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Thursday,
February 24, 2000
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Stock
Market
The equity-only put-call ratio remains on a sell. It
has been moving strongly higher spurred by put buying in
the wake of last week's selloff. This is classic action
during a sell signal. Eventually, the ratio will top out
indicating that traders will have bought all the puts they
can handle and that will be a time to buy. But it's too
soon now. Once again, it should be stressed that this
indicator seems to apply only to $OEX, $SPX, and perhaps
the Dow ($DJX) in this market environment. NASDAQ has an
extremely bullish mind of its own.
Our
oscillator more or less confirms the same thing regarding
the broad market ($OEX, $SPX, and $DJX). It stands at
roughly 365 as of Wednesday's close (Feb. 23rd). That is
oversold. However, that alone is not enough for a buy
signal. In fact, it is often the case that the oscillator
reaches extremely oversold levels before a short-term
bottom appears in the market. As for the traditional
signal, the oscillator will give a buy signal when it
closes above 180. That is not imminent.
Momentum
Trading:
The feature article discusses a method for identifying
momentum stocks. Nine such stocks are potential buys after
last week's selloff in the market. They are listed in the
following table.
Stock
(symbol) Buy Price ADX Stop
Advanced Micro (AMD) 43.75 41 39.88
Cyberonics (CYBX) 26.38 40 22.50
Glenayre Tech (GEMS) 14.88 45 13.13
Linear Tech (LLTC) 104.25 56 100.00
Network Periph. (NPIX) 67.88 46 60.75
Presstek (PRST) 23.63 44 21.75
Silicon Val. Bk. (SIVB) 62.38 45 58.50
Stillwater Mining(SWC) 45.88 52 39.38
Varian Semi (VSEA) 51.38 39 48.38
Pertinent
option symbols: CYBX: QAJ; GEMS has no options; LLTC: LLQ;
NPIX: XMQ; PRST:PQK; SIVB: SQU; VSEA: UES.
Attempting
to buy all nine would be too large of a speculative
position in relation to other positions that we have on
our recommended list. Therefore, we will take this
approach: Buy the first three that rise to their buy
price. Specifically, if the buy price is reached, then buy
a March call that is one strike in-the-money.
Since
this article was written earlier in the week, three of the
stocks have already generated buy signals LLTC, SIVB, and
VSEA. All are a couple of points above their buy prices,
as specified in the above table, but I think they can
still be bought. Perhaps a strategy of taking a partial
position immediately and planning to add to it if these
three pull back towards the listed buy price could be
used. Otherwise, if you prefer to get "fresh"
stocks, then keep your eye on the rest of them.
Futures,
Sector, and Stock Sentiment:
There are quite a few new signals this week, plus a
number of situations where sentiment is reaching extremes
and will thus generate signals soon. Several of these are
in futures, where there are new buy signals in Cotton,
Swiss Francs, and T-Bonds. Both Cotton and Swiss Francs
have broken out on the upside, which are positive
developments. There is a sell signal in Gold.
Finally,
pessimism continues to grow in the Japanese Yen and
Australian Dollar futures, but there is no buy signal in
either market yet. There is an apparent buy signal in the
Russell 2000 Index ($RUT), although it is possible that
this index is also attracting institutional hedging
activity. In stocks, there are new buy signals in Amazon (AMZN),
America Online (AOL), and Micron Tech (MU), while
Citigroup (C) has confirmed a sell signal. In addition,
there has been heavy put buying in the following issues
indicating that buy signals await soon: General Motors
(GM), Johnson & Johnson (JNJ), and Oracle (ORCL).May
Cotton futures broke out over a congestion area to new
relative highs. There should be support near 59
Position
PC174:
Cotton Call Buy
Buy 2 May Cotton 60 calls
at a price of 2.30 or less
CTK: 60.33 May 60 call: 1.75
Amazon's
put call ratio signals over the past year have been very
good a sell signal in April '99, a buy in August '99, and
a sell again in December '99.
Position
PC175:
Amazon Call Buy
Buy 2 AMZN April 70 calls (YQQDN)
at a price of 9 or less
AMZN: 68 3/8 Apr 70 call: 9
If
AMZN falls to new interim lows and closes below 59, then
stop yourself out of this position. Finally, we have had
good success with put-call ratio signals in AOL. A close
above 61 would probably be enough to confirm that a bottom
is in place.
Position
PC176:
AOL Conditional Buy
if AOL closes above 61,
then buy 3 AOL April 60 calls (AOODL)
Volatility Trading:
The
Pfizer LEAPS straddles are actually quite attractive (base
symbol for the Jan '01 PFE LEAPS is ZPE).
Position
E193:
Pfizer LEAPS Straddle Buy
Buy 3 PFE Jan 33-3/8 calls (ZPEAZ)
and buy 3 Jan 33-3/8 puts (ZPEMZ)
for a debit of 10 or less
PFE: 32-3/4 Jan 33 call: 5-3/8Jan 33 put: 4-3/8
We've
recommended several lower-priced straddles in recent
weeks, so we're going to diversify a bit by recommending
the ADLAC straddles, which have excellent probability
statistics in the 85% neighborhood for both projected
movement and historical movement.
Position
E194:
ADLAC Straddle Buy
Buy 2 ADLAC July 55 calls (ADUGK)
and buy 2 July 55 puts (ADUSK)
for a debit of 13-1/2 or less.
ADLAC: 54 July 55 call: 6-1/2 July 55 put:6-1/2
VOLUME
ALERTS:
One stock that has both good stock and option volume
is Theragenics (TGX). It broke out over resistance at 12
earlier this week, and pulled back a little to alleviate
an overbought condition that had developed
Speculative
Position S336:
TGX Call Buy
Buy 4 TGX Mar 10 calls (TGXCB)
at a price of 4-1/4 or less
FOLLOW-UPS
TO PREVIOUS RECOMMENDATIONS NOTE:
On this page, all stops are mental closing stops
unless otherwise noted
Position
E164:
We rolled the expiring PTEN February 12-1/2 calls (NZQBV)
up and out to an equal number of March 17-1/2 calls (NZQ
CW). Raise the stop to 17. (Hotline)
Position
E170:
We rolled the ARTT February 12-1/2 calls (AOQ BV) up and
out to the March 25 calls (AOQ CE). Raise the stop to 31.
Position
E172:
The Continental Airlines (CAL) March 40 puts were stopped
out. (Hotline)
Position
E180:
We sold all of the Catalina Marketing (POS) long calls POS
EC) and half of the long puts (POS QC). Lower the stop to
94 for the balance of the puts.
Position
E182:
We were stopped out of the Silicon Valley Bancshares (SIVB)
May 50 calls for a good profit. (Hotline)
Position
E183:
We removed the SFE/ICGE option spread for the 10 point
credit as stipulated in our last issue. This position was
therefore closed for more than a 12 point profit.
(Hotline)
Position
E188:
We sold a third of the Timken Company (TKR) straddles at a
price of 3-1/4. (Hotline)
Position
E192: we bought the Global Industries (GLBL) June 10
straddle. (Hotline)
Position
PC160:
The Japanese Yen (JY) bear spread has almost maxed out (4
points), but due to the bid/asked spreads on in- the-money
options, it really can`t be removed at that price. So, to
lock in profits: we BOUGHT the March Yen 94 calls at 0.10.
This will lock in the 3.90 credit for the spread
eventually. (It expires on March 3rd). (Hotline)
Position
PC161:
We rolled the AOL Feb 70 puts (AOO NN), to the March 55's
(AOO OK). Close the long puts now.
Position
PC167:
Lower the stop for the GE puts to 135.
Position
PC169:
Lower the stop for the JNJ puts to 81.
Position
S335:
Raise the stop for Speedfam-IPEC (SFAM) to 23.
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