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Daily Newsletter, Thursday, 12/21/2000

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The Option Investor Newsletter                 Thursday 12-21-2000
Copyright 2000, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        12-21-2000        High      Low     Volume Advance/Decline
DJIA    10487.30 +168.40 10520.50 10299.20 1.42 bln   1680/1234
NASDAQ   2340.12 +  7.34  2423.71  2288.16 2.69 bln   1799/2240
S&P 100   668.58 +  7.08   674.71   656.68   totals   3479/3474
S&P 500  1274.86 + 10.12  1285.31  1254.07           50.0%/50.0%
RUS 2000  447.03 +  3.23   450.31   440.78
DJ TRANS 2789.82 + 60.05  2810.63  2728.58
VIX        34.42 -  1.28    37.72    33.41
Put/Call Ratio      0.72

On the eighth day...

Finally a positive close on the Nasdaq. Unfortunately about the
only positive thing was the closing number. After a rocky start
with a dip below 2300 to 2288 the Nasdaq did manage a rally which
held over 2400 for over two hours. Many stocks rallied back to
yesterdays highs only to be hit by waves of selling again before
the close. The Nasdaq rally failed on heavy volume of 2.6 billion
shares as persistent tax selling kept the pressure on techs. The
Dow rallied on the back of financials and the hope of an inter-
meeting rate cut to gain +168 points. Warnings by tech stocks,
telecoms and even paper stocks kept investors guessing about who
would be the next big cap to fall.

Lucent made it four in a row today with their fourth earnings
warning in four quarters. While nobody was surprised the warning
knocked the stock back to $12.19 and a new 52-week low. The CEO
was on CNBC this afternoon and of course was saying the worst is
over. Analysts called it the kitchen sink warning since they cut
estimates to as much as a -.30 loss instead of the breakeven
quarter analysts had expected. Lucent said they were going to
reduce costs by over $1 billion by aggressive cost cutting and
forced reductions in staff. They also estimated that revenues
would drop about -20%. How much lower can it go?

IBM dropped another -4.44 to $81.44 on worries that an earnings
warning was imminent. As one of the few remaining big caps still
mum on results they are number one on the guess parade. After
affirming earnings estimates yesterday HWP fell another -1.06
proving that investors have no confidence even in positive press.

CSCO rallied back +2.38 to $38.88 after being decimated by the
Foundry warning on Wednesday. Volume was huge at 121 million
shares. They are still rumored to be a warning candidate so the
bounce today was probably fueled by investors in denial that
CSCO could actually trade at $37. Since they announce earnings
a month later than the rest of the pack any warning could come
in late January so there may still be some weakness ahead. Don't
get me wrong I was glad to see any bounce in CSCO since it is the
current Nasdaq leader much like GE is the proxy for the Dow.
CSCO has lost -$313 billion in market cap or almost half its
total capitalization since March. For comparison INTC has lost
-$282 billion and ORCL -$97 billion.

3Com announced earnings after the bell today that beat the lowered
street estimates by a nickel. COMS had already warned for all the
standard reasons. Since spinning off the PALM IPO earlier in the
year COMS has dropped to $7.19 today, a new 52-week low. Speaking
of PALM the weak revenue numbers in their earnings report yesterday
short circuited the entire PDA sector today. PALM lost -12.38,
HAND -10.19, RIMM -9.06. Fears of slow post holiday sales was
causing the problems.

Harmonic Lightwave warned after the close that they would miss
earnings due to slowing purchases by telecom companies. That is
not new news but they did make a statement that could ripple
through the sector again tomorrow. They said AT&T was not
accepting any deliveries for this quarter which carried across
the sector could cause even more earnings problems. Many of these
companies try to fill the pipe at the end of the quarter and the
inability to deliver product keeps revenue from being recognized.

After the close Ford warned that slowing sales...fill in the blanks.

Northrup Gruman (NOC) announced after the close that they were
buying Litton Industries for about $4 billion in cash. LIT shares
closed at $62 and the purchase price is $80 or about a 30% premium.

There were several Fed friendly economic reports today starting
with the Philadelphia Fed Survey dropping significantly. The
report came in at a -6.1 which was far below the 3.8 consensus
estimate. The decline in manufacturing activity indicates the
Fed's work is done and the economy it slowing. Would somebody
tell Grinchspan please! Weekly jobless claims resumed their
upward climb with news of layoffs in the news daily. The number
for the week rose +34,000 to 354,000. The 3Q GDP final revision
came in at only +2.2% which was the weakest gain since 1996.
Consensus estimates were for +2.4%. This was far less than the
+5% rate from earlier this year.

The volume on the Nasdaq was the fifth largest ever at 2.6 billion
shares. This was due to traders closing trades and going flat
before the long holiday weekend. With sellers in control there
is no burning desire to be long. The typical bullish holiday
sentiment was scarce with caution being the predominant emotion.
I spoke with Dick Arms today and he indicated that according to
his indicators the Nasdaq was the most oversold it had been since
he had been keeping records. Still nothing prevents it from going
even deeper on the next round of warnings. The remaining high
dollar stocks were being sold at any price at the close with
BRCM -13, PMCS -14, SDLI -11, BRCD -9 as prime examples of the
tax selling rush. Until these previous leaders find a bottom much
like CSCO and SUNW did today, the Nasdaq will continue lower.

Volume on Friday, the last trading day before Christmas, is typically
light even in bullish years. About the only thing you can take for
granted is the expected volatility. The VIX spiked to almost 38
this morning for only the second time this year. The other day
was the April 14th bottom. On a side note there was a mass sell
off of defensive drug stocks at the close. PFE, MRK, SGP and BMY,
all of which had seen decent gains while the Nasdaq was crashing,
saw huge "sell on close" orders. Without any significant drug news
after the bell analysts were guessing that maybe the tide is about
to turn from defensive stocks and back to tech stocks. It is just
a guess but without any negative news it sounds good to me.

The trading strategy for Friday is "enter at your own risk." There
has not been a trend change yet. The failed rally on the Nasdaq
looked like business as usual and could accelerate if more traders
decide to go flat over the weekend. Should we get another downdraft
in the morning there is likely to be some bargain hunting Christmas
shoppers as well as another round of short covering. Next week is
going to be a toss up with a probable bullish bias as the tax
selling comes to a close. Still when trading a trend it is always
a good idea to actually wait for a trend to appear. Friday's
intraday trading could be the turning point but consider your
entry points carefully!

Good luck and don't buy too soon.

Jim Brown


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Last Chance To Dump The Truck
By Austin Passamonte

Thursday had all the makings of a relief rally short-squeeze.
Massive selling pressure all week, especially Wednesday. A
soaring VIX well outside its daily Bollinger band. Fire-sale
bargains laying all around us. Rumors of a rate reduction before
January 30th.

Chart signals looked good. Price action struggled, paused and
shot up the charts like we've witnessed so many times before. The
rally was underway!

Underway until the dump trucks arrived filled with tax-loss lumps
of coal. Each time buyers pushed prices up they were met with
another round of sellers very glad to see them. Thankfully we use
firm stops. This could be our fate once again tomorrow.

Friday is likely to be the last high-volume session for year
2000. It promises to be a tug-of-war between buyers looking to
catch the next bottom, the last remaining tax-loss sellers and
maybe some shorts covering before the long weekend mixed in. Who
will win?

Any further bearish news could cause buyers to walk away until
their hangovers subside. Any hint of bullish news might cause
this short-squeeze tinderbox to ignite. No apparent news may
result in a struggle to prevail amongst the two.

We expect any general mood of the day to accelerate into the
close. A strong uptrend would likely result in massive short
covering and power a strong rally into the close. A weak &
struggling session may find buyers packing up the mini-vans early
for a weekend away from further pain. That would leave market
fate in the hands of remaining bears.

The VIX has spiked to levels demanding our attention. Today's
failed rally was not enough to relieve its bullish sentiment.
We've seen relentless selling for seven straight sessions in the
NASDAQs before today.

Next week's light volume, historical bullishness and technical
analysis points to a higher market then. It could easily begin
tomorrow, but one last round of selling may postpone flagrant
green across the boards.

Friday promises to be a very tradable day, if just for one
session. Make sure you enter in the direction market action is
headed, rely on tight stops and small profit targets. Higher
price levels could be around the corner, but that corner could
extend beyond Christmas day.

Be patient and trade the right direction: With prevailing trend.


Thursday 12/21 close: 34.70

30-yr Bonds
Thursday 12/21 close: 5.44%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
705 - 690                7,229        5,333         1.35
685 - 670                1,864        9,842          .19

OEX close: 668.58

665 - 650                  806        5,466         6.78
640 - 620                   13       10,818       832.15***

Maximum calls: 730/4,911
Maximum puts : 640/7,279

Moving Averages
 10 DMA  702
 20 DMA  706
 50 DMA  720
200 DMA  771

NASDAQ 100 Index (NDX/QQQ)
 65 - 63                35,085        31,775         1.10
 62 - 60                24,698        44,074          .56
 59 - 57                 9,513        13,878          .69

QQQ(NDX)close: 56.06

 55 - 53                 4,986        19,652         3.94
 52 - 50                 4,852        15,577         3.21
 49 - 47                 1,166         9,087         7.79

Maximum calls: 70/53,810
Maximum puts : 60/24,246

Moving Averages
 10 DMA 64
 20 DMA 65
 50 DMA 73
200 DMA 88

S&P 500 (SPX)
1350                   32,846        34,849           .94
1325                    4,082         5,656           .72
1300                    2,217        18,997           .12

SPX close: 1274.86

1250                    1,445        12,984          8.99
1225                       73        13,815        189.25***
1200                      181        10,682         59.02***

Maximum calls: 1350/32,846
Maximum puts : 1350/32,849

Moving Averages
 10 DMA 1330
 20 DMA 1334
 50 DMA 1363
200 DMA 1435


CBOT Commitment Of Traders Report: Friday 12/15
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.

                     Small Specs                Commercials
DJIA futures    (Current)  (Previous)      (Current)  (Previous)
Open Interest
Net Value         +179        -283           -2089      -770
Total Open
Interest %      (+2.24%)    (-3.13%)        (-5.50%)   (-2.64%)
                net-long    net-short       net-short  net-short

Open Interest
Net Value        -1438        -3324          +1316      +2120
Total Open
Interest %      (-4.45%)    (-13.52%)       (+2.11%)    (+3.23%)
                net-short    net-short      net-long    net-long

S&P 500
Open Interest
Net Value        +80633      +76502         -90398       -86468
Total Open
Interest %      (+29.41%)    (+42.45%)      (-11.61%)    (-12.36)
                 net-long     net-long      net-short   net-short

What COT Data Tells Us: The disparity remains between the
Commercial positions and Small Specs on the S&P 500. Commercials
have increased their net-short positions on the DOW while the
Small specs have turned net-long.

Data compiled as of Tuesday 12/12 by the CFTC.


Please visit this link for Market Posture:



Little Holiday Cheer Here In Bear Country
By Molly Evans

It's happened all rather quickly.  Stocks and indexes that not
long ago were thought to be invincible are lying in the gutters.
A quick thumbing through charts tells the tales.  Afterall, a
picture is worth a thousand words, right?  Not to beat a dead
horse, we've discussed this all before and at this point, there's
little need to talk about the reasons the markets are being
sold.  I find it so annoying that all the "experts" of the
moment are being given airtime to expound their belief that
the U.S. is headed for a recession, that earnings will continue to
fall short, and whatever else they're saying these days.  This
is not forecasting.  All it is - is taking the headlines of today
and yelling "FIRE" after only the asphyxiated remain.  Where were
they six months ago?  Would the media not give them the time of
day then?  They probably wouldn't and we probably wouldn't have
been listening anyway.

Where We've Been and Where We've Landed

I snuck into my husband's stash of Christmas presents for me this
evening, knowing I'd likely find a good investment book to help me
with my article tonight.  I was not disappointed.  That Dr. Dan,
what a great guy!  I'm flush for articles for at least another
year now.  The one I'm thumbing through at the moment is "The
Psychology of Investing" by Lifson and Geist, copyrighted 1999.
Chapter 11 is entitled, "The Stock Market Hysteria Still to Come."
It is obvious that that the author, Basil Chapman, wrote his
commentary much prior to 1999.  "What happens over the coming few
years should mirror well the emotions and values of the country as
they change dramatically.  In the next and final up phase of this
mega bull market, the atmosphere will be charged with excitement.
We will accept as normal the glorification of making money, as
stocks make people wealthy beyond their wildest dreams.  Banks
will be vying with one another to handle the public's "portfolio."
Eventually, as the stock market pushes into the stratosphere,
bread-and-butter money is going to find its way into stocks and
options-from bricks to paper."

As I watched the time and sales tape whirl today (Wednesday), I
saw what I believe to be hopes and dreams killed in a sea of
numbers within a red box.  As the lower lows just kept coming, I
realized these were people's margin accounts being sold out.  No
one wants to sell the low of the day.  But then, another low comes
and panic sets in, "Where is THE low?"  We honestly can't know
this.  As Mr. Chapman asserts, "Intraday traders will probably
see swings so large that entire fortunes will be made and lost in
just one session."  Indeed.

So how low can this market go?  Isn't that what everyone wants
to know?  Our readers want to know how long they can play their
puts while the contrarians want to be the first to be long before
that inevitable bounce and short squeeze rally gets underway.
Only a fool would try to call a bottom now.  We'll see it in a
rear view mirror.

The Nature of the Beast

It's been quite some time since the investing public has seen
and survived a true bear market.  Consider that 85 percent of
the money currently in the market has been here since only 1994.
That's novice money.  For those who do remember a bear, their
recollections must be brief as the bears of '87 and '90 were
only two or three months in duration.  Normal bear markets have
a far different profile.  This is the 30th bear market in the
last 100 years.  The average duration of the previous 29 was
fourteen months, but some lasted for several years.  Just this
afternoon on CNBC, Darby Mullany reported that it would take six
years from this point at an eleven percent yearly appreciation
for the Nasdaq to see its highs of this year.  The eleven percent
comes from the average S&P gains over the last eighty years or
so.  However, I've compiled a chart with returns for the last
ten years:

The Nasdaq has a much better record than that.  We just can't
predict the future though.

Back to the bear.  Bear markets normally consist of two to three
legs down, interrupted by fierce but failed rallies.  They don't
end until all the excesses are wrung out and stocks are extremely
undervalued, underbought and might I add, hated.  In reference to
the Nasdaq, our first leg down was in March.  This first leg
serves to beat out some of the froth and takes PE values down a
few notches to where everyone feels they are a tremendous value
again.  A rally ensues and lasts long enough to convince all that
the first leg was just a swoon and it's safe to come back onboard.

When it becomes evident that the problems that caused the first
leg down were in fact real, not a just an internal market
correction, the second phase begins.  Companies report earnings
shortfalls, economic numbers point to less favorable conditions
and more sellers show up at the door.  This takes the market to
lower lows and isn't able to bounce until it's very oversold on
this leg.  The problems are much more widely recognized and
consequently the market is more broadly sold off.

As previously stated, bear markets are interrupted by fierce,
though failed rallies.  These amount in large part to
"short-squeezes" as those who have shorted stock begin to see
their trades turn against them as buyers, seeing all that dollar
value at penny prices, rush in to scoop up the perceived bottom.
The shorters feel the same pain those on the long side were
feeling on the previous decline and a buying frenzy ensues.  But
then, the problems don't seem to go away.  No one wants to be the
last one in so they buy quick and await their rewards for having
picked the bottom.  The money quickly runs out though; not
everyone is convinced that there was enough impetus for a bull
market to start all over again.  The selling machine begins to
churn once more.

At this, investors truly do panic as they witness the resumption
and relentless plunging of their accounts.  They've suffered
massive losses by now and go in to try and salvage what little
there is left.  Stocks become undervalued at this point but the
investing public simply doesn't care anymore.  They've seen all
the rallies fail and lack the gumption to get back on the scene.
Only the corporate insiders, institutions and pros are there to
buy the bottom.  This is the way bear markets have played out in
history.  Will it be that way this time too?  Sentiment is still
quite high.  The American Association of Individual Investors
(AAII) reported that the percentage of bulls edged up to 60%
again.  Only one third of those surveyed were bearish as of
December 15th, this despite a more than 50% tanking of the Nasdaq
over the past 16 weeks.  The American public might be a little
nervous but deep down it expects to be bailed out.  The 100-point
rally on no good news prior to the Fed meeting on Tuesday is
pretty good evidence of this belief.  They've witnessed
capitulation days before; they know if they can hang on just a
little longer, they'll get their just reward.  And that's why
we've gone sixteen weeks without relief thus far.

As Sy Harding states in his "Riding the Bear" book, "Whether
investors will be made more wealthy or have large losses from
participation in the stock market depends not on how large
their paper profits are in the bull market, but on how much they
give back in the subsequent bear market."   I don't mean to sound
trite but the best plan is, of course, to trade nimbly and cut
losses quickly.

From our homes to yours, wishing you all a very Merry Christmas.


Why put all your risk into one stock when you can play the
index instead?

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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.


G $33.00 +0.50 (-0.81) The painful sell-off in the broad markets
yesterday caused serious technical damage to our G call play.  The
stock crashed through all of its major moving averages en route to
closing at the $32.50 level.  And although it rebounded today, G
was unable to hold onto much of its gains as it rolled over near
its 10-dma at $33.50.  Instead of waiting around to see G sink
further, we're cutting our losses quickly.  Use any bounce or
short covering rally to exit existing positions early Friday


SBC $44.88 +0.81 (-8.81) More problems at AT&T have brought
the sellers right back to the telecom sector.  The potential
capitulation for SBC on Tuesday after their warning was quickly
discarded as shares fell further after comments from Ma Bell.
Essentially, AT&T reported on Wednesday after the close that
they would miss revenue estimates.  This is nothing new to
those following the long distance business.  Fierce competition
has caused prices to fall, thus hurting the top line.  SBC
traded down under $43 Thursday morning on the news, but did
rebound relatively quickly to trend up during the afternoon.
Like we mentioned last update, the value players may be lurking
in the shadows after the recent carnage.  Since we are sitting
on hefty profits it is prudent to walk away ahead of any
potential relief rally.  Use any weakness ahead of the holiday
to exit existing positions.

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The Option Investor Newsletter                 Thursday 12-21-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

Tired of waiting on trades to execute?
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Anything else is too slow!



IVGN $76.00 -2.56 (-2.75) Despite closing down $2.67 or 3.29%
yesterday on average volume, we added IVGN to our call play list
due to its strong intermediate-term uptrend, support close below
from the 50-dma (now at $72.20) and its position in the Biotech
space as a pick and shovel play.  While the stock did give back
another 3.26% today, trading volume was light, less than half the
ADV, and the bounce off the minor support level of $74 was
encouraging.  Another bounce off this point or the 50-dma could
allow aggressive traders to enter this play, but make sure IVGN
closes above our stop price of $72.  For the more risk averse, an
entry on strength can be had on a break through the minor
resistance level of $78.  From there IVGN would be poised to take
challenge more formidable resistance from the 5 and 10-dma, now
at $78.82 and $80.41 respectively.  Confirm breakouts and bounces
with volume and keep a watch on IVGN's competitors AFFX, CRA and
QGENF when making a play.

LH $163.75 +3.00 (+6.69) A lone bright spot in the broad-based
market weakness has been the Medical stocks.  As the #2 clinical
laboratory service, LH has seen strong buying interest continue
to propel shares higher over the past month.  We need to be
careful going forward though.  Earlier this week, the stock
rolled over (due to normal profit taking) at the upper Bollinger
band, and daily Stochastics are looking a bit top-heavy.  The
bright side of the picture is that the two days of profit taking
produced another attractive entry point as the stock bounced at
$157, just above the 10-dma ($155.13), and recovered all of its
losses today.  LH looks to be forming another higher low, before
charging to new highs again.  As long as technology stocks
remain out of favor, look for Medical stocks to continue to
shine.  The bounce that occurred in today's trading session was
confirmed by positive moves in competitors DGX and PPDI, so we
want to continue to monitor these stocks as a way to measure
sentiment in the sector.  New entries can still be considered as
LH bounces from support between $158-160.  Our stop still rests
at $158, and any close below this level will spell the end of
our play.  The upper Bollinger band is converging with the top
of the ascending 8-month channel, near the $170 level.  While
new positions can be considered on a breakout over $165, use
caution, as the stock will likely undergo some profit taking
again as it approaches the top of the channel.

SGP $57.88 -0.63 (-0.06) Yesterday's strong charge to the $60
mark was no doubt a bullish move, but today's action leaves us
on alert.  SGP failed to rally with the DOW and instead,
channeled in a tight range at the $57 support level.  Granted,
SGP continues to demonstrate strength at these higher price
levels and edge fractionally higher to set new 52-week records,
but time is money.  Lower entries are still considered viable at
the current level and corresponding the 10-dma ($57.45), but
wait for a big surge of momentum to propel SGP through the
formidable resistance line at $60 before taking positions.
There was good news swirling around Schering-Plough with
announcements of an European approval for its new combination
treatment for patients with chronic Hepatitis C.  Legal
certification of that approval will likely take about four
months.  Today the company also announced it submitted a New
Drug Application (NDA) to the FDA, seeking clearance to market
its nonsedating antihistamine desloratadine in a rapidly
disintegrating tablet formulation.


PMCS $69.50 -14.38 (-14.38) PMCS is having a terrible week, which
is providing huge profits for our put play.  The stock has been
falling in tandem with the semiconductor sector this week, and
the brief Nasdaq rally early in the day did little to boost the
stock or sector.  It is going to take more than one day of a rally
to re-establish strength in the semiconductor stocks.  There have
been many downgrades of this sector, but the most devastating ones
occurred this week.  A Merrill Lynch downgrade of CSCO cited
slowdowns in corporate IT spending, and CSFB stated that they saw
weakness in demand along all stages of the OEM cycle.  PMCS has a
P/E of over 200, and investors are not venturing back into stocks
they perceive as potentially overvalued.  Volume is about 30%
higher on the down days.  PMCS tried to rally past $83.75 during
the mid morning rally, but fell back sharply, closing way below
the 5-dma of $88.14.  A possible entry point might be a failed
rally off $72.25, or the next resistance level at $77.63.  Set
stops at $81, as this could indicate a reverse of the down trend.

ARBA $48.88 +0.63 (-19.25) ARBA made a new 52-week low yesterday,
with a break below its previous near-term bottom at $51.75, as a
weak session for the NASDAQ resulted in a drop of $12 or over 20
percent on over 162% of ADV.  Negative comments from Goldman
Sachs and Thomas Weisel made about peer CMRC certainly added fuel
to the fire sale.  Today the stock continued to trade deeper into
negative territory, making a new 52-week intra-day low of $43.56,
despite closing up fractionally on 130% of ADV.   Resistance
levels abound, at $50, $51.75 and $53, with a failed rally above
these levels allowing for aggressive entry points.  With the
stock deeply oversold, a pause while the 5-dma catches up with
current prices is a possibility so exercise patience when
targeting an entry.  For traders looking to enter on weakness, a
break below today's lows on strong selling volume, confirmed with
negative direction in Merrill Lynch's B2B HOLDR (BHH) would be
the target to shoot for.  To protect what are now substantial
profits, we are moving our stop price down from $66 to $52.

CELG $34.44 -2.19 (-10.31) A steep fall for the Biotech sector
helped our put play on Wednesday, as CELG fell $5.44 or almost 13
percent on almost twice the ADV.  Today, the stock attempted to
rally but without conviction, CELG closed down another 6%.  While
we are keeping our stop price at $45 for now, there is overhead
resistance at $43, $41 as well as $40.  A technical bounce from
oversold conditions could lift the stock to these levels allowing
aggressive traders, who are willing to take a little risk for
higher returns, to take a position.  At this point, there appears
to be strong support at $33.  If the sellers return, taking CELG
below this level with conviction, this will allow conservative
traders a chance to jump in.  With little to no news from the
company lately, sector sympathy will play an increased role in
the movements of CELG so confirm sentiment with that of the AMEX
Biotech Index (BTK) and Merrill Lynch's Biotech HOLDR (BBH).

AMCC $53.88 -2.25 (-13.63) Despite a weak rally this morning,
it is clear that the NASDAQ bears are still in charge.  The only
issues that had any luck holding onto their intraday gains were
over on the "old-economy index", as technology continued to reel
under the onslaught of earnings warnings.  AMCC managed to
briefly top $62 in the midst of the rally, but gave its gains
(and then some) back as it became clear there was just no
compelling reason for investors to keep buying.  After the
bottom fell out, AMCC declined right up to the last 30 minutes
before seeing some weak buying that lifted the stock off its low
of the day, near $52.  We are once again ratcheting our stop
down to keep from giving back our gains, and it now sits at $62,
right at today's high.  A failed rally near our stop or a
breakdown through the $52 intraday support level will provide
new entry opportunities for aggressive and conservative
investors respectively.  Volume continues to be heavy, 50% above
the ADV in today's session, giving the bulls hope that the
bottom may be near.  But in the meantime, we will continue to
follow the descending trend.  Use the broader Networking (NWX.X)
and Semiconductor (SOX.X) indices to gauge market sentiment and
trade accordingly.  Trading contrary to the broader sectors is
not prudent in this market environment.

EMC $59.25 +3.63 (-8.88) Was that a bottom forming, or did we
just get another entry point on our very profitable put play?
After 7 big losing days, EMC was overdue for a bounce, having
traversed the entire distance between its upper and lower
Bollinger bands in 2 weeks.  By yesterday's close, the
enterprise storage leader had seen a whopping 39% reduction in
its value, and this came in the absence of any negative news
from the company.  In just the past week there have been
downgrades from the likes of AG Edwards, Prudential and Bear
Stearns, adding to the bearish sentiment.  Trading volume was
heavy again today, nearly doubling the ADV as buyers finally
came back in large enough numbers to push our play to its
first positive close in well over a week.  The bears didn't go
into hibernation though, as they came out to sell the rally
shortly after the noon hour.  While EMC managed to hang onto
the lion's share of its gains today, it looks susceptible to
further losses as it is becoming increasingly clear there will
be no Santa Claus rally.  Just in case the bulls do pull a magic
rabbit out of their collective hat, we moved our stop from $69
down to $62 last night.  After all, there is no sense giving back
our fat profits on this play.  Aggressive traders can look for
new entries to materialize on a rollover near the $62 level,
while more conservative players will want to wait for a break
below support at $54 before opening new positions.  In either
case, use the direction of the NASDAQ and other storage stocks
like NTAP and BRCD before putting your money at risk.  Trade
with the trend.

IBM $81.56 -4.44 (-6.25) Investors took yesterday's downgrade by
Merrill Lynch to heart!  The grim sentiment surrounding the tech
sector and IBM's "mum's the word" attitude about 4Q earnings
paved the way for additional losses.  The looming concern about
big cap leaders, IBM and CSCO, announcing their own 4Q warnings
kept the marketplace on edge.  As a result, IBM continued to get
pounded and hit a 52-week low for the second consecutive
session, falling to $80.06 in late afternoon trading today.  The
faltering tech sector and growing nervousness amongst investors
continues to provide an optimum environment for IBM to move
lower.  The current price level rivals the lows IBM saw in the
early part of 1999.  Another significant move to the downside
portends a bleak future for IBM over the short-term; especially
with earnings expected around January 16th.  An earnings
warning would certainly be a nice topper for this put play!
Let's keep our fingers crossed for such a profitable event to
transpire in a declining market!  Consider an aggressive entry
after a high-volume rollover near the 10-dma ($90.56) and our
recently adjusted $90 protective stop.  A bit more modest, but
still risky, is to look for entry opportunities around the 5-dma
($87.20) line on a strong downdraft.  Of course, a breakdown
below the $80 mark offers better confirmation, although your
risk portfolio will determine the overall strategy.

SANM $61.44 -0.50 (-11.66) SANM exhibited more weakness while
some of the other electronic manufacturing stocks, like SLR and
TEK, kept afloat in recent sessions.  SANM took a sharp $4.06,
or 6.1% hit on Wednesday.  It sunk lower along side the test and
measurement company, Agilent Technologies (A), who until
recently was a beacon of light among the techs.  In comparison
to yesterday's volume of 3.3 times the norm at 14.2 mln shares
exchanging, today's action was rather mild, but respectable
enough for SANM to experience an almost eight (8) point spread
intraday.  That type of intraday volatility offers quite a
variety of entry points for the more aggressive trader.  Perhaps
CIBC's new Strong Buy coverage generated some short-lived
excitement, although the positive coverage didn't incite a
genuine buying spree.  Nonetheless, the bears couldn't move SANM
below the $60 support.  In response to SANM's trading behavior,
we've lowered our protective stop to $69 to minimize the upside
risk.  The new exit point is now far below the espied 10-dma
($75.67), but aggressive entries might, however, be found on
high-volume rollovers at the 5-dma ($66.92).  Conservative
traders may want to keep in cash until there's more downside
action and only then, consider buying into the downward

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JNJ - Johnson & Johnson $101.00 +0.38 (+2.44 this week)

Johnson & Johnson is one of the world's largest and diversified
makers of healthcare products.  JNJ has three distinct business
segments serving the consumer, professional, and pharmaceutical
markets.  As a consumer you're probably most familiar with their
over-the-counter brands like Tylenol, Band-Aids, and "no tears"
baby shampoo.  But Johnson & Johnson reaches beyond that realm
and expands all aspects of its product lines through acquisitions.

The Johnson & Johnson healthcare giant experienced a solid run
through the psychological century mark this week and is now
headed straight into its 4Q earnings release.  The company is
bullishly predicted to disclose double-digit gains on January
23rd, BEFORE the market.  From a broader perspective too, the
health-care sector tends to be a protective shelter during
slumps in technology stocks; and furthermore, health-care stocks
aren't generally hurt by an economic slowdown.  Think about it.
First, there's the obvious "defensive play" scenario of why the
industry leaders: JNJ, MRK, SGP, PHA and AHP can hold their own
amid volatile shifts in the marketplace.  And second, consumers
may put off buying that shiny new car or bigger house, but let's
be realistic, no one can afford not to take care of medical
problems.  The increasing aging population is also a major
factor.  For instance, JNJ's arthritis medicine, Remicade, has
won widepsread use in battling a disease that afflicts primarily
the elderly population.  And so we have a company who boosts a
solid business model and a great performing stock.  To boot, JNJ
is currently trading above the historical split-level of $90;
although the last time JNJ split its stock was in 1996.
Honestly, this isn't currently considered a factor in regard to
our call play on JNJ, but rather, a fine point.  We're
initiating coverage on sector strength, stock-specific
performance, and the potential of a run into earnings next
month.  The 5 and 10-dmas at $98.49 and $99.59, respectively,
offer a more enterprising level of entry, while a momentum
breakout above the $102 resistance provides a more
discriminating approach for the conservative types. Take entries
into this steady mover only after confirming an advancing
marketplace and bullish internals. Our stop is set at the $98
level to avoid getting trapped in a flat trading channel.

BUY CALL JAN- 95 JNJ-AS OI= 7395 at $8.00 SL=5.75
BUY CALL JAN-100*JNJ-AT OI=11334 at $4.38 SL=2.75
BUY CALL JAN-105 JNJ-AA OI= 9550 at $1.94 SL=1.00
BUY CALL FEB-100 JNJ-BT OI=  136 at $5.75 SL=3.75
BUY CALL FEB-105 JNJ-BA OI=  133 at $3.50 SL=1.75



QQQ - NASDAQ 100 Index Trust $56.06 +0.34 (-7.81 this week)

The NASDAQ 100 Index reflects NASDAQ's largest companies across
major industry groups, including computer hardware and software,
telecommunications, retail/wholesale and biotechnology.  Launched
in January 1985, the NASDAQ 100 represents the largest and most
active non-financial domestic and international issues listed on
The NASDAQ Stock Market based on market capitalization.

Well, the QQQs are back on the play list once again.   They are
looking attractive at current levels of $56.  The NASDAQ is
extremely oversold from a technical standpoint and after the
recent sell off, it's due for a relief rally.  While concerns over
the economy and earnings prospects loom over the entire market,
long term entry points abound.  The premise of this play is to
take advantage of the oversold condition and the expectations
that we are going into an environment of easing interest rates.
This trade can be put on with February or March contracts as to
avoid the exponential time decay of front month contracts.  Keep
stop loss orders however.  To obtain entry in the QQQ calls, look
for bounces from support at $54, where buyers showed up today.
The downside risk is $50, the site of our stop loss.  As a point
of reference, when the QQQs began trading in March 1999, they
opened at $50.  A break below this level would be of concern.
Overhead, sellers have been showing up at $58.  A break above
this level could bring clear sailing to $62.

BUY CALL JAN-55 QQQ-AC OI= 4330 at $5.38 SL=3.50
BUY CALL JAN-56 QQQ-AD OI=12325 at $5.00 SL=3.25
BUY CALL FEB-58 QQQ-BF OI=   72 at $5.75 SL=4.00
BUY CALL FEB-60*QQQ-BH OI= 1330 at $4.88 SL=3.25
BUY CALL MAR-60 QQQ-CH OI= 9849 at $5.88 SL=4.25


AOL - America Online $37.66 +0.41 (-11.30 this week)

Founded in 1985, America Online is the world's leader in
interactive services, Web brands, Internet technologies, and
e-commerce services.  Through its strategic alliance with Sun
Microsystems, the company develops and offers easy-to-deploy,
end-to-end e-commerce and enterprise solutions for companies
operating in the Net Economy.

This Long Term Call Play, which we were stopped out of on the 18th,
is being initiated again.  AOL fell this week on news of a TWX
earnings warning, citing weaker advertising revenues at its cable
networks in the 4th quarter.  On Wednesday, AOL-TWX reiterated that
their merger will close at the end of the year or in the early days
of January.  AOL also warned federal regulators that it would face
a substantial burden if it was unable to close the merger by
year-end.  Valuations are attractive for AOL at these levels and
in the long term view, AOL has much upside potential once the
merger is completed.  Option premiums are relatively cheap, even
out into February and March.  Look for entry on bounces from
intraday support at $35.  On the upside, a breakout over $40 would
also be encouraging for an entry.  A breakdown and close below
support at $35 and we would not initiate any new positions.  Keep
stops tight as the market remains very volatility.

BUY CALL JAN-35 AOE-AI OI= 5845 at $5.60 SL=3.75
BUY CALL JAN-40 AOE-AH OI=20866 at $2.95 SL=1.50
BUY CALL FEB-40*AOE-BH OI=  559 at $3.90 SL=2.50
BUY CALL FEB-45 AOE-BI OI= 1586 at $2.35 SL=1.25
BUY CALL APR-45 AOE-DI OI= 5359 at $3.40 SL=1.75



BBT - BB&T $36.94 +0.81 (+3.19 this week)

BB&T is a fast growing, highly profitable financial holding
company with $57 billion in assets.  Its bank subsidiaries
operate more than 800 branch offices in the Carolinas, Virginia,
West Virginia, Kentucky, Georgia, Maryland, and Washington, D.C.

BBT's upward trend is rather impressive in light of the recent
market environment.  The rally in shares stems from the fact the
Fed is on the verge of lowering interest rates.  And although
shares of BBT have been discounting an ease in interest rates for
quite some time, we feel the stock has more upside in the coming
months.  As for entry points, the $37 level should prove to be a
critical hurdle for BBT to clear.  It marks the stock's high from
October of 1999, and would provide a solid entry point if BBT
breaks above.  Thereafter, it should be smooth sailing up to the
$40 level - BBT's all-time high.  Additionally, pull backs to
support at $36 and lower near the 10-dma at $35 would provide
entry possibilities.  Just make sure the buyers step in with big
volume before entering on a pullback.  Speaking of volume, the
trading activity in shares has been rather robust over the past
week as BBT has pushed higher, which bodes well for our play.
We've set our stop near the 10-dma at $35 and would drop the
play if shares closed below that level.

BUY CALL JAN-35*BBT-AG OI=668 at $2.69 SL=1.50
BUY CALL JAN-40 BBT-AH OI= 30 at $0.56 SL=0.00  High Risk!
BUY CALL FEB-40 BBT-BH OI=  0 at $1.06 SL=0.00  Wait for OI!
BUY CALL MAR-40 BBT-CH OI=164 at $1.38 SL=0.75


SLC - Sun Life Financial Services $25.19 +0.88 (+2.25 this week)

Sun Life Financial Services of Canada is the new holding
company for Sun Life Assurance Company of Canada.  Sun Life is
the new identity of a select group of companies providing
individuals and corporations with a diversified range of products
and services, meeting their needs for wealth accumulation and
management as well as protection.

Shares of Canadian-based Sun Life have established a solid
up-trend recently.  The company is benefiting from a shift in
the Canadian financial services landscape and investors have
welcomed the change.  The stock has been sailing higher using its
10-dma as support since mid-November.  The 10-day is now located
at the $23.50 level, which is also the site of our protective
stop.  New positions can be added on a pullback to that level.
However, make sure the buyers step in with strength at $23.50
before entering on a dip.  Bounces off support near $24.50 and
$24 could also be considered for entries.  Also, new entries
could be found if SLC continues climbing towards blue sky.
Watch for a break above its intraday high at $25.25 on heavy

BUY CALL JAN-25*SLC-AE OI=13 at $1.44 SL=0.75
BUY CALL FEB-25 SLC-BE OI=35 at $1.81 SL=1.00
BUY CALL MAY-25 SLC-EE OI=59 at $2.88 SL=1.50


USB - U.S. Bancorp $29.75 +0.75 (+3.38 this week)

U.S. Bancorp is a multi-state bank holding company which offers
full-service brokerage services at approximately 100 offices.
Providing banking services through its subsidiaries, the company
is engaged in consumer banking, commercial lending, financing
of import/export trade, foreign exchange, and investment
services.  USB also has various non-bank subsidiaries engaged
in financial services such as trust, commercial and agricultural
finance, data processing and leasing.

Benefiting from the recovery in Financial stocks, helped by
anticipation of a more friendly interest rate environment,
shares of USB have been on a nice upward trend for the past
month.  Adding better than 38% since the stock bounced at the
200-dma (then at $21.50) in late November, USB really made a
strong technical move this week.  Helped by the Fed's change to
an easing bias with respect to interest rates, USB broke above
the $27 resistance level on Monday, and since then has moved up
to begin testing the $30 resistance level.  Confirming the
recent up-trend, volume has been more than 50% above the ADV all
week, with nearly 5 million shares trading hands in today's
session.  Pullbacks over the last month have been halted at the
10-dma (currently $27.44), and as long as the positive
environment for Financial stocks continues, traders should be
able to initiate new positions near this level as we head into
the end of the year.  The stock has been riding its upper
Bollinger band all week, and we would recommend waiting for the
pullback before jumping into the play.  Don't forget to check
the health of the Banking sector (BKX.X) for confirmation that
the bullish trend is intact.

BUY CALL JAN-30*  USB-AF OI=5878 at $1.38 SL=0.75
BUY CALL JAN-32.5 USB-AZ OI=  20 at $0.56 SL=0.00
BUY CALL FEB-30   USB-BF OI= 759 at $2.00 SL=1.00
BUY CALL FEB-32.5 USB-BZ OI= 278 at $1.06 SL=0.00
BUY CALL MAR-30   USB-CF OI=  10 at $2.63 SL=1.25




BLDP - Ballard Power Systems $58.50 -3.88 (-10.25 this week)

Ballard Power Systems, Inc. was founded in 1979 to conduct
research and development in high energy lithium batteries. In
1983, Ballard began developing proton exchange membrane (PEM)
fuel cells.  Today, these systems have evolved into
pre-commercial prototypes proving the practicality of the Ballard
fuel cell and fuel cells are widely viewed as viable alternatives
to conventional technologies.  Ballard's focus is now on working
with its strategic partners to develop competitive products for
mass markets by reducing cost and implementing high volume
manufacturing processes.

For reasons both fundamental and technical, we are adding BLDP to
our put play list.  Recent changes proposed in California's
Zero-Emission Vehicles program have afflicted the stock price, as
the possibility that regulators will decrease the number of
mandatory fuel cell powered cars has driven fear deep in the
hearts of investors.  While BLDP's CEO attempted to put a
positive spin on this, traders are not buying and with that, the
stock traded down sharply on the news.  As well, recent
downgrades from CS First Boston, from Strong Buy to Buy, and Bear
Stearns, from Buy to Neutral, have not helped the stock.  Add to
that a President-elect who is perceived to be more friendly
towards conventional fuel source companies and it is clear that
the fundamental picture does not favor upside movement anytime
soon.  The technical picture is just as bleak, with the stock
moving deeper into the red on the back of the 5-dma (now at
$64.42).  Already well below all its major moving averages, BLDP
has broken a number of key support levels, $70, $65 and most
recently $60.  These levels should serve as formidable resistance
going forward, with a failed rally above these points serving as
aggressive targets for entry.  We are placing our protective stop
at $65 so make sure that BLDP continues to close below this price
to ensure that downside momentum remains intact.  If the selling
continues tomorrow, wait for BLDP to take out today's low of
$57.25 for a more conservative entry.  In either case, confirm
direction with volume and sector sympathy with peer FCEL.

BUY PUT JAN-65 DFQ-MM OI=504 at $10.25 SL=7.00
BUY PUT JAN-60*DFQ-ML OI=123 at $ 7.38 SL=5.25


RBAK - Redback Networks $37.25 -10.25 (-45.75 this week)

Founded in 1996 and headquartered in Sunnyvale, Calif., Redback
Networks is a leading provider of advanced networking solutions
that enable carriers, cable operators, and service providers to
rapidly deploy broadband access and services.  The company's
market-leading Subscriber Management Systems (SMSs) connect and
manage large numbers of subscribers using any of the major
broadband access technologies such as Digital Subscriber Line
(DSL), cable, and wireless.  To deliver integrated transport
solutions for metropolitan optical networks, Redback's SmartEdge
multi-service platforms leverage powerful advances in
application-specific integrated circuit (ASIC), IP, and optical

This is one week that investors of RBAK would like to forget.
With continued weakness in Tech stocks as well as some strategic
moves by competitors and another round of earnings warnings,
shares of the former high-flyer have been cut by more than half
in the past four trading sessions on accelerating volume.  With
fellow Networker FDRY and large customer of Networking companies
AT&T both issuing earnings warnings, it's no wonder that RBAK and
its peers have been trading sharply lower.  What's more, Ciena
announced on Tuesday that it would acquire privately held optical
firm Cyras and in doing so, put itself in a position to be a
direct and formidable competitor to RBAK.  With CSCO looming
overhead and CIEN not far below in the metropolitan optical
networking food chain, the risk profile of investing in RBAK has
certainly increased.  This caused a mass exodus of shareholders,
despite soothing words from WR Hambrecht, who reiterated their
Buy rating and $120 price target, saying that the selling was
overdone.  CE Unterberg also initiated coverage with a Buy rating
but for traders, the negative price/volume action speaks louder
than words.  At this point, there is resistance overhead at $45,
our stop price of $44 and $40, with a failed rally above these
levels serving as aggressive entry points.  In doing so, confirm
a rollover with the return of selling volume.  If the bears
continue to be in full control of RBAK, look for a break below
today's lows of $36.93 as a possible target to take a position.
When making a play, look to the AMEX Networking Index (NWX) for
guidance as well as companies in the DSL sector such as CMTN and

BUY PUT JAN-45 BUK-MI OI=143 at $12.00 SL=9.00
BUY PUT JAN-40*BUK-MH OI=811 at $ 8.63 SL=6.00


HAND - Handspring $33.94 -10.19 (-13.63 this week)

HAND is a provider of handheld computers, and is best known for
its Visor Handheld computer, based on the popular PALM
operating system.  The company's platform is known as
Springboard, and provides the advantage of an open expansion,
which can be used to integrate modules such as a digital camera,
an MP3 player, a two-way pager, a global positioning module and
content such as books and games.  Since the Visor's
introduction, more than 2500 developers have signed on board to
receive support in developing these modules, adding to the
unit's rapid adoption.

While it took a little bit longer than the PC sector, it looks
like the speculative bubble in the Handheld stocks has finally
popped.  After rolling over near the $100 level in October, HAND
has been trading in a sharply descending channel, pressured by
the deteriorating sentiment on the NASDAQ.  It seems nothing
related to technology is safe from the selling pressure, and
this point was driven home when PALM announced earnings last
night.  Although they beat the street by a penny, the revenue
number didn't sit well with investors and they sold the stock
mercilessly today, slashing 32% from the stock.  HAND felt the
guilt-by-association selling, as it gave up more than $11 on
volume more than double the ADV.  Today's decline pushed HAND
solidly below its $40 support level, and if conditions don't
improve, the stock could soon be challenging its IPO price near
$27.  The severity of the recent decline has pushed HAND through
its lower Bollinger band , and combined with the fact that
Stochastics are now oversold, a relief bounce is not out of the
question.  While new positions can be considered as HAND
declines below the $33 level, a more prudent approach may be to
wait for a bounce before playing.  We are placing our stop at
$40, as this level should provide solid resistance in the event
of a relief rally.  Aggressive traders can enter new positions
when the bulls run out of enthusiasm and the stock rolls over at
or near this level.  Competitors PALM and RIMM are also in
bearish trends, so confirm weakness in these stocks before
initiating new positions.

BUY PUT JAN-45 HQA-MI OI=347 at $14.00 SL=10.50
BUY PUT JAN-40*HQA-MH OI=674 at $10.38 SL= 7.50



LH - Laboratory Corp. of America $163.75 +3.00 (+6.69 this week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse

Most Recent Write-Up

A lone bright spot in the broad-based market weakness has been the
Medical stocks.  As the #2 clinical laboratory service, LH has
seen strong buying interest continue to propel shares higher over
the past month.  We need to be careful going forward though.
Earlier this week, the stock rolled over (due to normal profit
taking) at the upper Bollinger band, and daily Stochastics are
looking a bit top-heavy.  The bright side of the picture is that
the two days of profit taking produced another attractive entry
point as the stock bounced at $157, just above the 10-dma
($155.13), and recovered all of its losses today.  LH looks to be
forming another higher low, before charging to new highs again.
As long as technology stocks remain out of favor, look for Medical
stocks to continue to shine.  The bounce that occurred in today's
trading session was confirmed by positive moves in competitors DGX
and PPDI, so we want to continue to monitor these stocks as a way
to measure sentiment in the sector.  New entries can still be
considered as LH bounces from support between $158-160.  Our stop
still rests at $158, and any close below this level will spell the
end of our play.  The upper Bollinger band is converging with the
top of the ascending 8-month channel, near the $170 level.  While
new positions can be considered on a breakout over $165, use
caution, as the stock will likely undergo some profit taking
again as it approaches the top of the channel.


LH delivered for us earlier in the week and we're looking for the
leader to take us higher into the weekend.  If shares of LH do
pullback tomorrow as detailed above, we'd look to enter on any
dip.  Look for buyers to show up near $161 or lower near the $160
level.  If LH continues to climb into the weekend, consider
shooting for entries on an advance past the $165 level.  The
more conservative traders might look for entries on a strong rally
past $167 on strong volume after confirming strength in DGX and

BUY CALL JAN-165 LH-AM OI=515 at $11.88 SL= 9.00
BUY CALL JAN-170*LH-AN OI= 11 at $ 9.50 SL= 6.50
BUY CALL FEB-170 LH-BN OI=  0 at $15.88 SL=11.50  Wait for OI!


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Dow Stocks Lead The Way...

The stock market ended higher today as blue-chip technology
issues rebounded from a string of losing sessions.

Wednesday, December 20

The stock market slid precipitously today amid growing concerns
over the slowdown in corporate earnings.  The Nasdaq sunk to its
lowest level in over a year, closing at 2,332 after downgrades on
a number of leading technology issues renewed worries of a hard
landing for the U.S. economy.  The Dow closed down 265 points at
10,318 and the S&P 500 index ended down 40 points at 1,264.  The
trading was fast and furious with volume on the NYSE at over 1.4
billion shares, with declines beating advances by 1,941 to 1,014.
Trading volume on the Nasdaq reached 2.84 billion shares, with
declines beating advances 3,298 to 828.  Bonds rose sharply with
the flight to quality and the 30-year U.S. Treasury rose 1 2/32,
while its yield fell to 5.40%.

Tuesday's new plays (positions/opening prices/strategy):

Conseco     CNC   FEB12C/FEB10P   $0.38   credit  synthetic
NS Group    NSS   APR10C/APR7P    $0.06   credit  synthetic
Tektronics  TEK   JAN40C/JAN27P   $0.62   credit  synthetic

The bearish market activity provided a number of excellent entry
opportunities in our new positions.  Both Conseco and Tektronics
traded significantly lower at the open, and the initial premiums
in those plays were higher than expected.  Our first instinct was
to switch to the JAN-25P in the TEK position, as it traded closer
the value of the long option (JAN-40C) however, we will track the
original play as offered.  The synthetic position in NS group did
not meet our target credit, but there will likely be additional
entry opportunities in coming sessions.

Portfolio Plays:

Stocks moved lower today with all of the major indices falling
below key support levels as investors unloaded issues in almost
every sector.  Tax-loss selling increased the downward pressure
and rumors of an impending market-wide capitulation was common
among floor traders.  Among technology companies, Cisco Systems
(CSCO), Hewlett-Packard (HWP) and Intl. Business Machines (IBM)
were hammered after Merrill Lynch analysts slashed their ratings
on the bellwether issues citing among other things, an imminent
slowdown in corporate IT spending.  At the same time, analysts
at Credit Suisse First Boston lowered their growth forecasts for
the semiconductor sector to reflect a worsening situation with
inventories and the overall macroeconomic environment.  On the
Dow, J.P. Morgan (JPM), American Express (AXP), Citigroup (C),
Home Depot (HD) and International Paper (IP) led the blue-chip
average lower.  In the broader market, defensive issues in the
drug and consumer product segments edged higher but concerns of
an impending economic slowdown weighed heavily on most sectors.

Our portfolio experienced the same type of bearish activity as
the broader market and there were few positive events to review.
One of the Reader's Request positions made the news when AT&T (T)
reported it sees top-line growth at 2% to 3% in the 4th quarter
and will reduce its quarterly dividend to $0.03 from $0.22 to
help bolster cash reserves.  The stock fell below $19 in regular
trading and slumped further in the after-hours session.  Another
play in that category, the synthetic position in Pepsi Bottling
(PBG) was negatively affected by the slump in sector shares.  The
downward move came in sympathy with another leading issue in the
group as Coca-Cola (KO) reported it expects fiscal year 2000 unit
case volumes to increase by about 4%, which is about a percentage
point below what many analysts were projecting.  The downside
potential for this stock is substantial, so be sure to establish
definite loss-limit points or a minimum cost basis for the issue.
Among industrial issues, AMR Corporation (AMR) and Safeco (SAFC)
were the only bullish plays in the portfolio.  In the technology
group, Qualcomm (QCOM) has performed terribly since being listed
as a credit spread candidate.  The issue has moved down to a new
trading range near $75 and that is below our break-even basis in
the bullish play.  A few readers chose to exit the position on
Tuesday's rally to $92, but those that remained in the play are
now facing a difficult decision: hold, adjust or exit.  Since I
have recently received some requests for ways to make adjustments
to a credit spread, I decided to publish this article regarding
the use of protective STOPS and other spread-closing techniques.

"Bull-put" credit spreads are one of my favorite strategies and
there are a few ways to limit potential losses or even capitalize
on a reversal (or transition) to a new downward trend.  There are
three common methods to exit or cover a losing credit spread and
the alternatives range from "legging-out" or rolling into another
spread to "shorting" the underlying issue.  First, you can simply
close the position at a debit and register the loss.  There is
also Jim's popular technique; covering the short position as the
stock moves through the sold strike.  This is a great method for
bailing out on an issue that has reversed course but you must also
be prepared to buy it back in the event of a recovery.  Another
option is to attempt to "roll-out" of the spread for small profit
(or at least break-even).  To roll-out of a credit spread, place
an order to close the short option anytime the stocks trades (and
preferably closes) below technical support or a well-established
trend line (moving average) on heavy volume.  Of course there are
other, more precise signals that can be used but the technique is
based on the probability that the stock should continue to move in
that direction.  After the sold (short) position is repurchased,
wait for the stock to lose momentum and sell the long position to
close the entire play.  It's a difficult technique to perform when
emotion enters the formula but it works very well once you become
experienced at it.  The key to success is using the technique at
known support levels or after obvious reversal signals, otherwise
you are simply speculating about the stock's next move.

The great thing about spreads; once you understand them, you can
turn many losing plays into winning ones with the effective use of
STOPS and by rolling out-of and into new positions when the stock
moves against you.  When you do lose, at least you have reduced
your losses by leveraging against another position.  In all cases
where an attempt to recover a losing position is made, you must be
prepared for further draw-downs and have thorough knowledge of the
strategy being employed.

Thursday, December 21

The stock market ended higher today as blue-chip technology
issues rebounded from a string of losing sessions.  The Nasdaq
closed up 7 points at 2,340 and the Dow finished up 168 points
at 10,487.  The broader market also rallied with the S&P 500
index rising 10 points to 1,274.  Trading volume on the NYSE hit
1.4 billion shares, with declines beating advances 1,684 to 1,241.
Activity on the Nasdaq was heavy at 2.6 billion shares exchanged,
with declines beating advances 2,238 to 1,808.  In the U.S. bond
market, the 30-year Treasury fell 1/32, pushing its yield to 5.40%.

Portfolio Plays:

Industrial stocks rebounded today, battling back from the recent
sell-off on strength in retail and consumer stocks.  In addition
to support from defensive issues, the Dow was also bolstered by
bullish activity in Microsoft (MSFT).  The software giant rallied
after announcing plans to purchase Great Plains Software (GPSI),
a supplier of mid-market business applications, in a deal valued
at about $1.1 billion.  Microsoft officials said the acquisition
would offer more efficient software for small business customers
and investors applauded the news.  Wal-Mart (WMT), J.P. Morgan
(JPM), Home Depot (HD), and International Paper (IP) were also
among the outstanding blue-chip performers.  On the downside, a
decline in AT&T (T) shares after Tuesday's profit warning limited
the Dow's bullish activity.  Technology stocks struggled to rally
on strength in bellwether issues, with Intel (INTC) boosting the
Nasdaq in early trading.  Opposing the trend were Internet stocks
and networking issues also struggled after a profit warning from
Lucent Technologies (LU).  Analysts noted that 420 companies have
now warned of lower earnings for the fourth quarter, and the bias
for revenues in the first half of 2001 is decidedly pessimistic.
Among broader market issues, retail, financial, airline, chemical,
oil service and paper stocks advanced while major drug, precious
metals, biotechnology and utility stocks generally consolidated.

The Spreads portfolio enjoyed a few favorable moves but overall,
the bullish activity was not very convincing.  With the Nasdaq
so far into bear-market territory, down more than 50% from highs
earlier in the year, analysts say that any rally will be suspect
and continued worries about earnings and the slowing economy are
likely to weigh heavily on the group for some time.  One positive
aspect of the recent volatile market has been the outstanding
performance of the Straddles section.  In addition to the success
of the Advanced Fibre (AFCI) position, which is has provided an
$8.00 return on $13.50 invested, Compass Bancshares (CBSS) has
also moved into the "profitable" category.  Today the straddle
traded as high as $4.00 credit on $2.75 invested for one month,
and the options don't expire until April.  Another position that
recently edged into the positive column is British Telecom (BTY)
and since the overall play is now profitable, we will watch for
an opportunity to pay for the entire original debit with the Put
option, leaving the call option risk-free with unlimited upside

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
PFE - Pfizer  $42.50   *** Revenge Play! ***

Pfizer is one of the world's largest pharmaceutical and consumer
healthcare companies.  The "new" Pfizer was formed earlier this
year, following the pooling of interests merger between Pfizer
and Warner-Lambert and the company now represents a significant
consumer business encompassing many of the world's best-known
brands including Halls, Tetra, Benadryl, Sudafed, Listerine,
Desitin, Schick, Visine, Ben Gay, Lubriderm, Zantac 75 and
Cortizone.  The company operates through four main operating
units: Pfizer Pharmaceuticals Group, Warner-Lambert Consumer
Division, Pfizer Animal Health Group and Pfizer Global Research
and Development.

We offered this play last month and were disappointed when it
expired exactly at the break-even cost basis for the overall
position.  The recent rally, that thwarted our hopes for a
profitable play with December options, has once again failed
to produce a "break-out" and today's bearish activity suggests
the issue will remain in a trading range for some time.  There
were a number of potential reasons for the downward move: the
delay of an NDA for European approval for Zeldox; publication
of favorable data on a competitors' experimental vaccine for
treating Alzheimer's disease; and an analysts' recommendation
to avoid Pfizer as it is a high P/E drug stock.  Regardless of
the reason for the activity, the premiums for the (OTM) call
options are slightly inflated and the potential for a future
rally is significantly affected by the resistance at the sold
strike price; a perfect condition for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-46.62  PFE-AT  OI=8384   A=$0.75
SELL CALL  JAN-45.00  PFE-AI  OI=14146  B=$1.12
INITIAL NET CREDIT TARGET=$0.43-$0.50  ROI(max)=30% B/E=$45.43

PDG - Placer Dome  $10.31  *** Gold Sector Rally! ***

Placer Dome and its subsidiary companies, joint ventures and
associated companies are principally engaged in the exploration
for, and the acquisition, development and operation of gold
mineral properties, although significant quantities of silver
and copper are also produced.  The company's share of gold is
derived from mines in Canada, the United States, Australia,
Papua New Guinea, South Africa, and Chile.

One of our readers suggested a play on the Philadelphia Gold
Index (XAU), but we couldn't find any favorable positions in
those options so we decided to look for an issue that trades
in a manner similar to that average.  With the recent bearish
trend in broad market equities, Precious Metals stocks have
performed very well and based on the bullish technical outlook
for PDG, this position provides an excellent opportunity to
speculate on the future movement of gold prices.  Target a
higher premium initially, to allow for a brief consolidation
in the underlying issue.

PLAY (conservative- bullish/synthetic position):

BUY  CALL  JAN-10.00  PDG-AB  OI=23272  A=$0.88
SELL PUT   JAN-10.00  PDG-MB  OI=10075  B=$0.43

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $395 per contract.

                          - STRADDLES -
ADCT - Adc Telecommunications  $17.00  *** Technicals Only! ***

ADC Telecommunications offers a broad range of network equipment,
software and integration services for broadband, multi-service
networks that deliver Internet, video and voice communications
over telephone, cable television, Internet, broadcast, wireless
and enterprise networks.  The company's broadband, multi-service
network solutions enable local access, high-speed transmission
and software management of communications services from service
providers to consumers and businesses over fiber-optic, copper,
coaxial and wireless media.  The company also offers network
equipment, software and integration services within three major
product groups: Broadband Connectivity, Broadband Access and
Transport, and Integrated Solutions.

This position meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward.  As with
any play recommendation, it should be evaluated thoroughly for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-17.50  TLQ-BQ  OI=222  A=$2.69
BUY  PUT   FEB-17.50  TLQ-NQ  OI=550  A=$3.00

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