Option Investor

Daily Newsletter, Monday, 10/08/2007

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Table of Contents

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

Market Wrap

Going Batty!

After a blood curdling 4.9% gain last week, spurred by a stronger-than-forecasted jobs number, the small caps of the Russell 2000 (RUT.X) 840.14 -0.56% found modest profit taking to start the week, but the NASDAQ-100 Tracker (NASDAQ:QQQQ) $53.15 +0.62% continued it outperformance with heavyweight's Apple (NASDAQ:AAPL) $167.91 +4.00% and Google (NASDAQ:GOOG) $609.62 +2.62% leading the charge.

Decliners outnumbered advancers at both the NYSE and NASDAQ from the opening bell, but bullish leadership as depicted by the NH/NL ratios remains steady.

Shares of Sun Microsystems (NASDAQ:JAVA) $6.05 +4.31% were atop today's list of most actively traded and provided a lift after a bullish test of their 200-day SMA ($5.59) in late September.

Shares of Vonage (NYSE:VG) $2.57 +123.47% more-than doubled and were today's most actively traded at the big board. The VOIP (voice over Internet protocol) service provider said it had settled a patent suit filed by Sprint Nextel (NYSE:S) $18.50 -2.68%.

On September 25th, a jury in the U.S. District Court in Kansas City, Kansas, found that Vonage infringed on six Sprint patents, and ordered Vonage to pay $69.5 million in damages. The settlement today resolved all claims in that suit for $80 million, the companies said.

Sprint also agreed to license Vonage its portfolio of more than 100 patents on connecting calls between a regular telephone network and a packet-switched network such as the Internet. The settlement does not put all of Vonage's legal troubles behind it. In March, another jury awarded Verizon (NYSE:VZ) $44.96 -0.57%, $58 million in damages, plus 5.5% royalties on future revenues after finding that Vonage violated 3 Verizon patents. Litigation continues in that suit. Vonage denies infringement and says it has deployed workarounds for two of the patented technologies.

U.S. Market Watch - 10/08/2007 Close

November Crude Oil (cl07x) futures settled down $2.20, or -2.71% at $79.02 with traders citing a rebound in the US$ and diminishing weather-related activity to U.S. Gulf of Mexico production as a catalyst for today's weakness.

Refiners such as Valero Energy (NYSE:VLO) $70.77 +3.54% bucked broader energy sector weakness as the crack spread widened between November Crude Oil and Reformulated Gasoline for a fifth-straight session.

Brokers and banks gave back some of last weeks gains after the NYSE fined 14 member firms and 1 former member firm $10.43 million for failing to deliver prospectus to investors. Dow Jones reported that the largest fines were assessed to Citigroup Global Markets, Deutsche Bank Securities and Lehman Bros.

Shares of Citigroup (NYSE:C) $47.80 -1.03%, Deutsche Bank (NYSE:DB) $133.61 -1.14% and Lehman Bros. (NYSE:LEH) $62.78
-1.87% finished lower on the session.


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M&A activity presented itself with Germany's SAP AG (NYSE:SAP) $56.36 -4.84% saying it had agreed to buy France's Business Objects (NASDAQ:BOBJ) $57.83 +15.03% in a deal valued at $6.8 billion.

Unmanned aircraft maker United Industries (NYSE:UIC) $80.39 +6.30% said it had agreed to be acquired by Textron (NYSE:TXT) $64.01 -2.09% for $1.1 billion.


Having witnessed BIG and NARROW leading and advance, and now observing that strength is BROADENING out to the economically sensitive small caps, I can no longer look in the mirror and straddle the fence of denial should the S&P 500 Index (SPX.X) 1,552.58 -0.32% find a close above 1,565.

Besides, as Halloween nears, when I look in the mirror, I see no reflection.

S&P 500 Index (SPX.X) - Daily Intervals

A bullish close much above 1,564 (say 1,565) has the SPX breaking to all-time highs and would likely have this market void of many sellers until the institutionally computer-derived MONTHLY R2 of 1,601.04.

According to the StockTrader's Almanac, tomorrow (Tuesday) and Wednesday are historically "bearish," but after that October tends to be a real "bear killer," and has been the "best month" for bulls since 1998.

Dow Transports (TRAN) - Daily Intervals

This week's "key sector," or index may well be the transports. I've made the above chart as "bearish" as I can. A further "easing" or lower trade in oil prices may have the transports getting into gear on a move above 5,021.

New Plays

Most Recent Plays

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New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.

New Short Plays

None today.

Play Updates

Updates On Latest Picks

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Long Play Updates

Adobe - ADBE - close: 44.99 change: +0.35 stop: 42.26

Tech stocks were the market leaders on Monday. Shares of ADBE continued to creep higher although the rally stalled at round-number resistance near $45.00. Currently we're suggesting that readers use a trigger to buy the stock at $45.05, which looks like it could be hit tomorrow. If triggered our target is the $49.50-50.00 range. The P&F chart is already bullish with a $51 target. Our time frame is about eight weeks.

Picked on October xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 12/17/07 (unconfirmed)
Average Daily Volume: 7.0 million


Boyd Gaming - BYD - cls: 44.65 chg: +0.34 stop: 41.95

BYD posted another gain and looks ready to make a run at overhead resistance near $46 and its 100 and 200-dma. We are not suggesting new positions at this time. Currently our target is the $44.90-46.00 range. Considering how BYD looks set to hit new relative highs soon readers might want to consider adjusting their targets toward $45.75-46.00. We are adjusting our stop loss to $41.95.

Picked on September 04 at $41.55
Change since picked: + 3.10
Earnings Date 10/25/07 (unconfirmed)
Average Daily Volume: 1.0 million


Cisco Systems - CSCO - cls: 32.71 change: +0.06 stop: 31.45

It was a relatively quiet day for CSCO. The stock seemed to avoid the relative strength in tech stocks today. Overall we don't see any changes from our weekend comments on the stock. Friday's bounce looks like a new bullish entry point to buy the stock. Our target on CSCO is the $34.75-35.00 range.

Picked on September 26 at $32.65
Change since picked: + 0.06
Earnings Date 11/08/07 (unconfirmed)
Average Daily Volume: 56 million


Juniper Networks - JNPR - cls: 36.97 change: -0.07 stop: 34.69

It was the same story with JNPR. JNPR, like CSCO, meandered sideways in a narrow range. Overall the pattern remains bullish and we don't see any changes from our weekend comments. We're suggesting bullish positions now although nimble traders might want to consider waiting and trying to buy a dip near $36.00. We're suggesting a stop loss at $34.69 but aggressive traders may want to consider a stop loss under $34.00 or its 50-dma near $33.90. Our target is the $39.85-40.00 range. The Point & Figure chart is very bullish with a $67 target.

Picked on October 07 at $37.04
Change since picked: - 0.07
Earnings Date 10/23/07 (unconfirmed)
Average Daily Volume: 10.0 million


NET Services - NETC - cls: 16.89 change: -0.19 stop: 15.60

After Friday's big gain shares of NETC suffered some profit taking. The good news is that traders bought the dip when NETC "filled the gap" from Friday's pop higher. This is a bullish move although we are not suggesting new positions at this time. More conservative traders may want to take some profits now. Our target is the $17.75-18.00 range but readers might want to try and exit near $17.50, which has been acting like new overhead resistance. The P&F chart is bullish with a $21 target. FYI: We can't find a third quarter earnings date yet but the company has a history of reporting in late October or early November. We don't want to hold over the earnings report.

Picked on September 24 at $15.60
Change since picked: + 1.29
Earnings Date 10/25/07 (unconfirmed)
Average Daily Volume: 610 thousand


NVIDIA - NVDA - close: 37.53 change: +0.60 stop: 33.75

Tech stocks, including semiconductors, were pockets of strength on Monday. NVDA managed a 1.6% gain and is nearing its all-time highs. More conservative traders may want to tighten their stops toward last week's lows near $34.75. Our target for NVDA is the $39.00-40.00 range. We do not want to hold over the early November earnings report. FYI: The Point & Figure chart is bullish with a $55 target.

Picked on September 26 at $36.15
Change since picked: + 1.38
Earnings Date 11/08/07 (unconfirmed)
Average Daily Volume: 15.3 million


Sirius Satellite Radio - SIRI- cls: 3.45 change: +0.00 stop: 3.19

SIRI closed unchanged on Monday's session. The stock hit a new one-week low intraday but the afternoon bounce back looks like a new bullish entry point to buy the stock. However, readers may want to stick with our previous suggestion and wait for a new relative high, maybe over $3.50, before jumping in. This is a high-risk, aggressive play but traders may still want to consider a tighter stop loss. There has been a lot of new talk about the proposed merger between SIRI and XMSR never getting completed. Thus far the recent comments on the merger have not derailed the rally in SIRI but future headlines could send the stock moving sharply lower and thus remains a risk. Last week SIRI and XMSR determined that their shareholder vote to approve the merger will be November 13th. The FCC and the Department of Justice still need to give their okay on the deal. Our target is the $3.95-4.00 range.

Picked on September 30 at $ 3.49
Change since picked: - 0.04
Earnings Date 11/08/07 (unconfirmed)
Average Daily Volume: 35.2 million


Westwood One - WON - cls: 2.95 chg: -0.05 stop: 2.49

We do not see any changes from our weekend comments for WON. At this point we are still sitting on the sidelines. Currently our plan is to buy a dip into the $2.70-2.60 range with further instructions to wait for the dip and then buy the rebound back through $2.70. However, more aggressive traders may want to buy Friday's bounce and use a higher target in the $3.50-4.00 zone (and a higher stop loss). Currently our target, if triggered at $2.70, would be the $3.25-3.50 range. We are adjusting our stop, if triggered, to $2.49.

Picked on September xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/08/07 (unconfirmed)
Average Daily Volume: 1.5 million


Wyndham Worldwide - WYN - cls: 33.40 change: +0.22 stop: 30.89

WYN produced something of a rocky session on Monday but traders bought both dips toward $33.00, which is a positive sign. We're not suggesting new positions at this time. Readers may want to seriously consider raising their stop loss. Our target is the $33.90-35.70 range. One concern is potential resistance at the 100-dma and 200-dma that are near the $34.00 level.

Picked on September 19 at $32.15
Change since picked: + 1.25
Earnings Date 10/31/07 (confirmed)
Average Daily Volume: 1.5 million


Zoltek - ZOLT - cls: 44.12 change: -0.32 stop: 39.95

ZOLT spent Monday's session churning sideways in a narrow range and retesting technical support at its rising 10-dma. We do not see any changes from our weekend comments. We would still consider new positions here although if you're launching new positions now you may want to use a tighter stop loss. Another alternative entry would be on a new relative high over $45.50. Our target is the $$49.00-50.00 range. The P&F chart is bullish with a $51 target.

Picked on September 24 at $43.06
Change since picked: + 1.06
Earnings Date 12/23/07 (unconfirmed)
Average Daily Volume: 804 thousand

Short Play Updates

Supervalu - SVU - cls: 37.09 change: -0.55 stop: 40.01

It looks like the oversold bounce in SVU is running out of steam. The stock produced a failed rally near $38.00 and its 10-dma over the last two sessions. Readers could use this as a new bearish entry point for shorts although you may want to consider a tighter stop loss. We're aiming for $35.25-35.00.

Picked on September 30 at $38.05 *gap down
Change since picked: - 0.96
Earnings Date 10/16/07 (unconfirmed)
Average Daily Volume: 2.4 million

Closed Long Plays


Closed Short Plays


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


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