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---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
01/20/99 09:37 AM --------------------------- Enron Capital & Trade Resources Corp. From: xtrials@optioninvestor.com (Option Investor Newsletter Trials) 01/19/99 09:12 PM Please respond to xtrials@optioninvestor.com To: Option Investor Newsletter Trials <xtrials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Tuesday - Option Investor Newsletter 3 of 3 The Option Investor Newsletter Tuesday 1-19-98 Copyright 1998, All rights reserved. Redistribution in any form strictly prohibited. ********************************************************** Great Expectations - By Pinnacle Capital Advisors ********************************************************** With a number of key corporate earnings reports due out this week, we have highlighted below the companies that will likely have the greatest impact on the overall market. Keep close track of these companies. If they beat expectations, we are likely to move higher. If not, we are likely to re-test our key support levels again. Options traders playing the Technology sectors, watch Microsoft on Tuesday. Microsoft will likely dictate the climate for the technology sector for 1Q99. Reporting Estimated Pinnacle Date Company EPS Index -------------------------------------------------------------- Hardware: 1/19 WDC Western Digital Corp. -1.01 5.4 1/20 QNTM Quantum Corp. 0.24 6.2 1/20 SGI Silicon Graphics, Inc. -0.19 7.2 1/21 GTW Gateway 0.78 1.4 1/21 IBM Int'l Business Machines 2.45 5.6 1/21 IOM Iomega Corp. 0.05 8.3 1/22 SEBL Siebel Systems Inc 0.16 11.3 1/22 STK Storage Technology Corp. 0.51 5.9 1/21 SUNW Sun Microsystems, Inc. - 0.66 10.6 Software: 1/19 CA Computer Associates 0.61 4.5 1/19 CPWR Compuware Corp. 0.45 11.6 1/19 CTXS Citrix Systems Inc 0.49 15.1 1/19 MSFT Microsoft Corp. 0.59 10.8 1/20 CHKPE Check Point Software 0.47 13.0 1/21 BMCS BMC Software 0.39 4.6 1/21 SYBS Sybase Inc. 0.05 3.8 Semiconductor: 1/19 XLNX Xilinx 0.40 13.2 1/20 CRUS Cirrus Logic 0.04 6.6 1/20 TXN Texas Instruments 0.54 6.5 1/21 CUBE C-Cube Microsystems Inc. 0.31 9.1 1/21 LSCC Lattice Semiconductor Corp 0.43 9.9 1/21 ADPT Adaptec Inc. 0.21 8.3 1/21 QLGC QLOGIC Corp. 0.70 4.5 Networking: 1/19 ASND Ascend Communications 0.31 5.3 1/19 FORE FORE Systems 0.10 9.5 1/19 NETA Network Associates 0.46 1.3 1/19 NVLS Novellus Systems 0.23 3.0 1/19 QCOM Qualcom Inc. 0.59 8.7 1/21 LU Lucent Technologies 1.00 4.5 Telecommunications: 1/20 USW US West , Inc. 0.73 7.0 1/21 AIT Ameritech Corp. 0.61 3.8 1/21 BEL Bell Atlantic 0.69 2.1 Internet: 1/19 ONSL Onsale Inc -0.16 7.0 1/20 ATHM At Home Corporation -0.06 4.4 1/20 DCLK DoubleClick Inc. -0.26 2.9 1/20 SPYG SpyGlass Inc. -0.15 5.2 1/21 XCIT Excite Inc. 0.04 5.0 Financial: 1/18 PNC PNC Bank Corp 0.92 8.6 1/19 BK Bank Of New York 0.40 1.7 1/19 ONE Bank One Group 0.88 7.2 1/19 BAC BankAmerica Corp. 0.93 2.4 1/19 COF Capital One Financial 1.04 4.9 1/19 CMB Chase Manhattan Corp. 1.19 4.0 1/19 JPM Morgan (J.P.) & Co. 0.38 6.2 1/19 WFC Wells Fargo Inc. 0.46 9.3 1/21 BKB BankBoston Corp. 0.70 9.4 1/21 BT Bankers Trust New York Corp 0.58 .6 Brokerage: 1/18 SCH Schwab (Charles) Corp. 0.23 4.5 1/19 MER Merrill Lynch & Co 0.64 4.3 1/20 PWJ Paine Webber Group 0.55 3.8 1/21 AMTD AmeriTrade 0.09 2.4 1/21 DLJ Donaldson Lufkin & Jenrette 0.49 4.5 Pharmaceutical: 1/19 PFE Pfizer Inc. 0.52 2.2 1/20 BMY Bristol-Myers Squibb 0.90 .7 Airline: 1/19 DAL Delta Air Lines, Inc. 1.25 8.4 1/19 NWAC Northwest Air. -1.47 2.6 1/20 AMR AMR Corp. 1.16 1.7 1/20 UAL UAL Corp 1.47 1.6 1/20 U US Airways Group Inc. 1.21 2.9 1/21 LUV Southwest Airlines Co. 0.28 4.3 Oil & Gas: 1/19 SLB Schlumberger Limited 0.50 1.8 1/21 XON Exxon Corporation 0.57 1.8 Consumer: 1/18 CCE Coca-Cola Enterprises -0.09 1.8 1/20 GM General Motors Corp. 2.61 2.5 1/21 CLX Clorox Co. 0.54 .8 1/21 DIS Disney (Walt) Productions 0.24 .8 1/21 F Ford Motor Co. 1.27 9.8 1/21 S Sears, Roebuck And Co. 1.45 4.6 1/21 PRD Polaroid Corp. 0.12 1.1 Excessive Optimism / Pessimism Often times when companies release corporate earnings, the stock will move/gap up or down depending on the level of expectation built into the stock prior to the release date. This level of expectation can be measured, in part, by the Call/Put ratio and is represented by our Pinnacle Index figure. The average Pinnacle Index is 2.0. Therefore, an index appreciably higher than 2.0 reveals a high level of optimism while an index lower than 2.0 reveals a high level of pessimism. For aggressive options traders, we have highlighted companies reaching extreme expectation levels below: For example, the company with the highest and lowest expectation reporting this week is Citrix (CTXS) and Bankers Trust (BT) with a Pinnacle Index of 15.1 and 64, respectively. This suggests that if Citrix does not beat their estimate on Tuesday, they are likely to sell-off. Conversely, if Bankers Trust beats their estimate or reports any favorable news, they are likely to move higher. Reporting Estimated Pinnacle Date Company EPS Index -------------------------------------------------------------- Great Expectations: 1/19 CTXS Citrix Systems Inc 0.49 15.1 1/20 CHKPE Check Point Software 0.47 13.0 1/19 XLNX Xilinx 0.40 13.2 1/19 CPWR Compuware Corp. 0.45 11.6 1/22 SEBL Siebel Systems Inc 0.16 11.3 1/19 MSFT Microsoft Corp. 0.59 10.8 1/21 SUNW Sun Microsystems, Inc. 0.66 10.6 1/21 LSCC Lattice Semiconductor Corp 0.43 9.9 1/21 F Ford Motor Co. 1.27 9.8 1/19 FORE FORE Systems 0.10 9.5 1/21 BKB BankBoston Corp. 0.70 9.4 1/19 WFC Wells Fargo Inc. 0.46 9.3 1/21 CUBE C-Cube Microsystems Inc. 0.31 9.1 1/19 QCOM Qualcom Inc. 0.59 8.7 1/19 DAL Delta Air Lines, Inc. 1.25 8.4 1/21 ADPT Adaptec Inc. 0.21 8.3 1/19 ONSL Onsale Inc -0.16 7.0 Low Expectations: 1/21 BT Bankers Trust New York Corp 0.58 .6 1/20 BMY Bristol-Myers Squibb 0.90 .7 1/21 CLX Clorox Co. 0.54 .8 1/21 DIS Disney (Walt) Productions 0.24 .8 1/21 PRD Polaroid Corp. 0.12 1.1 1/19 NETA Network Associates 0.46 1.3 1/21 GTW Gateway 0.78 1.4 1/20 UAL UAL Corp 1.47 1.6 1/20 AMR AMR Corp. 1.16 1.7 1/19 BK Bank Of New York 0.40 1.7 1/19 SLB Schlumberger Limited 0.50 1.8 The Power of Sentiment Analysis Last October (1998), Pinnacle Capital Advisors tracked corporate earnings reports and advised subscribers about the impact that excessive optimism and pessimism can have on the stocks's performance following the release of its quarterly earnings report. If you recall, we identified several stocks that reached excessive sentiment levels including Intel (INTC) and Pfizer (PFE). Reporting Estimated Pinnacle Date Company EPS Index -------------------------------------------------------------- Excessive Optimism: 10/13 INTL Intel .79 5.2 10/13 JNJ Johnson & Johnson .70 3.7 10/15 AAPL Apple Computer .49 3.6 Excessive Pessimism: 10/13 JPM JP Morgan 1.08 .4 10/12 C Chrysler .87 .7 10/14 PFE Pfizer .57 .9 10/13 GM General Motors .98- 1.2 10/16 G Gillette .30 1.3 10/14 MER Merrill Lynch .56 1.5 The first is Intel (INTC). The semiconductor powerhouse had rallied ahead of its earnings report Tuesday night (10/13) and closed at $83.88. What's interesting is that they beat the street's estimate by 9 cents and yet the stock gapped down the next morning (10/14). And despite the 330 point Dow rate cut rally on Thursday (10/15), the stock had trouble taking out its recent previous high of $85.88. Here, our sentiment analysis alerted subscribers that expectations had gotten ahead of itself and that despite the good news, the stock had trouble advancing. We saw the opposite in the case of Pfizer (PFE). This blue-chip Pharmaceutical company had sold off more than 20% from its summer high ($120) to close at $95.50 before its release Tuesday night (10/13). Here, Pfizer actually missed its estimated earnings by a nickel. Although the stock initially gapped down the next morning, it quickly rallied and closed higher. Our message: it's all about understanding and managing expectations. Pinnacle Index What is the Pinnacle Index. It is simply the put/call ratio at key overhigh benchmark levels. Typically, there should be two (2) calls for every one (1) put. So when this ratio reaches extremes levels, it can presage key turning points in the stock. The average Pinnacle Index, therefore, should read 2.0. One of the key components that separate OptionInvestor.com from any other advisory services is our sentiment indicator or Pinnacle Index. The Pinnacle Index is designed to measure the level of overhead resistance at key overhead benchmark levels. This analysis can give savvy option traders a jump on other traders. It's important to note that the Pinnacle Index, like many sentiment indicators, is a contrarian indictor. This means that the stock can and will go higher or lower despite what our sentiment indicators might suggest. However, our experience has shown that the market is subject to a precipitous sell-off if the Pinnacle Index reaches extreme levels. 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 $10 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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