Cease Fire, Day Two

Peace negotiations combined with severe oversold conditions have resulted in the second day of a moratorium on bull hunts. Reports from the Middle East that there have been violations of the cease-fire combined with some downgrades of bellwether technology stocks probably kept the market from staging another historic rally. The good news is that we consolidated Friday's gains and held on to the bulk of the historic bounce. Folks, it is the time of year when accumulated cash, and there is a ton of it in institutional coffers, begins to seep back into the market.

Analysts at Smith Barney and Credit Suisse First Boston expressed concerns about the near future for Intel (INTC). In a note to their clients, they expressed concerns about the deteriorating prices for personal computer processors. A pricing war that is brewing between Intel(INTC) and major rival Advanced Micro Devices (AMD) could create profit pressure for the next couple of quarters. Intel fell yet another 13% on the eve of its earnings release after tomorrow's close. Because Intel is in both the Dow and the NASDAQ, the drop of $4.69 to $35.69 certainly slowed Friday's momentum. Volume was very heavy with 91.8 million shares traded. AMD closed down $1.44 to $20.38.

Not taking any chances, traders dumped shares of Microsoft (MSFT) ahead of its earnings report due out Wednesday. Intel and Dell Computer (DELL) have both recently expressed concerns about their earnings due to a softening in demand for personal computers. Considering that MSFT provides the bulk of the software for PC's, many are worried that MSFT's forecast following its earnings report may be less than upbeat. Everybody expects MSFT to at least meet the Street's expectations of profits of $0.41 per share. MSFT has the ability to make up any shortfalls with non-operating profits. The real concern is whether MSFT will make some rather negative statements about the future. MSFT also has a habit of reducing analysts' expectations. So some negative comments are to be expected but the severity will be important to gauge. MSFT also had a negative impact upon both the Dow and the NASDAQ as it dropped $3.38 to $50.38. Volume was strong with 59.8 million shares traded.

For the day. the NASDAQ (COMPX) slipped 26.49 points to 3,290.28. Volume on the NASDAQ slowed down from last week with 1.77 billion shares traded. Breadth was almost a dead heat with losers narrowly clipping winners 21 to 19.

One of the highest profile winners on the NASDAQ was Juniper Networks (JNPR) which continues to enjoy the sunny glow from last week's stellar earnings report. JNPR made a new high of $244.50 and closed up $14.50 to $243.00. Sun Microsystems (SUNW) was a notable winner among the generally weak NASDAQ super-caps. SUNW gained $3.56 to $114.56. The ongoing saga about Qualcomm's (QCOM) business future in China took a positive turn and the stock climbed $7.06 to $77.00. Some of the NASDAQ's other big winners were, Redback Networks (RBAK) up over $17.00 to $138.75, Exar Corp (EXAR) which bucked an otherwise weak semiconductor sector with a gain of $17.94 to $138.75, Network Appliance (NTAP) soared $12.13 to $133.56 and Micromuse (MUSE) gained $10.19 to $181.61.

Losers were also common, as traders start determining which stocks are going to be the winners and which are likely to become the laggards for the next couple of months. Yahoo! (YHOO) dropped another $4.75 to $55.25. Applied Materials (AMAT) lost some more ground as it also dropped $4.75 to $48.75. Novellus (NVLS) was weak ahead of its earnings report after the close today. NVLS lost $5.63 to $34.88. The consensus estimates are for profits of $0.61, by most counts NVLS met estimates but sales were a bit light. Wireless systems provider Aether Systems (AETH) lost $11.63 to $75.38.

The Dow Industrials (INDU) managed to gain $46.62 to 10,238.8 despite the negative effects of declining technology leaders. The gain was mostly due to bounces in major retailers Home Depot (HD), up $1.19 to $37.50, and Wal-Mart (WMT), which gained $2.31 to $47.31. American Express (AXP) also helped matters with an increase of $1.81 to $55.75.

Volume on the broader NYSE was unimpressive with an even one billion shares traded. Breadth was a non-event with decliners slipping past gainers by a rate of 15 to 14. New lows were nearly double the amount of new highs. The actual numbers were 31 new highs and 74 new lows.

There were some solid winners on the NYSE. Quest Diagnostics (DGX) rallied $12.13 to $133.88. Genentech (DNA) was similiarly strong as it gained $12.13 to $146.75. Forest Labs (FRX) led a reasonably strong Pharmaceutical group as it picked up $8.75 to $118.31. Corning (GLW) was one of the NYSE's strongest technology stocks and it increased its share price $5.44 to $98.31.

Losers were led by Analog Devices (ADI) which lost $7.75 to $66.81. Teradyne (TER) did not fare very well as it dropped $3.00 to $34.44. The percentage disaster of the day on huge volume was Xerox (XRX). Its "niftiness" is 25 years behind it as the stock slipped into single digits with a loss of $2.69 to $7.75.

Other major indices were somewhat mixed. The S&P 500 (SPX) eked out a 0.45 point gain to 1374.6. The S&P 100 (OEX) fared a bit worse as it lost 3.54 to 725.48. The NASDAQ 100 (NDX) was pretty much in line with the broader NASDAQ as it lost 29 points to 3249. Smaller stocks had a decent day as the Russell 2000 (RUT) gained 1.36 to 481.75.

The major sector indices were eclipsed by the falling semiconductors. The SOX lost 43.8 points to 714.5, as this was one group that could not hold on to its recovery from Friday. The AMEX Biotechnology stocks (BTK) were generally higher as this index gained 22.88 points 698.68.

Firming stock prices and solid cash flows have led to another huge deal in the oil production world. Chevron (CHV) announced its intentions to buy Texaco (TX) for $33 billion in stock. Oil stocks have generally been in the news and some question the timing of this announcement. High oil prices, Middle Eastern tensions and the release of some of the nation's emergency oil reserves have increased the public's scrutiny of oil companies in general. Combined, the two companies operate some 40,000 gasoline stations worldwide, and they would have a 25% share of the important California market. When the deal is finalized, the company hopes to cut nearly $1.2 billion in expenses and slash their combined work force by nearly 7%. Based upon Friday's closing prices, Texaco shareholders will receive compensation of $64.87 for each of their shares, a premium of 18%. .77 Chevron shares are being offered for each Texaco share. CHV dropped $2.25 to $82.00 today and TX rallied $3.88 to $59.00.

There was more bad news on the technology front, as Electronics For Imaging (EFII) warned that their fourth quarter will be substantially weaker than had been previously expected. Consensus analysts' estimates were calling for profits of $0.43 but the Company said that earnings of 6 to 12 pennies is more realistic. The Company cited a softening in demand in the printing and imaging market. EFII currently is dropping $3.88 to $13.25 in after hours trading. The Company did post third quarter profits of $0.37 after the close that were in line with expectations.

In other earnings news that came out after the close, Altera (ALTR) reported profits of $0.28, which was exactly what the First Call estimate was looking for. The numbers do compare favorably to last year's earnings of 13 cents. So far, after hours traders appear to be less than impressed and the stock is trading down $2.31 to $30.31. It could be another weak start for the semiconductors tomorrow. Major competitor Xilinx (XLNX) was also trading down slightly in sympathy.

Assuming that a full-blown war does not start in the Middle East the most influential events this week will be earnings reports. Here is a list of possibly the most influential reports due out tomorrow. Remember this is only a partial list and we suggest that you call the Investor Relations department to confirm the exact earnings release time for companies that you are interested in.

Trading may be a bit muted in the early going tomorrow on the NASDAQ as market participants wait for Intel (INTC) to release its earnings. Support tomorrow should be just below today's low of 3,262. If that support fails, due to the negative reaction concerning the earnings from Altera (ALTR) and Novellus Systems (NVLS) look for support at 3,200. It appears unlikely that we will test Thursday's low of 3,054 this week because option expiration week is typically bullish and the market is still very oversold on an RSI basis. Having said that there could still be weakness among some groups such as software, PC manufacturers and Semiconductors. Strength will likely be found among Internet software and hardware infrastructure builders. If the NASDAQ can get back into rally mode, 3,400 appears likely. Keep an eye on the MACD, which has been an excellent indicator for intermediate term trends. If it turns positive, we may get a sustainable rally.

The Dow will be a little trickier to track, although it too is very oversold on a RSI basis. At the very least, important psychological support of 10,000 should hold. A move above 10,250 could trigger a round of sustained buying into Friday's expiration.

If you are looking for trades, try and stay with those stocks that are exhibiting the strongest relative strength. A good start to screen for those stocks is checking the new high lists. Money is likely to be extremely selective during the early stages of this recovery.

Good Luck! And may all of your trades be winning ones!

Jim Booth
Research Analyst

We May Be Close To A Bottom, Are You Ready To Take Advantage Of It?

Are you using the Power of LEAPS? Did you know you can generate Cash on a monthly basis writing calls against your LEAPS? We will be teaching powerful LEAP strategies at the Denver Options Workshop. Are you watching for the early reversal patterns with candlestick charting? You can learn how to spot these as Mr. Steve Nison presents his early signal indicators. There is a great opportunity ahead of us and it does not matter which direction the market goes! What really matters is whether you have the EDUCATION to take part in the move! We are providing a Powerful four-day Workshop that will fill in the gaps and provide a foundation for greater achievement in the options arena.

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There is ONLY 2 WEEKS LEFT until the Denver Options Workshop! We have over a dozen speakers that will be filling you to the brim with Knowledge on strategy, technical analysis and preparing you to act on market moves. Don't wait to enhance your education, Come to the Denver Options Workshop and associate with other traders and professionals. The event will be held on October 27-30 at the Inverness Hotel and Golf Club. We will see you there!

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Check out an outline of events here:
http://www.optioninvestor.com/workshop/outline

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Here is the list you have been waiting for. The guest speakers and the course outline for the October Workshop Expo. The list of guest speakers is outstanding. Here they are:

Steve Nison - Steve Nison is not only the world's foremost expert on Candlestick Charting techniques, he's the author of the two top selling, definitive books on the topic:

Japanese Candlestick Charting Techniques and Beyond Candlesticks. He has trained and lectured investors and investment firms around the world on how to integrate these methods into their investment strategies.

Steve will be speaking on "Spotting Early Reversal Signals."

Gregory Spear - Author of the Spear Report. Gregory developed a unique "consensus" concept for picking stocks in the early 90's while trying to make sense of the myriad of financial newsletters in his mailbox. His unique "consensus" system has developed an average gain of 100% for his recommendations over the normal holding period which is about six months. The Spear Report is quoted or featured in dozens of financial publications and Greg's financial workshops are "standing room only."

Greg will be speaking on the top market gurus, "What they are saying and why they are wrong."

Dick Arms - Richard Arms is the inventor of the Arms Index, otherwise known as the TRIN. He has been analyzing the market for over 35 years and is a constant visitor to CNBC as a market commentator. His work in technical analysis is older than most of the brokers now trading with his tools. His newest invention is the Equivolume charting system, the first new charting system since the 1930s.

Dick will be explaining the TRIN and how we should use it to trade as well as his new Equivolume charting system. This will be an interactive session with plenty of attendee questions that Dick will answer.

Stan Kim - Stan has a MBA from UCLA and worked for IBM for many years. He realized he did not want to work for anybody else and did not want anybody working for him. He has been a full time trader ever since. He is the founder of the Snail Trader system of trading and is currently working on a new book. Stan consults and mentors traders and investment firms.

His topic will be, "How to Trade for a Living When You Are Not a Stock Guru."

Jim Crimmins - Jim is president of TradersAccounting.com and a noted authority on tax issues for traders. Jim is an expert on gaining Trader Status and puts on seminars on "Tax Free Trading" around the country. If you have been to a money show you have probably seen Jim with flocks of people around him.

Jim IS the authority on tax accounting for traders! Jim will be speaking on Trader Status, Mark to Market and IRS do's and don'ts for traders.

Add to this distinguished list above the fifteen plus speakers from OptionInvestor and you have an event you cannot afford to miss.

The current roster of staff instructors includes:

Ryan Nelson - Managing Editor, OptionInvestor.com
Chris Verhaegh - Options 101/102 Writer and Option Strategist
Steve Rhoads - Technical Analysis Instructor
Molly Evans - OIN Staff writer
Lee Lowell - OIN Staff writer
Austin Passamonte - Editor IS, Staff Writer
Buzz Lynn - Editor, Sector Trader, Staff Writer
Mark Phillips - Leaps Editor, OIN
Vince Dowd - Spreads Specialist
Louis Horkan - Managing Editor, Premier Investor
Steve Pekarek - Editor, SplitTrader.com
Jeff Bailey - Editor, Premier Markets
Matt Russ - Editor, OptionInvestor.com
Jim Brown - Head Option guy

For a course outline click here:

http://www.optioninvestor.com/workshop/outline

The workshop is scheduled for the last weekend in October. Four days of intense, power packed option education.

This is not your standard seminar. We start by putting you up in a luxury hotel and feeding you five times a day. We feed your mind from a fire hose as well with more than 15 speakers and special guests to educate you on every option strategy.

There is something for everybody. Just mingling with over 15 professional option traders for four days is worth the price of admission. The entire weekend for the low price of $2995 plus your room. All meals, snacks and favors are provided and you will get a professionally produced set of videos of the entire weekend.

Need we say more? If you want to learn how to be a better trader, making more and losing less then you should come to this seminar. We guarantee you will not be disappointed!

For more info:

http://www.optioninvestor.com/workshop

If you have not been to one of our Denver Expo seminars before here are some comments from previous attendees:

The words herein are totally inadequate to express what I am feeling about you and all the OptionInvestor organization. But this medium is all I have. Thank you more than these few simple words can say.

Wow, what a seminar! In my 25 years of investing I have attended many instructional conferences, but I have never, never experienced one like your Options Expo. The instructors were absolutely tops. Subjects, generally were on target. Especially for me, the Skybox, index funds/options and the early morning strategies and trading were particularly great. The attention to the many details and nuances were especially evident, and I guess most of the credit that area goes to your great support team.

Now, the real challenge is to apply and implement the powerful knowledge I was exposed to.

Sincerely and warmly,
Kevin Hughes, Denver

GREAT JOB TO EVERYONE!
I described this event to my friends as a life changing event! (options aside) ,the quality of people, dedication, sacrifice of their time (the second 40+ hours a week they don't have to work but do) they do this because they care, wanting to help others change their life dramatically (My wife thinks I was oxygen deprived up there !) I came back a different person for those who know me that says a lot. now for the options side I have to admit there was so much info to absorb, most of it came to me on the 2000+- mile ride home it all started to fall into place I feel Very confident (yes Jim this can be bad but I know this now!) Notice the patience here guys! that's one change I have a plan to stick to ! THANK YOU !!!
Allan O'Neill

Need we say more? If you want to learn how to be a better trader, making more and losing less then you should come to this seminar. We guarantee you will not be disappointed!

For more info:

http://www.optioninvestor.com/workshop

The San Francisco seminar is October 19/21st. Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of in-depth education. Don't miss it!

Some comments from recent attendees:

I want to thank Chris, Steve and Scott for the excellent workshop held in Detroit last week. Having been to the Expo in Denver in March (which was fabulous), I was ready for a smaller, hands-on approach to hone my less-than-perfect skills. I was not disappointed. One can never get too much education in options investing, and Chris and Steve offer terrific, unique approaches. Laurie

Chris & Steve, I would like to thank both of you for a great experience at the Atlanta Workshop. I learned more in the three days of the workshop about investing and trading than all of my undergraduate and graduate courses combined. It was a lot of information in a short time and I hope to put it to use very soon. Mike

I attended the Atlanta seminar and wanted to forward my positive comments. The seminar "really lit my fire". I have been a trader for 20 years and often go to seminars and this was the first one that really taught me the most. Dr Lloyd

Jim, I had the good fortune of attending the meeting in Orlando. Like your newsletter, it was a CLASS ACT. Chris and the others did a great job. Chris was by far the best performer but the gentlemen beside me was an option trader with several seminars under his belt and almost freaked out when Chris finished his Index Presentation. JC

I am writing this note to compliment you and your staff on the great job they did in Atlanta. But more importantly I would like to single out Steve Rhoades as one of the finest speaker/teacher on technical analysis that I have ever had the pleasure of hearing. I am doing my best to persuade other members of the two investment clubs that I belong to, to attend the Detroit seminar. Sincerely, ML

We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh, Steve Rhoads and staff.

At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now.

Date     City

Oct 19-21 San Francisco
Nov 02-04 Phoenix
Nov 09-11 Miami FL
Dec 07-09 Philadelphia
Dec 14-16 San Antonio

Has the market been beating you up? Did you give back your gains from April/August? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you?

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Click here for more info:

http://www.optioninvestor.com/seminar/seminar.asp