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Daily Newsletter, Thursday, 01/11/2001

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The Option Investor Newsletter                 Thursday 01-11-2001
Copyright 2001, All rights reserved.                        1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        01-11-2001        High      Low     Volume Advance/Decline
DJIA    10609.50 +  5.20 10638.00 10552.60 1.36 bln   1640/1255
NASDAQ   2640.57 +116.39  2661.93  2495.01 2.84 bln   2757/1163
S&P 100   693.40 +  8.62   696.47   679.45   totals   4397/2418
S&P 500  1326.82 + 13.55  1332.19  1300.80           64.5%/35.5%
RUS 2000  483.86 +  8.41   484.53   474.45
DJ TRANS 3051.30 - 18.83  3073.72  3045.53
VIX        28.69 -  1.46    31.98    28.41
Put/Call Ratio      0.48
*************************************************************

Nasdaq makes it three in a row?

The Nasdaq finally closed positive three days in a row for the
first time since Labor Day. Unfortunately it may be very difficult
to make it four. The big news after the close was not earnings
but warnings. Hewlett-Packard and Gateway pulled drastic earnings
warnings out of their hat to hammer stocks in after hour trading.
Other than that it was a great day! Stocks were up across the
board with the exception of the Dow until late afternoon when
even it rallied to close modestly positive. The fast movers on
the Nasdaq were breaking out of resistance and starting to form
new up trends.







Not all is rosy unfortunately. HWP announced a huge earnings
warning after the close that reverses a earnings affirmation
that they gave just two weeks ago. This is almost unheard of
in investing circles. The strong language could have caused
severe damage to the PC sector and all the sectors that feed
of PC equipment. They cited "significant changes in market
conditions." "Customers extremely cautious about IT spending"
and "no material improvement until at least April." Three
weeks ago that would have knocked the Nasdaq back to 1997.
HWP stock got positively hammered after the close for a
whopping -$2 drop. -$2 ??

Not to be out done Gateway also announced an earnings warning
for all of 2001 citing "serious deterioration of PC demand from
retail and commercial customers." Wow, a double whammy! GTW
and HWP on the same day. GTW dropped -$3 in after hours! Only
-$3, boy I bet that hurt!

After the YHOO warning on Wednesday it dropped as expected to a
low of $24.12 but bounced off the bottom to close at almost $26
and a loss of only -4.50. On a day you would have expected the
Internets to do lousy all the majors rallied. AMZN +.50, EBAY
+1.56, CMGI +.50, SFE +.69, SONE +1.35, VRSN +8. B2B, B2C,
infrastructure, e-tail all finished higher.

Chip stocks and cell phone makers also rallied. Considering
the warnings from Motorola you would have expected them to
be down. Instead NOK added +2.44, ERICY +1.63 and I won't
even go into the chips stocks but all were up strongly.
PMCS, AMCC, AMAT, KLAC, AMAT, NVLS all up strong. Strong
on a day that Merrill said INTC and AMD estimates were too
high. Do you see a trend forming here?

CSCO was downgraded by several analysts after CEO Chambers
said they were not immune to the slowdown and things could
be a little rough going forward. Multiple downgrades after
a warning from the CEO would normally have investors running
for puts. CSCO gained almost +$3 today as investors decided
that all the bad news was already priced in. Investor
sentiment is obviously changing from the "take them out and
shoot them" feelings from the last month.

Nortel announced it was cutting about 4000 jobs after being
hit by a slowdown in telecom spending. It gained +2.12
on the news. The fiber optic sector did not crash.

DCLK announced earnings after the close and hit estimates
but then warned that the rest of the year would be much
worse. It gained +1.50 in after hours trading.

RMBS reported earnings that were a penny light and the
stock dropped over -$4 in after hours. SDRAM chip prices
are falling and because of how they account for income
on a delayed basis they have yet to feel the pain of the
slowdown. This led analysts to forecast that the next
couple of quarters would be a problem and that is why
they fell.

ARBA announced earnings that beat estimates by +150%. OK
it was $.05 vs $.02 but that percentage just sounded so
good! Even with revenues increasing +625% over the same
quarter last year and increased guidance going forward
ARBA lost -.31 in after hours trading. It was up over
+35% in the last three days so I am sure that was just
profit taking. Still ARBA has undoubtedly set the tone
for the B2B sector going forward.

The SOX closed over resistance that has held since last
November. But PC sales are slowing! Did I miss something?
This bullish move on a bearish sector comes even after the
Motorola warning. Investor sentiment is changing. Investors
have decided that PC sales will be better eventually and
are scooping up these stocks at bargain prices.

The NDX closed over 2500 and is poised to challenge the next
resistance at 2627. The highs on tech stocks dating back to
Dec-20th are falling left and right. Defensive stocks are
heading south at a high rate of speed even when new highs
are beating new lows by 10:1. Advance declines have been
mostly positive for the last two weeks even though the
indexes have been showing losses. The term stealth rally
has been abused by talking heads on the networks but that
is exactly what has been happening.

Have you noticed the new trend of afternoon rallies instead
of afternoon selling? Retail traders buy in the morning,
institutional traders buy after lunch. Money IS coming into
the market. Bulls are coming out of the wood work. Joe
Battapaglia said today that he thought the Nasdaq would
gain +70% this year. Easy there big fella! Lets don't
jinx this three day rally with a Nasdaq 4500 call just yet!
To temper this bullishness Phil Roth at Dean Whitter said
he expected new lows on the Nasdaq soon. Who do you want
to believe?

Volume today was outstanding at 2.8 billion on the Nasdaq
and 1.36 bil on the NYSE. Stocks are moving up on bad news.
Dare we call it a real rally? If it looks like a duck,
walks like a duck and quacks like a duck it must be a duck.
The confirmation in my opinion is the futures tonight.
Currently both the S&P and the Nasdaq futures are UP! Yes,
I said up! HWP and GTW both announced horrible warnings
and the futures are up! The Nasdaq is up +17% since last
Wednesday's low and the futures are still up after a
warning. No signs of profit taking and no terrified rush
for the exits. Yes, ladies and gentlemen, sentiment has
changed. The historical rally for this week started one
day late but has finally surfaced in spite of terrible
negative news. Funds are putting money to work in the
markets and shorts are running for cover. Has investor
nirvana arrived?

Before selling your kids to raise cash be advised there
is likely another dip in our future. I would wait for it
and I would buy it. I would not rush out in the morning
if the futures hold and buy the open. Friday could provide
investors with the incentive to take some of those profits
and go home for the weekend gloating. That is fine, let
them gloat and we can gloat that we picked up some stocks
a little cheaper. Did I mention that we have the PPI Report
and Retail Sales Report Friday morning? I can't imagine
any numbers that could blunt this incredible bullishness
but stranger things have happened. It has been my
experience that when things look too good too be true,
they probably are and something out of the blue drops the
market for a loss. Let's hope that this time it really
is our turn to make money and laugh at the bears. The Fed
is on our side, at least until the PPI in the morning.
Consider any dip a buying opportunity but buy selectively!
Bargain hunters are likely to come back into the market
at the close expecting a continuation rally next week.
That would be a signal to buy if you see that starting
to happen. With option expiration Friday next week you
can probably pick up some January options slightly out
of the money and cheap if we get that dip. Aggressive
traders could try some lottery plays there. I love
expiration week!

Good Luck, Sell too soon!

Jim Brown
Editor


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****************
MARKET SENTIMENT
****************

Exuberance May Prevail
By Austin Passamonte

NASDAQ markets enjoyed their first three consecutive sessions of
daily gains for the first time in 4 1/2 months. The first time!
Such is the stuff market bulls have been waiting for.

Even multiple surprise warnings from box makers and their kin
failed to keep post-market prices down. Nor have futures prices
dove in fear, either. We are witnessing a lack of sellers, a new
dismissal of bad news and clear bullish fundamental divergence to
suggest a powerful rally could emerge at any time.

We didn't say it was justified. 2001 earnings will remain bleak
at best. The Fed can cut rates at every FOMC meeting until the
cows come home but it won't help the first two quarter's results
for most companies this year. Too late for that. However, these
markets discount future events and traders might just decide that
the future looks bright even if it cannot be seen from here.

No matter; Market Sentiment does not care which way the markets
go or how/why they get there. All we care about is joining them
for the ride!

There is plenty of overhead resistance to fight through, but all
of the big indexes (SPX, NDX & OEX) are above their 10 and 20
DMAs right now. The Dow lies below all meaningful M/As until a
break above the 10,725 level once again.

Most of these indexes are now approaching or pressing upper
trendlines of resistance dating back since early September or
before. It will take a break out of these descending channels to
confirm bullish conviction. Keep in mind that descending channels
are merely "bull flags" waiting to pop. Failure to do so however
would post another lower-high and dive the markets down once
again.

Tomorrow's session will be crucial to near-term strength. If the
indexes shrug off such heavy bearish news, we could be off to the
races heading into a long holiday weekend.

Joe Battapaglia on CNBC predicted the NASDAQ could grow 70% by
this year's end. That would be roughly 4,480 on the Comp... a
number most bulls would love to see. The few remaining would like
to see these levels far sooner and much more besides.

Other technical & fundamental analysts believe the ultimate
market bottom lies ahead and below levels currently hit. There is
a strong case to be made for that point of view.

However, option traders operate under the constraints of time. We
want premium purchased to hold and premium sold to whither. What
happens months from now cannot be our primary concern. Near-term
action is threatening to break out of this bearish regime and
make a long-suppressed run up the charts. Rational or otherwise,
that's the way indications look from here.

Sounds good to us - just pick a direction and go. As always,
we'll do our very best to tag along and profit either way!

*****

VIX
Thursday 01/11 close: 28.69


30-yr Bonds
Thursday 01/11 close: 5.48%


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.

                                   Thursday
                                 (01/11/2001)
  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
Resistance:
730 - 715               13,744        1,624         8.46
710 - 695               15,498        6,252         2.52

OEX close: 693.40

Support:
690 - 675               18,173       10,139          .56
670 - 655                3,043        9,712         3.19

Maximum calls: 685/11,210
Maximum puts : 640/5,437

Moving Averages
 10 DMA  686
 20 DMA  688
 50 DMA  710
200 DMA  764


NASDAQ 100 Index (NDX/QQQ)
Resistance:
 71 - 69                70,970        17,314         4.01
 68 - 66                85,430        11,121         7.68
 65 - 63                64,572        33,746         1.91

QQQ(NDX)close: 61.93

Support:
 60 - 58                94,023        53,915          .57
 57 - 55                47,819        43,511          .91
 54 - 52                 9,878        27,237         2.76

Maximum calls: 60/73,049
Maximum puts : 60/38,911

Moving Averages
 10 DMA 59
 20 DMA 60
 50 DMA 67
200 DMA 85


S&P 500 (SPX)
Resistance:
1400                   16,185         9,174          1.76
1375                   10,756        10,330          1.04
1350                   37,983        31,340          1.21

SPX close: 1326.82

Support:
1300                    6,864        14,724          2.15
1275                      465        14,547         31.28
1250                    1,720        13,303          7.73

Maximum calls: 1350/37,983
Maximum puts : 1350/31,340

Moving Averages
 10 DMA 1315
 20 DMA 1314
 50 DMA 1348
200 DMA 1425

*****

CBOT Commitment Of Traders Report: Friday 01/05
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         -2008       -818         -2167       -2589
Total Open
interest %       (-25.35%)  (-12.51%)     (-9.59%)    (-11.60%)
                 net-short  net-short     net-short   net-short


NASDAQ 100       (Current)  (Previous)    (Current)  (Previous)
Open Interest
Net Value         -1028       +1428        -1825       -2569
Total Open
Interest %       (-4.77%)   (+8.65%)      (-3.45%)    (-4.43%)
                net-short   net-long      net-short   net-short


S&P 500          (Current)  (Previous)    (Current)  (Previous)
Open Interest
Net Value         +59586     +67807        -81851     -85776
Total Open
Interest %      (+29.89%)   (+38.16%)     (-11.09%)  (-11.94%)
                net-long    net-long      net-short  net-short


What COT Data Tells Us
**********************
Indices: The Commercials show a minimal decrease in their net-short
positions on the DJIA, NASDAQ 100, and the S&P 500
Small Specs show a dramatic increase their net-short positions
on the DJIA.

Interest Rates: Commercials are still moderately short T-Bond and
T-Note futures. (Bearish)

Currencies: Commercials heavily short Euro futures while small
specs build net long. Small specs are betting on interest rate
reduction while commercials remain skeptical. (Bearish)

Energies: Commercials are net-short all oil products. These
producers are hedgers and almost always take the opposite side of
expected market action to lock-in production prices. (Bullish)

Metals: Commercials are moving from net-long towards neutral in
Gold, could be under distribution. Silver, Copper and Platinum
are net-short. (Mixed to Bearish)

Data compiled as of Tuesday 12/26 by the CFTC.


**************
MARKET POSTURE
**************

Please visit this link for Market Posture:

http://members.OptionInvestor.com/marketposture/011101_1.asp


**************
TRADERS CORNER
**************

Shark Attacks, Misquotes, and A Tough Sector
By Molly Evans

They say that forewarned is forearmed.  More seasoned traders had
warned me that it's dangerous to take a position in thinly traded
markets.  Now that I have taken my first losing trade of the new
year just this morning, I have learned that lesson.  Entering into
a trade where there is no open interest puts you against the
market maker and you had better know that you're right on the call
or you're toast.  It's like swimming alone in the ocean amongst
sharks.  I've survived the bite but am still angry with the whole trade.

I've been pretty suspicious about the banking industry.  I believe
they are suffering just as badly with the rest of corporate
America in this troubled economy.  It wouldn't surprise me at all
to learn that Mr. Greenspan learned of some internal maelstrom in
large corporate banks convincing him of the need for an emergency
interest rate cut.  Of course, that's already been cycled in the
news stories for a week now but I had my suspicions prior and was
just waiting for the opportune moment to pounce.

The banking indices had started to roll over when the rate cut
was announced and investors certainly love financials in a
lowered interest rate environment, so the index ran right to the
top.  It was a get in first, ask questions later deal.
Consequently, the rally we all know, was broadly sold off. The
financial sector was no exception. The pressure mounted when a
fast rumor made the rounds last Friday morning that Bank of
America was in a jam because of the defaults of utility companies
in California.  Trading was halted in the stock pending news which
was, of course, BAC denying any problems whatsoever.  With my
negative bias on the sector and then hearing this news, I knew the
time had come.  I immediately put in the bid on some BIX.X puts as
I am trading broader indices and sectors to dodge the bullets of
independent equities these days.

As I said, there was currently no open interest in the put
contract I was eyeing and worse yet, the spread was $4.00.
However, I thought I was really right on this call.  I would pay
the ask and eat the spread afterall it wouldn't matter that much
anyway in the coming days.  This is what you get for haste.  When
I punched in the symbol on my Preferred account, I got an ask
price and paid it.  Upon the fill of the trade, it is posted into
a "positions" column and registers how much you're up or down on
it.  I was immediately down $7.00 per contract because they had
already dropped the price of the option $3.00 on my fill and with
the spread difference, I was deeply in the hole.  I knew it was a
very bad omen.

The index did continue to fall and I had the chance to get out
even and then get out at a small profit but according to my New
Year's resolutions I will trade by the charts.  My entry was at
653.50.  Yesterday, the banking index rose 3% led by an upgrade
of JPM and every analyst on CNBC talking about how financials
are so robust in reduced interest rate environments and all the
garble.  They swept those BAC rumors right under the rug and
since the Long Term Capital Management fiasco back in the late
90s, we don't talk about derivative problems like that.  So,
they rose but they didn't take out the preceding day's high or
close.  "Fine," I thought, "the Dow is looking troubled, the
markets will be overbought here soon, and the JPM upgrade will
be forgotten quickly."  The troubling thing was that the price on
my options were deteriorating rapidly even though the index
remained below that point.  I hated this trade from the moment I
got the cheated fill but still I stubbornly held.

This morning, my quote for the BIX.X was -10.77 on the open.
"Great, glad I didn't blow them out yesterday." I thought.  But
then I looked in my "positions" on Preferred and saw that the
option quote was down a full 25%.  I hit the refresh.  Down 30%.
What?  I called the broker.  They also had the index as being
down 10.77 but what were $30.00 options on the close of yesterday
were now options bid at $20.00.  Preferred had the same quote on
the index as I did on Q charts - 636.52.  The broker was as
perplexed as I so he called the CBOE on my behalf.  Sure enough,
it was a misquote on the index, not the options.  The index stood
at 655.35 which has now taken out the high of yesterday and I am
wrong on the call.  I now don't really know what the chart looks
like but the bid is dropping and the trade has sliced right
through my mental stop loss limit.  I tell him to sell on the
bid.  Sick.




Finally my quotes updated and I see I sold when the BIX.X was at
the high of the day.  Isn't that always the case?  In mid-day
action those puts are now bid $6.00 higher than where I sold.
Yeah, I'm mad.  What can you do though?  They were January puts,
they'd gone through my stop limits and had broken the downtrend,
if but only for a moment.  It was the moment that I had to decide.
It could have gone the other way just as easily.  The really
maddening thing is, I think I'm still right fundamentally (don't
we always?).  Where there is smoke, there is usually a fire.
However, I'm leaving for a vacation this weekend and will be far
away from a computer with no access to monitor any market activity
next week.  I wanted to be without any open positions.  It brings
to mind what Ed Seykota said to author Jack Schwager in "The New
Market Wizards" book, "Everybody gets what they want out of the
market."  I wanted out and got out.




Let this be a lesson to both you and myself: don't trade against
the market makers in no open interest contracts.  If you don't like
the trade from the beginning, get out.  I had my chances at even
and at profit and I didn't.  That's my own fault.  It won't happen again.

Have a great next week!  I know I will!


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PICKS WE DROPPED
****************
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.


CALLS:
*****

COST $41.31 +0.63 (+0.50) After breaking out from the tight
trading range Costco had been trapped in for over six months,
the stock is now consolidating in a range from support at the
10-dma of $40.83 to resistance around  $43.  However,
volume is considerably lower than that which drove the stock
higher in the last few weeks.  Costco has lost momentum for
the time being, so we are taking our profits and moving on to
new plays.

ITW $60.94 -0.69 (-2.31) The rotation into the tech sector over
the last three sessions has led to an extended pullback into
shares of Illinois Tool Works.  Seen as more of a defensive
play, ITW has suffered from the flight of capital into the tech
sector.  That rotation caused ITW to slip below our stop at $61
in today's session while the Nasdaq sailed higher.  In light of
the stop violation and resurgent tech sector, we're dropping
coverage on ITW tonight.  Use any bounce early tomorrow to exit
existing positions.  A bounce in defensive names early Friday
is likely given the tech warnings after the bell today.

VC $13.75 +0.25 (-0.25) We initially picked up coverage on VC
in an attempt to capitalize on a rebound in the automotive
sector and because of its low price and cheap options.  But a
rebound in the auto sector has not yet materialized, which has
led to sideways trading in VC.  In light of the lack of
movement, we're dropping coverage today.  Use any advance above
$14 to exit positions.

NKE $57.75 -0.38 (+2.88) The S&P Retail Index finished today
slightly higher, yet NKE finished slightly lower.  We don't like
the divergence.  Moreover, since hitting a near-term peak at
$60 on Tuesday, NKE has slid lower for two consecutive sessions
despite the strength in the broader markets.  Although NKE's
two-day slide may be no more than a natural reaction, we're
choosing to close positions early tomorrow and lock in our gains.
Use a pop above the $58 level to exit any open positions early
Friday morning.

MAR $44.56 -0.25 (-0.31) Since breaking out to all-time highs
last week, MAR has been spending this week in consolidation
mode.  We're disappointed with the pullback so far this week,
but are still encouraged with MAR's strong technical position.
Nonetheless, we are dropping coverage this evening and are
no longer initiating new positions.  Open positions may be
exited on any strength early tomorrow.  However, if MAR
continues to trade above $44, traders may consider holding
positions until the stock trades back above $46.

ASD $49.94 -0.81 (-3.00) After staging a very impressive run
since mid-December, it appears ASD is due for consolidation.  The
stock nearly reached the $54 level late last week, but has fallen
in four consecutive sessions so far this week.  Trading activity
has remained somewhat active during the pullback this week, which
is disconcerting.  Instead of hanging around during consolidation,
we're dropping coverage on ASD tonight and would exit any open
positions on a bounce off the 10-dma at $49.75 early Friday.

PPG $44.88 -1.38 (-3.13) Yesterday morning, Salomon Smith Barney
cut its fourth quarter and 2001 earnings estimates for PPG.  The
brokerage firm also lowered its rating to Outperform from Buy,
based on a slowdown in auto sales.  Although the news didn't
have much of an impact yesterday, it appeared the sellers
showed up today, and carried PPG below our protective stop at
the $45 level.  We're dropping coverage on PPG tonight due to
the negative press and would exit positions on any bounce or
strength presented early tomorrow.

USB $30.06 -0.06 (-0.63) Despite strong gains in bellwethers
such as Citigroup and J.P. Morgan, several bank issues ended
today's session in negative territory.  One such issue, was
our call play on USB.  We didn't like the divergence between
the smaller regional banks and the big money centers today.
Although USB's pullback today to the $30 level may be a sign
of consolidation, we're dropping coverage on the play due to
its inability to participate with the larger banks.


PUTS:
*****

CALP $33.63 +2.25 (+3.06) With the NASDAQ and the Biotech
sector putting together a 3-day rally, our play in CALP has
taken an upturn, making it look like it has seen its lows for
the near term.  While our stop at $35 hasn't been triggered yet,
the fledgling rally over the past two days has come on strong
volume (nearly double the ADV), and with Stochastics poking
above the oversold level, it shows signs of continuing and
taking out our stop prior to the weekend.  Rather than wait for
this event to occur, we will gladly take our profits and "sell
too soon."


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The Option Investor Newsletter                 Thursday 01-11-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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********************
PLAY UPDATES - CALLS
********************

KLAC $42.81 +3.31 (+5.81) A strong rally in the semiconductors
helped to push KLAC above the critical resistance level of
$42.50 for a nice breakout at the last hour of the trading
day on Thursday.  After $42.50 was cleared, it was smooth
sailing up to the next resistance level at the 200-dma of
$43.50.  If this level is cleared, the next major resistance
levels are found at $45, and $50.  If the semiconductor
sector continues to recover, KLAC should have no problem
moving higher.  Traders could take positions at current
levels, or at a breakout over $45.  Keep stops set at $38.

SBC $52.38 +0.00 (+2.38) Three positive days in a row on the
NASDAQ have helped to boost SBC gradually higher, and it has
spent the past 2 days duking it out with the $52 resistance
level.  Telecom stocks have been in rally mode on the AT&T on
Tuesday, helping SBC to claw its way higher.  After moving up
on the news Tuesday, our play has seen light volume (half the
ADV today) and has been confined to a narrow trading range
between $51-52 as investors wait for the next catalyst to help
the stock clear current resistance.  Earnings on January 25th
might be just what will do the trick, so long as we don't get
any negative developments in the Telecom sector.  Watch the
Telecom HOLDR (AMEX:TTH) for indications of sector strength
before initiating new positions.  The conservative approach will
be to wait for a solid move through $52.50 on increasing volume
before playing.  Note that our stop has been moved up to $50, so
while aggressive entries are possible on dips to the $50-51
range, beware of any selling that violates this support level.

BRCM $115.81 +5.88 (+28.81) The positive price/volume action that
attracted us to this play has not only endured, but has
strengthened, with the stock breaking through the psychological
$100 and formidable resistance at $105 yesterday, closing up
$12.94 or over 13 percent on almost twice the ADV.  Today BRCM
continued to add to its gains, advancing another 5.34% on over
160% of ADV.  With support in increments of $5 at $115, $110, and
our new stop price of $105, a bounce off these levels could
provide aggressive traders with potential entries on a pullback
but as always, confirm a bounce with buying volume before taking
a position.  Moving average support from the 5 and 10-dma can be
found at $100.63 and $96.36 respectively.  If buying momentum
carries over to tomorrow's session, then a break through $117
would allow more conservative traders to make a play, but be
aware of resistance at $120 and the 50-dma looming overhead at
$126.94.  When initiating a play, make sure that the NASDAQ and
Philadelphia Semiconductor (SOX) confirm positive direction.

LRCX $21.94 +2.00 (+3.63) A quick dip to support at $17.75 on
Wednesday morning allowed nimble traders to enter on what turned
out to be an ideal entry point, as LRCX spent the rest of the day
moving higher to close up $1 or over 5 percent on 150% of ADV, in
sympathy with an advancing Chip sector.  Today the stock made
another show of strength, closing up over 10% on almost twice the
ADV.  In doing so, shares of LRCX are now back above the 100-dma
line (now at $20.16) for the first time since June of 2000.  Of
course, this does not mean that proper entry points and risk
management should be thrown out the window.  Aggressive targets
to shoot for can be found at the 100-dma, $20.50, the 5-dma at
$19.67 and in increments of 50 cents down to our stop price of
$18.50, entering only if bounces are accompanied by volume.  If
the stock takes out today's high of $22.62, this could allow for
an entry on strength, but make sure that Merrill Lynch's
Semiconductor HOLDR (SMH) is moving in the same direction.

MER $73.75 +1.44 (+2.19) Good news was the theme yesterday, as
the company was rated the top broker for municipal securities for
insurance companies last year.  As well, MER announced that they
would be selling their energy unit to Allegheny as well as their
retail brokerage to Investec.  Investors liked the deals, as the
move was made so that MER could get out of the volatile energy
markets and focus on their core competency in securities.  Less
risk is always welcome news, as traders bid the stock up $2.06 or
almost 3%.  Volume was average but the bounce off support at $69
and close back above both the 5 and 10-dma (now at $71.82 and
$70.81 respectively) was a welcome sign.  Another test of these
levels could allow for an aggressive entry.  Support at $70, $69
and our stop price of $68 are also possible targets to shoot for.
If buying volume increases, allowing MER to take out resistance
at $75, this would be the signal for more conservative traders to
jump in, but make sure peers GS and LEH are also moving in the
same direction.

SLR $38.62 +2.57 (+4.59) A more friendly environment, thanks to
lower interest rates and analyst support from CIBC and Merrill
Lynch were two of the reasons that led us to adding SLR to our
call play list.  While the stock was up only fractionally in
yesterday's trading, we were impressed with its recent technical
strength in breaking its long term downtrend line as well as its
50-dma on the backs of the 5 and 10-dma.  Today the stock broke
through resistance at $36.50 and with that, traders jumped in on
mass, with SLR closing up over 7 percent on over 135% of ADV.
Positive sector sentiment certainly helped, with competitors CLS,
FLEX and JBL also moving strongly higher for the day.  Aggressive
entries can be found on bounces off support at $38, $36.50, the
5-dma near $36, the 10-dma at $38.40, the 50-dma at $34.27 and
our stop price of $34.  Continued buying pressure leading to a
break above today's high of $36.02 could also be a signal to buy
but make sure the NASDAQ and SLR's peers support the move.

UBS $170.09 +2.17 (-3.82) Shares of UBS retreated $2.81 or 1.66
percent on Wednesday but after the recent run-up, a pause to
refresh before continuing higher would not by surprising.
Despite the down day, volume was only half the ADV suggesting
that it was just routine profit-taking and the bounce off the
10-dma was also a good sign.  Today UBS took back some of
yesterday's losses, gaining 1.29 percent.  Volume however, was
anemic, less than 27% of ADV.  At this point we advise caution
and recommend entering only when volume picks up to the buy side.
Another test of the 10-dma, now sitting at $167.84 is a
possibility for entry.  There is also support at $170 and more
ideally, a successful bounce off our stop price at the $165 level
would fill its recent gap.  Such entries would be recommended
only for high-risk players.  For a much safer play, wait for
strong buying volume to allow UBS to break through its 5-dma at
$171.72, confirming direction with rivals such as BSC, LEH, MWD
before taking a position.

WCOM $21.94 +0.69 (+3.50) A break from its long-term downtrend
line, improving sentiment in the Telecom sector and investor
interest in high value low-PE Tech stocks are just three of the
many reasons we added WCOM as a call play yesterday, with the
stock advancing $1.44 or 7.26 on over 140% of ADV in Wednesday
trading.  While today's advance was a little more modest, up 3.25
percent on slighter higher than average volume, we'll gladly take
the gains.  Short term, WCOM can run to as high as $23, filling a
gap made late last year, before encountering resistance.  A break
above $22 on volume could allow the stock to test $23 with a
break above this point being a conservative entry point.  For
entries on pullbacks, look for support at $21, $21.50, the 5-dma
near $20, and our stop price at $18.50, as well as the 10-dma at
$18.30.  In both cases, correlate entries with strength in
Merrill Lynch's Telecom HOLDR (TTH).

AEOS $48.75 +2.50 (+2.31) Shares of AEOS continued to make
significant advances; particularly in today's session.  AEOS
rose as high as 6.8% on robust volume and lifted our confidence
of a breakout through last Thursday's record high of $51.25.
The ascending support levels at $48 and $49 offer prime entries
into AEOS's impressive recovery.  Traders might also consider
target shooting intraday for a lower entry near the 5 & 10 DMAs
($47.18, 46.07), in an advancing market.  We believe the
interest rate easing should result in further appreciation over
the short-term and thus; provide the opportunity to lock in
gains.  The more cautious approach would be to take profits as
AEOS approaches the overhead resistance ($50) or simply wait for
AEOS to rally through the immediate opposition before taking
positions.  Our stop is currently set at the $44 level to
protect against a negative bias within the sector taking AEOS
down for the count.

CTXS $29.06 +1.31 (+2.38) CTXS literally rose to the occasion as
selective tech stocks showed some spunk in the NASDAQ today.  A
nice 4.7% overall gain popped CTXS over the $29 mark.  The
bullish activity further demonstrated that the previous
resistance at $28 should emerge as a reliable support level,
intraday.  Subsequently, we've raised our protective stop to $25
to reflect the higher trading levels.  Still, the more cautious
types may want to wait for CTXS to rally above the 200-dma line
($30.66) on increasing volume above 500 K.  Yesterday, CTXS
received a Buy reiteration and $30 price target from Lehman
Brothers.  Although the issue's technicals remain strong and
analysts are upbeat; time is of the essence.  Citrix Systems is
scheduled to report on January 17th at 5pm EST.  Please consider
having all positions closed prior to the announcement to avoid
any post-earnings' decline.

SNPS $51.44 +1.38 (+3.44) We initiated coverage on SNPS on the
basis of its strong wedge formation and the tightening
consolidation at the $50 mark.  The sharp momentum breakout
through $48 and subsequent rallying above $50 and $51 offered
convincing evidence going forward.  Today's persistent flirting
at $52 is quite bullish.  It now appears there's more upside to
come in a cooperating market environment.  Traders who have a
higher tolerance for risk may consider taking positions on deep
pullbacks at the 10-dma ($48.49) or 5-dma ($49.38), but be
cautious of a return to $45.  If SNPS cannot close above this
lower level of support, we'll exit the play in a flash.  Being
optimistic however, we're anticipating a bullish challenge of
the current price level.  A high-volume rally through $52 would
be the cat's meow for the more cautious types.

PLAB $30.50 +1.75 (+3.38) Chalk up another explosive move in the
semiconductor sector to launch PLAB through a crucial level.
The strong action above the 5-dma ($28.41) and $30 mark sets
PLAB up for additional momentum gains in the short-term.  As a
result of today's 6.1% advance, an entry at the 200-dma, near
$25, now poses additional risk - perhaps too much.  We continue
to maintain our stop at this previous level of resistance.  The
break through $30 provides some assurance that PLAB can
progressive further if the NASDAQ cooperates and the
Semiconductor Index (SOX.X) maintains its uptrend.  In regard to
the SOX.X, a break above 700 would be awesome!  Another key
factor effecting PLAB's recent advances has been the exceptional
volume.  In the past three sessions, the issue traded upwards of
3 to 4 times the ADV.  Look for continued enthusiasm to generate
additional gains.

VZ $55.75 -0.44 (+1.19) At this point in the play, we must take
a step out of the box and assess the situation.  On one hand, a
renewed interest in the telecom sector and AT&T's recent
coverage certainly aided VZ's rise to a higher trading level.
However, the 3 days of consolidation at $56 and $57 leaves us
wondering if VZ has the vigor to breakout again.  On the bright
side, there's still plenty of time to trade VZ before it reports
earnings on February 1st.  But let's be cautious and pick our
entries carefully.  It may be wise to consider waiting for a
definitive rally through $57 before taking additional positions.
To protect profits, we've tightened our stop and raised it to
$53.


*******************
PLAY UPDATES - PUTS
*******************

CSC $55.13 -0.13 (-2.50)  In a true sign of weakness, CSC failed
at several attempts to rally on one of the strongest market days
we have had in some time.  Wednesday's moves consisted of two
rollovers from the $55 level, and subsequent sharp spikes down.
On Thursday, CSC rolled over from $54.75 twice, and closed down.
Considering Thursday's market, CSC should have been able to
stage a strong recovery.  This does not bode well for the short
term action of this stock, and a market with a light rally or
profit taking might easily plunge CSC below the $50 level.
Consider taking positions on failed rallies from the 5-dma of $55,
or a move below support at $52, but remain cognizant of overall
market action, as puts can be dangerous in a market which is
rallying.  Keep stops at $59.

PMI $52.25 -2.31 (-5.75) Did you catch that entry point this
morning?  PMI moved up sharply this morning, only to rollover
just as sharply as the day wore on.  Briefly moving over $55
before the bears returned, PMI came under heavy selling pressure
(more than double the ADV), coming to rest at its lowest point
since early July.  After falling below the 200-dma (then at
$58.63) last Friday, PMI has continued to slide lower, pressured
by the sharply declining 5-dma (now at $55.31).  Even gains
across the board on the major indices couldn't prop up the share
price, and despite nearing the lower Bollinger band at $51, it
looks destined to continue its slide.  The next support should
materialize near $50, followed by $45.  The bottom line is that
as the economic slowdown is settling into our consciousness,
concerns of an increase in loan defaults will continue to
pressure the share price of PMI, which insures against defaults
on mortgage loans, particularly in the secondary market.
Earnings are set to be released on January 24th, but in the
current environment, we don't expect much of an anticipatory
rally ahead of the numbers.  Conservative players will want to
wait for a break below $52 before opening new positions, while
more aggressive entries can be considered on any weak rally that
fails to take out our $58 stop.

CB $73.75 -0.56 (-1.38) Shares of Chubb continued to consolidate
yesterday, after the huge sell-off of last week.  Closing up
fractionally on light volume, less than 80 percent of ADV, the
recent movement has allowed enough time for the 5-dma to catch up
with the stock price.  Today was more of the same sideways
movement in a tight range, with CB giving back yesterday's
fractional gains.  It is interesting to note that while volume
was still below average, it picked up today, with a rally attempt
foiled at the 5-dma line, now sitting at $74.73.  Technically at
this point, CB looks to be at a major crossroad.  The proverbial
coiling of the spring in shares of CB suggests a large move in
one direction or the other forthcoming.  A break below its
200-dma at $73.50 on volume would allow for an ideal entry on
weakness.  Another failed attempt to take out the 5-dma line or
overhead resistance at $75 and our stop price at $77 would be a
higher risk entry point.  Look to peers CI and ALL to provide
possible clues to the movement of CB, as sector sentiment could
help push this play in our favor.

P $54.63 +0.56 (-1.25) Connecting the highs since late December,
it can be seen that shares of Phillips have been moving lower in
a steeper downtrend channel.  With oil prices depressed
yesterday, P dropped $1 or 1.82 percent.  Volume was light
however, less than 75% of ADV.  Today with a bounce in oil, the
stock managed to squeak by with a fractional gain, closing up a
little over 1 percent on 85% of ADV.  Aggressive buyers could
find potential entry points on failed bounces off the top of its
downtrend channel, with resistance at the 5 and 10-dma at $55.11
and $55.81 respectively.  Our stop price of $57 should also
provide formidable resistance but make sure P continues to close
below this level.  A break below $54 on volume, confirmed by
movement in the AMEX Oil Index (XOI) and rivals TX and XOM could
allow for a safer play.

IVX $33.01 +0.90 (+2.01) Let's keep a tight leash on IVX until
it demonstrates more downside bias.  While we continue to see
IVX as a viable opportunity, recent action heralds the
possibility of a bottom.  Since Friday's bearish low of $30.15,
IVX hasn't managed to trade below the $31 level.  And on
Wednesday, IVX managed to crack the 5-dma ($32.08) ceiling;
although it has yet to see the topside of the revered 10-dma
($34.09) line or our $35 exit point.  Look for convincing
rollovers or a breakdown below $31 before you jump into this put
play.  If you have open positions, keep stops tight while the
play unfolds.

MMC $102.56 -1.94 (-4.44) Did you rack up the profits today?
MMC's dramatic sell-off mid-afternoon saw the issue hit $100.19
before buyers came in off the sidelines.  The solid bounce off
the century mark does impose resistance limits going forward,
but jeez, you can't always have your cake and eat it too (or can
we?).  The previously supportive $104 level failed to buoy MMC
when the majority of insurance stocks saw red early in the
session today.  As it turned out, $103 and 104 served as upper
resistance on an attempted recovery.  In response to the strong
downtrend line, we've lowered our stop loss significantly.  It
now stands at $108.  Collectively, MMC shouldn't trade much
higher than $106 over the near-term; unless there's a huge shift
in sentiment.  Look for continued weakness in the S&P's
Insurance Index (IUX.X) and MMC to challenge that psychological
century mark tomorrow.


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**************
NEW CALL PLAYS
**************

AGGRESSIVE:

SFA - Scientific Atlanta Inc. $50.06 +4.00 (+12.19 this week)

Scientific Atlanta is a leading supplier of transmission
networks for broadband access to the home, digital interactive
subscriber systems designed for video, high speed internet,
and voice over IP networks, and worldwide customer support
and service.

After reaching a 52-week low of $27.62 on January 12th, SFA's
chart shows a stock which is well poised for a strong comeback.
SFA rallied today with the communications equipment sector,
on heavy volume which lifted the stock above its 50-dma of
$47, which had been a resistance level since mid-November.
SFA's daily chart shows a clear pivot point at $30, and a
very bullish trend developing this week.  An added
plus to investors is SFA's solid financials, and comparatively
low P/E ratio for a stock in a high flying sector.  Excellent
news released last week regarding the added list of TV
applications offered to consumers over SFA's enabled cable
systems seems to have stimulated strong interest, and SFA
closed higher each day this week.  Traders can take positions
at current levels, or on a move over $54.31 on high volume.
Watch for strength in the communications equipment sector
before taking positions, and set stops at $44.

***January contracts expire next week***

BUY CALL JAN-45 SFA-AI OI=1243 at $6.50 SL=4.50
BUY CALL JAN-50*SFA-AJ OI=1159 at $3.38 SL=1.50
BUY CALL FEB-45 SFA-BI OI= 695 at $9.75 SL=6.75
BUY CALL FEB-50 SFA-BJ OI=1468 at $7.00 SL=5.00

http://www.premierinvestor.com/oi/profile.asp?ticker=SFA


EMC - EMC Corp. $73.13 +4.44 (+10.13 this week)

EMC Corporation and its subsidiaries design, manufacture and
support a wide range of hardware and software products and
provide services for the storage, management, protection and
sharing of electronic information.  These integrated solutions
enable organizations to create an electronic information
infostructure, or what EMC calls the E-Infostructure.  EMC's
products are sold to customers utilizing a variety of the world's
most popular computing platforms for key applications, including
electronic commerce, data warehousing, and transaction processing.

As a technology leader and one of the top millionaire-making
stocks of the 1990s, EMC has weathered many storms in the
market.  Its five year chart shows a near perfect technical
up-trend, and a stock which held above its 200-dma only until
the vicious sell-off we experienced last fall.  However,
EMC's CEO, Michael Ruettgers, gave a very bullish forecast for
this year at an interview with analysts this week.  Reuttgers
predicted sales of $12 billion in 2001, and stated that the
company saw no slowdown in information growth, or the need
for EMC's products.  The confident CEO also shrugged off
concerns about competition from other companies, as EMC
feels they will maintain the same leading edge going forward
which they have been able to maintain in the past.  This
excellent news, and a bullish market environment pushed EMC
above resistance at $68.56 and $70.69.  EMC is now positioned
to clear the near converged 50 and 200-dma, at $76.75 and
$76.44.  If this level is cleared, it could be smooth sailing
for the stock all the way up to the next major resistance
levels at $80, and $90, as this former stalwart regains its
momentum.  Watch the data storage area, and others like BRCD
and NTAP for an indication of sector movement, and set stops
at $67.

***January contracts expire next week***

BUY CALL JAN-70 EMB-AN OI=13044 at $5.68 SL=3.50
BUY CALL JAN-75 EMB-AO OI=20722 at $2.44 SL=1.25
BUY CALL FEB-70 EMB-BN OI= 4535 at $9.75 SL=6.75
BUY CALL FEB-75*EMB-BO OI= 1977 at $6.75 SL=4.75

http://www.premierinvestor.com/oi/profile.asp?ticker=EMC


MSFT - Microsoft Corporation $55.00 +2.13 (+5.88 this week)

Microsoft Corporation develops, manufactures, licenses and
supports a wide range of software products for a multitude of
computing devices. Microsoft software includes scalable operating
systems for servers, personal computers and intelligent devices,
server applications for client/server environments, knowledge
worker productivity applications, and software development tools.
The Company's online efforts include the MSN network of Internet
products and services and alliances with companies involved with
broadband access and various forms of digital interactivity.

It's been a long time coming but we are pleased to announce that
we are adding Microsoft to our call play list.  As one of the
Four Horsemen of the NASDAQ, MSFT carries a lot of weight in the
Tech index.  In fact, with today's close, Mr. Softee's market cap
of $293.3 billion surpasses Cisco's $281.6 billion, regaining the
title of Top Dog in the large cap Techs.  It's hard to imagine a
rallying market that has conviction without an advancing MSFT and
with the slumbering giant appearing to be waking up, this could
mean good things for the NASDAQ as a whole.  The fundamental
backdrop has improved greatly for MSFT recently, with a more
sympathetic President-elect soon to take office, easing interest
rates and companies such as ARBA, ITWO, PSFT and RATL all
providing a bullish outlook for software demand going forward.
New products are also bringing new life to the company, with the
upcoming release of the Xbox gaming console.  Technically the
stock looks strong too, with the 5 and 10-dma (at $51.55 and
$48.54) providing support so far this New Year.  Pullbacks to
these levels as well as to support at $50 and our stop price of
$51 could allow for aggressive entries while a break through
today's high of $55.75 could allow for a more conservative entry.
From there MSFT may find resistance overhead from the 50-dma at
$58.39 and the 100-dma $60.86.  Gauging sector sympathy is
challenging for MSFT, since this stock usually leads instead of
follows.  Nevertheless, keep an eye on Merrill Lynch's Software
HOLDR (SWH) for sentiment in the software sector as well as
movements in the NASDAQ 100 (QQQ) to ascertain direction of the
big cap Tech stocks before taking a position.

***January contracts expire next week***

BUY CALL JAN-50 MSQ-AJ OI=31289 at $5.75 SL=3.75
BUY CALL JAN-55 MSQ-AK OI=37226 at $2.13 SL=1.00
BUY CALL JAN-60 MSQ-AL OI=53236 at $0.63 SL=0.00  High Risk!
BUY CALL FEB-55*MSQ-BK OI= 8346 at $4.38 SL=2.75
BUY CALL FEB-60 MSQ-BL OI=33962 at $2.31 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=MSFT


BEAS - BEA Systems $61.19 +4.94 (+7.56 this week)

As a provider of e-commerce infrastructure software, BEAS
helps companies of all sizes extend investments in existing
computer systems and provide the foundation for running a
successful integrated e-business.  The company's products have
been adopted in a wide variety of industries, including
commercial and investment banking, securities trading,
telecommunications, airlines, retail, manufacturing and
government.  BEAS' products serve as a platform or integration
tool for applications such as billing, customer service,
electronic funds transfers, ATM networks, Internet sales,
supply chain management, and hotel, airline and rental car
reservations.

A funny thing happened on the to a dismal earnings season.
Kicking off earnings with cautionary statements in its
conference call yesterday, YHOO posted a big loss today after
reporting results in line with estimates, but on declining
revenues.  The negative sentiment failed to infect the broader
Internet sector though.  As a matter of fact, the B2B stocks
have been in rally mode in advance of ARBA's earnings, which
came in very strong this evening.  Although initially sold on
the news, the stock recovered nicely after the conference call
which had a very positive tone.  So what does all this have to
do with our new play on BEAS?  Everything, as it turns out.
Remember that the general market/sector accounts for the
majority of a stock's movement, and the fact that investors
are responding positively to good news in the B2B sector,
without punishing all the Internet stocks is encouraging.  For
its part, BEAS has been doing battle with the 200-dma ($56.88)
over the past 6 weeks, and it today's rally brought the stock
back over this critical level.  After bouncing from the lower
Bollinger band earlier this week, Stochastics have moved back
out of the oversold zone, putting our new play in a position
to continue its recovery in advance of its own earnings on
February 13th.  Volume has been heavy over the past couple days,
and as long as it continues, should help BEAS to clear the first
level of resistance near $64.  Conservative players will want to
wait for this level to fall to the bulls before initiating new
positions.  One negative factor that materialized this afternoon
was an SG Cowen downgrade from Strong Buy to Buy.  As long as
the stock can shake off this news, it should provide the
opportunity for aggressive traders to open new positions on an
intraday dip ahead of the weekend.  Look for the stock to find
support near the 200-dma, or near our stop, currently resting at
$53.  Confirm positive movement in both the NASDAQ and the B2B
sector (Merrill Lynch HOLDR, BHH) before jumping into new
positions.

***January contracts expire next week***

BUY CALL JAN-60 BUC-AL OI=3229 at $ 4.88 SL=3.00
BUY CALL JAN-65 BUC-AM OI=1431 at $ 2.56 SL=1.25
BUY CALL JAN-70 BUC-AN OI=2707 at $ 1.38 SL=0.75
BUY CALL FEB-60 BUC-BL OI= 416 at $10.38 SL=7.50
BUY CALL FEB-65*BUC-BM OI= 815 at $ 7.88 SL=5.50
BUY CALL FEB-70 BUC-BN OI=1180 at $ 6.13 SL=4.00

http://www.premierinvestor.com/oi/profile.asp?ticker=BEAS


*************
NEW PUT PLAYS
*************

AGGRESSIVE:

MRK - Merck & Co., Inc. $81.63 -1.56 (-1.69 this week)

Merck is a global pharmaceutical company, which specializes in
the development of human and animal health products.  They are
the #1 industry leader in the US and #2 worldwide.  Some of its
more prominent drugs include Zocor and Meycaor (cholesterol
drugs), Pepcid (an anti-ulcerant), top-selling hypertension
drugs, Vasotec and Prinivil, and more recently the AIDS
medication, Crixivan.  The drug maker also provides
pharmaceutical benefit services through Merck-Medco Managed Care
which it sells to corporations, labor unions, and insurance
companies.  When it comes to e-commerce Merck won't be left
behind either.  The company has formed an alliance with CVS to
market drugs online.

The year 2000 was a banner one for shares of MRK, as the stock
gained almost 40 percent, and for good reason.  With Tech bears
successfully selling NASDAQ stocks with abandon because of high
valuations, rising interest rates and threats of an economic
downturn, traders became defensive and turned to the good old
reliable drug stocks as a haven from the overvalued four-letter
issues.  But now, an almost complete reversal of the fundamental
picture could mean a possible sustained downtrend for the
Pharmaceuticals, as money flows out to be put to work in the more
sexy parts of the market.  A hawkish Fed bent on fighting the
specter of inflation has now become a kinder, gentler one, with a
bias towards averting further economic slowdown.  With dot bomb
already detonated, value investors have been picking up the
pieces, finding the PE's of fundamentally sound Tech stocks at
much more attractive levels while those of Drug stocks are at
historical high points.  Weak technicals only serve to confirm
the bearish sentiment in MRK, with the stock failing to close
above resistance from the 5-dma line so far this year.  Today,
MRK closed below its 100-dma for the first time since last
September, suggesting a potential move lower to test its 200-dma
near $76.  A failed rally off the 100-dma at $82 and the 5-dma at
$83.12 could provide for an aggressive entry with additional
resistance at our stop price of $85 but make sure selling volume
confirms the rollover.  If downward momentum increases, causing
MRK to plunge below support at $80, this could allow the more
risk averse to take a position, but only if Merrill Lynch's
Pharmaceutical HOLDR (PPH) is going in the same direction.

***January contracts expire next week***

BUY PUT JAN-90 MRK-MR OI=7944 at $8.63 SL=6.00
BUY PUT JAN-85 MRK-MQ OI=9092 at $4.13 SL=2.50
BUY PUT JAN-80*MRK-MP OI=8628 at $1.44 SL=0.75

http://www.premierinvestor.com/oi/profile.asp?ticker=MRK


AIG - American International Grp. $84.31 -2.19 (-3.56 this week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

Proving that technical analysis is alive and well, AIG fell off
a cliff late last week, completing the head and shoulders
formation that had begun to form in early November.  Mirroring
the action of the broader insurance sector (IUX.X), AIG fell
sharply last Thursday, with no apparent catalyst except normal
sector rotation.  It is about time, as Insurance stocks have
been in a solid rally since the lows posted last March.  Since
then, AIG had rallied from $55 to a high of $105, before
beginning to come under pressure from the bears.  Concerns about
an increase in claims due to rough weather around the country
and the possibility of more mortgage defaults due to the slowing
economy added to the technical weakness and the selling started
picking up steam again 2 weeks ago.  This selling came to a head
last Thursday, as the stock gave up more than 7% on nearly
triple the average daily volume, breaking the head-and-shoulders
neckline at $93.  Despite penetrating the lower Bollinger band,
the decline has continued unabated, with the stock giving up an
additional 5% over the past week and violating the 200-dma
($86.44) today.  Today's decline has dropped the stock below the
$85 support level, and the stock looks vulnerable to the $78-79
support level in the near-term.  Beyond that, it is not
unreasonable to expect a further decline to longer-term support
near $73 before the current bout of selling has run its course.
With that being said, AIG will likely see a weak bounce from the
lower Bollinger band to provide for a good aggressive entry
point in the near term.  Our stop is sitting at $88, just above
the 200-dma.  Look for any rally that fails to penetrate this
level as an attractive opportunity to open new positions.  Keep
an eye on the broader Insurance sector also, as any strength
there, is likely to provide an early warning that the selling
pressure in AIG is diminishing.

***January contracts expire next week***

BUY PUT JAN-90 AIG-MR OI=3340 at $6.13 SL=4.00
BUY PUT JAN-85*AIG-MQ OI= 500 at $2.63 SL=1.25
BUY PUT JAN-80 AGK-MP OI=1971 at $1.00 SL=0.50
BUY PUT FEB-85 AIG-NQ OI=2791 at $5.13 SL=3.00
BUY PUT FEB-80 AIG-NP OI=1115 at $2.56 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=AIG


*********************
PLAY OF THE DAY - PUT
*********************

PMI - PMI Group $52.25 -2.31 (-5.75 this week)

PMI Group is a holding company that conducts its residential
mortgage insurance business through its subsidiaries.  PMI
provides primary insurance coverage, insuring mortgage lenders
and mortgage loan investors against borrower default on
individual first mortgage loans.  At the end of 1997, PMI
began offering a pool insurance product, primarily to Fannie
Mae and Freddie Mac, as a part of the company's value-added
strategy.  This product is also sold to state housing finance
authorities, and is generally used as an additional credit
enhancement for certain secondary market mortgage transactions
to protect against loss on a defaulted mortgage loan which
exceed the claim payment under the primary coverage.

Most Recent Write-Up

Did you catch that entry point this morning?  PMI moved up sharply
this morning, only to rollover just as sharply as the day wore on.
Briefly moving over $55 before the bears returned, PMI came under
heavy selling pressure (more than double the ADV), coming to rest
at its lowest point since early July.  After falling below the
200-dma (then at $58.63) last Friday, PMI has continued to slide
lower, pressured by the sharply declining 5-dma (now at $55.31).
Even gains across the board on the major indices couldn't prop up
the share price, and despite nearing the lower Bollinger band at
$51, it looks destined to continue its slide.  The next support
should materialize near $50, followed by $45.  The bottom line is
that as the economic slowdown is settling into our consciousness,
concerns of an increase in loan defaults will continue to
pressure the share price of PMI, which insures against defaults
on mortgage loans, particularly in the secondary market.
Earnings are set to be released on January 24th, but in the
current environment, we don't expect much of an anticipatory
rally ahead of the numbers.  Conservative players will want to
wait for a break below $52 before opening new positions, while
more aggressive entries can be considered on any weak rally that
fails to take out our $58 stop.

Comments

Ready for another leg down?  After Wednesday's short covering
session, the sellers were back today at the $55 level.  PMI
drifted lower through the session, closing at the low of the day
on relatively strong volume.  A break below $52 would signal an
entry point into this put play and would take PMI to levels not
seen since July 7th, 2000.  If buyers step in after the open like
this morning, look for rollovers at resistance near $53, and then
$54 and $55.

BUY PUT FEB-55*PMI-NK OI=25 at $4.88 SL=3.25
BUY PUT FEB-50 PMI-NJ OI= 5 at $2.25 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=PMI


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************************
COMBOS/SPREADS/STRADDLES
************************

When the bad news almost seems good...

Technology stocks rallied again today as investors overlooked
some disappointing profit reports and company downgrades.


Wednesday, January 10

The stock market rallied today as investors finally decided that
all of the recent bad news has been factored into equity prices.
The Nasdaq closed up 82 points at 2,524 and the Dow industrials
finished up 31 points at 10,604.  The S&P 500 index finished 12
points higher at 1,313.  Volume on the NYSE reached 1.28 billion
shares, with winners beating losers 1,875 to 1,057.  Activity on
the Nasdaq was heavy at 2.4 billion shares traded, with advances
doubling declines 2,564 to 1,256.  In the bond market, the U.S.
30-year Treasury fell 1, pushing its yield up to 5.49%.


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

Adelphia    ABIZ   FEB7C/FEB5P     $6.19   debit   collar
Federated   FII    JAN25C/JAN25P   $1.50   debit   straddle
Winstar     WCII   APR20C/JAN20C   $0.00   debit   calendar

Both Adelphia Business Solutions and Federated Investors offered
entries at the target prices in our new combination positions.
Winstar was less than cooperative, with the best-observed debit
slightly higher than our suggested price.  If you did not enter
the bullish position in separate orders, there was no opportunity
to achieve the recommended debit, and the issue gained almost $3
by the end of the day.


Portfolio Plays:

Stocks moved higher today as investors began to speculate that
declining interest-rates will eventually revitalize the sluggish
equity markets.  Traders sought bargains in the beleaguered tech
sectors, with shares of software companies, semiconductors and
telecom issues leading the Nasdaq higher.  Networking and fiber
optic stocks also performed well, even in the wake of negative
news from Cisco Systems (CSCO).  Cisco CEO John Chambers said
the current quarter is more challenging than he had expected and
CIBC World Markets downgraded the stock, amid doubts the company
will meet the consensus revenue estimates in the second quarter.
On the Dow, J.P. Morgan Chase (JPM), Citigroup (C), and United
Technologies (UTX) led the gainers while Johnson & Johnson (JNJ),
3M (MMM) and General Motors (GM) were among the blue-chip losers.
In the broader market groups, defensive sectors such as energy,
pharmaceuticals, retailing and manufacturing fell amid selling
pressure while wireless telecom and biotechnology stocks were
among the leaders.  After the close of regular trading, mobile
phone giant Motorola (MOT) and Web media company Yahoo! (YHOO)
reported quarterly results.  Motorola reported earnings in line
with lowered expectations, amid weakness in its semiconductor
and handset units.  Yahoo reported quarterly earnings that met
forecasts but warned that next year's profits and revenues will
be below current expectations.  YHOO shares, which were halted
at the start of after-hours trading, eventually fell to $25 and
the warning suggests there will be additional disappointments in
the coming weeks.

Our portfolio enjoyed advances in almost all of the major groups
with technology issues leading the rally.  Among the big Nasdaq
gainers were Broadcom (BRCM), Bea Systems (BEAS), EMC (EMC), and
Emulex (EMLX).  In the financial group, Goldman Sachs (GS) was a
standout and the top performing drug shares were Pharmaceutical
Products (PPDI) and Laboratory Holdings (LH).  Waters (WAT) has
also made a surprising comeback, rebounding to $69 after a test
of its 180-day low near $60.  In the industrial category, oil
issues were bullish with Smith International (SII) rallying over
$3 to a recent high near $75.  Home Depot (HD) and Williams
Sonoma (WSM) were among the leading retailers.  Our new position
in Worldcom (WCOM) is a major success, trading almost $7 higher
than our sold strike in the January call-debit spread.  In the
small-cap section, Speedfam (SFAM) has exceeded all expectations
with a 35% gain in just over one week.  The Straddles group was
also on the move and our new position in Federated (FII) traded
through a large range, falling to $23.31 during the session.  The
drop pushed the straddle (which was opened earlier in the day) to
break-even on the bearish side of the play.  The neutral position
in Cytec Industries also achieved profitability, with a $7 credit
after just one week in play.


Thursday, January 11

Technology stocks rallied again today as investors overlooked
some disappointing profit reports and company downgrades.  The
Nasdaq closed up 116 points at 2,640 and the Dow finished in the
black at 10,609.  The S&P 500 closed 13 points higher at 1,326.
Volume on the NYSE hit 1.36 billion shares, with winners beating
losers 1,660 to 1,253.  Activity on the Nasdaq was extreme at
2.82 billion shares traded, with advances beating declines 2,759
to 1,166.  In the bond market, the 30-year Treasury fell 24/32,
pushing its yield up to 5.54%.


Portfolio Plays:

Today's rally in technology stocks had far-reaching effects as
buyers emerged to breathe new life into many of the beaten-down
areas of the market.  Among the Nasdaq sectors, almost every
group pushed into positive territory, with hardware and software
stocks leading the charge.  The Dow Industrials also advanced
after spending most of the day in the red, driven by gains in
its technology components.  In the broader market, oil service,
brokerage and transportation shares rallied while paper, drug,
utility and consumer products issues retreated.  Our portfolio
enjoyed a number of upside surprises in the technology segment
with small-cap stocks experiencing the highest percentage gains.
Shares of Adelphia Business Systems (ABIZ), Speedfam (SFAM),
Conseco (CNC) and Portal Software (PRSF) rallied substantially
while Akysys (AKSY) recovered from a recent sell-off.  Williams
Sonoma (WSM) and Home Depot (HD) again led the retailers while
Worldcom (WCOM) topped the telecom segment and Tektronix (TEK)
shined in the Scientific and Technical Instruments sector.  The
Straddles group enjoyed two new winners with Mips Technologies
(MIPS) and Fifth Third Bancorp (FITB)) both reaching early-exit
targets.  The speculative MIPS position traded as high as $5.00,
a $1.50 profit on $3.50 invested in less than one week.  Fifth
Third Bancorp also provided an excellent return, with a credit
of $5.50 on $4.38 invested, a 25% monthly profit.  Straddles on
British Telecom (BTY) and Federated Investors (FII) also moved
well and it appears that these volatile issues will reach both
the upside and downside break-even targets before the positions
expire.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -

Today, we received a request for some new long-term plays (LEAPS
with Covered-calls and calendar spreads) and based on the rally
in technology issues, now may be a good time to sell premium in
near-term options.  For those who enjoy time-selling strategies,
here is a low-risk candidate that may meet your criteria for
risk/reward outlook and portfolio suitability.

******************************************************************
MOT - Motorola  $22.13  *** Looking for a bottom! ***

Motorola is engaged in providing integrated communications
solutions and embedded electronic solutions.  These include
Software-enhanced wireless telephone, two-way radio, messaging
and satellite communications products and systems, as well as
networking and Internet-access products, for consumers, network
operators, and commercial, government and industrial customers;
Embedded semiconductor solutions for customers in networking,
transportation, wireless communications and imaging and unique
entertainment markets; Embedded electronic systems for automotive,
communications, imaging, manufacturing systems, computer and
industrial markets; and Digital and analog systems and set-top
terminals for broadband cable television operators.

Motorola was one of the first companies to report this quarter,
announcing earnings of $335 million, or $0.15 a share, for the
final three months of 2000, down from $564 million, or $0.25 a
share, a year earlier.  The results were in line with analysts'
lowered forecasts and the company said it is comfortable with a
target of $0.12 a share for the first quarter of 2001.  Motorola
also said that although conditions would be difficult during the
first half of the year, it would do better in the latter months
because of cost-cutting and a move toward selling more profitable
phones.  Investors and analysts were tolerant of the revised
outlook and MOT shares edged higher during the session.  With a
relatively well established base near $20, and short-term supply
at the sold strike of $25, this position offers good speculation
for traders who participate in Covered-calls with LEAPS.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN02 - 25  WMA-AE  OI=59    A=$4.88
SELL CALL  FEB01 - 25  MOT-BE  OI=5332  B=$1.00
INITIAL NET DEBIT TARGET=$3.62 TARGET ROI(max)=50%

/charts/jan01/charts.asp?symbol=MOT
******************************************************************
AEIS - Advanced Energy  $29.38  *** Technicals Only! ***

Advanced Energy Industries is a global company that provides
the development, marketing and support of integrated technology
solutions that are central in the manufacture of semiconductors,
data storage products and flat panel displays, as well as other
mission-critical power applications.  Equipment manufacturers
and end-users worldwide depend on the company's products when
plasma-based technology plays a key role in their manufacturing
process.  The company offers a comprehensive suite of subsystems
for vacuum process systems including power conversion and control
solutions, process monitoring and machine control tools, ion-beam
sources, dynamic temperature control products and plasma abatement
technologies. The Company's technology solutions are sold and
supported globally by direct offices, representatives and
distributors.

This play is based on the current price or trading range of
the underlying issue and the recent technical history or trend.
Current news and market sentiment will have an effect on this
issue.  Review the play thoroughly and make your own decision
about the future outcome of the position.

Note:  Target a higher spread premium initially, to allow for
a brief consolidation from today's gains.

PLAY (conservative - bullish/credit spread):

BUY  PUT  FEB-20.00  OEQ-ND  OI=191  A=$1.19
SELL PUT  FEB-22.50  OEQ-NX  OI=51   B=$1.69
INITIAL NET CREDIT TARGET=$0.62-$0.75  ROI(max)=32%

/charts/jan01/charts.asp?symbol=AEIS
******************************************************************
                         - STRADDLES -

This week we received a number of requests for conservative debit
straddles.  Unfortunately, with the recent market volatility, the
number of theoretically favorable candidates is quite low.  That
is not to suggest that you can't make money in the strategy, it
just means you cannot focus entirely on historical volatility as
a method of analysis.  In today's research, we have identified a
favorable candidate, based on analysis of its historical option
pricing and technical background.

******************************************************************
USB - U.S. Bancorp  $30.06  *** Earnings Play! ***

U.S. Bancorp is a multi-state bank holding company that offers
full-service brokerage services at approximately 100 office
through a wholly owned subsidiary.  The company has various
nonbank subsidiaries engaged in financial services and USB
provides banking services through its subsidiary banks to both
domestic and foreign customers and correspondent banks.  These
services include consumer banking, commercial lending, a range
of financing of import/export trade, foreign exchange and other
investment services.  The company, through its subsidiaries,
also provides services in trust, commercial and agricultural
finance, data processing, leasing and brokerage services.  The
company's quarterly earnings are due on January 18.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  FEB-30  USB-BF  OI=1083  A=$1.88
BUY  PUT   FEB-30  USB-NF  OI=59    A=$1.62
INITIAL NET DEBIT TARGET=$3.25 TARGET ROI=25%

/charts/jan01/charts.asp?symbol=USB


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