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---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
01/27/99 04:20 PM --------------------------- Enron Capital & Trade Resources Corp. From: trials@optioninvestor.com (Option Investor Newsletter Trials) 01/26/99 09:40 PM Please respond to trials@optioninvestor.com To: Option Investor Newsletter Trials <trials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Tuesday Option Investor Newsletter 1 of 2 The Option Investor Newsletter Tuesday 1-26-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://WWW.OPTIONINVESTOR.COM Also provided as a service to The Online Investor Advantage Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 1-26-98 High Low Volume Advances Decline DOW 9324.58 +121.26 9329.99 9188.38 877.251k 1,533 1,432 Nasdaq 2433.41 + 64.10 2434.37 2384.63 1035,400k 2,139 1,952 S&P-100 627.17 + 11.11 627.48 616.06 Totals 3,672 3,384 S&P-500 1252.31 + 18.33 1253.27 1233.98 52.0% 48.0% $RUT 425.33 + 3.22 425.57 422.11 $TRAN 3139.44 + 26.47 3146.06 3105.19 VIX 28.85 - 1.18 31.56 28.76 Put/Call Ratio .44 ************************************************************* The Internets blew out and techs followed. The broader market took all day to catch up. After another night passed without a global meltdown the market got off to a cautious start this morning. The Dow traded in a narrow range until a small dip at noon but the dip appeared to be the signal for buyers to come off the sidelines. The techs jumped out to a quick lead and the Nasdaq hovered in the high +30 range for what seemed like forever but then finally surged to another record close. The combination of strong earnings reports and multiple stock splits powered the market forward. As soon as traders saw the market was not going down after the bump at the open they jumped in not wanting to be left behind. IBM surprised no one when they announced a 2:1 split. MCD also announced a 2:1 and joined the recent ranks of other splitters MSFT and XRX who announced yesterday. The stock split craze is not over yet. BRCM and EBAY both announced splits after the close. EBAY a 3:1 and BRCM 2:1. It appears that nothing can stop MSFT as it added 9.69 today (they are over +15 for the week). After such a strong move, we are looking for some kind of pullback. The rest of the Nasdaq 100's top four did well too. INTC rose 6.31 while CSCO jumped up 3.69 and DELL leaped up another 3.63. Definitely a good day for the techs. Not to be outdone, AOL added $9.00 in anticipation of their own earnings announcement tomorrow. Odds of a split are strong but there is always an increased risk associated with holding over earnings. It wouldn't surprise us to some profit taking before the close tomorrow (quite similar to what happened to SUNW the day of their earnings). Compaq Computer announced today that they were going to spin off Alta Vista as a separate company. This positive news fired up the Internets early in the day. As if they needed to add any fuel to the Internet explosion Amazon announced earnings (or lack thereof) that beat the street by +.04. That along with the EBAY and BRCM splits had all the parties celebrating after the bell. EBAY was up +18 and AMZN +7 in after hours. No numbers were available for BRCM. The market internals were negative until the last hour. It just seemed that the buyers were holding back and only reluctantly moving back into the market like swimmers in the ocean after a shark sighting. Everyone KNEW they should be buying but they wanted someone else to go first. The fear of being Greenspamed on Thursday was probably weighing on some and lingering Brazil/China worries on others. The market is still a little top heavy here after the big run in recent weeks. Yes we backed off -500 points but some say this was not enough. We have always expected the better than expected earnings would have traders re-evaluating their estimates for 1999. Now it appears that the current S&P average of companies reporting is a +6.3% year over year increase in earnings. The historical average is around +7% but due to the global slowdown the current estimates had been for only +5% growth. With almost 50% of the S&P-500 already reported we are seeing a better than 2:1 ratio of positive surprises compared to negative surprises. We could have some profit taking again Wednesday night as fear of Greenspan takes hold but we feel that he will not harm the market intentionally. Almost nothing can harm this market. Sure there will be some dips but for the next two weeks the trend should be up. After the two up days this week we could actually see some drop at the open again tomorrow as minor profit taking occurs. Good Luck Jim Brown ***************************************************** The OEX Skybox is Back - New & Improved *********************************************************** Based upon subscriber demand, the OEX Skybox is coming back. OptionInvestor.com is please to announce that Pinnacle Capital Advisors will be bringing its popular OEX Skybox back to OI's advisory website this weekend and updating it DAILY. And what better day to bring the OEX Skybox back than on Superbowl Sunday, January 31st. Unlike other OEX trading systems, the OEX Skybox was designed to give subscribers a "top down" view of this popular S&P 100 index option. And in a time of market volatility and uncertainty, sometimes one needs to step away from the trading pit to see the big picture from the "Skybox" and explore a broader range of trading strategies and opportunities. The OEX Skybox was first introduced by Pinnacle on November 1, 1998 and its team of experienced OEX traders generated an impressive 292% over two short months. The OEX Skybox will supercede the OEX trading Pit and offer more ways for subscribers to participate in the popular index option. "We are excited to deliver the OEX Skybox to the number one option advisory service on the Internet", says Austin Tanner, Pinnacle's president. According to Pinnacle, one of the pitfalls of trading the OEX is getting caught up in the intraday ticks and overtrading. The focus of the OEX Skybox is benchmark trading and gives OI subscribers winning trading opportunities without all the noise. What's unique about the OEX Skybox is Pinnacle's disciplined, market-neutral trading approach that initiates trades at key turning points in the market. These turning points or "benchmarks" are determined using time-tested technical and sentiment indicators. The new and improved DAILY OEX Skybox service will provide a nightly OEX market wrap on the website that outlines Pinnacle's OEX market posture and option strategies for the next day. During each trading day, the OEX Skybox will be updated in realtime at three key time periods during the day. The benefit of our fixed time period updates is that subscribers can count on getting key trading instructions when they login. Nightly Strategy: OEX Market Wrap 8:00 - 8:30pm EST Daily Realtime Updates: Before the Open 9:00 - 9:30am EST After the Opening 11:00 - 11:30am EST Before the Close 3:00 - 3:30pm EST The nightly updates are designed for OEX traders who want to trade the OEX but can't follow the OEX tick by tick during the day. The daily real-time updates give more active day traders the ability to initiate and protect positions quicker based upon fast developing news and events. The change over will take place starting with Sunday's newsletter and Mondays trading. ******************************************************* Market Posture ******************************************************* As of Market Close Tuesday, January 26, 1999 Key Support Broad Market /Resistance Last Posture/Since Alert **************************************************************** DOW Industrials 9,100 9,730 9,325 Neutral 1.15 SPX S&P 500 1,210 1,280 1,252 Neutral 1.12 OEX S&P 100 600 635 627 Neutral 1.12 RUT Russell 2000 420 435 425 Neutral 1.12 NDX NASD 100 1,900 2,010 2,062 BULLISH 1.26 * MSH High Tech 930 980 999 BULLISH 1.26 * Key Support Technology /Resistance Last Posture/Since Alert **************************************************************** XCI Hardware 830 875 924 BULLISH 1.26 * CWX Software 610 665 672 BULLISH 1.26 * SOX Semiconductor 360 410 407 Neutral 1.8 NWX Networking 420 450 447 Neutral 1.8 INX Internet 470 570 519 Neutral 1.8 Key Support Financial /Resistance Last Posture/Since Alert **************************************************************** BIX Banking 650 710 652 BEARISH 1.22 XBD Brokerage 630 725 665 Neutral 1.14 IUX Insurance 590 620 573 BEARISH 1.21 Key Support Other /Resistance Last Posture/Since Alert **************************************************************** RLX Retail 800 860 850 Neutral 1.8 DRG Drug 740 795 757 Neutral 1.26 * HCX Healthcare 720 780 737 Neutral 1.26 * XAL Airline 310 350 307 BEARISH 1.22 OIX Oil & Gas 245 260 235 BEARISH 1.14 Posture Alert After advancing and closing into record territory, we have turned Bullish across select broad market indices and industry sectors including the NASD 100, Hardware and Software. We have also turned Neutral across Drug and Heathcare sectors after checking up just above its short-term averages. We caution investors that several key industry sectors are still trading at or below their 50-day moving averages including Banking, Insurance, Airlines and Oil & Gas. A detailed description of our Market Posture and its applications can be found at: www.optioninvestor.com/marketposture ****************************************************** Market Sentiment - By Pinnacle Capital Advisors ****************************************************** Tuesday, January 26, 1999 Watch Option Call/Put Activity Despite economic uncertainly in Brazil, we did not see an increase in put activity over the past couple of days. This suggests that we DO NOT have strong underlying sentiment support Next, we are focused on Call activity, particularly following favorable earnings reports and stock splits. If the options speculators get ahead of themselves, it could presage a near term top. One positive development is the Market Volatility Index (VIX) has closed BELOW 30.0% (29.35%). This has Bullish overtones especially if the VIX resumes its declining trend which began back on October 8th. Other sentiment indicators are still flashing BEARISH overtones over the near-term including the Investors Intelligence survey (60% Bullish) so we advise subscribers to tightly protect their long positions. Any questions regarding market sentiment can be directed at: pinnacle@optioninvestor.com Market Sentiment at a Glance ******************************************************************** Friday Tues Thurs Indicator (1/22) (1/26) (1/28) Alert ******************************************************************** Pinnacle Index (OEX): ----------------------------------------------------------------- Overhead Resistance (620-635) 1.4 1.9 Underlying Support (595-610) 1.3 1.3 Put/Call Ratios: ----------------------------------------------------------------- CBOE Total P/C Ratio .5 .5 CBOE Equity P/C Ratio .4 .4 * OEX P/C Ratio 1.2 1.1 Peak Open Interest (OEX): ----------------------------------------------------------------- Puts 610 610 Calls 610 610 P/C Ratio .9 .9 Market Volatility Index (VIX): ----------------------------------------------------------------- CBOE VIX 32.85 29.35 * Investors Intelligence: ----------------------------------------------------------------- Bullish 60.0% 60.0% * Bearish 30.0% 30.0% * The Power of Expectation Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index ----------------------------------------------------------------- OEX Friday Tues Thurs Benchmark (1/22) (1/26) (1/28) ----------------------------------------------------------------- (630-635) 2.7 3.2 (620-625) 1.1 1.3 Overhead Resistance (620-635) 1.4 1.9 OEX Close 610.38 627.17 Underlying Support (595-610) 1.3 1.3 (605-610) 1.0 1.0 (595-600) 1.9 1.9 Average ratings: Resistance levels 2.0 / Support .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is Moderately weak at the OEX 620/635 level while the underlying support is moderately weak. Put/Call Ratio ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/22) (1/26) (1/28) ----------------------------------------------------------------- CBOE Total P/C Ratio .53 .54 CBOE Equity P/C Ratio .40 .42 OEX P/C Ratio 1.15 1.13 Peak Open Interest (OEX) ----------------------------------------------------------------- Friday Tues Thurs Strike/Contracts (1/22) (1/26) (1/28) ----------------------------------------------------------------- Puts 610 / 11,153 610 / 10,675 Calls 610 / 11,865 610 / 10,926 Put/Call Ratio .94 .98 <a href="http://www.optioninvestor.com/marketsentiment/Image31a.gif"< Image 1</a< <a href="http://www.optioninvestor.com/marketsentiment/Image32a.gif"< Image 2</a< Volatility Index (VIX) ----------------------------------------------------------------- Major Date Turning Point VIX ----------------------------------------------------------------- October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 January 22, 1999 32.85 January 26, 1999 29.35 * <a href="http://www.optioninvestor.com/marketsentiment/Image33a.gif"< Image 3</a< <a href="http://www.optioninvestor.com/marketsentiment/Image34a.gif"< Image 4</a< Investors Intelligence Survey ----------------------------------------------------------------- Major Percent Percent Date Turning Point Bullish Bearish ----------------------------------------------------------------- October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top ? 58.3 30.0 January 26, 1999 60.0 30.0 * Please view this in COURIER 10 font for alignment ***************************************************** RESULTS THIS WEEK Index Last Mon Tue Week Dow 9324.58 82.65 121.26 203.91 Nasdq 2433.41 30.43 64.1 94.53 $OEX 627.17 5.68 11.11 16.79 $SPX 1252.31 8.79 18.33 27.12 $RUT 425.33 -0.33 3.22 2.89 $TRAN 3139.44 49.17 26.47 75.64 $VIX 28.85 -0.82 -1.18 Stock Price Mon Tue Week MSFT 171.56 5.63 9.69 15.32 Unstoppable! AOL 154.86 5.56 8.86 14.42 Earnings Tomorrow LXK 108.00 4.88 3.88 8.76 Beat Earnings / no split SUNW 106.63 3.06 5.56 8.62 Nasdaq Rally fuels the fire VOD 193.50 3.25 2.88 6.13 Looking strong DELL 88.50 1.88 3.63 5.51 Has the earnings run started? SEPR 104.25 2.25 2.50 4.75 New play, Earnings February XLNX 82.56 -1.06 5.44 4.38 Buying dips? CSCO 107.13 0.63 3.69 4.32 Another big tech winner ANF 73.94 2.13 2.06 4.19 New play, growing trend EMC 101.75 3.50 -0.25 3.25 Consolidation WCOM 77.94 2.81 0.25 3.06 Sleeping while the techs rally ORCL 52.88 1.19 1.81 3.00 Strong and steady UTX 117.25 1.25 1.44 2.69 New 52 week high SNC 39.50 1.19 0.56 1.75 WMT 83.56 0.00 1.56 1.56 Split Candidate MU 71.88 -1.50 2.88 1.38 Popular sector DH 60.88 0.31 0.63 0.94 Slow and confident NOK/A 145.38 -0.56 1.38 0.82 Earnings before the bell Friday XIRC 42.31 -0.06 0.38 0.32 Post earnings depression? VIA/B 82.13 0.44 -0.88 -0.44 Consolidation T 86.88 1.38 -2.75 -1.37 Dropped AMGN 112.75 -0.44 -1.44 -1.88 Dropped, earnings 1/27 or 1/28 PRIA 32.19 -2.88 -0.81 -3.69 Dropped QWST 56.13 -1.44 -2.56 -4.00 Dropped PUTS AVP 36.44 0.00 -1.13 -1.13 Breaking down BKB 36.75 -0.50 -0.38 -0.88 Leaking DD 53.88 0.44 -0.88 -0.44 Breaking down again CPB 44.13 1.25 -1.44 -0.19 Soups getting cold BAC 64.94 -0.38 0.25 -0.13 Leaking PG 85.56 -1.69 1.94 0.25 On the edge looking heavy AVT 45.56 -0.75 1.38 0.63 Profit taking AMR 55.88 0.38 0.25 0.63 Losing altitude WLA 69.13 -0.44 1.63 1.19 Acquiring Agouron (AGPH) PHSYB 69.31 1.75 -0.56 1.19 Leaking MCHP 32.00 0.56 1.25 1.81 Dropped BDX 36.25 1.94 0.56 2.50 Recovering a bit HSY 61.50 2.50 0.00 2.50 Profit taking AXP 101.75 3.00 0.25 3.25 MRK 144.00 -1.50 6.50 5.00 Sector up w/ merger activity PKN 96.31 -0.44 5.44 5.00 Dropped PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ****** AMGN $112.75 1.44 (-1.88) Amgen is an example of a stock that should have been bought using the target shooting approach. If you tried target shooting, you may have been filled in the early morning and wound up with a profitable trade. Amgen was down nearly $4.00 in the first hour of trading Monday. In the middle of the day, it climbed back to hover around $114.00 until the close. Today the trend was down again until late in the day, when buyers moved in to buy the dip, but still left it lower on the day. While the Nasdaq is up strong, Amgen is not performing the way we had hoped, so we are dropping it. However, there is the possibility of a split announcement with earnings. Unfortunately, there is more than one earnings date available for AMGN. Some sources say Jan. 27th others say Jan. 28th. AMGN last split 2:1 in August of 1995 in the mid-90s. T $86.88 -2.75 (-1.37) Earnings announcement (met expectations), share buyback, stock split, TCI merger -- the news is already out. Right now, there's not much left to move AT&T higher. To be good plays, we think almost two times a company's normal volume should produce nice gains. Instead, over the last 2 days, AT&T went down in a strong upward market. In short, the play looks over for now so we are dropping AT&T. QWST $56.13 -2.56 (-4.00) QWST has shown some weakness so far this week. It dove -$4.00 even in a market that seems to be moving upwards. On Tuesday, Lehman Brothers cut its rating to outperform from their previous buy recommendation. They think competition will increase from other companies like MCI WorldCom Inc. and AT&T. By taking a look at their chart, it is easy to see that QWST is on the downside of the hill. We are dropping Qwest as one of our plays until it makes a definite turn-around and regains some upward momentum. PRIA $32.19 -.81 (-3.69) PRIA gave us a good, steady momentum run. But earnings are only 2 days away, and it looks like it is rolling over and heading lower, so we are dropping it. Remember, we don't recommend holding over earnings due to the increased risk. Make your own decision based on your risk/reward profile. PUTS: ****** MCHP - $32.00 1.25 (1.81) Stock recovered nearly $2 after being downgraded by Alex Brown. Stock trading below consolidation of $36-40 but above last Novembers break out price of $30.00. Dropping after stock appears to holding at retracement price of $30. PKN - $96.31 5.44 (5.00) Advanced higher with broad market off of 50 day moving average. Dropping until stock rolls over again. PICK NEWS - CALLS ******************************************************* EMC $101.75 -.25 (+3.25) EMC announced earnings today and beat estimates by 2 cents per share. Revenue for the quarter increased 36% over the year ago period and net income increased 54% versus the same period last year. EMC also projects revenue growth in 1999 to be 30% or more and sales to pick up in Asia. Software revenues grew by 175%. EMC traded down only a little today, which is good news since they didn't blow away the estimates. EMC still has some room to move before it runs into the 52 week high it set last week. UTX $117.25 +1.44 (+2.69) UTX set a new 52 week high today at $117.63. The downgrade that UTX got after the close on Friday really didn't impact it all that much. UTX traded flat for the first half of Monday and then started up. We haven't had any news on UTX so it is living off of its earnings release last week and the upward movement of the Dow. Remember when trading UTX, it is a Dow 30 component and is very Dow sensitive. ORCL $52.88 +1.81 (+3.00) We said ORCL might be a candidate for some target shooting around its 10 day moving average, but it hasn't been anywhere near it this week. It was good to see ORCL move through $52 today. It had been having some trouble with this level. In the news, ORCL announced new software for oil exploration and production companies. It will allow oil industry co-venture partners and newly merged oil companies to share information and monitor asset performance asset performance quickly, easily and collaboratively. The oil industry can use all the help they can get given the low price of oil these days. The new software uses ORCL's new Internet database Oracle8i. DELL $88.50 +3.63 (+5.50) Without news or fanfare, Dell set a new all-time closing high today on slightly less than average volume, indicating a lack of sellers. Dell is now sitting at its resistance of $88.50. If Dell can push through this on more than 18 million shares, the sky is the limit on its way to earnings scheduled for February 16 after the close. If volume doesn't materialize, that's OK. It just means that Dell will be a little more susceptible to a pullback. In Technology Business Research's 4th Quarter Corporate IT Buying Behavior and Customer Satisfaction Study, conducted with 300 F1000 IT Managers, Dell continues as the number one vendor for customer satisfaction across notebook, desktop and server platforms. Nice chart; its not too late to scale into a position for earnings. Dips are buyable, but would rather confirm upward movement first. CSCO $107.13 +3.69 (+4.32) Thank goodness for the last hour of trading. Without it, CSCO would be up only $2 this week; not very inspiring considering CSCO is the third largest component of the NASDAQ 100, which set a new high today. Cisco's saving grace: genuine buying interest (not just market sympathy) shows volume 11% above average in today's trading. We are playing CSCO as a split candidate and earnings run. CSCO has enough shares authorized to announce a 3:2 split on February 2 after the close, along with earnings, just 5 trading days away. CSCO continues receive new awards for building the new wave of telecom technology. Today, CSCO was selected as Sprint's primary supplier of DSL technology for building out "last mile" broadband access solutions to Sprint's next- generation Sprint ION(SM), Integrated On-Demand Network, and for DSL-based services for customers of Sprint's Local Telecommunications Division (LTD), beginning in 1999 (Business Wire). The run has begun. Dips are buyable. Confirm upward movement first and use stops to protect your profits. AOL $154.84 +8.84 (+14.40) Whew!! All we can say is "It's about time". In Sunday's letter, we noted that we expected a bounce off the moving average, out of consolidation running toward earnings. We got it. Volume has been slightly below average this week causing us slight anxiety. But with a 14-point gain in 2 days, we'll get over it. Tomorrow, after 5:00 p.m. ET, AOL announces earnings along with what we also hope to be a split announcement; probably 2:1, although there are enough shares outstanding to declare a 3:1. We expect great results from the record number of new subscribers and surprising Holiday sales volumes. We don't normally recommend holding over earnings so evaluate your risk tolerance if you opt to hold through on this play. Intestinal fortitude still required. WCOM $77.94 +0.25 (+3.06) WCOM should have performed better today given the new NASDAQ record, but we're still up $3 for the week under it's resistance level of $80 on slightly higher than average volume. To be safe, wait for a pullback confirmed by reversal, or until WCOM breaks $80 and holds. The U.S Supreme Court's ruling yesterday to force the baby bells to open their markets to competition had little effect on moving the price up. A downgrade issued by Kauffman Bros. from "buy" to "hold" didn't help. Confirm sector movement before starting a new play. ***** Play updates continued in section two ***** 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 39.95. The quarterly price is 99.95 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 "subscribe@optioninvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ************************************************************* DISCLAIMER ************************************************************* This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
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