Option Investor

Daily Newsletter, Monday, 11/13/2006

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

NASDAQ-100 Closes at new 52-week and 5-year high!

Strong gains for resort developer Wynn Resorts (NASDAQ:WYNN) $88.67 +7.88% and chip equipment maker Lam Research (NASDAQ:LRCX) $53.25 +6.25% helped propel NASDAQ large cap gains as the NASDAQ-100 Tracker (NASDAQ:QQQQ) $43.46 +0.99% closed at a new 52-week and five-year high.

Wynn Resorts (WYNN), which was added to the NASDAQ-100 in December 2004 surged higher by $6.48 a share after the company said it was declaring a special cash distribution of $6.00 a share. The special cash distribution is payable on December 4 to stockholders of record on November 23.

Lam Research (LRCX), which has been a bullish standout among chip-related names for the past 52 weeks (+42.26%) relative to the sector as depicted by the Semiconductor HOLDRs (AMEX:SMH) $34.22 +1.90%, which are still down 4.89% over the past 52-weeks, was a percentage gainer among NASDAQ-100 components. Chip stocks also got a boost after Citigroup upgraded the sector, citing valuations.

Chip bellwethers Intel (NASDAQ:INTC) $21.02 +2.13% and Applied Materials (NASDAQ:AMAT) $18.10 +2.72% were also strong.

RBC Capital Markets said Applied Materials (AMAT) investors appear braced for weak guidance for customer orders, but said the company could ease concerns with an optimistic forecast for 2007.

Applied Materials (AMAT) is slated to report quarterly earning Wednesday, with consensus looking for earnings of $0.31 vs. $0.17 in the year ago quarter. Consensus among the 27 analysts covering the company are at $2.55 billion for the quarter.


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Advancers outnumbered decliners from the opening bell, and while volumes were well off those found last week, trading remained brisk.

With just about two weeks of trading completed for the month of November, NYSE volume is averaging 2.64 billion shares per day (+5% from October's 2.52 billion), while NASDAQ volume is averaging just over 2.02 billion shares per day, up 1% from and evenly matches 2.00 billion share per day average for September and October.

The NASDAQ-100 Tracking Stock (QQQQ) $43.46 +0.99% and the S&P Depository Receipts (AMEX:SPY) $138.58 +0.24% were today's most actively traded issues ahead of Friday's November expiration at 89.1 million and 59.4 million shares respectively.

Sun Microsystems (NASDAQ:SUNW) $5.38 +2.08% gained 11-cents and was today's most actively traded stock. The company said that it will begin making its Java software available for free by giving it to the open-source community, though it will continue to sell and support standardized versions of the product.

Some analysts see the move coming as the company seeks to boost sales of its computers, data storage gear and services by making the company's software more available.

Java's main competitor is a programming environment from Microsoft (NASDAQ:MSFT) $29.35 +0.37% called .Net. and is used to create programs that run on the Web and other devices like mobile telephones.

Until now, Sun Microsystems has only made Java available to paying customers who buy rights to use it as well as technical support for the product.

U.S. Market Watch - 11/13/06 Close

Gold miners were volatile today. After gapping lower at the open on dollar strength, the AMEX Gold Bugs Index ($HUI.X) 331.40 -0.29% reversed the bulk of their morning losses in the final two hours of trade, as did gold as depicted by the StreetTracks Gold Trust (NYSE:GLD) $62.19 -0.48% (roughly $621.90/oz.).

At 02:00 PM EST the U.S. Treasury said the federal government ran a monthly deficit of $49.29 billion in October, which was up 4.3% from a year earlier. Receipts were up a robust 12.2% from a year earlier at $167.69 billion, with individual income-tax receipts up 15% from the same period last year at $86.22 billion.

The Treasury was quick to add that the government has run a deficit every October since 1954.

I would think this pattern (deficits in October) might come from increased budget spending at year-end.

The Treasury said September's originally reported budget surplus was revised fractionally higher to $56.16 billion from $56.03 billion.

Comments from Federal Reserve Bank of Dallas President Richard Fisher helped ease some concerns about upcoming economic and retail sales reports. Mr. Fisher said the economy continues to grow robustly in the current global environment and said policy-makers must be mindful of the global economic environment when they determine the correct path for monetary policy and interest rates.

While Mr. Fisher was expressing his views on the U.S. economy, Dow Jones reported that the Philadelphia Fed's fourth-quarter survey showed economists are expecting the economy to grow by a 2.5% annual rate, versus an original estimate of 2.9%. First quarter 2007 economic growth is seen at a 2.7% annualized increase according to the survey, which is down from the previous estimate of 2.9%.

Traders and investors will be inundated with economic data this week.

Tomorrow morning's reports (before the bell) we'll get a look October retail sales. A Dow Jones survey of economists was predicting that a falloff in auto sales and weakness in gasoline prices are expecting to pull down retail sales 0.4% in October.

At the same time retail sales are being released (08:30 AM EST), October producer prices are also scheduled for release. An updated Dow Jones survey has economists expecting producer prices to have fallen 0.6% in October, while the core rate, which excludes the volatile food and energy components, is expected to have risen by 0.1%.

The recent surveys from Dow Jones vary somewhat from Forex's where economists surveyed are expecting retail sales to have fallen 0.4% overall, but a more modest 0.1% decline when excluding autos.

Forex's survey has economists looking for producer prices to have fallen 0.3% month-over-month, with the core rate rising 0.2% after a 0.6% increase in September.

NASDAQ-100 Breaks to new highs. Finally!

Today's most notable technical action has to be the NASDAQ-100 breaking out to new 52-week highs. And with its bullish % from StockCharts.com ($BPNDX) seeing a net gain of 1 stock to a reversing higher point and figure buy signal to 64%, and Dorsey/Wright and Associates' bullish % (BPNDX) also seeing a net gain of 1 stock to a reversing higher point and figure buy signal to 63%, there's still some upside before this group of large-cap NASDAQ-listed stocks would be deemed "overbought" above 70%.

Let's take a look at a weekly interval chart of the NASDAQ-100 Tracker (NASDAQ:QQQQ).

NASDAQ-100 Tracker (QQQQ) - Weekly Intervals

One "pattern" I'd note relative to this market's bullish % is that since turning "bull confirmed" on September 12, and seeing a weekly close above $39.425, say $39.43, the QQQQ has REFUSED to close back below a level of conventional retracement on a FRIDAY, or end-of-week close, once it closes above a level.

For instance, the week of 09/11-09/15 when the $BPNDX achieved "bull confirmed" status, the QQQQ closed well above $39.43, and never closed back below that level.

Then, on the week of 09/25-09/29, the QQQQ closed above $40.34, it never closed back below that level the following week(s).

Then, on the week of 10/09-10/13, the QQQQ closed above $41.83, it never closed back below that level the following week(s).

One bit of technical analysis, using the above WEEKLY interval chart would be that the QQQQ "shouldn't" close back below the $41.83 level.

Once benchmark I make on the above WEEKLY interval chart is that the QQQQ was closed at $41.45 the week of 11/14/05-11/18/05, which was also an expiration week (Friday the 18th) at $41.45, representing a gain of "just" 4.85%.

While the QQQQ hasn't been as strong (internally, or technically) as the S&P 100 Index (OEX.X), it isn't as RISKY, based on its bullish % either. With today's technical breakout taking place, I'm going to place what I call the "fitted 38.2%" retracement bracket on a WEEKLY interval bar chart, with my 38.2% "fitted" on the Friday, 09/15/06 triple witch expiration close of $40.11.

This should give traders and investors some upside levels (if not a pivot level trader) to assess risk/reward to.

NASDAQ-100 Tracker (QQQQ) - Weekly Intervals

The "bull fit 38%" is a fibonacci retracement technique I've taught traders and investors over the years. But they have to make "sense," or show some type of sense over time, as to how market participants have been trading a security. It is useful when a security breaks out to multi-year highs, where overhead supply is nonexistent.

Some of the very same "once above, not below" on a Friday close presents itself here, and I can see a buyers pressing the issue with the QQQQ to $45.04, perhaps a resulting 38.2% retracement 100% of $47.25 should the NASDAQ-100 Bullish % ($BPNDX) continue to build higher from current bullishness.

Several weeks ago, Applied Materials (AMAT) $18.10 +2.72% was a "key stock" and I've got to think this week's earnings report and outlook will be a key for both the semiconductor sector, perhaps the QQQQ too!

New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None None

New Calls

None today.

New Puts

None today.

New Strangles

None today.

Play Updates

In Play Updates and Reviews

Due to technical difficulties there will be no play updates tonight. Updates will resume in tomorrow's newsletter.

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.


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