. Most analysts are targeting 12000 for the end of year print but I think they are on drugs. I would be thrilled to see anything over 11000 and 11500 would make me delirious. But an extra $19 billion in MSFT liquidity in December could work wonders. Here are some sample options: Jan-$105 call DIA-AA currently $2.10 Jan-$106 call DIA-AB currently $1.60 Jan-$107 call DIA-AC currently $1.20 Jan-$108 call DIA-AD currently $0.80 Obviously if we were really going to see something over 11,000 then any of those options would be wildly profitable. At 11,000 this would be the approximate values. It would depend on how quickly we reached 11K. The sooner we get there the more they are worth. If it takes until Jan-1st then they are only worth whatever is in the money. $105 = $5.70 +171% $106 = $4.90 +206% $107 = $3.75 +212% $108 = $3.00 +275% What option you choose depends on how much you can afford and whether you want to spend $2 to make $5.70 or spend 80 cents to make $3. You also have to factor in the risk. Those numbers only work if the Dow hits 11000. If it stops somewhere between 10500-10800 then the $108 option could expire worthless while the $105 option would be worth $3.00 at 10800. This type of scenario always makes it tough to answer new traders when they ask "If I buy options on XYZ how much money will I make?" It all depends on what option you buy and what happens to XYZ. As you can see from the above example you could make 50% with the $105 and lose it all with a $108 if the Dow stops at 11799. (numbers not exact but you get the idea) Go LONG 1/2 position on Monday. Go LONG another 1/2 position with a drop to 10400. Stop loss 10300 DIA Chart ************ Open plays: ************ Google Puts $169.40 ($168 in after hours) Tuesday GOOG fell back through 175 and triggered our reentry into the March puts. On Tuesday 39.1 million new shares were available for sale and that weighed on the stock but support just under $170 continued to hold. Google insiders filed with the SEC late Friday to sell 16.6 million shares. 7.2 million each for Larry Page and Sergey Brin and 2.2 million shares for CEO Eric Schmidt. Separately Kleiner Perkins, a venture capital firm that helped Google raise capital filed to sell 5.78 million shares. Kleiner Perkins bought the shares for 49 cents each in the early stages of Google financing. Definitely a windfall and I definitely don't fault them for selling. It is not real money until it is converted to cash. The stock traded down to $168 in after hours but with the news not hitting the street until just before 6:PM there was nobody left to read it. Monday will be the key. If the news forces a break under $167 then we could begin to see that support crack. I am amazed that only eight million shares of GOOG traded on Friday. That is half the volume from earlier in the week. It appears the newly released shares are still being held in hopes of seeing a rebound. GOOG Chart http://members.OptionInvestor.com/editorplays/edply_110704_1.asp http://members.OptionInvestor.com/editorplays/edply_111404_1.asp *********************** MRK Put $26.45 ** Stop $28.00 ** (lowered) ** Target $20.00 ** We came very close to being stopped out on Wednesday as the dead druggist tried to bounce. Unfortunately for MRK the news just keeps getting worse. I am going to hold it one more week in hopes of getting some downward movement but with this stock recovering in the face of really bad news I am beginning to think we close it and take our profits. Jan-2006 $25 LEAP Put WMR-ME cost $1.70, currently $2.75 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_101004_1.asp MRK Chart *********************** XMSR Call $35.01 ** Profit Target Hit ** We finally got the breakout over $34 and it blew right through our profit target at $35. Hopefully some of my readers did not have a hard exit and managed to capture the extra +$1.00 in profits. I logged the exit at $35 on the 16th but as you can see below the options continued much higher. Chalk this one up a winner and a closed play. JAN-$30 Call QSY-AF cost 2.75 exit $5.80 high $7.10 JAN-$32 Call QSY-AZ cost 1.75 exit $4.10 high $5.00 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_100304_1.asp XMSR Chart ********************* PVN Call Update $15.59 ** Play Closed ** PVN set a new 52-week high on Monday and then imploded. The stock fell on news of the American Express suit against MasterCard and Visa as well as eight other banks including Providian in a blanket suit against all the major credit card issuers. While I do not expect AXP to win and neither does MC/V or the rest of the banks it will be a drain on efforts and expenses. I am recommending an exit on the PVN play which as of the close on Friday was trading exactly where we entered at $1.05. 50% of the value was lost this week once the suit was announced. The option was trading at $2.20 on Monday when PVN set a new 52-week high. This play is closed. Jan-$15 Call PVN-AC cost 1.05, currently $1.05 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_061304_1.asp PVN Chart **************** MARKET SENTIMENT **************** OptionInvestor.com - market sentiment – November 21st , 2004 ----------------------------------------------------------------- Finally! - J. Brown Finally! We've been waiting for a dip in the markets for days and it finally appears to be happening. Stocks were down across the board on Friday save for energy and gold stocks. The bounce in oil did not help investor sentiment. Crude had been trading at four weeks lows and looked ready to breakdown under its simple 100-dma. Yet oil turned higher on Friday with a 4.8 percent rebound. It could just be an oversold bounce. We'll have to watch and see. Meanwhile comments over the U.S. dollar also promoted more profit taking in stocks. If the dollar continues to weaken then commodity prices in the U.S. will continue to rise, which will promote inflation throughout the economy. One could easily argue that the two big picture pressures mentioned above are just excuses to sell. Stocks have been so overbought and extended it was past time that equities did some consolidating. Yet the brokers were not helping matters. Goldman Sachs downgraded the semiconductor sector and BAC started coverage on Amazon.com (AMZN) with a "sell" rating. Plus, there was talk in Washington surrounding the FDA and speculation over its recent failures and how it could be more effective. This put pressure on biotech and drug stocks again. Market internals were naturally very bearish with decliners outpacing advancers 5-to-2 on the NYSE and 2-to-1 on the NASDAQ. Down volume was more than 3 times up volume on the NYSE and over twice the up volume on the NASDAQ. Overall I'm not concerned. We've been waiting for this pull back for days. There are a lot of investors out there just looking to buy the dip. The real question is how deep will the dip go? Keep your eyes and ears open this week it should provide the sort of bullish entry point we're looking for into the rest of the fourth quarter. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9585 Current : 10456 Moving Averages: (Simple) 10-dma: 10478 50-dma: 10161 200-dma: 10244 S&P 500 ($SPX) 52-week High: 1188 52-week Low : 1031 Current : 1170 Moving Averages: (Simple) 10-dma: 1174 50-dma: 1132 200-dma: 1121 Nasdaq-100 ($NDX) 52-week High: 1581 52-week Low : 1301 Current : 1552 Moving Averages: (Simple) 10-dma: 1548 50-dma: 1465 200-dma: 1440 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.50 +0.52 CBOE Mkt Volatility old VIX (VXO) = 14.60 +0.65 Nasdaq Volatility Index (VXN) = 19.72 +0.93 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.81 1,356,899 1,098,849 Equity Only 0.52 1,161,274 603,669 OEX 1.33 55,717 74,080 QQQ 1.07 59,286 63,654 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.5 + 0.3 Bear Correction NASDAQ-100 75.0 - 1 Bull Confirmed Dow Indust. 63.3 + 0 Bull Confirmed S&P 500 72.8 - 0.2 Bull Confirmed S&P 100 70.0 - 1 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.89 10-dma: 0.95 21-dma: 0.92 55-dma: 1.00 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 817 967 Decliners 2011 2061 New Highs 88 69 New Lows 12 14 Up Volume 448M 628M Down Vol. 1432M 1353M Total Vol. 1891M 2005M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/16/04 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 For the first time in weeks the commercials are making a move. They upped their short positions days before the recent decline. Meanwhile small traders remain marginally net bullish. Commercials Long Short Net % Of OI 10/26/04 441,263 445,992 ( 4,729) (0.4%) 11/02/04 446,192 441,676 ( 4,516) (0.4%) 11/09/04 447,779 449,171 ( 1,392) (0.1%) 11/16/04 452,149 468,048 (15,899) (1.7%) 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 10/26/04 138,201 121,275 16,926 6.5% 11/02/04 136,290 132,040 4,250 1.5% 11/09/04 148,415 136,325 12,090 4.2% 11/16/04 166,862 156,751 10,111 3.1% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercials traders also piled on the shorts in the e-minis to produce the most bearish reading in weeks. Small traders also put more money to work but remained strongly net bullish. Commercials Long Short Net % Of OI 10/26/04 276,128 509,552 (233,424) (29.7%) 11/02/04 307,053 580,081 (273,028) (30.7%) 11/09/04 337,164 672,903 (335,739) (33.2%) 11/16/04 371,282 796,279 (424,997) (36.4%) 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 10/26/04 345,908 64,061 281,847 68.7% 11/02/04 395,029 63,746 331,283 72.2% 11/09/04 392,253 58,999 333,254 73.8% 11/16/04 445,737 70,169 375,568 72.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials added to both their longs and their shorts but saw no change in their bullish bias for the NDX. Small traders pared back some of their shorts but remained strong net bearish. Commercials Long Short Net % of OI 10/26/04 53,233 31,323 21,910 26.2% 11/02/04 53,002 31,231 21,771 25.0% 11/09/04 54,509 33,016 21,493 24.5% 11/16/04 55,737 33,683 22,054 24.6% 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 10/26/04 10,521 25,388 (14,867) (42.8%) 11/02/04 8,886 36,621 (27,735) (61.3%) 11/09/04 10,213 38,251 (28,038) (57.8%) 11/16/04 10,533 37,660 (27,127) (56.2%) Most bearish reading of the year: (28,038) - 11/09/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Given the latest data as of 11/16/04 it looks like commercials were beginning to bet on a pull back. There was a reduction in longs and an increase in shorts to create the first bearish reading in weeks. Small traders also increased their bearish bias. Commercials Long Short Net % of OI 10/26/04 25,707 24,855 852 1.6% 11/02/04 25,319 24,261 1,058 2.0% 11/09/04 22,863 22,463 400 0.8% 11/16/04 22,004 23,744 (1,740) (3.8%) 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 10/26/04 8,405 6,336 2,069 14.3% 11/02/04 7,952 6,306 1,261 8.8% 11/09/04 6,165 6,483 ( 318) ( 2.5%) 11/16/04 5,937 6,533 ( 596) ( 4.7%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** *************** ASK THE ANALYST *************** Is heating oil the leading indicator? Fantastic work this week Jeff! I learned a lot and profited from your comments regarding the divergence you thought you saw between heating oil and oil this week. I trade crude oil futures long and short, as well as the major equity indices call and put. I have two questions. Is QCharts the only charting package with daily and weekly pivot levels? My second question is why would heating oil be a leading indicator for a higher or lower trade in crude oil. Also, I really like the way you tied in the point and figure chart of crude oil. I hope you'll keep including them in your updates. Reply: I don't know if other charting packages offer the same feature of calculating and displaying the daily and weekly pivot analysis levels. I'll ask other traders that are reading today's column to respond if you (the reader) know of other charting packages that offer this powerful tool as part of their service. If a trader does respond, I'll update traders in future updates. Why may heating oil be a "leading indicator" for crude oil price direction? I'm not quoting a futures trader that was interviewed on CNBC exactly, but his comments, which I further researched, was that as long as distillate inventories were low (heating oil is derived from distillates) it would most likely have oil holding up. The trader stated that roughly 25% of a barrel of oil is used for distillate production and since you had to produce, or draw down crude oil inventories in order to produce heating oil, then with winter approaching in the northern hemisphere, oil prices would likely remain high. Consumers, especially in the northeastern U.S. will probably not be out driving as much as they might in the warmer months of spring and summer, and this will allow refiners to concentrate some of their refining toward heating oil, than unleaded gas, but I would still think that the difference in a refining shift from unleaded gas to heating oil wouldn't be all that much. The trader was correct that 25% of a barrel of oil is used in the refining process to produce distillates. Where we as traders become clueless is what "mix" of various distillates refiners decide to produce with that 1/4 barrel of oil. As you know. I always like to test against what I hear or read. I like to know that what I'm being told is true, and not just some idea that can't at least be tested against. Here's a top/bottom comparison of December Heating Oil futures (ho04z) and December Crude Oil futures (cl04z). While I used the weekly pivots to alert traders that oil might be due for a bounce, traders will also be able to pick up on some of the DIVERGENCE that had heating oil rising, while crude oil seemed relatively unchanged. Boom! On Friday 11/19/2004, December Crude Oil futures (cl04z) $48.44 +4.8% jumped more than $2.00. The S&P 500 Index (SPX.X) fell 1.11%. December Heating Oil/Crude Oil Comparison - 30-min. intervals In late October, I was focused more on the point and figure chart of crude oil as well as weekly inventory figures from the EIA. But as I study the relationship between the Heating Oil (top) and Crude Oil (bottom), I can see some very subtle differences. At the top of each bar chart, I make the note "very subtle" as upon further study, I do see how a very similar spike higher on October 27 (a Wednesday, when the EIA reports inventory data) the heating oil chart traded a slightly lower high. See how the Crude Oil (bottom chart) traded an equal high? That is a VERY subtle bit of divergence. If heating oil is a leading indicator, then perhaps I should have picked up on that back then. There are some great similarities as to how heating oil and crude oil have traded relative to their simple moving averages. See how heating oil did spike above its 50-pd (blue) SMA to test its WEEKLY Pivot of 1.404 on November 10? The Crude Oil chart shows a kiss of its 50-day SMA, turned lower the next morning. It wasn't until late Wednesday evening that I really started looking at the relationship between the Heating Oil and Crude Oil charts, where it was their trade relative to the WEEKLY Pivot levels that really caught my attention. See how Crude Oil seemed to double bottom right at its WEEKLY S2 on Monday and Wednesday morning? That was also right where the Crude Oil point and figure chart had its rising bullish support trend at. Hmmmm..... that's when I pulled up the heating oil chart and noticed that heating oil had settled up at its WEEKLY R1, while Crude Oil was still just above its WEEKLY S1 and still well below its WEEKLY Pivot of $47.98. More important perhaps is that this trade observation what AFTER the weekly EIA inventory figures had been released, and market participants were now digesting that information, and making their buy/sell decisions on a forward basis. One can perhaps begin to understand how the WEEKLY Pivot levels had help a trader. But only if you believe that institutional computers may be trading these levels. The focal point would be where Heating Oil breached its 50-day SMA, but most likely found too many sellers outnumbering buyers at its WEEKLY Pivot of 1.404. Final analysis at this point is that a DECLINE in Crude Oil is probably only going to be found from a VERY subtle amount of DIVERGENCE from heating oil, but a RISE in Crude Oil will find a more NOTABLE sign of strength. Now. I would have to think that as winter sets in, refiners are really going to be pumping out the heating oil. Be aware of this in future EIA weekly inventory reports. I (you and I) may then want to also begin monitoring unleaded gas inventory figures, as well as their futures charts. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- *This is not a complete list. We only try and highlight the more significant earnings reports. Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- BRCD Brocade Commun. Mon, Nov 22 After the market 0.06 CPB Campbell Soup Mon, Nov 22 ----- n/a ----- 0.52 FRK Florida Rock Ind. Mon, Nov 22 Before the bell 0.65 KKD Krispy Kreme Mon, Nov 22 Before the bell 0.13 TIVO TIVO Inc Mon, Nov 22 ----- n/a ----- -0.44 TOY Toys R Us Mon, Nov 22 Before the bell -0.15 VAL Valspar Mon, Nov 22 Before the bell 0.76 ------------------------- TUESDAY ------------------------------ ADI Analog Devices Inc Tue, Nov 23 After the market 0.33 BMO Bank of Montreal Tue, Nov 23 ----- n/a ----- 0.89 DE Deere & Co Tue, Nov 23 Before the bell 0.99 DLTR Dollar Tree Stores Tue, Nov 23 Before the bell 0.28 EV Eaton Vance Tue, Nov 23 Before the bell 0.52 FRED Fred's Tue, Nov 23 Before the bell 0.19 HRB H&R Block Tue, Nov 23 After the market -0.16 HNZ H.J.Heinz Tue, Nov 23 Before the bell 0.59 MIK Michaels Stores Tue, Nov 23 After the market 0.30 MBT Mobile Teleys Tue, Nov 23 Before the bell 3.17 POSS Possis Medical Tue, Nov 23 After the market 0.11 SEAC SeaChange Intl Tue, Nov 23 After the market 0.12 TSA The Sports Authority Tue, Nov 23 ----- n/a ----- 0.02 TECD Tech Data Corp Tue, Nov 23 After the market 0.55 JWL Whitehall Jewellers Tue, Nov 23 Before the bell -0.53 WIND Wind River Systems Tue, Nov 23 Before the bell 0.03 WWE World Wresting Ent. Tue, Nov 23 ----- n/a ----- 0.13 ------------------------ WEDNESDAY ----------------------------- HRL Hormel Foods Corp Wed, Nov 24 Before the bell 0.49 AHO Koninklijke Ahold Wed, Nov 24 Before the bell n/a PDCO Patterson Dental Wed, Nov 24 Before the bell 0.32 ------------------------- THURSDAY ----------------------------- BAY Bayer Thr, Nov 25 ----- n/a ----- n/a ------------------------- FRIDAY ------------------------------- no major earnings ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable STJ St. Jude Medical 2:1 Nov 22nd Nov 23rd TASR TASER Intl. Inc 2:1 Nov 29th Nov 30th MSL MidSouth Bancorp 5:4 Nov 30th Dec 01th SYMC Symantec 2:1 Nov 30th Dec 01th RYL Ryland Group Inc. 2:1 Nov 30th Dec 01th ANNB Annapolis Bancorp 4:3 Dec 3rd Dec 6th CAKE Cheesecake Factory 3:2 Dec 8th Dec 9th ----------------------------------- Economic Reports & Events This Week ----------------------------------- The Thanksgiving holiday week looks like a quiet one. Q3 earnings really taper off and most of the economic reports come out on Wednesday before the holiday. ============================================================== -For- ---------------- Monday, 11/22/04 ---------------- None ----------------- Tuesday, 11/23/04 ----------------- Existing Home Sales for October ------------------- Wednesday, 11/24/04 ------------------- Durable Orders for October Weekly Initial Jobless Claims Michigan Sentiment for November (revised) Help Wanted Index for October New Home Sales for October ------------------ Thursday, 11/25/04 ------------------ U.S. Markets Closed - Thanksgiving Holiday ---------------- Friday, 11/26/04 ---------------- U.S. Markets - Shortened Trading Day ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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. 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The Option Investor Newsletter Sunday 11-21-2004 Sunday 2 of 5 In Section Two: Watch List: Biotech to Semis and more! Dropped Calls: LEH Dropped Puts: None ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** Watch List ********** Biotech to Semis 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. ___________________________________________________________________ Biogen IDEC - BIIB - close: 55.34 change: -2.18 WHAT TO WATCH: The market just started to show weakness on Friday but the BTK biotech index has been sliding for over a week now. The BTK has produced a double-top at the 540 level and the group looks prone to more selling. BIIB, a biotech stock, has caught our eye because shares have fallen back to its trendline of support dating back to March. If BIIB breaks down under the $55.00 level it could be a bearish entry point for a move to $50 or lower. --- Maxim Integrated - MXIM - close: 42.58 change: -1.77 WHAT TO WATCH: Looks like we chickened too soon. Goldman Sachs downgraded the semiconductor sector on Friday and the SOX lost more than three percent. MXIM immediately turned south, which produced another failed rally at its simple 100-dma. This looks like a new bearish entry point. Yet we'd be careful and look for some follow through. A drop under $42.00 or $41.50 might work as a new bearish entry point. A move under $41 should produce a new P&F sell signal. --- Amazon.com - AMZN - close: 38.55 change: -1.82 WHAT TO WATCH: Bank of America does not have much positive to say over AMZN and the expected surge of online holiday sales. The firm started coverage on AMZN with a "sell" rating and the stock dropped 4.5 percent on heavy volume. Technicals are rolling over and its MACD is nearing another sell signal. The P&F chart is already bearish and points to a $15 long-term target. We could see AMZN sliding toward its October lows near $34. --- Legg Mason - LM - close: 64.47 change: -2.18 WHAT TO WATCH: The XBD broker-dealer index has been exceptionally strong but it looks like the pull back has begun. With the group so overbought and extended the profit taking could be sharp. We're watching LM for a pull back to $62 or $60. At $62 it's a 38.2 percent Fibonnaci retracement of the October-November rally. At $60 it's a 50 percent retracement. Nimble traders could short this stock. The P&F target at $68 has effectively been reached. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- MCO $80.20 -0.99 - MCO is looking vulnerable to more profit taking. Watch for the breakdown under $80 and a retracement toward the $76 level that's where we'd look for a bounce. TTC $68.88 -1.66 - The market pull back has TTC slipping toward its trendline of support. Watch for a bounce from $66-67. SYMC $60.75 -1.06 - We're still watching SYMC for a breakout over $62.00 but it could be awhile if the market has to dip first. AHC $82.79 +1.34 - The rally continues for AHC. We'd consider longs here or on a dip above $80.00. We'd add this to the play list but we already have too many oil stocks on the list. APC $68.45 +0.32 - Here's another bullish oil stock worth checking out. ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ************************** 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 ^^^^^ Lehman Brothers - LEH - close: 81.64 chg: -1.70 stop: 79.95 We knew the XBD broker-dealer index was overbought and extended so we expected the pull back would hit sooner or later. Yet we didn't expect LEH to react quite so violently. Round-number support at $80.00 and the simple 50-dma held up as support but we question LEH's relative strength. Volume was very high on Friday's decline. We believe that LEH will trade higher before the year's out but it could be a rocky road between now and then. We're electing to exit now and keep an eye on it for future entry points. Picked on October 26 at $80.60 Change since picked: + 1.04 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 2.0 million PUTS ^^^^ None *********** 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************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ********** 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 11-21-2004 Sunday 3 of 5 In Section Three: Current Calls: SUN, SLB, QCOM, PTR, OSK, MUR, IBM, GDW, FDX, EOG, EBAY, DHR, COP New Calls: None Current Puts: FRX New Puts: None ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ****************** CURRENT CALL PLAYS ****************** ConocoPhillips - COP - close: 87.43 change: +1.17 stop: 81.99 Company Description: ConocoPhillips is an integrated petroleum company with interests around the world. Headquartered in Houston, the company had approximately 35,800 employees, $89 billion of assets, and $129 billion of annualized revenues as of Sept. 30, 2004. (source: company press release) Why We Like It: We were starting to wonder about COP lately. The OIX oil index has been consistently suggesting it was ready to produce a bullish breakout the last few days but COP was slowly slipping lower. Now the OIX index has broken out from its six-week consolidation and the OIX's MACD indicator has produced a new buy signal. Over the last few months Jim has been discussing the future of oil and oil prices in his market wraps. We feel that the oil sector is ready for another move up and its relative strength has been very encouraging if you're bullish on the group. The oil group got a boost from crude oil prices on Friday, which surged 4.8 percent after testing support at the simple 100-dma the previous couple of days. On Thursday Morgan Stanley reiterated their "buy" rating on COP following COP's analyst day on Wednesday. On Friday Bank of America started coverage on COP with a "buy" rating with their belief that the integrated oil sector is undervalued. Technical traders can also point to COP's point and figure chart with the bullish triangle breakout pattern and its $125 price target. We are targeting a move toward $100 by year-end or the January options expiration. Editor's note: We have a lot of energy and oil-related stocks on the play list as bullish candidates. We are not suggesting you play all of them. Individual traders should make sure they're not over exposed to any one sector. Find which stocks you like best and make your pick. Suggested Options: We are going to suggest the December and January calls. Our favorites are the January's. BUY CALL DEC 80 COP-LP OI= 228 current ask $7.90 BUY CALL DEC 85 COP-LQ OI=1319 current ask $3.60 BUY CALL DEC 90 COP-LR OI=1255 current ask $0.95 BUY CALL JAN 85 COP-AQ OI=3289 current ask $4.70 BUY CALL JAN 90 COP-AR OI=3601 current ask $1.95 BUY CALL JAN 95 COP-AS OI= 715 current ask $0.60 Annotated chart: Picked on November 03 at $85.50 Change since picked: + 1.93 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 3.0 million --- Danaher - DHR - close: 57.67 change: -0.97 stop: 55.95 Company Description: Danaher, a leading industrial company, designs, manufactures and markets innovative products, services and technologies with strong brand names and significant market positions. (source: company press release) Why We Like It: DHR got a boost on Wednesday after the Sears-Kmart deal was announced. Sears is a big customer for DHR and the combined company of Sears-Kmart would provide a lot more stores for DHR to offer their product in. While the news is encouraging and shares traded higher on Wednesday DHR looks susceptible to profit taking like the rest of the market. Readers may want to do some profit taking of their own. The $56.25-56.50 level should be support but a breakdown under $57.00 could suggest a retest to round- number support at $55.00. In essence, our stop loss may be too tight if you're going to ride out what we suspect is a dip next week. Suggested Options: We are not suggesting new bullish positions at this time. Annotated chart: Picked on October 27 at $54.99 Change since picked: + 2.66 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million --- eBay Inc. - EBAY - close: 108.34 chg: -2.16 stop: 102.49 Company Description: eBay is The World's Online Marketplace®. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e- commerce for an ever- growing online community. (source: company press release) Why We Like It: Tighten those seatbelts! We've been expecting a pull back in the market for days. Now the dip appears to have begun. If readers haven't done any profit taking yet in EBAY now might be a good time. We're expecting EBAY to pull back toward the $105 region before finding support. We remain very bullish on EBAY through now and the end of the year and a dip to $105 would be the next bullish entry point - just watch for signs of a bounce. Suggested Options: We are going to suggest the December or January calls. Watch for a dip before considering new positions. Remember, these values should all fall as EBAY dips toward $105. BUY CALL DEC 100 XBA-LT OI= 6671 current ask $10.30 BUY CALL DEC 105 XBA-LA OI=11217 current ask $ 6.70 BUY CALL DEC 110 XBA-LB OI=17630 current ask $ 3.90 BUY CALL DEC 115 XBA-LC OI=10115 current ask $ 2.10 BUY CALL JAN 100 XBA-AT OI=21884 current ask $12.40 BUY CALL JAN 105 XBA-AA OI= 8215 current ask $ 9.10 BUY CALL JAN 110 XBA-AB OI=12980 current ask $ 6.40 BUY CALL JAN 115 XBA-AC OI= 9868 current ask $ 4.40 BUY CALL JAN 120 XBA-AD OI= 4766 current ask $ 2.85 Annotated chart Picked on November 80 at $103.69 Change since picked: + 4.65 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 10.4 million --- EOG Resources - EOG - close: 71.34 change: +2.05 stop: 64.99*new* Company Description: EOG Resources, Inc. is one of the largest independent (non- integrated) oil and natural gas companies in the United States with substantial proved reserves in the United States, Canada, offshore Trinidad and, to a lesser extent, the U.K. North Sea (source: company press release) Why We Like It: Looks like EOG is auditioning for "leader of the pack". The XNG natural gas index broke out over resistance to hit new all-time highs on Friday. The XNG's daily MACD indicator also reinforced its new buy signal. EOG is seeing a very similar move. Shares of EOG have broken their short-term downtrend of lower highs, broken resistance at $70.00 and closed at new all-time highs. EOG still has an intraday high at $72.48 but we expect shares to surpass it soon. Chart readers will also note that volume was above average on Friday's gain, suggesting more strength ahead. The P&F chart continues to look very strong with the bullish breakout and $105 target. Remember, our short-term target is $75.00 and our year-end target is $80.00. We are going to raise our stop loss to $64.99. Watch for a dip back to $70.00 or a new high over $71.50 as a new entry point. Suggested Options: We are going to suggest the December and January calls. Between the two we'd pick the Januarys. BUY CALL DEC 65 EOG-LM OI= 430 current ask $7.10 BUY CALL DEC 70 EOG-LN OI=4600 current ask $3.30 BUY CALL DEC 75 EOG-LO OI=1662 current ask $1.15 BUY CALL JAN 65 EOG-AM OI=2964 current ask $8.10 BUY CALL JAN 70 EOG-AN OI=4668 current ask $4.90 BUY CALL JAN 75 EOG-AO OI=1390 current ask $2.40 Annotated Chart: Picked on November 14 at $ 68.37 Change since picked: + 2.97 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 1.1 million --- Fedex Corp - FDX - close: 94.05 change: -0.73 stop: 89.99 Company Description: FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $26 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 240,000 employees and contractors to remain "absolutely, positively" focused on safety, the highest ethical and professional standards and the needs of their customers and communities. (source: company press release) Why We Like It: Hang on tight! FDX looks ready to turn lower. Fortunately, it's not too late to do some profit taking. Shares of FDX, like the Dow Transports, have been exceptionally strong lately but both are extended and overdue for a pull back. It would appear that the pull back is about to begin. We are going to look for a dip to $92 but FDX could easily slip to $90. That's why we're suggesting readers take some money off the table. Traders looking for new entry points can sit back and wait for the dip to exhaust itself. FYI: for the trivia fans out there FDX just released a statement that the company is celebrating its 10th anniversary of its website Fedex.com. Suggested Options: We are not suggesting new positions at this time. Wait for the dip. Annotated Chart: Picked on October 21 at $89.45 Change since picked: + 4.60 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million --- Golden West Fncl - GDW - cls: 115.60 chg: -3.06 stop: 114.99 Company Description: Headquartered in Oakland, California, Golden West is one of the nation's largest financial institutions with assets over $100 billion as of September 30, 2004. The Company has one of the most extensive thrift branch systems in the country, with 276 savings branches in 10 states and lending operations in 38 states. (source: company press release) Why We Like It: Ouch! What happened to GDW? Yesterday shares fell under the $120 level but held at support near $118.00. On Friday the sell-off continued with GDW falling more than three points on heavy volume. Yet we can't find any news to support the decline other than sharp declines in the BKX and BIX banking indices. The $115 level should be support but we're not feeling optimistic here. We would not consider new positions at this time. Suggested Options: We are not suggesting bullish positions at this time. Annotated Chart: Picked on November 10 at $118.15 Change since picked: - 2.55 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 583 thousand --- Intl Business Mach. - IBM - close: 94.45 chg: -0.65 stop: 89.99 Company Description: IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and IBM Business partners, IBM offers a wide range of services, solutions and technologies that enable customers, large and small, to take full advantage of the new era of e-business. (source: company press release) Why We Like It: Here we go! We've been expecting IBM to roll over and consolidate its gains for days. Over the last few days we've suggested readers take profits as IBM clearly painted a short- term top. Now the pull back has begun. We're going to look for IBM to slip toward the $92-93 region before watching for a bounce. When IBM does bounce it will be our new bullish entry point. Suggested Options: We are not suggesting bullish positions at this time. Readers may consider doing some profit taking as we wait for the dip to finish. Annotated chart: Picked on October 27 at $90.00 Change since picked: + 4.45 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million --- Murphy Oil - MUR - close: 80.91 change: +0.80 stop: 77.49 Company Description: The Company, headquartered in El Dorado, Arkansas, was originally incorporated in Louisiana in 1950 as Murphy Corporation. It was reincorporated in Delaware in 1964, at which time it adopted the name Murphy Oil Corporation. But, the Company's roots go back to a lumber and banking business in South Arkansas and, more directly, to 1907, when the first oil production was established in the Caddo Field in North Louisiana. Thereafter, oil and gas were important phases of the business. (source: company website) Why We Like It: Is it over yet? Last week we thought MUR was done consolidating and ready to begin its new leg up. Looks like we were a little off on our timing but had the foresight to use a trigger to open the play. Currently MUR is still untriggered and we're still sitting on our hands waiting for shares to breakout over minor resistance at $82.00 to hit our entry point at $82.25. More adventuresome traders could have taken the alternative entry we suggested on the bounce from $77.50-78.00. The good news here is that the OIX oil index has broken out and looks ready to start a new leg higher. Meanwhile MUR's MACD indicator has produced a new buy signal. Suggested Options: We are going to suggest the January calls. BUY CALL JAN 75 MUR-AO OI=1480 current ask $7.90 BUY CALL JAN 80 MUR-AP OI= 480 current ask $4.50 BUY CALL JAN 85 MUR-AQ OI= 349 current ask $2.30 BUY CALL JAN 90 MUR-AR OI= 705 current ask $1.05 Annotated Chart: Picked on November xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 500 thousand --- Oshkosh Truck - OSK - close: 62.44 change: -0.54 stop: 57.00 Company Description: Oshkosh Truck Corporation is a leading manufacturer of specialty trucks and truck bodies for the defense, fire and emergency, concrete placement and refuse hauling markets. Oshkosh Truck is a Fortune 1000 company with products marketed under the Oshkosh®, Pierce®, McNeilus®, Medtec®, Geesink, Norba and Jerr-Dan® brand names. The company is headquartered in Oshkosh, Wis., and had annual sales of $2.3 billion in fiscal 2004. (source: company press release) Why We Like It: We're impressed. OSK is showing some relative strength with a minor 54-cent loss on Friday and holding within its $62-64 trading range. Lending shares a boost was probably word out from Wall Street firm CSFB who reiterated their buy rating on OSK. We remain bullish on the stock but still expect shares to retrace back to the $60 level of support. Readers can wait and watch for OSK to pull back to the $60 level as a new entry point. Suggested Options: We are not suggesting new bullish positions at this time. Wait for the pull back. Annotated Chart: Picked on November 07 at $ 62.16 Change since picked: + 0.28 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 205 thousand --- PetroChina Co - PTR - close: 54.95 change: -0.15 stop: 52.49 Company Description: Based in Beijing, the PetroChina Company Limited is a wide reaching oil company involved in the exploration, production and sale of oil and natural gas. Why We Like It: We don't have much more to report on for PTR. The Chinese oil- stock (actually an ADR) continues to look bullish. Granted we're not excited about the pull back under $55.00 but more aggressive traders may want to consider new bullish positions on a bounce from $54.50. More conservative traders can wait and look for a move over $55.50 before initiating positions. No change in our strategy. Suggested Options: The December strikes have the most open interest and they should work but we're going to suggest the March calls. BUY CALL MAR 50 PTR-CJ OI=1227 current ask $6.60 BUY CALL MAR 55 PTR-CK OI=1277 current ask $3.20 BUY CALL MAR 60 PTR-CL OI= 993 current ask $1.15 Annotated Chart: Picked on November 17 at $55.18 Change since picked: - 0.23 Earnings Date 00/00/04 (confirmed) Average Daily Volume = 288 thousand Chart = --- Qualcomm - QCOM - close: 40.12 change: -1.12 stop: 37.50 Company Description: QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2003 FORTUNE 500® company. (source: company press release) Why We Like It: For the most part it was a positive week for shares of QCOM. The stock continued its rebound from support near $38.00 and its simple 100-dma. QCOM managed to breakout over round-number, psychological resistance at $40.00 and all of its moving averages. At least that was the case through Thursday. On Friday QCOM fell backwards some 2.7 percent as the NASDAQ finally saw some profit taking. A little bit of profit taking doesn't concern us. The NASDAQ needs it. Unfortunately, the action on Friday produced a bearish engulfing candlestick reversal pattern in QCOM. We would now expect shares of QCOM to retest support at the 100-dma currently $38.25. Readers can wait and watch for the dip. Once a bounce begins we can use it as a new bullish entry point. Suggested Options: We are not suggesting bullish positions at this time. Wait for the dip. Annotated Chart: Picked on November 15 at $ 40.51 Change since picked: - 0.39 Earnings Date 11/03/04 (confirmed) Average Daily Volume = 13.9 million --- Schlumberger - SLB - close: 66.10 change: +0.82 stop: 61.00 Company Description: Schlumberger is the world's leading oilfield services company supplying technology, project management and information solutions that optimize performance for customers working in the oil and gas industry. The company employs more than 50,000 people of over 140 nationalities working in 100 countries, and comprises two business segments. Schlumberger supplies a wide range of products and services from formation evaluation through directional drilling, well cementing and stimulation, well completions and productivity to consulting, software, information management and IT infrastructure services that support core industry operational processes. WesternGeco, jointly owned with Baker Hughes, is the world's largest seismic company and provides advanced acquisition and data processing services. In 2003, Schlumberger operating revenue was $10.12 billion. (source: company press release) Why We Like It: Oil stocks were one of the few standouts on Friday to avoid the sell-off. The OIX oil index broke out from its consolidation pattern but the OSX oil services index out performed with a 1.8 percent rally. We also like the bullish MACD buy signal on the OSX index. The pattern resembles the bullish turnaround in shares of SLB. Astute chart readers will note that the turnaround began sooner in SLB. The move over the $65 and $66 levels is very encouraging and the stock has cleared all of its significant moving averages. Technicals look positive and SLB looks poised to make a run for the $70 level. This looks like a bullish entry point in SLB. Our short-term target remains the $70 level. Suggested Options: We are going to suggest the December and/or January calls. BUY CALL DEC 60 SLB-LL OI=2660 current ask $6.60 BUY CALL DEC 65 SLB-LM OI=5717 current ask $2.60 BUY CALL DEC 70 SLB-LN OI=1796 current ask $0.55 BUY CALL JAN 60 SLB-AL OI=6896 current ask $7.20 BUY CALL JAN 65 SLB-AM OI=18153 current ask $3.60 BUY CALL JAN 70 SLB-AN OI=12473 current ask $1.40 Annotated Chart: Picked on November 12 at $ 65.05 Change since picked: + 1.05 Earnings Date 10/22/04 (confirmed) Average Daily Volume = 3.9 million --- Sunoco Inc - SUN - close: 78.57 change: +0.13 stop: 72.99 Company Description: Sunoco, Inc., headquartered in Philadelphia, PA, is a leading manufacturer and marketer of petroleum and petrochemical products. With 890,000 barrels per day of refining capacity, over 4,800 retail sites selling gasoline and convenience items, over 4,500 miles of crude oil and refined product owned and operated pipelines and 37 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States. Sunoco is a significant manufacturer of petrochemicals with annual sales of approximately five billion pounds, largely chemical intermediates used to make fibers, plastics, film and resins. Utilizing a unique, patented technology, Sunoco also manufactures two million tons annually of high-quality metallurgical-grade coke for use in the steel industry. (source: company press release) Why We Like It: SUN is yet another way traders can play the next leg up in oil and energy stocks. The recent consolidation is over and shares broke out to new all-time highs on Thursday. Technicals are positive and its MACD has produced a new buy signal. The P&F chart is very bullish with a $117 target. Right now we'd be happy with a move to $85.00. This looks like an entry point to us but a bounce from $77 will work just as well. Suggested Options: We are going to suggest the January options since we plan to hold SUN through the end of the year. BUY CALL JAN 75 SUN-AO OI= 737 current ask $6.40 BUY CALL JAN 80 SUN-AP OI= 446 current ask $3.50 BUY CALL JAN 85 SUN-AQ OI= 103 current ask $1.65 Annotated Chart: Picked on November 18 at $78.25 Change since picked: + 0.32 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.2 million ************** NEW CALL PLAYS ************** Editor's note: The market appears to be at a short-term top. This is good news. We've been waiting for a pull back for days. Actually there is probably a horde of investors who are waiting for the same dip to use as an entry point to ride out the rest of the fourth quarter. The question now is how long and how deep will the dip be, especially with so many looking to it as an entry point. We elected not to add any new plays today. We'll review our candidates after Monday's session has shed more light on the market's strength or weakness. ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ***************** CURRENT PUT PLAYS ***************** Forest Labs - FRX - close: 40.29 change: -0.64 stop: 44.01 Company Description: Forest has well-established franchises in therapeutic areas of the central nervous, cardiovascular and respiratory systems, and we are always exploring new product opportunities that address a range of health conditions. Our principal brands include Lexapro®(escitalopram oxalate), Namenda®(memantine HCl) and Benicar®(olmesartan medoxomil). (source: company press release) Why We Like It: Hmm.. so much for yesterday's high-volume bounce. It didn't last very long. Both the BTK biotech index and the DRG drug index traded sharply lower on Friday as talk swirled in Washington over the FDA and whether or not changes should be made to make the agency more successful in evaluating new drug candidates. FRX continues to look weak and the stock looks poised to breakdown through round-number, psychological support at $40.00. We are waiting for the breakdown since our TRIGGER to buy puts is at $39.95. Suggested Options: We are going to suggest the January puts. BUY PUT JAN 35 FRX-MG OI=2645 current ask $0.80 BUY PUT JAN 40 FRX-MH OI=4377 current ask $2.50 BUY PUT JAN 45 FRX-MI OI=8345 current ask $5.70 Annotated Chart: Picked on November xx at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 2.8 million ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ********** 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 11-21-2004 Sunday 4 of 5 In Section Four: Leaps: Oil Greases the Skids Spreads and Straddles: Putting November Behind Us -- Far Behind Us ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ***** LEAPS ***** Oil Greases the Skids After more than a week of moderating oil prices and a drop back to the 100 day average to rest traders were shocked back to reality on Friday as oil spiked back to near $49. While that was good for our oil stocks it was bad for equities. With Greenspan bad mouthing the U.S. all we needed was some higher oil prices to grease the skids for profit taking. Personally I believe the markets will recover. I think the oil spike had more to do with short covering and option expiration than global events. There was nothing on the wires that would have justified the spike in prices. I believe prices will go higher but I was not expecting it until December or even late spring. The Greenspan remarks pressured all interest sensitive issues like banks and home builders. Fortunately we don't have any of those in the portfolio. I did look at several today for inclusion but I think the timing is still not right. Winter is the off-season for home builders and I would like to pick up a couple once we exit some current positions in January. I am going to put DR Horton on the watch list despite the comments above. It has a great trend, low price and a PE of 8. I would like to get in a couple dollars lower but that may be wishful thinking. There are several drug stocks I want to add but on Thursday an FDA doctor slandered five well-known drugs and the Vioxx cloud began to spread. Even a positive event for OSIP and DNA had negative results on Friday. Medtronic got clobbered on Thursday after missing on earnings and being undulated by a flurry of downgrades. The most optimistic outlook is for Sanofi (SNY) and their new weight loss drug that lowers cholesterol and helps patients quit smoking. Unfortunately SNY has already run up on the news and needs to pull back a little more before we take a position. RIMM continues to intrigue me and I can't believe it has not pulled back any further than $85. With the court case still pending and the potential for a loss of the blackberry franchise you would think traders would be shorting it heavily. The price of the LEAPS has moved even higher and I can't justify keeping it on the watch list any longer. The best way to play it would be to sell the Jan-2007 $120 put at $45.50 and buy a Jan-2005 $80 put at $7.50. You would get 100% of the stock appreciation to $120 and be protected for any move under the current price of $85 by the long $80 put. There is still several dollars of risk but not near as much as just buying call leaps. I suspect that even if the case goes against RIMM they will settle with the other side in some form that allows them to continue selling Blackberry products. I am dropping it from the watch list today. I am adding two stocks to the active play list, STM and ETR. Both have eased from strong runs and we should take advantage of any further weakness on Monday to add these positions. I have to tell you I looked at well over 500 charts Friday night and there were a lot more ugly charts than decent. I would bet less than 5% still had any momentum and the majority had started rolling over early last week. It was not what I had expected to see when I started the research. This leads me to suspect Monday may not be a positive day and it could bleed into Tuesday. I hope I am wrong but there was a lot of topping patterns among the prior leaders. There will not be a LEAPs column next weekend due to the holiday but I will post any changes. Have a great Thanksgiving! If you have any comments or suggestions about the leaps section please email them to: leaps @ OptionInvestor.com ******************* New Plays ******************* ETR - Entergy Corp. $65.50 STM - STMicroelectronics $20.42 ******************* Dropped Plays ******************* NWS - News Corp $18.48 (post split) UPL - Ultra Petroleum $50.20 ****************************** New Watch List Plays Triggered ****************************** None **************************** Current Portfolio: **************************** Position Summary Table No table this week. Quote server was down when this was produced. ******************* New Plays ******************* STM - STMicroelectronics $20.42 STM is a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications. For the 9 months ended 9/04, revenues rose 26% to $6.43B. Net income totaled $414M, up from $109M, +279%. Results reflect higher sales of Discrete and Standard ICs & Memory Products and lower restructuring and impairment charges. STM has rebounded from three months of consolidation at multiyear lows and was enjoying one of the strongest upward moves in the semi sector until Friday. The semi dip may give us a better entry in the $20 range but we want an entry whichever way it goes. BUY 2007 $22.50 LEAP Call OMB-AF currently $3.30 Target $20 for dip entry Target $21.50 for breakout entry STM Chart **************************** ETR - Entergy Corp. $65.50 Entergy Corporation is an integrated company engaged primarily in electric power production, retail distribution operations, energy marketing and trading and gas transportation. ETR also manages nuclear power plants and with the current and coming energy crisis they will be hired to run/manage any new plants coming online. This is a long term play and one that could be a strong performer. The current up trend shows no signs of slowing and the LEAPs are very cheap. BUY 2007 $70 LEAP Call ODF-AN currently $5.20 ETR Chart **************************** Play Updates **************************** FDX - Federal Express $94.01 **Stop $89.00** Entry $91.93 (11/5) Federal Express announced it was going to expand Kinkos across Asia and said it could be worth $1.5 billion on an annual basis. That is a huge shot in the arm for FedEx and shows they are on the right track with their acquisition. China shipping volume grew +52% last quarter and the addition of the Kinkos stores could increase that as well. FDX stalled at $95 last week despite oil prices falling early in the week. It is still poised to move higher and Friday's -73 cent drop was meaningless. 2006 $ 95 LEAP Call WFX-AS @ $8.00 2007 $100 LEAP Call VFX-AT @ $10.60 SELL 2005 Jan $95 Put FDX-MS @ $4.60 (selling the put offsets the price of the call) FDX Chart **************************** XLE - S&P Energy SPDR $36.43 ** Stop 33.90 ** The XLE is nearing the all time high set back in Oct at $36.83 after a month of consolidation. Oil prices are helping push the XLE higher but it is only through the price gains in the individual stocks in the index. They were moving up earlier in the week before oil itself actually made a move. 2006 $32 LEAP Call WHA-AF 2006 $35 LEAP Call WHA-AI Entry $33.92 on 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp XLE Chart ************************ INTC - Intel Corp $24.15 **Stop $22.00** Intel continued to move higher but ran into resistance at $25 and the downgrade for the sector by Goldman Sachs on Thursday. I expect the sector to regain its footing next week and hopefully Intel can break that $25 level. Current position: 2006 $22 LEAP Call WNL-AX 2006 $25 LEAP Call WNL-AE Entry $20.00 Sept 3rd http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Intel Chart ********************** TYC - Tyco Intl. $33.71 **Stop $32.00** Tyco stalled at $34.50 and traded sideways with the Dow. TYC is very high beta with the Dow and any continued gains will benefit Tyco. Unfortunately any Dow losses will also impact TYC. 2005 $30 LEAP Call TYC-AF cost $2.15 2006 $30 LEAP Call WPA-AF cost $4.00 July $25 insurance put - expired - cost $.55 Entry 5/18 $28.32 http://members.OptionInvestor.com/leaps/Lp_051604_1.asp Tyco Chart ********************** JNPR - Juniper Networks $27.93 **Stop $25.50** Juniper broke out to near $30 but failed as the week wore down. JNPR has had a good run and needs to rest. Strong support at 27-28 should hold. 2006 $25 LEAP Call WBW-AE cost $3.50 Insurance = Sept-$17.50 Put (expired) cost 50 cents. Entry $20.19 (8/16) http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart ********************** COP - Conoco Phillips $87.43 **Stop 84.50** COP is trying to move higher despite the fall in oil early in the week. The Friday spike helped to put some green back on the board but I raised the stop just in case. We have far too much profit in COP to let it slip away. COP remains in the top three recommended investments in the energy sector and it is racing to acquire new properties. Go oil! Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $15.80 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $18.49 ** Dropped ** S&P announced News Corp was going to be added to the S&P in mid December but did not announce what stock was going to come out. We have not seen any material bounce because index fund managers don't know how much of NWS they will have to buy and how much of other stocks they will have to sell. Secondly, we have the potential hostile suitor in Liberty Media and NWS adopted a poison pill to ward off the attacker. Thirdly, there is extreme confusion about the options. The old symbol is trading at two times the price of the stock and there are 200 shares per contract now instead of 100. In addition to these problems S&P is removing the stock from the international indexes along with the inclusion into the S&P. It should be a net add but instead it is just another confusion factor. Because of the confusion I am recommending we close this position on Monday and put our money to work somewhere else. There is no quote on the option on most quote screens. The last quote I received this week was $3.40. Contact your broker for instructions on clearing this position. Current position: 2006 $40 LEAP Call WLN-AH/WNQ-AH at $3.83 Initial play description: http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp NWS Chart **************************** UPL - Ultra Petroleum $50.15 ** Dropped ** UPL fell on Friday after spiking to $52 at the open. It finished -$2 off its highs and given the +$2 jump in oil prices I fear UPL may have run its course. I am dropping it today out of caution while it is still profitable. It has made three lower highs since the all time high at $53.60 back in October. JAN-2006 $45 LEAP Call WSS-AI @ $11.30 exit $13.70 JAN-2006 $50 LEAP Call WSS-AJ @ $ 9.20 exit $11.20 Entry $45.50 9/21 http://members.OptionInvestor.com/leaps/Lp_090504_1.asp UPL Chart **************************** EBAY - EBAY $108.42 ** Stop $105.00 ** EBAY is starting to worry me. For six days we have not made any progress but it is still holding the high ground. With the market starting to look weak I raised the stop to $105 and we will take profits if further weakness develops. The $90 option is trading at $30 and it was $14.70 when we started this play. The $100 option is $22.40 and it was $10.40 when we entered. I hate to give up a 100% profit when the numbers are this big so caution is the keyword this week. We are well into stock split territory. Ebay last announced a 2:1 split in July 2003 at $100.00 and in April 2000 near $100. 2006 $ 90 LEAP Call YRL-AR @ $14.70 2006 $100 LEAP Call YRL-AT @ $10.40 Entry $90.00 on 9/22 http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart **************************** MER - Merrill Lynch $56.35 ** Stop $54.50 ** Merrill was knocked for a loss on Friday on the Greenspan comments after failing to reach resistance at $58. I raised the stop to $54.50 just in case the market weakness continues. 2006 $50 LEAP Call WZM-AJ 2006 $55 LEAP Call WZM-AK Entry $51.00 on 9/20 http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart ************************ SYMC - Symantec - $60.75 ** Stop $58.00 ** SYMC continues to slow its upward progress but at least it is still trying to move higher. Unfortunately 25 cents a day won't help if the next drop if in dollars. $62.45 is the all time high set back in October and we traded over $62 on Friday before giving up some ground. I am not writing SYMC off yet but I did raise the stop to $58. 2:1 Split announced Oct-20th is payable on Dec-1st. That puts us at risk for post split depression the week after the split. Next Sunday I will raise the stop to protect any split run gains. 2006 $50 LEAP Call YAG-AJ @ $10.70 2006 $55 LEAP Call YAG-AK @ $8.00 2006 $60 LEAP Call YAG-AL @ $5.70 Entry $53.00 on 9/27 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart **************************** XMSR - XM Satellite Radio $35.01 ** Stop $33.00 ** XMSR finally broke over the $34 ceiling to nearly $37 but immediately failed back to $35. The news about the new SIRI CEO from Viacom and the potential for Stern to move to satellite early gave SIRI a bounce and XMSR tagged along for the ride but the joy ride was brief. I raise the stop to $33 just in case the SIRI news turns ugly for XMSR. Current position: 2006 JAN-$30 LEAP Call YLX-AF @ $6.60 2006 JAN-$32 LEAP Call YLX-AZ @ $5.60 2006 JAN-$35 LEAP Call YLX-AG @ $4.60 Entry $29.15 on 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp XMSR Chart ****************************** ADBE $57.85 Adobe Systems ** Stop $56.00 ** Entry $57.00 (11/10) ADBE set a new 52-week high on Friday and then dropped like a rock as the day progressed. Support at $57.50 held but only barely. You can't complain about a new high on a bad market day but our entry point was $57 so we don't have a lot of room. Keep your fingers crossed Monday is positive. ADBE predicted +25% growth to continue and said better than expected sales growth in multiple product lines was helping performance. Buy 2007 $65 LEAP Call VAE-AM @ $8.90 Sell APR $60 Put AEQ-PL @ $5.50 to offset the price of the leap. Entry $57.00 (11/10) http://members.OptionInvestor.com/leaps/Lp_110704_1.asp ADBE Chart **************************** DIA $104.59 Dow Diamonds Trust **Stop 102.50** The Dow climbed to just over 10600 before retracing on the Greenspan comments. We are strongly profitable in the DIA calls and I left the stop at 102.50 in hopes the Dow will recover and move higher. This is strictly a market play and one of the bullish weeks of the year is ahead with the Microsoft dividend event the following week. We just need to stay out of trouble until that appears. 2006 $100 LEAP Call YGF-AV @ $6.30 2006 $104 LEAP Call YGF-AZ @ $4.20 2006 $108 LEAP Call YGF-AD @ $2.90 2006 $112 LEAP Call YGF-AH @ $2.00 Entry 10/14 @ $99.00 DIA Chart **************************** SMH $33.77 Semiconductor Holders ** Stop $31.50 ** We had a great chip rally in progress with the SMH moving to nearly $35 before the Goldman downgrade and the Greenspan comments knocked the legs out from under the sector. I raised the stop to $31.50 and with any luck the bad news bulls will be back in force next week. 2006 $30 LEAP Call YRH-AF @ 5.20 2006 $35 LEAP Call YRH-AG @ 3.12 Sell 2006 $55 LEAP Put YRH-MK @ 24.30 Entry $30.50 (10/19) SMH Chart **************************** QQQ $38.70 Nasdaq 100 **Stop $37.00** We saw a strong move by the QQQ to $39.25 but we lost momentum on Friday. I raised the stop slightly but I am really hoping Monday will be at least marginally positive to keep us out of harms way. Entry $36.50 (10/27) 2006 $35 LEAP Call YWZ-AI @ $5.10 2006 $37 LEAP Call YWZ-AD @ $3.90 QQQ Chart **************************** LEAPS Watch List **************************** Time for Rotation? With oil stocks mixed and oil prices acting more volatile it may be time to reduce our exposure to oil. I dropped UPL this week because of instability and the lack of forward motion. I spent a long time trying to find some new candidates this weekend and stocks not in sectors we are already playing. Materials, trucking, steel, financials, health services and home building rose to the top of the list. Financials were generally weak with the exception of insurance stocks. Hartford, Aetna, etc, were strong but several are simply too high to buy. Leaps on a $100 stock at $20 are just too expensive. Materials stocks like Nucor, Vulcan Materials, Dow, Emerson, Phelps Dodge, Alcoa, etc are doing well but I hate to buy a pure play like copper after the strong gains in the commodity but short of a new ice age I don't see demand easing any time soon. Chip stocks have a rocky foundation for most candidates and the mixed messages from analysts leave a lot to be desired. However, we have to buy some stocks when out of favor in order to get them cheap for the long haul. The biggest challenge is finding good stocks in strong sectors that have not already moved too far that have leaps. I found quite a few stocks this weekend I would have played but no leaps. The new entries below represented the best mix of price, performance and sectors I could find. I looked at over 500 charts and several hundred option montages and came up with seven stocks. *********************** Dropped Entries *********************** RIMM - Too much indecision, options too high. *********************** New Watch List Entries *********************** HIG - Hartford Financial Services $63.65 NUE - Nucor Corp $49.50 EMN - Eastman Chemical $51.42 DHI - DR Horton $34.33 ************************ LLL $69.50 L-3 Communications I am moving the entry on L3 to $68. We saw a drop to just under $70 and I think we can get $68 on any further weakness. LLL is being added to the S&P but the date has not been announced. The initial bounce has faded because S&P has not given a date. Index funds can't buy it until the WLP acquisition is complete and WLP is removed from the index. This gives us a chance to still get in at a reasonable level. LLL is a maker of bomb detection systems and has a strong backlog of contracts for the airlines. They have several product lines besides these systems but explosives detection has become a worldwide market. Target an entry at $68.00 on a breakdown Target an entry at $71.00 on a breakout Buy 2007 $75 LEAP Call OOY-AO LLL Chart ************************* HIG - Hartford Financial Services $63.65 The Hartford Financial Services Group, Inc. is a diversified insurance co. that provides property & casualty insurance and life insurance. For the 9 months ended 9/30/04, revenues rose 19% to $16.59B. Net income totaled $1.52B. Hartford took a serious hit when Elliott Spitzer started attacking insurance companies but it has rebounded to resistance at $64 once again. This strength in the face of several obstacles and the market suggests we could see a breakout soon. Target $65 for a breakout entry Target $60 for a breakdown entry BUY 2007 $70 LEAP Call OZJ-AN currently $6.20 HIG Chart ************************* NUE - Nucor Corp $49.50 Nucor Corporation and its subsidiaries are engaged in the manufacture and sale of steel products, including hot-rolled, cold-rolled sheet, galvanized sheet, cold finished and more. For the 9 months ended 10/2/04, revenues increased 80% to $8.29B. Net income totaled $780.1M, up from $42.2M. Revenues reflect increased steel production and higher demand. Nucor is literally exploding and the increased global demand for steel is providing strong gains in revenue and profits. I want to try and buy this one on a dip but looking at the chart it could be a while. Target a breakdown entry at $45.00 Buy 2007 $55 LEAP Call VUB-AK currently $8.00 NUE Chart ************************* EMN - Eastman Chemical $51.42 EMN manufactures and sells polyester plastics such as polyethylene terephthalate (PET); coatings and paint raw materials; industrial and fine chemicals, and acetate tow. For the 9 months ended 9/30/04, revenues rose 13% to $4.92B. Net income before acct. change totaled $116M vs. a loss of $283M. Revenues reflect higher volume and selling prices and favorable foreign currency exchange rates. Eastman is on track to have its best year since 2000 and increasing global demand is turning the company around. EMN was on track to oblivion several years ago and we played it as a put candidate several times. The turnaround has been remarkable. Target a dip to $48 for an entry. BUY 2007 $50 Call LEAP VFJ-AJ currently $6.60 EMN Chart ************************* DHI - DR Horton $34.33 DHI is a national home builder that constructs and sells single-family homes in metropolitan areas of the Mid- Atlantic, Midwest, Southeast, Southwest and West regions of the U.S. DHI also provides title agency and mortgage brokerage services. For the FY ended 9/30/04, revenues rose 24% to $10.84B. Net income rose 56% to $975.1M. Revenues reflect an increase in prices. Higher income also reflects improved gross margins. In earnings for the 3Q Horton had net income of $349.6 million, or $1.47 a share, vs. $230.7 million, or 98 cents a share, for the same quarter of fiscal 2003. Analysts were expecting $1.22, according to Thomson First Call. Revenue increased 23% to $3.5 billion. Horton's sales backlog of homes under contract was a year-end record $4.6 billion, or 17,184 homes, up 25% from a year ago. Horton, which builds homes for the entry-level and first-time move-up markets, had strong sales in all of its regions DHI is selling for a PE of 8 (eight!) Target dip entry at $32.00 Target breakout entry at $37.00 Buy 2007 $40 LEAP Call VEI-AH currently $5.20 DHI Chart ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ******************* SPREADS & STRADDLES ******************* Putting November Behind Us -- Far Behind Us By Mike Parnos It could have been worse -- a lot worse. We used reasonable self-discipline and closed the positions. It wasn't easy. It never is, but, in the market, it's the survival of the fittest. And you do what you have to in order to survive. In "Castaway," Tom Hanks turned a volleyball (Wilson) into his best friend on the desert island. In "Lord Of The Flies," the kids made an entree out of one their own. It wasn't personal. It was survival. Who would have thunk the market would have rocketed 90 SPX points in less than four weeks? A trending market isn't ideal for our Iron Condor strategy. So, we must be very selective, watch for opportunities and improvise when necessary. ___________________________________________________________ Giving Thanks That The November Cycle Is Over The November option cycle was the first cycle in the third year of tracking our Couch Potato Trading Institute portfolio. Our $4,665 loss was not the greatest way to begin our third year, but I never promised you a rose garden. The challenge is to keep the loss in a longer term perspective. When we take losses, there is anger and frustration -- it's understandable. But, you can't allow those emotions to get in the way of your plan of action. Many readers stayed in the November trades much too long -- hoping. It was all the king's horses and all the king's men couldn't put Humpty Dumpty back together again. But wasn't it Humpty Dumpty that decided to stay on that precarious ledge when he could have climbed down much earlier? Unfortunately, we live in a "what have you done for me lately" world. It's amazing how quickly some forget about two years of profits when facing a little bit of adversity. Clicking the mouse button, and taking losses, is a sign of growth in one's maturation as a trader. It's a process. You weren't potty trained in a week either. But, once you grasped the concept, you could put those Pampers away forever (hopefully). For some the process takes longer than others. The sooner you learn to clean up after yourself, the smaller messes you'll make. ___________________________________________________________ November Trade Summary SPX - Iron Condor #1 - Profit: $2,985 SPX - Iron Condor - #2 - Loss: $3,840 RUT - Iron Condor - Loss: $2,800 OEX - Iron Condor - Loss: $4,000 SPX - Sure Thing - Profit: $2,990 TOTAL OCTOBER RESULTS: LOSS: $4,665 Settlement numbers: SPX ($SET) -- 1184.42, RUT ($RLS) -- 619.38, & OEX -- 559.69. ____________________________________________________________ DECEMBER CPTI POSITIONS When, on Friday, the SPX opened much lower and continued down without hesitation, it negated the levels of our new December positions. As I've said often over the last few years, if there's a big move the next morning, wait and watch and adapt. That's part of the education process. I received a few emails on Friday from CPTI students who placed orders at the open for the published hypothetical trades and, after the market tanked, they were filled. Not wise (see, I can be tactful). The original 1145/1140 bull-put spread may very well work out. However, there is now only a 25-point cushion from where the SPX is trading -- too close for my taste. We don't want to place orders and then wait for the market to come to us. We can get into big trouble that way. We have to be aware, flexible, and proactive. December Position #1 -- SPX Iron Condor (Part 1) - 1170.34 We believe the market is taking a well-deserved rest and will continue up. Our new bull-put spread still gives us about a 45- point cushion on the downside with the short strike near a support level. When the market tanked in the morning, we waited for an opportunity to lower the level of our bull put spread and we found it at 1125/1120. We had to settle for less premium, but that extra 20 points of safety feels a lot better. We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 puts for a credit of $.50 ($1,000). When you're looking for your new position, the concept of getting much your profit from negotiating the bid/ask spread still applies. See Thursday's column for an explanation of the concept of negotiating the bid/ask. Check out Friday's option chain and adjust your strikes accordingly. This is just the bull-put portion of a potential Iron Condor. We're going to wait until the smoke clears a little before looking for bear-call spread possibilities. Besides, Monday, the SPX should open up a lot more strike prices to select from. It will give us a lot more flexibility. December Position #2 -- SPX Sure Thing (Almost) Credit Spread - 1170.34 Here we go again. When the market tanked Friday, we had to adjust our strikes and our expectations. Towards the end of the session, we saw an opportunity to sell the 1165 puts and buy the 1140 puts for a credit of $6.90. We believe we're still in a bullish trend and want to position ourselves to take advantage of it. A quick reminder -- only do this strategy if you have a LOT (a mierde-load) of maintenance available. You might need it. We sold two SPX December 1165 puts and bought two SPX December 1140 puts for a $6.90 credit ($1,380). Let the games begin! ____________________________________________________________ REVIEW OF NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1170.34 We sold 12 SPX November 1185 calls and bought 12 SPX November 1200 calls with a credit of about $1.25 ($1,500). Then we sold 9 SPX November 1070 puts and bought 9 SPX November 1050 puts for a credit of about $1.65 ($1,485). Total credit of about $2,985. All expired worthless. Profit: $2,985 November Position #2 - SPX Iron Condor - 1170.34 We sold 10 SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls for a credit of about $1.40 ($1,400). Then we sold 10 SPX Nov. 1025 puts and bought 10 SPX Nov. 1005 puts for a credit of about $1.20 ($1,560). Profit potential was about $2,960. Closed for $3,840 loss. November Position #3 - OEX Iron Condor - 565.97 We sold 10 OEX Nov. 500 puts and bought 10 OEX Nov. 490 puts for a credit of about $.70 ($700). Then we sold 10 OEX Nov. 555 calls and bought 10 OEX Nov. 565 calls for a credit of about $.60 ($600). Total net credit of $1.30 ($1,300). We closed the trade for a $4,000 loss. November Position #4 - RUT - Iron Condor - 613.44 We sold 10 RUT Nov. 520 puts and bought 10 RUT Nov. 510 puts for a credit of about $.70 ($700). Then we sold 10 RUT Nov. 610 calls and bought 10 RUT Nov. 620 calls for a credit of about $.60 ($600). Total net credit and maximum profit of $1.30 ($1,300). Closed for $2,800 loss. SPX "Sure Thing" Strategy - 1170.34 Formerly called the "Credit Spread Boogie." We sold 3 SPX 1120 October puts and bought 3 SPX 1095 October puts for a net credit of about $6.50 ($1,950). The initial maintenance was $7,500. When the SPX traded in the low 1100s, it was time for an adjustment. We closed out the original bull put spread for $13.20 ($3,960). We then opened a seven-contract position of an 1115/1140 bear call spread, taking in $6.35 ($4,445). We took in some extra premium. Our new profit potential is $2,435 -- if SPX closes below 1115. Over the last two months we were whipsawed -- until a trend took hold. Our most recent position was a November 14-contract 1120/1095 bull put spread at $7.00 ($9,800). The maintenance is getting pricey at $35,000. That's why this strategy is not for everyone. Our potential profit is still $2,435. We had to close the 1120/1095 bull put spread and we initiated a new 1115/1140 bear call spread. We picked up another $350 in premium to $2,785, but our maintenance is now $70,000. We closed out our 1115/1140 bear call spread and now have 60 contracts of a November 1125/1100 bull put spread. We've taken in a total of $2,990 in premium and our maintenance is now $150,000. The SPX settled at 1184.41. Profit: $2,990. FINALLY! ___________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle - Ongoing Long Term -- $39.29 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. We rolled to the Sept. $34 calls and $37 puts, yielding $.45 or $450 for the cycle. For October we took in $.45 ($450) rollout. We rolled to the November. $34 calls and $37 puts for $.70 ($700). Last week we rolled in the December $34 calls and $37 puts for a total of $.50 ($500). New total: $13,400. 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 conservative cash flow generating strategy. ZERO-PLUS Strategy. OEX - 565.97 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 about 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. We own 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of August expiration was $8,390. In September we added another $975 for a total of $9,365. In October we added $650 for a new total of $10,675. Zero-Plus Position For December Prior to expiration, we bought back our Nov. 555 calls and rolled it to six contracts of the January 580 calls for a credit of about $100. We also put on five contracts of a December 540/530 bull-put spread for an $.80 credit ($400). 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, Your 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. ********** 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 11-21-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ************** COVERED CALLS ************** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. _________________________________________________________________ Sequenced by Target Yield (monthly basis/no margin) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield FXEN 8.44 DEC 7.50 IWQ-LU 1.35 866 7.09 27 6.5% CAMP 8.26 DEC 7.50 CQI-LU 1.10 580 7.16 27 5.3% ROXI 8.24 DEC 7.50 RXY-LU 1.05 3990 7.19 27 4.9% DHB 19.24 DEC 17.50 DHB-LW 2.45 2109 16.79 27 4.8% NFLD 15.75 DEC 15.00 DHQ-JC 1.35 1055 14.40 27 4.7% CRXL 11.58 DEC 10.00 JXU-LB 1.95 51 9.63 27 4.3% IDCC 19.21 DEC 17.50 DAQ-LW 2.35 3658 16.86 27 4.3% ENER 19.42 DEC 17.50 EQI-LW 2.50 660 16.92 27 3.9% TKTX 21.13 DEC 20.00 UFT-LD 1.75 1019 19.38 27 3.6% NSTK 14.16 DEC 12.50 QUH-LV 2.05 434 12.11 27 3.6% RAE 8.57 DEC 7.50 RAE-LU 1.30 824 7.27 27 3.6% IFLO 18.69 DEC 17.50 QIF-LW 1.70 2075 16.99 27 3.4% FCS 15.86 DEC 15.00 FCS-LC 1.30 1422 14.56 27 3.4% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). __________________________________________________________________ FXEN - FX Energy $8.44 FX Energy (NASDAQ:FXEN) is an independent oil and gas company focused on exploration, development and production opportunities in the Republic of Poland, in association with the Polish Oil and Gas Company and others. The company's ongoing activities in Poland are conducted in five project areas: Fences I, II and III, Pomeranian and Wilga. It is working almost exclusively on these project areas, where the gas-bearing Rotliegendes sandstone reservoir rock in Poland's Permian Basin may be a direct analog to the Southern North Sea gas basin, offshore England. FXEN - FX Energy $8.44 DEC 7.50 IWQ-LU LB=1.35 OI=866 CB=7.09 DE=27 TY=6.5% __________________________________________________________________ CAMP - CalAmp $8.26 CalAmp (NASDAQ:CAMP) designs, manufactures and markets microwave equipment for the reception of television programming transmitted from satellites and wireless terrestrial transmission sites and two-way transceivers used for wireless Internet-broadband service. The firm's satellite business unit designs and markets reception products for the Direct Broadcast Satellite television market in the United States and line of consumer and commercial products for video and data reception. The Wireless Access business unit designs and markets integrated reception and two-way transmission equipment for broadband data and video applications. CAMP - CalAmp $8.26 DEC 7.50 CQI-LU LB=1.10 OI=580 CB=7.16 DE=27 TY=5.3% __________________________________________________________________ ROXI - Roxio $8.24 Roxio (NASDAQ:ROXI) is a provider of digital media software and services for the consumer market. It provides software that enables individuals to record digital content onto compact disc (CDs) and digital video discs (DVDs) and offers photo and video editing products. The company's products and services allow customers to access, archive, create, customize and share digital materials in formats compatible with a number of digital entertainment devices, such as personal computers, CD and DVD players, compressed audio players and personal digital assistants. ROXI - Roxio $8.24 DEC 7.50 RXY-LU LB=1.05 OI=3990 CB=7.19 DE=27 TY=4.9% __________________________________________________________________ DHB - DHB Industries $19.24 DHB Industries (NYSE:DHB) is a holding company with two major divisions: DHB Armor Group and DHB Sports Group. The Armor Group includes Point Blank Body Armor and Protective Apparel Corporation of America and they manufacture various types of body armor. The Sports Group, which consists of NDL Products, manufactures and distributes protective athletic apparel and equipment, including elbow, breast, hip, groin, knee, shin and ankle supports and braces, as well as a line of therapy products. DHB - DHB Industries $19.24 DEC 17.50 DHB-LW LB=2.45 OI=2109 CB=16.79 DE=27 TY=4.8% __________________________________________________________________ NFLD - Northfield Labs $15.75 Northfield Laboratories (NASDAQ:NFLD) is engaged in the production of a safe and effective alternative to transfused blood for use in the treatment of acute blood loss. Its PolyHeme blood substitute product is a solution of chemically modified hemoglobin derived from human blood. PolyHeme simultaneously restores lost blood volume and hemoglobin levels and is designed for rapid, massive infusion. PolyHeme requires no cross-matching and is therefore immediately available and compatible with all blood types. It has an extended shelf life compared to blood. Northfield Labs purchases indated and outdated blood from The American Red Cross and Blood Centers of America for use as the starting material for PolyHeme. It uses a proprietary process of separation, filtration and chemical modification to produce PolyHeme. NFLD - Northfield Labs $15.75 DEC 15.00 DHQ-JC LB=1.35 OI=1055 CB=14.40 DE=27 TY=4.7% __________________________________________________________________ CRXL - Crucell N.V. $11.58 Crucell N.V. (NASDAQ:CRXL) serves as the holding company for Crucell Holland N.V. The company is a biotechnology firm that combines technologies to discover, develop and produce a wide variety of biopharmaceutical products for the prevention and treatment of infectious diseases. Crucell's PER.C6 technology encompasses a human cell line production system that is used to develop biopharmaceutical products. Their AdVac technology is a recombinant vector technology used to develop adenoviral-based products. CRXL - Crucell N.V. $11.58 DEC 10.00 JXU-LB LB=1.95 OI=51 CB=9.63 DE=27 TY=4.3% __________________________________________________________________ IDCC - InterDigital Comm. $19.21 InterDigital Communications (NASDAQ:IDCC) designs, develops and places into operation a range of advanced wireless technologies, systems and products. IDCC, through its involvement in the standards bodies and incubation efforts, monitors emerging technologies being developed to deliver voice and data in a wireless environment. It focuses on its technology and product development on the air interface technology, referred as wideband code division multiple access, is comprised of two duplexing methods, frequency division duplex and time division duplexing. IDCC - InterDigital Comm. $19.21 DEC 17.50 DAQ-LW LB=2.35 OI=3658 CB=16.86 DE=27 TY=4.3% __________________________________________________________________ ENER - Energy Conversion Devices $19.42 Energy Conversion Devices (NASDAQ:ENER) is a technology, product development and manufacturing company engaged in the invention, engineering, development and commercialization of new materials, products and production technology in the fields of alternative energy technology and information technology. The company has developed materials that permit them to design and commercialize products, such as thin-film solar cell (photovoltaic) products, nickel metal hydride (NiMH) batteries, and phase-change memory devices. ENER - Energy Conversion Devices $19.42 DEC 17.50 EQI-LW LB=2.50 OI=660 CB=16.92 DE=27 TY=3.9% __________________________________________________________________ TKTX - Transkaryotic Therapies $21.13 Transkaryotic Therapies (NASDAQ:TKTX) is a biopharmaceutical company researching, developing and commercializing therapeutics primarily for the treatment of genetic diseases caused by protein deficiencies. TKT has received approval to market Replagal, an enzyme replacement therapy for long-term treatment of patients with Fabry disease, in 28 countries outside of the United States. The company is also developing iduronate-2-sulfatase (I2S), an enzyme replacement therapy for the treatment of Hunter syndrome, and gene-activated glucocerebrosidase (GA-GCB) for the treatment of Gaucher disease. TKTX - Transkaryotic Therapies $21.13 DEC 20.00 UFT-LD LB=1.75 OI=1019 CB=19.38 DE=27 TY=3.6% __________________________________________________________________ NSTK - Nastech Pharmaceutical $14.16 Nastech Pharmaceutical Company (NSTK) is a pharmaceutical firm developing products based on applying drug delivery technologies, with approximately 195 patents and applications filed. Nastech is developing molecular biology-based technologies for delivering both small and large molecule drugs by nasal administration, along with an extended release oral delivery technology. It is also developing a diverse product portfolio across multiple therapeutic areas, including products targeted for the treatment of sexual dysfunction, obesity, pain management, osteoporosis and multiple sclerosis. NSTK - Nastech Pharmaceutical $14.16 DEC 12.50 QUH-LV LB=2.05 OI=434 CB=12.11 DE=27 TY=3.6% __________________________________________________________________ RAE - RAE Systems $8.57 RAE Systems (NYSE:RAE) is a global developer and manufacturer of rapidly deployable, multi-sensor chemical detection monitors, networks for homeland security and industrial applications. In addition, RAE offers a line of portable single-sensor chemical and radiation detection products. The company's products are based on technology and include portable, wireless and fixed atmospheric monitors and photo-ionization detectors and gamma and neutron detectors. These products enable the military and first responders, such as firefighters, law enforcement and other emergency management personnel to detect and provide warning of weapons of mass destruction and other hazardous materials. RAE - RAE Systems $8.57 DEC 7.50 RAE-LU LB=1.30 OI=824 CB=7.27 DE=27 TY=3.6% __________________________________________________________________ IFLO - I-Flow $18.69 I-Flow (NASDAQ:IFLO) manufactures a line of compact, portable infusion pumps, catheters and pain kits that inject medication directly to the wound site, and administer local anesthetics, chemotherapies, antibiotics, diagnostic agents, nutritional supplements and other medications. I-Flow sells and ships its products throughout the United States, Canada, Europe, Asia, Mexico, Brazil, Australia, New Zealand and the Middle East. Through InfuSystem, a wholly owned subsidiary, I-Flow is also engaged in the rental of infusion pumps on a month-to-month basis for the treatment of cancer. IFLO - I-Flow $19.26 DEC 17.50 QIF-LW LB=1.70 OI=2075 CB=16.99 DE=27 TY=3.4% __________________________________________________________________ FCS - Fairchild Semiconductor $15.86 Fairchild Semiconductor (NYSE:FCS) is a semiconductor company that develops, manufactures and sells analog, interface, discrete, standard logic, non-volatile memory and optoelectronic semiconductors critical to multiple-end markets. Its products are used as major building-block components in a variety of electronic applications including sophisticated computers and Internet hardware, communications, networking and storage equipment, industrial power supply and instrumentation equipment, portable digital consumer cameras, displays, audio/video devices, household appliances and automotive ignition applications. FCS - Fairchild Semiconductor $15.86 DEC 15.00 FCS-LC LB=1.30 OI=1422 CB=14.56 DE=27 TY=3.4% ******************* SPREADS & STRADDLES ******************* A Broad Retreat! By Ray Cummins The major equity averages plunged Friday after Federal Reserve chief Alan Greenspan made some distressing observations about the nation's trade deficit. Greenspan noted the U.S. economy was resilient thus far, but foreign investment could wane should the deficits continue to build and the U.S. dollar remain weak. The Dow Jones average slid 115 points to 10,456 -- the biggest single-session point drop since September. The NASDAQ composite index declined 33 points to 2,070 and Standard & Poor's 500 index ended down 13 points at 1,170. For the week, all three indices were lower. Declining issues outnumbered advancing stocks nearly 5 to 2 on the New York Stock Exchange, on volume of 1.53 billion shares. On the NASDAQ, over 2 billion shares changed hands with losers besting winners 2 to 1. Bond prices fell on renewed inflation concerns. The benchmark 10-year note slipped 21/32, while its yield climbed to 4.19%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 11/19/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 BSC 94.16 95.35 NOV 80.0 85.0 0.65 84.35 0.65 Closed BTU 60.07 74.56 NOV 50.0 55.0 0.60 54.40 0.60 Closed MRVL 28.84 30.84 NOV 22.5 25.0 0.35 24.65 0.35 Closed COST 44.69 47.48 NOV 40.0 42.5 0.30 42.20 0.30 Closed NEM 46.25 49.17 NOV 40.0 42.5 0.30 42.20 0.30 Closed INSP 47.25 44.00 NOV 35.0 40.0 0.85 39.15 0.85 Closed BG 41.96 48.98 NOV 35.0 40.0 0.50 39.50 0.50 Closed ADBE 53.57 57.82 NOV 45.0 50.0 0.50 49.50 0.50 Closed VRNT 37.73 39.69 NOV 30.0 35.0 0.55 34.45 0.55 Closed OSTK 52.63 55.13 NOV 40.0 45.0 0.60 44.40 0.60 Closed MDC 76.00 76.34 NOV 65.0 70.0 0.50 69.50 0.50 Closed SPF 53.90 56.61 NOV 45.0 50.0 0.60 49.40 0.60 Closed NEM 47.52 49.17 NOV 42.5 45.0 0.35 44.65 0.35 Closed PD 87.54 94.15 NOV 75.0 80.0 0.50 79.50 0.50 Closed EBAY 100.66 108.34 NOV 90.0 95.0 0.60 94.40 0.60 Closed CTX 53.55 54.15 NOV 45.0 50.0 0.50 49.50 0.50 Closed PIXR 84.45 86.60 NOV 75.0 80.0 1.00 79.00 1.00 Closed S 45.88 52.95 NOV 40.0 42.5 0.35 42.15 0.35 Closed VIP 121.49 122.35 DEC 105.0 110.0 0.70 109.30 0.70 Open WLP 113.90 120.00 DEC 100.0 105.0 0.50 104.50 0.50 Open CECO 35.00 35.01 DEC 25.0 30.0 0.60 29.40 0.60 Open PJC 48.95 44.80 DEC 40.0 45.0 0.60 44.40 0.40 Open? EYET 45.64 44.01 DEC 30.0 35.0 0.45 34.55 0.45 Open XMSR 36.13 35.01 DEC 30.0 32.5 0.25 32.25 0.25 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Although currently profitable, positions in Pacificare Health Systems (NYSE:PHS), Celgene (NASDAQ:CELG) and Guitar Center (NASDAQ:GTRC) have previously been closed to limit potential losses. Piper Jaffray Companies (NYSE:PJC) is a candidate for early-exit after Friday's sharp decline. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AMZN 40.47 38.55 NOV 50.0 45.0 0.65 45.65 0.65 Closed CHIR 37.98 33.51 NOV 45.0 42.5 0.30 42.80 0.30 Closed FLIR 54.52 58.25 NOV 65.0 60.0 0.70 60.70 0.70 Closed BIIB 59.82 55.34 NOV 70.0 65.0 0.65 65.65 0.65 Closed MCHP 27.56 28.53 NOV 35.0 30.0 0.60 30.60 0.60 Closed TTWO 32.55 32.64 NOV 37.5 35.0 0.30 35.30 0.30 Closed QCOM 39.50 40.12 NOV 45.0 42.5 0.30 42.80 0.30 Closed INTU 43.14 43.45 NOV 47.5 45.0 0.30 45.30 0.30 Closed RIMM 77.75 85.01 NOV 95.0 90.0 0.50 90.50 0.50 Closed SEPR 45.44 46.17 DEC 55.0 50.0 1.00 51.00 1.00 Open TTWO 33.24 32.64 DEC 40.0 37.5 0.30 37.80 0.30 Open ERTS 46.97 49.15 DEC 55.0 50.0 0.65 50.65 0.65 Open? GM 39.97 38.90 DEC 45.0 42.5 0.30 42.80 0.30 Open BSX 34.70 34.02 DEC 40.0 37.5 0.30 37.80 0.30 Open MXIM 42.50 42.58 DEC 50.0 45.0 0.70 45.70 0.70 Open BIIB 58.31 55.34 DEC 70.0 65.0 0.50 65.50 0.50 Open INSP 49.17 44.00 DEC 65.0 60.0 0.40 60.40 0.40 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Positions in Aetna (NYSE:AET), Beazer Homes (NYSE:BZH), Hartford Insurance (NYSE:HIG), Cigna (NYSE:CI), Chubb (NYSE:CB), Express Scripts (NASDAQ:ESRX), Investors Financial (NASDAQ:IFIN), Mercury Interactive (NASDAQ:MERQ), Microchip (NASDAQ:MCHP), J.C. Penney (NYSE:JCP), SPX Corp. (NYSE:SPW) and Pediatrix Medical (NYSE:PDX), which expired profitably, have previously been closed to limit potential losses. Electronic Arts (NASDAQ:ERTS) is now on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status NTES 40.00 52.41 NOV 40.0 40.0 5.00 12.00 Closed NEW 55.15 60.75 NOV 55.0 55.0 4.70 9.10 Closed SBUX 54.51 55.21 NOV 55.0 55.0 2.50 2.25 Closed COCO 17.75 16.00 NOV 17.5 17.5 0.85 1.40 Closed BCSI 19.93 17.53 NOV 20.0 20.0 2.40 2.50 Closed Speculative positions in Corinthian Colleges (NASDAQ:COCO), New Century Finance (NYSE:NEW) and Netease.com (NASDAQ:NTES) provided favorable straddle opportunities during the month of November. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ OIH - Oil Service Holdrs Trust $84.45 *** Oil Stocks Surge! *** The Oil Service Holdrs Trust (AMEX:OIH) is a unique instrument that represents an investor’s ownership in the stock of specified companies in the oil service sector. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient. Each HOLDR is a fixed basket of 20 stocks (except the Telebras HOLDR, which holds 12 companies). They work operate much like ADRs; American Depositary Receipts, which allow U.S. investors to purchase foreign-owned companies on the U.S. exchanges in dollar denominated amounts. In just the same way, the investor actually owns the shares of each underlying company, receives dividends, proxies, and annual reports from each. The HOLDRs are not managed, and once the companies and amounts have been determined they are fixed, no companies will be substituted. In this way, the HOLDRs differ somewhat from Spiders (SPDRs), or Standard & Poor Depositary Receipts and other exchange traded funds, which will add and delete stocks on a regular basis, usually in conjunction with an index that they are tracking. A complete explanation of this issue, including the companies that make up each HOLDRS' particular industry, sector or group can be found here: http://www.holdrs.com/holdrs/main/index.asp?Action=Definition OIH - Oil Service Holdrs Trust $84.45 PLAY (conservative - bullish/credit spread): BUY PUT DEC-75.00 OIH-XO OI=6745 ASK=$0.45 SELL PUT DEC-80.00 OIH-XP OI=6301 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$79.40 __________________________________________________________________ DWA - DreamWorks Animation $39.58 *** Hot IPO! *** DreamWorks Animation (NYSE:DWA) develops and produces computer generated, animated feature films for a broad audience. The company has theatrically released a total of nine animated feature films including one direct-to-video title. Dreamworks recently released Shark Tale, a CG-animated film, in the United States. Its three previous CG-animated feature films included Antz, Shrek and Shrek 2. DreamWorks Animation also developed five non-CG animated feature films: The Prince of Egypt, The Road to El Dorado, Chicken Run, Spirit: Stallion of the Cimarron and Sinbad: Legend of the Seven Seas. DWA - DreamWorks Animation $39.58 PLAY (conservative - bullish/credit spread): BUY PUT DEC-30.00 DWA-XF OI=50 ASK=$0.20 SELL PUT DEC-35.00 DWA-XG OI=495 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$34.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AMZN - Amazon.com $38.55 *** Next Leg Down? *** Amazon.com (NASDAQ:AMZN) is a customer-centric company that sells a range of products that it buys from manufacturers and distributors through its six global Websites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.fr, www.amazon.co.jp and www.amazon.ca. The company offers new, used, refurbished and collectible items, in categories such as apparel, shoes and accessories, home, garden and outdoor living products, baby care products, jewelry and watches, books, kitchenware and housewares, camera and photography, magazines, cellular telephones, music, computers and computer add-ons, office products, electronics, software, DVDs and videos, sports and outdoors, gourmet food, tools and hardware, health and personal care and toys. AMZN - Amazon.com $38.55 PLAY (conservative - bearish/credit spread): BUY CALL DEC-45.00 ZQN-LI OI=6025 ASK=$0.30 SELL CALL DEC-42.50 ZQN-LV OI=21012 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$42.80 __________________________________________________________________ OSIP - OSI Pharmaceuticals $58.16 *** A Big "Down" Day! *** OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on the discovery, development and commercialization of oncology products that both extend life and improve the quality of life for cancer patients worldwide. The company has established a balanced pipeline of oncology drug candidates that includes both next-generation cytotoxic chemotherapy agents and novel mechanism based, gene-targeted therapies. The company's most advanced drug product, Tarceva (erlotinib HC1), is a small-molecule inhibitor of the epidermal growth factor receptor (HER1/EGFR). The protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is over-expressed or mutated in many major solid tumors. OSIP - OSI Pharmaceuticals $58.16 PLAY (conservative - bearish/credit spread): BUY CALL DEC-70.00 GHU-LN OI=1991 ASK=$0.50 SELL CALL DEC-65.00 GHU-LM OI=4134 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$65.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ DE - Deere & Company $69.26 *** Earnings Speculation! *** Deere & Company (NYSE:DE), together with its many subsidiaries, manufactures and distributes a line of agricultural equipment, a variety of commercial and consumer equipment and a range of equipment for construction and forestry. Through its financial services segment, the company also finances sales and leases by John Deere dealers of new and used agricultural, commercial and consumer and construction and forestry equipment. Deere also provides wholesale financing to dealers of their equipment, provides operating loans and finances retail revolving charge accounts. The company is also engaged in special technologies operations and provides managed healthcare plans. Earnings are due on or about 11/23/04. DE - Deere & Company $69.26 PLAY (speculative - neutral/debit straddle): BUY CALL DEC-70.00 DE-LN OI=6317 ASK=$2.00 BUY PUT DEC-70.00 DE-XN OI=1387 ASK=$2.70 INITIAL NET-DEBIT TARGET=$4.40-$4.50 INITIAL TARGET PROFIT=$1.60-$2.90 ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ***************************************** 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 11/19/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 SIMG NOV 12.50 12.10 16.01 0.40 5.95% 3.31% NCRX NOV 25.00 24.30 28.05 0.70 5.52% 2.88% ANF NOV 32.50 32.10 43.31 0.40 2.78% 1.25% STTX NOV 25.00 24.60 27.02 0.40 3.89% 1.63% SNDA NOV 22.50 21.85 35.14 0.65 7.78% 2.97% IDBE NOV 12.50 12.15 15.40 0.35 6.44% 2.88% BVF NOV 17.50 17.05 14.85 (2.20) 0.00% 0.00% USG NOV 17.50 16.90 29.33 0.60 6.84% 3.55% SNDA NOV 25.00 24.50 35.14 0.50 5.67% 2.04% WEBX NOV 20.00 19.60 23.67 0.40 5.75% 2.04% ENER NOV 15.00 14.40 19.42 0.60 8.11% 4.17% DRIV NOV 25.00 24.35 36.75 0.65 6.81% 2.67% PLMD NOV 30.00 29.55 33.96 0.45 3.33% 1.52% CNCT NOV 22.50 22.10 34.20 0.40 4.68% 1.81% CCBI NOV 22.50 21.90 24.08 0.60 5.51% 2.74% EYET NOV 35.00 34.45 44.01 0.55 5.17% 1.60% USG NOV 17.50 17.15 29.33 0.35 6.12% 2.04% RIGL NOV 22.50 21.85 25.39 0.65 8.14% 2.97% MCD NOV 27.50 27.15 29.30 0.35 2.99% 1.29% FARO NOV 20.00 19.60 25.17 0.40 5.67% 2.04% NOVN NOV 20.00 19.60 19.87 0.27 3.29% 2.04% VRSN NOV 20.00 19.65 31.12 0.35 4.40% 1.78% SSNC NOV 20.00 19.55 21.85 0.45 5.71% 2.30% CKFR NOV 30.00 29.40 34.87 0.60 4.91% 2.04% OSTK NOV 35.00 34.60 55.13 0.40 4.10% 1.16% GBBK NOV 30.00 29.40 29.94 0.54 4.51% 2.04% KRON NOV 45.00 44.50 48.21 0.50 3.10% 1.12% MRVL NOV 23.75 23.35 30.84 0.40 5.59% 1.71% AGIX NOV 20.00 19.70 31.37 0.30 4.50% 1.52% AFCO NOV 20.00 19.55 22.72 0.45 6.68% 2.30% TSRA NOV 25.00 24.70 37.00 0.30 4.18% 1.21% SRDX NOV 25.00 24.50 28.60 0.50 5.79% 2.04% ELN NOV 22.50 22.05 27.83 0.45 6.53% 2.04% XMSR NOV 30.00 29.45 35.01 0.55 5.48% 1.87% ENDP NOV 20.00 19.55 20.98 0.45 6.72% 2.30% LNG NOV 20.00 19.45 49.23 0.55 8.61% 2.83% USG NOV 20.00 19.50 29.33 0.50 8.45% 2.56% EDS NOV 20.00 19.65 22.30 0.35 5.49% 1.78% MANT NOV 17.50 17.05 24.86 0.45 9.65% 2.64% NTMD NOV 17.50 17.25 20.14 0.25 6.12% 1.45% A NOV 22.50 22.10 23.13 0.40 5.86% 1.81% SCHN NOV 26.60 26.15 34.99 0.45 5.81% 1.72% CYTC NOV 25.00 24.60 26.02 0.40 5.27% 1.63% USG NOV 20.00 19.70 29.33 0.30 6.65% 1.52% TSRA NOV 22.50 22.30 37.00 0.20 5.12% 0.90% FARO NOV 22.50 22.10 25.17 0.40 7.61% 1.81% NTAP NOV 22.50 22.15 28.93 0.35 6.52% 1.58% VAR NOV 37.50 37.15 39.55 0.35 3.87% 0.94% DOX NOV 22.50 22.25 25.73 0.25 5.00% 1.12% ROST NOV 25.00 24.70 27.24 0.30 4.78% 1.21% JNPR NOV 25.00 24.70 27.93 0.30 4.89% 1.21% LNG NOV 22.50 22.15 49.23 0.35 8.04% 1.58% SFNT NOV 30.00 29.60 35.18 0.40 6.06% 1.35% ELN NOV 22.50 22.25 27.83 0.25 5.96% 1.12% YHOO NOV 35.00 34.60 36.15 0.40 5.30% 1.16% XMSR NOV 30.00 29.65 35.01 0.35 5.65% 1.18% SHPGY NOV 27.50 27.15 29.46 0.35 5.67% 1.29% MRVL NOV 25.00 24.65 30.84 0.35 7.34% 1.42% ANF NOV 35.00 34.55 43.31 0.45 6.35% 1.30% USG NOV 25.00 24.70 29.33 0.30 8.75% 1.21% DDS NOV 22.50 22.00 26.35 0.50 14.05% 2.27% RDEN NOV 22.50 22.25 23.12 0.25 7.08% 1.12% USPI NOV 35.00 34.60 37.08 0.40 7.21% 1.16% RIGL NOV 22.50 22.20 25.39 0.30 9.75% 1.35% ELN NOV 22.50 22.15 27.83 0.35 13.38% 1.58% VTIV NOV 17.50 17.00 16.70 (0.30) 0.00% 0.00% NTMD NOV 20.00 19.60 20.14 0.40 16.91% 2.04% MYGN DEC 17.50 17.05 18.66 0.45 5.52% 2.64% VTIV DEC 17.50 17.05 16.70 (0.35) 0.00% 0.00% IFLO DEC 15.00 14.55 18.69 0.45 6.89% 3.09% SEAC DEC 17.50 16.95 17.55 0.55 7.02% 3.24% ADLR DEC 12.50 12.10 14.01 0.40 6.88% 3.31% UTHR DEC 25.00 24.05 35.11 0.95 9.03% 3.95% RIGL DEC 20.00 19.70 25.39 0.30 4.02% 1.52% NFLD DEC 15.00 14.45 15.75 0.55 8.24% 3.81% RMBS DEC 17.50 16.75 20.68 0.75 9.88% 4.48% AGIX DEC 20.00 19.60 31.37 0.40 4.83% 2.04% ATI DEC 20.00 19.35 20.56 0.65 7.37% 3.36% MRVL DEC 25.00 24.60 30.84 0.40 5.17% 1.63% ELN DEC 22.50 22.15 27.83 0.35 4.93% 1.58% TSRA DEC 25.00 24.35 37.00 0.65 7.97% 2.67% VTS DEC 20.00 19.65 22.68 0.35 4.84% 1.78% ERICY DEC 30.00 29.60 32.89 0.40 3.44% 1.35% RMBS DEC 17.50 16.95 20.68 0.55 10.12% 3.24% TSRA DEC 30.00 29.65 37.00 0.35 4.12% 1.18% NCRX DEC 25.00 24.25 28.05 0.75 8.18% 3.09% IFLO DEC 17.50 17.00 18.69 0.50 7.38% 2.94% NTGR DEC 15.00 14.60 15.62 0.40 6.54% 2.74% ENZ DEC 17.50 17.05 17.90 0.45 6.32% 2.64% CECO DEC 30.00 29.30 35.01 0.70 7.67% 2.39% CRA DEC 12.50 12.20 13.32 0.30 6.11% 2.46% Although currently profitable, positions in Palomar Medical (NASDAQ:PMTI) and Energy Conversion Devices (NASDAQ:ENER); at $17.50, as well as Ditech Communications (NASDAQ:DITC) and Telular (NASDAQ:WRLS) 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 BRCM NOV 35.00 35.35 30.60 0.35 4.44% 0.99% LLTC NOV 40.00 40.60 38.78 0.60 3.74% 1.48% IVX NOV 20.00 20.75 14.83 0.75 9.51% 3.61% PLMO NOV 40.00 40.45 39.01 0.45 5.62% 1.11% SLXP NOV 20.00 20.65 15.51 0.65 8.83% 3.15% AOC NOV 25.00 25.25 20.45 0.25 3.93% 0.99% CVH NOV 50.00 50.60 48.10 0.60 4.46% 1.19% DSPG NOV 22.50 22.85 22.30 0.35 6.23% 1.53% RNR NOV 50.00 50.65 50.23 0.42 2.26% 1.28% GIVN NOV 40.00 40.45 29.72 0.45 5.86% 1.11% ARW NOV 25.00 25.40 24.15 0.40 5.82% 1.57% TACT NOV 30.00 30.50 22.83 0.50 10.16% 1.64% NVTL NOV 25.00 25.20 20.63 0.20 6.99% 0.79% ASKJ NOV 30.00 30.35 23.74 0.35 8.26% 1.15% LSS NOV 30.00 30.20 29.39 0.20 6.51% 0.66% DITC NOV 25.00 25.25 15.96 0.25 8.20% 0.99% DISH NOV 32.50 32.90 32.65 0.25 3.94% 1.22% PTP NOV 30.00 30.60 29.50 0.60 13.28% 1.96% LEND NOV 40.00 40.55 37.71 0.55 9.31% 1.36% UVN NOV 30.00 30.25 29.95 0.25 5.54% 0.83% MNST DEC 30.00 30.60 27.36 0.60 4.91% 1.96% FOSL DEC 30.00 30.50 27.20 0.50 4.16% 1.64% SLAB DEC 35.00 35.55 30.82 0.55 4.84% 1.55% APPX DEC 35.00 35.60 29.02 0.60 7.73% 1.69% DIGE DEC 25.00 25.30 22.38 0.30 6.05% 1.19% MDCO DEC 30.00 30.35 24.85 0.35 5.01% 1.15% BOBJ DEC 25.00 25.40 22.92 0.40 5.96% 1.57% ENZN DEC 20.00 20.55 14.76 0.55 14.84% 2.68% TACT DEC 25.00 25.40 22.83 0.40 8.50% 1.57% Positions in Americredit (NYSE:ACF), Cabot (NYSE:CBT), Ii-Vi (NASDAQ:IIVI), Lam Research (NASDAQ:LRCX), Hyperion Solutions (NASDAQ:HYSL), Sina Corp (NASDAQ:SINA), UCI Inc. (NASDAQ:UICI), U.S. Steel (NYSE:X), and United Surgical (NASDAQ:USPI) have previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 FXEN 8.44 DEC 7.50 IWQ-XU 0.45 33 7.05 27 7.2% 17.6% IDCC 19.21 DEC 17.50 DAQ-XW 0.65 1157 16.85 27 4.3% 11.1% RAE 8.57 DEC 7.50 RAE-XU 0.25 729 7.25 27 3.9% 10.8% MCIP 18.95 DEC 17.50 MQI-XW 0.45 7223 17.05 27 3.0% 7.7% NVDA 18.96 DEC 17.50 UVA-XW 0.40 4977 17.10 27 2.6% 6.9% SRNA 21.20 DEC 20.00 NHU-XD 0.40 0 19.60 27 2.3% 5.9% PLMO 39.01 DEC 30.00 UPY-XF 0.40 3543 29.60 27 1.5% 5.5% DDS 26.35 DEC 22.50 DDS-XX 0.25 155 22.25 27 1.3% 4.1% 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. _________________________________________________________________ FXEN - FX Energy $8.44 *** Energy Sector *** FX Energy (NASDAQ:FXEN) is an independent oil and gas company focused on exploration, development and production opportunities in the Republic of Poland, in association with the Polish Oil and Gas Company and others. The company's ongoing activities in Poland are conducted in five project areas: Fences I, II and III, Pomeranian and Wilga. It is working almost exclusively on these project areas, where the gas-bearing Rotliegendes sandstone reservoir rock in Poland's Permian Basin may be a direct analog to the Southern North Sea gas basin, offshore England. FXEN - FX Energy $8.44 DEC 7.50 IWQ-XU LB=0.45 OI=33 CB=7.05 DE=27 TY=7.2% MY=17.6% __________________________________________________________________ IDCC - InterDigital Comm. $19.21 *** On The Rebound? *** InterDigital Communications (NASDAQ:IDCC) designs, develops and places into operation a range of advanced wireless technologies, systems and products. IDCC, through its involvement in the standards bodies and incubation efforts, monitors emerging technologies being developed to deliver voice and data in a wireless environment. It focuses on its technology and product development on the air interface technology, referred as wideband code division multiple access, is comprised of two duplexing methods, frequency division duplex and time division duplexing. IDCC - InterDigital Comm. $19.21 DEC 17.50 DAQ-XW LB=0.65 OI=1157 CB=16.85 DE=27 TY=4.3% MY=11.1% __________________________________________________________________ RAE - RAE Systems $8.57 *** Defense Sector *** RAE Systems (NYSE:RAE) is a global developer and manufacturer of rapidly deployable, multi-sensor chemical detection monitors, networks for homeland security and industrial applications. In addition, RAE offers a line of portable single-sensor chemical and radiation detection products. The company's products are based on technology and include portable, wireless and fixed atmospheric monitors and photo-ionization detectors and gamma and neutron detectors. These products enable the military and first responders, such as firefighters, law enforcement and other emergency management personnel to detect and provide warning of weapons of mass destruction and other hazardous materials. RAE - RAE Systems $8.57 DEC 7.50 RAE-XU LB=0.25 OI=729 CB=7.25 DE=27 TY=3.9% MY=10.8% __________________________________________________________________ MCIP - MCI Inc. $18.95 *** Entry Point? *** MCI, Inc. (NASDAQ:MCIP) whose predecessor was WorldCom, is a global communication company, providing a range of communication services in over 200 countries on six continents. It operates a communications network that is composed of over 100,000 route miles of network connections linking metropolitan centers and various regions across North America, Europe, Asia, Latin America, the Middle East, Africa and Australia. The company also owns an Internet protocol backbone and is a carrier of international voice traffic. The company operates primarily through three business units: Business Markets, Mass Markets and International. MCIP - MCI Inc. $18.95 DEC 17.50 MQI-XW LB=0.45 OI=7223 CB=17.05 DE=27 TY=3.0% MY=7.7% __________________________________________________________________ NVDA - Nvidia $18.96 *** New Pact With Intel! *** Nvidia Corporation (NASDAQ:NVDA) designs, develops and markets graphic processing units, media and communications processors, ultra-low-power media processors and related software that are an integral part of a variety of visual computing platforms such as enterprise and consumer personal computers, professional workstations, notebook PCs, personal digital assistants, cellular phones, game consoles and digital media centers. The original equipment manufacturers, original design manufacturers, system builders and consumer electronics firms utilize NVIDIA digital media processors as a core component of the entertainment and business solutions. NVDA - Nvidia $18.96 DEC 17.50 UVA-XW LB=0.40 OI=4977 CB=17.10 DE=27 TY=2.6% MY=6.9% __________________________________________________________________ SRNA - Serena Software $21.20 *** Optimistic Forecast! *** Serena Software (NASDAQA:SRNA) is a provider of infrastructure software to manage change to enterprise applications. The firm has developed a full suite of mainframe products, including its flagship product ChangeMan ZMF, which was introduced in 1988. Since then, the company has introduced ChangeMan DS, which is a distributed systems product providing an end-to-end solution to software change management. Its newest offering, TeamTrack6, is a distributed systems product based on the SAFE Framework, which is expected to revolutionize enterprise operations by allowing cross-process integration. SRNA - Serena Software $21.20 DEC 20.00 NHU-XD LB=0.40 OI=0 CB=19.60 DE=27 TY=2.3% MY=5.9% __________________________________________________________________ PLMO - palmOne $39.01 *** Premium-Selling Only! *** palmOne (NASDAQ:PLMO) is a global provider of handheld computing and communications devices. The firm targets consumer, business, education and government users around the world. palmOne sells products under three sub-brands: the Zire, Tungsten and Treo. The Zire family is primarily designed for, and targeted at, consumers such as entry-level and digital media enthusiasts. The Treo and Tungsten lines are primarily designed for and targeted at business professionals and enterprise users. These product families span the handheld computing and communications device market. PLMO - palmOne $39.01 DEC 30.00 UPY-XF LB=0.40 OI=3543 CB=29.60 DE=27 TY=1.5% MY=5.5% __________________________________________________________________ DDS - Dillard's $26.35 *** Bullish Retailer! *** 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 selection of fashion apparel and home furnishings. The company markets its 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. DDS - Dillard's $26.35 DEC 22.50 DDS-XX LB=0.25 OI=155 CB=22.25 DE=27 TY=1.3% MY=4.1% 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AMLN - Amylin Pharmaceuticals $21.44 *** Premium Selling! *** Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical company engaged primarily in the discovery, development and commercialization of drug candidates for the treatment of diabetes, obesity and cardiovascular disease. The company has two lead drug candidates in late stage development for the treatment of diabetes, SYMLIN (pramlintide acetate) and Exenatide. Amylin is hoping for tentative FDA approvals for Symlin and Exenatide in March or April 2005. AMLN - Amylin Pharmaceuticals $21.44 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 25 AQM-LE 436 0.25 25.25 5.3% 1.0% _________________________________________________________________ ATMI - ATMI Incorporated $23.18 *** In A Trading Range? *** ATMI (NASDAQ:ATMI) is a global supplier of materials, materials delivery systems and high-purity materials packaging products used in the manufacture of semiconductor devices. ATMI's SDS product line uses a gas cylinder with an adsorbent material. Its CVD products that are used for thin films in semiconductor manufacturing are sold under the UltraPur brand for pre-metal dielectric, dielectric and barrier applications. The company also manufactures three different types of NOWPak container assemblies: Bag-in-a-Bottle, Bag-in-a-Can and Bag-in-a-Drum, each with its own companion dispense connection system. ATMI - ATMI Incorporated $23.18 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 25 ASQ-LE 370 0.40 25.40 5.7% 1.6% _________________________________________________________________ CELG - Celgene $26.85 *** Profit-Taking In Progress! *** Celgene (NASDAQ:CELG) is an integrated biopharmaceutical firm engaged in the discovery, development and commercialization of therapies designed to treat cancer and immunological diseases through regulation of cellular, genomic and proteomic targets. Celgene has built a discovery, development and commercialization platform for drug- and cell-based therapies that allows it to both create and retain significant value within its therapeutic franchise areas of cancer and immune/inflammatory diseases. CELG - Celgene $26.85 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 30 LQH-LF 5587 0.45 30.45 6.3% 1.5% _________________________________________________________________ JBLU - JetBlue Airways $22.48 *** Downtrend Resumes? *** JetBlue Airways (NASDAQ:JBLU) is a low-fare, low-cost passenger airline that serves point-to-point routes between 22 destinations in 11 states and Puerto Rico. The company focuses on serving underserved markets and/or large metropolitan areas that have high average fares. It has a geographically diversified flight schedule that includes both short-haul and long-haul routes. JetBlue operates over 200 weekday flights between the Northeast and Florida, the East Coast and western United States, and other short-haul flights. JBLU - JetBlue Airways $22.48 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 25 JGQ-LE 8561 0.30 25.30 5.0% 1.2% ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ********** 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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