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Bob Coppo
Week on Wall Street

The Week on Wall Street

Thursday's Action:   Stocks remained in positive territory throughout Thursday's session, albeit on light volume. The improving technology sector and positive corporate earnings reports helped propel the market in spite of increasing oil prices. Major world markets closed mixed. London's FTSE closed down 0.08%; Frankfurt's DAX closed up 0.63%, and Paris' CAC 40 closed higher by 0.33%. Japan's Nikkei closed up 1.10%, Hong Kong's Hang Seng closed up 0.67%, and Sydney's All Ordinaries finished higher by 0.07%. In economic news, Initial Jobless Claims saw an increase of 12k. Import prices rose 1.6%, while export prices rose 0.3%. The PPI report was postponed. Volume came in at 1.66 billion shares traded on the NYSE and 1.37 billion shares traded on the Nasdaq. Market breadth was positive, with NYSE advancing issues over declining issues by 1.27, and up volume over down volume by 1.51; Nasdaq advancing issues over declining issues by 1.04, and up volume over down volume by 1.27. Leading sectors were Natural Gas, +1.97%, Oil Services, +1.24% and Commodities, +1.16%. Laggards were Airlines, -3.97%, Broker/Dealers, -0.70% and Hospitals, -0.40%. Nasdaq 100 futures closed 10.50 pts higher to settle at 1482, while the S&P's settled up 5.10 pts at 1136.50.

Weekly Recap:   Stocks closed out the shortened trading week, due to market closures for President Reagan's funeral, with respectable gains. Despite the media's tendency to attribute the gains to the so-called "Reagan Rally", stocks moved higher in large part due to moderating oil prices, a robust economic outlook, a continuation of reassuring earnings news, and a sense that multiple interest rate hikes have already been priced into the market.

Fed Chairman Greenspan caused some consternation among market participants when he told an international monetary policy panel in London that the FOMC is prepared to do what is needed to fulfill its obligations to achieve price stability. Greenspan added that the FOMC's commitment to a measured rise in rates is conditional and can be revoked if the central bank's judgment proves misplaced. The reminder put the market on notice that a "measured pace" by the FOMC can be 50 basis points as easily as it can be 25 basis points. Trading in the fed funds futures market reflected the latter assessment. July fed funds futures now have a 61% probability of a 50 bps move at the June 29-30 meeting. The stock market, however, held its own in the face of the prospect of more aggressive rate hikes. The bond market also held up, suffering only modest losses that bumped the yield on the 10-yr note to 4.79% from 4.77%.

For the week, the Dow gained +1.6%, the S&P 500 finished +1.2% higher, and the Nasdaq rose +1.1%. The small cap Russell 2000 edged up +0.2%. Next week the economic calendar has a full slate, as some reports that were due Friday were rescheduled. Monday, we get Retail Sales and the Trade Balance, Tuesday the PPI, CPI, Business Inventories, Empire State Index and Mich Sentiment, Wednesday Building Permits, Housing Starts, Capacity Utilization and Industrial Production and Friday the Current Account. All in all, investors will have plenty of economic news to digest.

Contango Anyone?:   The terms "contango" and "backwardation" are used in the commodity futures markets to describe a rather simple concept first put forth by Professor Holbrook Working of the Stanford University Food Institute. A commodity market is said to be in backwardation when the spot, or cash, price is at a premium to the front month futures contract and where the front month price is at a premium to the later months. Backwardation occurs when markets are tight, i.e., when demand exceeds supply and prices must be bid higher to draw supplies out of storage. A commodity market is in contango when the spot price is trading at a discount to the front month futures contract and each subsequent futures contract is cheaper. In that case, supplies are plentiful and storage is bid for rather than for the commodity itself.

Despite all the media rhetoric, the oil futures market has gone "contango". It was only a month ago that the July/August contracts were in backwardation. Crude oil has begun bidding for storage and a commodity bidding for storage is not in short supply. To the contrary, it is a commodity in excess.

Crude oil in the US is not in tight supply. Rather, refining capacity and tanker vessels are in tight supply. There has not been one new refinery built in the US since 1976 (and none are on the drawing boards), while the backlog for new VLCC tankers is currently 5-7 years. Crude oil prices are likely to decline, especially since the SPR (strategic petroleum reserve) is about to be topped up. But don't expect refined product (gasoline) prices to abate anytime soon. Refinery margins are skyrocketing and tanker rates have seen a ten-fold increase, with no sign of relief for either. Those of us who bought shares of NAT and VLCCF have watched those share prices double since the first of the year. Despite what some politicians would have us believe, we can thank the regulators and the interveners, not the oil companies, for high gasoline prices at the pump.

Update on the POI Strategy:   With June options expiring officially on Saturday, June 19th, an update on the Peak Open Interest (POI) strategy is in order. The POI is simply a chart showing the strike price where the maximum OEX call and put option open interest resides in the last week before expiration. The current POI resides at the OEX 550 strike. With just 8 days to go until expiration, the probability that the POI will change is diminishing.

You can learn more about how we use this information to execute profitable trades at our Website. We use this strategy to trade OEX option credit spreads and started trading with the February expiration. We have made four profitable trades so far this year. Here are the results:

Expire	Spread	Credit	% Profit	Days
20-Feb-04	Bullish Put	$190	38%	5
19-Mar-04	Bullish Put	$135	27%	4
16-Apr-04	Bullish Put	$130	26%	4
21-May-04	Bullish Put	$140	28%	4

While we only have four trades under our belt, so far the results have been pretty impressive. The average percent profit for the four trades (not including commissions) has been +29%, and we have only been "exposed" to the market for less than one week each month. The POI system has a number of advantages over buying call or put options. Most options traders end up losing money due to the inherent difficulty of consistently being on the right side of the trade and the fact that options are "wasting assets". The POI strategy overcomes most of these disadvantages by:

• Defining the range where the OEX will close at expiration.
• Limiting "market exposure" to one week or less per month.
• Consistently returning 15% to 25% on investment per month.
• Controlling downside risk by the use of "market if touched" stop orders.

If you would like to receive timely updates on this strategy, including specific trade recommendations, please send an email to info@stockmarkettimer.com and ask to be put on our distribution list. There is no cost or obligation.

The COT Report:   The commitments release scheduled for Friday June 11, 2004 has been rescheduled for Monday June 14, 2004 due to the US National Day of Mourning for former President Ronald Reagan.

Sentiment Surveys:   The latest Investors Intelligence survey showed that the percentage of bullish newsletter writers came in at 49.5%, while the percentage of bears was 20.2%. The bullish ratio (bulls/bulls +bears) was 71%.

The latest AAII survey showed an increase to 55% bulls, and an decrease to just 16% bears. The bullish ratio came in at 72%, while the 4-week moving average is 57%. One thing to note about the AAII survey is that, while membership in this organization is quite large as investor groups go, the number of members that actually participate in the survey is very small. Thus, large fluctuations in survey results from week to week are not uncommon.

The latest Market Vane survey came in at 67%, indicating that the majority of commodity trading advisors (CTA's) remain bullish on the future direction of the S&P's.

The Short Term Outlook; 1-5 Days:   We said in Wednesday night's column that the odds favored making lower lows on Thursday, but the S&P's had a better chance of closing higher on the day, and that's what happened. Thursday's price action favors making higher highs on Monday. On a short term basis, the indicators are painting a mixed picture. On the positive side, the CBOE equity put/call ratio came in at an extreme high of 1.01 Thursday, as small investors loaded up on put options. That's usually a short-term bullish sign, as small traders are more often wrong in anticipating market direction. On the negative side, our Stock Picks scan continues to languish, with virtually no new buy signals for the last three days. That's often a sign that the market is topping out. Also potentially negative was the action of the VXO, which fired a second CVR3 sell signal in the last three days. While the VXO failed to close below its lower bollinger band, nonetheless, it's in deep oversold territory, and that's potentially bearish for the stock market.

The chart below shows the Dow running up against trendline resistance one more time. The trendline has contained every rally since the senior average topped out back in February, and it may just do so again.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator is currently on a SELL signal. Our next Pivot Point is forecast to occur on or near June 18th.

The 60-mn NDX chart below shows that the StochRSI indicator is in the SELL zone. For Monday, resistance for the S&P's comes in at 1140 and then 1144. Support lies at 1128 and then 1125. For the Naz, resistance comes in at 1490 and then 1499. Support lies at 1472 and then 1460.

The Intermediate Term Outlook; 2-6 Weeks:   The weekly chart of the Nasdaq Composite Index shows the trendline support and resistance lines converging. The COMPQ encountered resistance at the top trendline right at the 2025 level we had mentioned recently. A breakout will eventually occur either to the upside or the downside as the two lines meet. But until that happens, we can expect more range-bound trading. The one positive is the fact that the index has managed to stay above both its 50 and 200-day moving averages.

Our Market Trend Indicator (MTI) is currently positive and trended slightly higher on Thursday.

Good Trading!

Charts and data appearing in today's column are courtesy of:
StockCharts.com

Have you traded any of our recommended plays along the way? We'd love to hear from you and how you did. Please send your stories to comments@talkingpoints.com.

Jeff Neal
Tech Watch

Techs Tighten Up on Intellectual Property
By Jeff Neal, Optionetics.com

Intellectual property is a very important asset within the hi-tech world and the abundance of recent lawsuits in this area shows how serious technology companies, especially the smaller ones, are taking it. Just recently, for example, a company claiming it owns the rights to a portion of the JPEG file format, which is used to store digital images, filed lawsuits against numerous high-tech firms including such big names as Apple and Dell.

The company that is making the claim is Forgent Networks a software vendor based out of Austin, Texas. Since the JPEG format is so prevalent the rights to this particular intellectual property will be huge. In addition, there are many more lawsuits that are still pending demonstrating how just aggressive technology firms have become in protecting these types of assets.

In Forgent’s case it has a lot to gain with this lawsuit with little downside risk given the company appears to be strapped for cash from the recent downturn in tech spending the previous three years. A victory in this case allowing Forgent royalties from the JPEG file format usage would be a tremendous boost to their cash flow at a time when it is desperately needed.

The prospects seem promising given many companies want to take care of these lawsuits now as technology spending improves as well as a rosy outlook for future profitability. Forgent is encouraged further by the recent litigation success of Eolas Technologies, which won a patent case against Microsoft with an award in excess of $520 million.

Indeed the patent lawsuits extend to many small technology firms seeking retribution for the taking of their intellectual assets as borne out by the Friskit and NeoMedia lawsuits. The Friskit company is challenging RealNetworks and its merger partner Listen.com claiming it invented the method of creating customize play lists used by the new service just recently launched by RealNetworks.

The NeoMedia case contends that a company called Virgin Entertainment as well as some other smaller companies named violated its patent that links a particular product with a particular website. The company asserts that that Virgin Megastores and others are in violation because they offer their customers an opportunity to scan a bar code contained on CD and then be able to here it over the Internet which is exactly the technology their patent protects.

Another case involves a company that claims to have part ownership rights to the Linux operating system. The firm is called the SCO Group and has pursued the litigation avenue against AutoZone, IBM, and DaimlerChrysler. The SCO Group is also a firm strapped for cash and is hoping a large award settlement would alleviate their financial troubles.

It is incumbent upon these technology companies to have their facts inorder before going to court because patent lawsuits are generally very expensive and quickly drain a small company’s cash reserves. Another hurdle for the small technology company especially going after a large company with deep pockets is the fact they can continue to fight and drag out the lawsuit until sometime a smaller firm can no longer afford to go on. That is also why on average that most of these patent type lawsuits are settled for relatively small awards or amounts.

However, there are times when the awards for patent violations can be quite enormous—like when Intergraph, a small chipmaker, received $225 million from Intel back in March. It is these type stories that will continue to keep the intellectual property litigation pipeline full. Especially when a company is struggling for cash and sees a potential violation of their patent asset that they spent so much money on to obtain.

Happy Trading.

Each week, Mr. Swing analyzes his database of more than 9,200 securities to scan for swing trading opportunities. But be warned: Do not expect a fast way to make money. Mr. Swing is going to show you how you can accumulate small gains weekly, ultimately making money through a disciplined, low-risk trading approach. While he realizes that this short-term swingtrading approach is not for everyone, he hopes that the information given at MrSWING.com will be useful to you in the near future...

Larry Swing MrSwing.com

These are your Swing Trading Opportunities for this week: Talking Points member - Over the nearly two years that we have carried the Mr. Swing's Place column, Larry's picks have consistently put in great performances. Don't miss out on the full swing-trading content available at Mr. Swing.com. Take advantage of some of the great programs available by clicking here. Long Swings: bullish   SWINGS ^ click here QQQ,Nasdaq -100 Trust Ser 1 INTC,Intel Corp SPY,S&P Dep Receipts GE,Genl Electric NOK,Nokia Corp ADS MAV20 >=500000 AND CLOSE>12 AND FORCE3<= 0 AND FORCE13>=0 AND ADX10>30 AND HIGH < HIGH1 and HIGH1 < HIGH2 AND CLOSE > SMAC10 and CLOSE > SMAC20 Short Swings: bearish what is short selling? SWINGS ^ click here D,Dominion Resources ETM,Entercom CommunicationsA ESMC,Escalon Medical Corp CBI,Chicago Bridge & Iron N.V. MAV20 >=500000 AND CLOSE>12 AND FORCE3>=0 AND FORCE13<=0 AND ADX10>30 AND LOW >LOW1 and LOW1 > LOW2 AND CLOSE < SMAC10 and CLOSE < SMAC20 WINDOW ^ click here AMZN,Amazon.comInc GPS,Gap Inc USB,U.S. Bancorp SOV,Sovereign Bancorp NET,Networks Associates MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 > MDI10 AND HIGH < SMAC5   WINDOW ^ click here ETM,Entercom CommunicationsA FBN,Furniture Brands Intl MANT,ManTech InternationalA MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 < MDI10 AND LOW > SMAC5 1-2-3-4 ^ click here INTC,Intel Corp AMZN,Amazon.comInc C,Citigroup Inc JPM,J.P. Morgan Chase & Co BRCM,Broadcom CorpA MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)>( MDI10+ MDI20) AND LOW< LOW1 and LOW1< LOW2 AND HIGH< HIGH1 and HIGH1< HIGH2   1-2-3-4 ^ click here SYY,Sysco Corp EAT,Brinker Intl TRB,Tribune Co. ETM,Entercom CommunicationsA LZB,La-Z Boy MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)<( MDI10+ MDI20) AND LOW> LOW1 and LOW1> LOW2 AND HIGH> HIGH1 and HIGH1> HIGH2 CROSS ^ click here EBAY,eBay Inc MRK,Merck & Co GPS,Gap Inc USB,U.S. Bancorp AA,Alcoa Inc MAV20 >= 500000 AND CLOSE >12 AND SMAC5 > SMAC15 AND CLOSE < SMAC5 AND CLOSE > SMAC15 AND HIGH<HIGH1 AND CLOSE > OPEN   CROSS ^ click here DISH,EchoStar CommunicationsA PSUN,Pacific Sunwear of Calif KMX,CarMax Inc ETM,Entercom CommunicationsA FBN,Furniture Brands Intl MAV20 >=500000 AND CLOSE>12 AND SMAC5< SMAC15 AND CLOSE> SMAC5 AND CLOSE < SMAC15 and LOW > LOW1 and CLOSE < OPEN REVIVAL ^ click here SPY,S&P Dep Receipts GE,Genl Electric MRK,Merck & Co BAC,Bank of America ERICY,Ericsson(LM)TelBADS MAV20 >=500000 AND CLOSE>12 AND (CLOSE1 - LOW1) <= 0.1 * ( HIGH1- LOW1) AND ( CLOSE - LOW) >= 0.95* ( HIGH- LOW) AND CLOSE > SMAC15 AND CLOSE > SMAC50   REVIVAL ^ click here 0 MAV20 >=500000 AND CLOSE>12 AND( CLOSE1 - LOW1) >= 0.9 * ( HIGH1- LOW1) AND ( CLOSE - LOW) <= 0.1 * ( HIGH- LOW) AND CLOSE< SMAC15 AND CLOSE < SMAC50 REVERSE ^ click here DNA,Genentech Inc MATK,Martek Biosciences NKTR,Nektar Therapeutics CEPH,Cephalon Inc FIC,Fair Isaac MAV20 >=500000 AND CLOSE>12 AND HIGH2 > HIGH1 AND HIGH1 > HIGH AND LOW2 > LOW1 AND LOW1 > LOW AND CLOSE2 <= OPEN2 AND CLOSE1 <= OPEN1 AND CLOSE >= OPEN AND VOLUME>1.5* MAV20   REVERSE ^ click here GR,Goodrich Corp MAV20 >=500000 AND CLOSE>12 AND HIGH2 < HIGH1 AND HIGH1 < HIGH AND LOW2 < LOW1 AND LOW1 < LOW AND CLOSE2 >= OPEN2 AND CLOSE1 >= OPEN1 AND CLOSE <= OPEN AND VOLUME>1.5* MAV20 TRIANGLE ^ click here DIA,DIAMONDS Trust,Series1 CMCSK,ComcastASpl(non-vtg) S,Sears,Roebuck STN,Station Casinos STLD,Steel Dynamics MAV20 >=500000 AND CLOSE>12 AND CLOSE> SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW   TRIANGLE ^ click here 0 MAV20 >=500000 AND CLOSE>12 AND CLOSE < SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW BREAKOUTS ^ click here DDS,Dillards IncA KNGT,Knight Transportation HTLD,Heartland Express MAV20 >=200000 AND CLOSE>7 AND HIGH>=MAX40 and HIGH1 <> MAX40_1 AND VOLUME>1.5 * MAV20 AND CLOSE > OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) >=0.75*( HIGH - LOW )   BREAKDOWNS ^ click here AUO,AU Optronics ADS ACTL,Actel Corp REGN,Regeneron Pharmaceuticals IMGG,Imergent Inc MAV20 >=200000 AND CLOSE>7 AND LOW<=MIN40 AND LOW1<> MIN40_1 and VOLUME>2*MAV20 AND CLOSE < OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) <=0.25*( HIGH - LOW) REVERSALS ^ click here DNA,Genentech Inc MATK,Martek Biosciences CYBX,Cyberonics Inc MAV20 >=200000 AND CLOSE>12 AND LOW <= MIN40_1 AND VOLUME>2* MAV20 AND CLOSE > OPEN   REVERSALS ^ click here TGT,Target Corp MAV20 >=200000 AND CLOSE>12 AND HIGH >= MAX40_1 AND VOLUME>2* MAV20 AND CLOSE < OPEN REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are explained in our new section called: SWINGLAB... REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are e explained in our new section called: SWINGLAB... NSM (Long) - Chart of the Week Larry Swing National Semiconductor Corp. has been selected as one of my top (long) swing ideas for this week. To reduce your capital outlay and increase your leverage, I recommend buying this Company’s call options to maximize short-term profitability. Please read on for more trade details…        Recommended Option Swing Play: National Semiconductor Corp. (NASDAQ:NSM) Industry: Semiconductors   Sector: Technology Employees: 9,800  Market Cap: 8.02 Billion Institutional Ownership: 85.07% Insider Ownership: 2.0% Shares Issued & Out: 358.77 Million Company Information: www.national.com Option Summary: Option Information:www.optionsxpress.com Symbol: NSMFW   Type: CALL   Exchange: AMEX Strike Month: JUNE 2004   Strike Price: 17.50 Swing Trade Information: Trade Strategy: Buy Call Options (Short-Term : Bullish) Trade Targets: Common (7%) / Option (50%+) Trade Composition: 40 % Technical / 60 % Fundamental Trade Duration: 1 to 15 days Entry Strategy: Buy NSMFW When NSM Trades Above $22.65 I recommend that traders buy the call options (symbol:NSMFW) when the underlying common stock (symbol:NSM) trades “just above” its 1-day resistance level at $22.44   Exit Strategy:  Sell NSMFW When NSM Trades Up 7%: Swing Target: $24.25 Short-Term (3 month target: $26.00) I recommend that traders close out their call option positions (NSMFW) once the underlying common (NSM) trades up 7%. Stop-Loss: Place a 3% Mental Stop-Loss Limit: (Based On The Common) If the common stock falls 3% below the equivalent entry price of the common, I recommend selling all of your options to minimize losses.   Note: You should move your mental stop up as the common stock rises. The best way to protect your intra-day profit is to keep your stop-loss price about 3% from the common’s intra-day high. Urgent: Don’t forget to write down the equivalent entry and target price of the underlying common stock, once you purchased your options. I highly recommend you made an informed trading decision by reading this entire article before initiating your option positions. Thank-you!   Risk/s: poor market conditions; sector price weakness; poor financial results June 10, 2004; and Company reduced forward guidance June 10, 2004.    Need More Help: *see Larry’s trading tips at the bottom* Company Summary: National Semiconductor Corporation designs, develops, manufactures and markets an array of semiconductor products, including a line of analog, mixed-signal and other integrated circuits (ICs). These products address a variety of markets and applications, including amplifiers, personal computers (PCs), power management, local and wide area networks (LANs and WANs), flat panel and cathode ray tube (CRT) displays and imaging and wireless communications.   Swing Catalysts:  1.Strong Earnings Expected (6/10/2004)-  National Semiconductor Corp. (NSM), a leading independent supplier of semiconductor products and other electronic devices, will release their fiscal 2004 fourth quarter and year-end results (ended May 31 2004) on Thursday, June 10, 2004 at 1 pm Eastern Standard Time.   First Call’s mean 2004 fourth quarter estimate from 18 different Wallstreet Analysts is $ 0.29 per share up from $ 0.06 per share reported in Q4 of 2003. Analysts are estimating revenues to be about 559.07 million in Q4 of 2004 versus 425.30 million reported in Q4 of 03. In summary, Analysts are expecting a 383.3% increase in earnings and a 31% increase in sales from National Semiconductor in Q4 of 2004. These performance numbers are well above industry averages.    2. Strong Earnings Growth Rates – NSM’s earnings are expected to grow by 388.5% this quarter and by 193.4% next quarter. Analysts are expecting the Company’s earnings to grow by 1127.5% for fiscal 2004 and by 45.9% next year (fiscal 2005). The firm’s long term (5 yr.) earnings growth estimate is 15%, which is 11% above the industry average of 13.5%.   3. Positive Earnings Surprise History – National Semiconductor has beat analyst earnings guidance estimates the last 4 quarters, posting an average earnings surprise of 27.55%. The Company’s last 4 earnings surprises were as follows, from first to last):+14.6%;+13.2%;+42.8%; and +39.5%.