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Daily Newsletter, Tuesday, 01/16/2001

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The Option Investor Newsletter                  Tuesday 01-16-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        01-16-2001        High      Low     Volume Advance/Decline
DJIA    10625.70 +127.30 10664.00 10486.60 1.20 bln   1742/1198
NASDAQ   2618.55 -  7.95  2638.22  2576.95 2.07 bln   2418/1533
S&P 100   639.05 +  5.17   693.83   684.80   totals   4160/2731
S&P 500  1326.65 +  8.10  1327.81  1313.33           60.4%/39.6%
RUS 2000  493.28 +  7.53   493.46   483.86
DJ TRANS 3064.74 + 62.76  3069.92  2988.14
VIX        28.18 +  0.56    29.32    28.18
Put/Call Ratio      0.56

Surprise, surprise, surprise!

Money rotated back into defensive stocks today as tech stocks
took a breather in front of a massive number of expected tech
earnings. Traders took off their bullish horns and moved to the
sidelines until the true earnings picture is clearer. Drugs and
food stocks and insurance stocks were up on the rotation while
BRCM, JNPR, JDSU and other leading techs suffered in regular

Earnings, earnings, earnings. The wait is on. Announcements after
the bell today were waited heavily in the semiconductor sector.
AMCC posted earnings of +$.16 which beat estimates by two cents.
Revenue was light with sales weaker than expected. AMCC dropped
-$3 in after hours to a low of $67 right after the announcement
but rallied back to gain +$3 in later trading.

The 800lb. gorilla in the semiconductor space also announced
and only met estimates of $.38. Revenue was flat at $8.7 billion
and margins were stable at 63%. However they warned that earnings
for the next quarter would be down -15% or more with gross margins
dropping to only 58%. This is an earnings drop of almost $1.3
billion in just one quarter. Investment gains are expected to
also drop to only $180 million, down from over $900 million just
a couple quarters ago. Intel initially traded on both sides of
positive after the announcement and ended up +1.00 after the
conference call. Ashok Kumar predicted INTC would dip to as low
as $26 before rebounding. He said INTC would be a strong buy at
that number. That may be wishful thinking on his part.

Juniper Communications also announced and beat estimates by a
huge margin. Recently raised estimates of $.18 were not even
close to the $.24 actual earnings. Revenue was up +47% and they
more than doubled market share at the expense of CSCO. Estimates
by the company for full 2001 are for sales of $1.5+ billion and
more than double the current rate. JNPR gained +12 to $139 in
after hours trading after a brief drop to less than $122. JNPR
advised analysts to raise their estimates for next year and
claimed a 12 month technology lead over its competitors. (CSCO)
Ironically CSCO gained +1.50 in after hours trading as well.

RFMD announced earnings of +$.05 that were less than last year
but in line at $.05 and warned that the next quarter would drop
-10% from here, citing costs associated with a new facility as
the reason. NVLS beat estimates by +$.06 on a +122% increase
in sales. NVLS was up almost +$6 to $43 in after hours trading.

In other news GSTRF announced that it had suspended principal
and interest payments on its debt in order to maintain enough
cash for operations. Not a good sign for this troubled phone
company. Of more concern than the stockholders of GSTRF is the
debt or investment by other companies. QCOM, for instance, has
over $600 million of investments in GSTRF which it will have
to write off should GSTRF file bankruptcy. This is a huge chunk
of change and only the tip of the iceberg.

The Dow gained +127 points on the strength a couple positive
earnings reports but it was really a quiet move. Citigroup rose
+1.13 after reporting a +11% rise in income for the quarter
inline with analysts expectations. BAC dropped -1.31 after
posting a -27% decline in earnings but rallied to close up +.75.
Dow components BA, GM, IBM and JPM announce earnings on Wednesday
with IBM being the biggest worry.

The Commerce Dept reported that business inventories grew +0.5%
in November while sales fell for the second month in a row. The
inventory data met expectations and continued to suggest weakness
in the economy. This was market friendly and traders are still
expecting another rate cut on Jan-31st from the Fed. The CPI
report is due out on Wednesday as well as Industrial Production.
OPEC is also expected to cut production by -1.5 million bbls
which would put pressure on oil prices and indirectly inflation

The state of California was hit by a stage 3 emergency alert
and just narrowly avoided rolling blackouts to take strain off
the energy grid. Credit ratings were cut to less than junk status
on Southern California Edison and Edison International putting
them into default on various bank loans and credit lines. The
move came after SoCal Edison suspended $596 million in payments
to creditors in order to keep the lights on. Bankruptcy appears
to be the next option. BAC and JPM are the major lenders to both
of these companies. SoCal Edison said it had $1.2 billion in
cash on hand but would run out as of Feb-2nd assuming it makes
all payments when due.

In spite of the weak earnings by Intel and the bearish forecast,
investors were relieved that the situation was not worse. The
QQQ, which is a proxy for the Nasdaq rose +1.50 in after hours
trading. Nasdaq futures at 6:45EST were up +65 and S&P futures
were up +9.00. This is a marked difference from the day's
trading on the Nasdaq. Over two billion shares traded again with
no price movement. With only a 75 point trading range the Nasdaq
was suffering from traders moving to the sidelines in front of
the flood of tech earnings this week. With investors believing
that all the bad news is already priced in, as evidenced by the
Intel rally late in after hours, tomorrow may be a better day.

The Nasdaq is still hovering exactly at the top of the down
trend channel which has been in place since Sept-1st. 2650,
which has been a challenge recently, could be broken decisively
on Wednesday if the futures hold. The positive earnings surprises
from NVLS, AMCC and JNPR have energized the after hour market
with JNPR up +$12 as after hours trading came to a close. We
need to remember that just as easily as three positive surprises
provided a market bounce, negative surprises can take it back
down again. While the futures are up strongly tonight there is
a lot of darkness before morning and things can change in a
heartbeat. Keep those stops tight and be prepared to exit if
the euphoria diminishes.

Enter passively, exit aggressively!

Jim Brown

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They Liked It!
By Austin Passamonte

All eyes were on Intel tonight (NASDAQ:INTC) and the tech bell-
weather said some favorable things. Sure, there are earnings
challenges ahead but traders knew that. Once the conference call
ended, post-market NDZ and SPZ futures shot up.

What was said is beyond us; we were busy dodging & weaving around
30+ vehicles piled up off the short stretch of highway between
office and home. Two inches of snow on the ground and numerous
Denver-ites are off the road? They'd never make it one day in
western NY, but I digress.

INTC coupled with multiple other earnings have futures climbing
and expectations strong for the remainder of this week and
beyond. There are some critical points of resistance overhead as
listed below:

SPX:   1350
NDX:   2690
QQQ:     66.75
Dow: 10,721
OEX:    708
SOX:    675
COMPX: 2782

These figures represent key moving average and/or descending
trendlines overhead. A break and close above would be our first
signal that hibernation season for the bears may be near.

Charts for the SOX were looking pretty ragged until tonight. This
could be attributed to trader's fear leading into the earning
reports and may now breath a sigh of relief. We should see some
bullish improvement tomorrow or that entire sector's in big, big

The start of Q1 earnings is off with a bullish start and we head
towards expiration with great promise for directional market
movement once again. Won't that be nice?

As always, choose your entries carefully and follow the daily
trend. We could be on the verge of our next moment to bask in the
market's glow of "easy" trading once again!


Tuesday 01/16 close: 28.18

30-yr Bonds
Tuesday 01/16 close: 5.61%

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)
730 - 715               13,996        1,547         9.05
710 - 695               21,012        6,400         3.28

OEX close: 693.05

690 - 675               13,211       11,613          .88
670 - 655                2,807        9,855         3.51

Maximum calls: 685/6,831
Maximum puts : 640/4,815

Moving Averages
 10 DMA  686
 20 DMA  685
 50 DMA  708
200 DMA  763

NASDAQ 100 Index (NDX/QQQ)
 71 - 69                68,803        16,294         4.22
 68 - 66                90,725        11,685         7.76
 65 - 63                64,284        34,154         1.88

QQQ(NDX)close: 61.98

 60 - 58                77,028        56,322          .73
 57 - 55                45,489        43,212          .95
 54 - 52                 9,353        23,054         2.46

Maximum calls: 60/59,091
Maximum puts : 60/38,046

Moving Averages
 10 DMA 59
 20 DMA 59
 50 DMA 66
200 DMA 84

S&P 500 (SPX)
1400                   17,435         9,155          1.90
1375                   10,828        10,228          1.06
1350                   36,747        30,941          1.19

SPX close: 1326.65

1300                    6,475        12,069          1.86
1275                      443        14,052         31.72
1250                    1,644        12,645          7.69

Maximum calls: 1350/36,747
Maximum puts : 1350/30,941

Moving Averages
 10 DMA 1314
 20 DMA 1311
 50 DMA 1344
200 DMA 1424


CBOT Commitment Of Traders Report: Friday 01/12
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         -108        -2008         -5438      -2167

Total Open
interest %       (-1.37%)   (-25.35%)     (-21.58%)   (-9.59%)
                 net-short  net-short     net-short   net-short

Open Interest
Net Value         +1861       -1028         -3982      -1825
Total Open
Interest %      (+11.29%)   (-4.77%)      (-7.13%)   (-3.45%)
                net-long    net-short     net-short  net-short

S&P 500
Open Interest
Net Value         +59586     +59586        -86815     -81851
Total Open
Interest %      (+37.29%)   (+29.89%)     (-11.19%)  (-11.09%)
                net-long    net-long      net-short  net-short

What COT Data Tells Us
Indices: The Commercials show a dramatic increase in their net-short
positions on the DJIA while maintaining their net-short positions
on the S&P 500 and NASDAQ 100.

Small Specs show a substantial reversal in their NASDAQ 100 positions
going from net-short to net-long.

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

Currencies: Commercials continue to build 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-long crude & oil products at one
year extremes. These producers are hedgers and almost always take
the opposite side of expected market action to lock-in production
prices. They expect lower prices from here (Bearish)

Metals: Commercials are moving to net-long in Gold, Silver and
Copper from short positions.  This has happened quickly and they
expect higher precious metals soon.(Bullish)

COT/CRB: This commodity index measures the entire spectrum of
commodities in overall bullish or bearish outlook.  It is now at a
one-year high for commercial bullishness, meaning the outlook for
commodities is long-term positive while equities as a mirror are
considered long-term negative.

Data compiled as of Tuesday 01/09 by the CFTC.


Please visit this link for Market Posture:



Pick On Someone Your Own Size
By David Popper

In the movie, "Patriot," there is a scene where the hero's son
joins the Colonial Army to fight the British.  He hides in an
abandoned house and witnesses the Colonial forces marching in
European style formation to fight against the more experienced
British forces.  You see row after row of American soldiers
being slaughtered at the hands of their enemies.  As the boy
watched this scene, he did not notice his father enter the room.
After observing the scene, the hero remarked that this battle was
over before it started.  As the movie goes on, the colonists
eventually win, primarily by employing guerrilla tactics.  These
tactics allowed an overmatched force to defeat the stronger enemy.

As I watched this movie, I could not help but to analogize that
scene to the market.  Millions of traders stayed in the market
"for the long haul" and had their accounts annihilated, when
the damage could have been averted by limiting their risk in
those uncertain times.  Millions of traders lost while others
stayed profitable entering short-term trades.  Millions of
traders lost while others greatly profited by shorting the
market.  Millions of traders lost because they refused to alter
their style, while others did well because they adapted to the
changing market conditions.  Troubled times are not conducive
to the strategy of "staying long and strong."

Other strategies may be helpful to the part time trader if he/she
wants to stay in the market.  The very best solution may be to
stay on the sidelines altogether, but some (like myself) will not
take that approach.  Below I will discuss one of these strategies.
The key, however, with all of these strategies is to recognize
that trades can turn south quickly and therefore you must trade
with only a small portion of your funds.  If you typically take
500 share positions, then trade 200 share positions.  If you trade
200 share positions, then trade 100, etc.  The idea is to
achieve short-term gains and not be over exposed to the market.
Like the guerrilla fighter above, you do not meet the market
head on, but rather you hit quickly for small gains or establish
safer but less profitable positions.

The strategy that I would like discuss is selling covered
calls.  Sounds boring but it is not boring to be profitable in
uncertain times.  A dirty little secret to enhance your return
is to consider writing calls on severely beaten down tech stocks
that now sport a low PE, but still have inflated premiums.  For
example COMS has a PE under 10, a chart that is basing and a
ATM premium of 12%.  I bought COMS for $10 on January 10th and sold
the February 10 call for $1.38.  That is a healthy premium with
not near the risk of a BRCM, SEBL or other stocks with three
digit PEs.  Other examples would include WCOM, T, and DELL. The
bad news is priced into these market leaders, and yet the premium
is rich.

Another thing to consider when writing these covered calls
is to try to accomplish the trade near support.  Finally, make
sure that the company is an industry leader.  By trading a
quality company which is temporarily beaten down and is
technically at good support, you have greatly increased your
odds of a successful play even in a volatile market.  If by
chance a rally erupts, you can always buy back the calls and
participate in the ride.  In fact, often the time premium will
shrink rapidly during a rally.  You will be able to buy the
call back after having extracted all of this extrinsic
premium and can write a new call at a higher premium.  If
on the other hand the stock continues to tank, you may be
able to repurchase the call very cheaply and rewrite it on
a rally.  Again, by limiting your selections to the criteria
listed above, you have significantly reduced your chances for
a poor trade.

As an aside, I recently met a former Nasdaq market maker on an
airplane in New York who lost in excess of $4 million last year.
He is limiting his trades this year to employing this very same
strategy.  His reasoning is that the professionals that he
witnessed trading in this manner did not suffer severe losses
last year.  No it is not as exciting as owning BRCM call options,
but a steady gain while many around you are losing eventually can
become exciting.  In my opinion, this strategy provides the
part-time trader with the best percentage shot at making a profit
on a monthly basis in a rough market.  The premium will be
somewhere between 5 and 10% and the fact that these good stocks
have already suffered a valuation adjustment provides additional
safety.  You do not have to be fully invested and risk severe
damage to make money.  You do not have to assume the risk of
high volatility and triple digit PEs to make money.  These risks
may be too big for your account.  It is better to pick on someone
your own size.


Do You Have A Trader's Mindset?
By Scott Martindale

What does today's action mean?  This week's earnings reports will
determine short-term action.  Although today's reports weren't too
bad, I admit to being cautious for the near term, so I've sold
January covered calls on a number of my holdings.  Nonetheless, I
expect a trading range over the medium term and I'm still bullish
longer term.

Thus, I still see this as a great opportunity in the making.  I
continue to look for sell off days to move on naked puts and equity
or call positions on big names like ORCL, SUNW, CSCO, JDSU, ABI,
ITWO, and BEAS.  I also like speculative names like ITWO, CRA,
SCON, PRSF, KANA, and TMWD, even though I've been burned by some
of them.  Many of these sold off at year-end for tax losses, but
still have the long-term potential to attract new buyers.  I sold
shares of SCON and PRSF for tax losses myself, but bought medium-
term calls to capture the expected rebound.

I sold and profitably closed naked put positions in CPST (Jan 20),
EXTR (Jan 40), and PRSF (Jan 7.5).  I must admit, though, that big
moves like I got in CPST make me wish I had also bought calls.
However, I did have the foresight (or nerve) to buy shares of CPST
in my long-term account, and on Friday I decided to lock in
profits by selling Jan 35 calls near the high of the day.

This brings me to my topic of today.  Do you have a trader's
mindset?  No matter what anyone tries to tell you about avoiding
risk, let's face it, you have to take risks to gain exposure to
fast profits.  Waiting for confirmation often means you miss out
on the biggest chunk of gains and increase your downside.
Embracing and managing risk is your best path to profits.  To be
successful, I believe traders should buy on weakness (before
confirmation) and sell into strength (too soon).  Let me expand by
making the following points:

1. Buy on technical weakness or upon the early indications of a
recovery.  This positions you for the desirable "buy low" half of
the old adage.  It might go lower, but there is also increased
upside.  This is a form of contrarian behavior -- to buy when
others are selling.  If the technicals seem to be forming a
bottom, and the fundamental outlook is still bright, then it might
be a good time to get in on naked puts, bull put spreads, or long-
term calls.  However, it might not be ideal for short-term calls
unless you see a high-volume bounce.  If you had bought
alternative energy stocks on weakness at year-end, you would be
very happy today.

2. Don't always wait for confirmation.  (What did I say?)  Yes,
that's the way I feel about it.  Doing so will often make it too
late to get in, unless the stock or overall market is about to
enter a major run.  In today's uncertain, trading-range
environment, I wouldn't expect a heck of a lot of follow-through
after breaking through resistance (i.e., confirmation).  Waiting
for confirmation might mean missing the trade altogether or paying
too much -- all in an effort to be "safe."  In my case with CPST,
I sold Jan 20 naked puts for $2.50 and bought shares in my L-T
account on Dec 26th when the stock was severely oversold under $23.
Technically, it had bounced off of $20 and was starting to show
signs of life, and fundamentally, it was well positioned to
capitalize on the looming energy crisis in California.  I'll also
mention that I couldn't get myself to bite on Jan 8th when BEAS
flirted with $40.  I'm not happy with myself for missing out on
that.  However, I did pull the trigger and go naked Jan 35 puts on
ARBA when it sold off on Friday after its earnings report.  We'll
see how that one turns out.

3. Thoughtful observation and educated intuition -- not to be
confused with a mere "hunch" -- are important tools for a short-
term trader.  You might feel strongly that CPST will do well long
term, but knowing when to buy for a short-term trade is more
problematic.  Simply playing a hunch is more likely to fail.  But
if technical weakness seems to be running contrary to logic due to
overall market sentiment, the odds of success indeed may be

4. Don't ride out a correction, especially when playing short-term
options.  As stocks run, they need to take an occasional breather.
Often this involves a substantial retracement of the recent run up
-- perhaps half or more.  That is a lot of profit to give back on
the hope or expectation that higher prices are coming, and it can
quickly erode the value of your expiring option.  You can always
buy back in once the correction appears to have passed.

5. Sell into strength.  For example, if the stock seems to be
having a hard time breaking through a level of technical
resistance, it may be due for a correction, and this might be a
good time to lock in profits.  Often, this means selling before
the stock shows any appreciable weakness.  You might miss out on
further gains, but you also won't give back any of those precious
profits.  In my CPST example, I wrote calls last Friday when $35
looked like it might offer near-term resistance.  My intention is
to get back into CPST in the future (if and when it comes back
down a bit) if I'm called out this Friday.  Today the stock went
up more, but I'll take a 60 percent gain.  And I'll be looking for
another opportunity to enter others like CPST on extreme weakness.

6. Adhere to a sound exit strategy.  What happens if you never
quite get to a point that you would consider "strength" to sell
into?  You need an exit strategy that allows you to get out of
trades early and cut losses when they are not working, or to lock
in a profit when early strength seems to be fizzling.  I have
written about exit strategies in this column before, as have many
other writers.

The stock market (and especially options) can be a cruel and
humbling place to play.  If you want certainty or high odds, you
will have to pay for it.  Instead, learn to embrace and manage
risk with limited emotion.

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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.


KLAC $37.19 -2.75 (-2.75)  Just when the semiconductor sector
was starting to show the beginnings of a stealth rally after
months of falling, news from Motorola as well as an analyst
downgrade of the chip equipment sector destroyed our play on
KLAC.  Motorola announced that they are ceasing manufacturing
at their Harvard Illinois plant, and laying off 2500 people.
In addition, a Lehman Brothers analyst downgraded the entire
chip equipment sector, which may have been the catalyst to
push KLAC below its 50 period moving average of $39.71.  KLAC
failed to rally with the Nasdaq near the close, and as such,
we are dropping it tonight.  Use any bounce to exit open
positions early in Wednesday's session.

EXTR $43.19 -2.31 (-2.31) The networking sector sold off today
in a bout of profit taking after a considerable rally since
January 8th.  The sector appears to be at a critical
turning point, poised right at the 200 period moving average.
EXTR sold off with the other networking stocks, although the
highs and lows since January 8th still show an upward channel.
Since EXTR reports earnings January 17th after the close, we
will drop the play tonight.  Day traders might take a trade with
strength in the NWX.X, however, be sure to close positions
by the close of trading on Wednesday, as the risk of holding
over earnings is great.

IDPH $172.00 +3.38 (+3.38) There was no shortage of catalysts
for our play on IDPH, but unfortunately the stock didn't begin
moving soon enough for an extended play.  While earnings are
not set for release until January 29th, we have to exit our new
play prematurely due to a 3-for-1 split tomorrow.  The small
rally today all took place during amateur hour, making it
difficult for us to play.  While we may get another pop
tomorrow, as the split approaches, we prefer to err on the side
of caution and get out now.  For those of you with open
positions, use any strength tomorrow as an opportunity to exit
at a more profitable level.

PMTC $15.25 -0.88 (-0.88) After breaking out of its nine month
base last week, PMTC pulled back in Tuesday's session,
subsequently sliding through our recently raised stop at $15.50.
However, the buyers stepped in near the $15 level, from which
PMTC bounced later in the day.  Unfortunately, that bounce did
not carry PMTC back above our stop near the 10-dma.  As such,
we're dropping coverage on PMTC tonight and would use any bounce
early tomorrow to exit open positions.


No dropped puts today

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The Option Investor Newsletter                  Tuesday 01-16-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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EMC $69.88 +1.06 (+1.06) The computer storage sector bucked
the sluggish trend in the Nasdaq today to post modest gains.
EMC is now sandwiched between the 50 day moving average of
$67.12, and the 200 day moving average of $71.35.  Since EMC
is scheduled to report earnings on January 23rd after the close,
we may very well see the beginnings of a strong earnings run,
as EMC's CEO stated that their earnings should be on target
with analysts' expectations for the coming quarter and year.
A breakout over $71.35 would be an excellent entry point as EMC
moves through its new ascending trading channel.  The next major
resistance levels are $73, and the 50 day moving average of $75.
Maintain stops at the $67 level.

SFA $51.25 +0.31 (+0.31) Scientific Atlanta held above $50 on
Monday, even when the Nasdaq dropped 40 points.  Considering
that SFA had rallied over 20% from $42 on January 9th to over $52
last week, some consolidation was to be expected.  This stock
is in a very strong technical pattern to make a final spurt
into earnings, which are to be announced on Thursday after the
close.  For the last two days, SFA has made a strong rally in
the morning, with foiled attempts to clear resistance levels at
$54.44 on Friday, and $53.31 on Monday.  With some help from
the Nasdaq and the communications equipment sector, an earnings
run might very well provide the momentum necessary to clear
these levels, and possibly formidable resistance at the 200-dma
of $55.59.  Remember that this will be a short, two day play,
as you want to be out before the market close on Thursday.  Move
stops up to $46.

BEAS $63.13 +0.56 (+0.56) Like the Energizer Bunny, BEAS is
continuing to march higher, managing to eke out a fractional
gain today, despite a weak technology market.  As the stock
bounced near $60.50 this morning aggressive traders got an
opportunity to start nibbling at new positions, as nervous
investors hedged their bets ahead of the first major week of
earnings season.  As a late reporter, BEAS doesn't report its
results until mid-February, but any high profile earnings miss
in the Internet Software sector could have a pronounced negative
effect on the stock in the meantime.  The Sun Microsystems J2EE
Press and Partner Briefing began today, and as one of the
presenters, BEAS may take advantage of the opportunity to talk
up their stock and the overall sector.  The converged 30-dma
($65.38) and 50-dma ($65.88) are still thwarting the bulls'
attempts to break through the $65 resistance level.  Should
they succeed in a breakout, this will be the trigger for more
conservative players to enter new positions.  Aggressive traders
can continue to target shoot intraday dips to the $60-61 level,
so long as BEAS doesn't violate our stop, which has now been
moved up to $59.  Regardless of your risk profile, verify
positive movement on the NASDAQ and strong volume in BEAS
before playing.

MYGN $57.31 +1.31 (+1.31) It's been awhile since we had such a
quiet day on the NASDAQ, and this behavior trickled down into
industry-specific sectors like the Biotechs.  Although closing
positive, the Biotechnology Index (BTK.X) traded in its
narrowest range since late December, and we saw this effect
mirrored in the share price of MYGN.  Although gaining a little
over a dollar today, almost all of that was due to the gap up
open, as our play posted a Doji candlestick pattern, reflecting
investor indecision.  While the bulls did manage to push MYGN
through the $55-56 resistance level today, they did run into
trouble near $60, and at the end of the day, the selling volume
picked up, robbing the bulls of most of their intraday gains at
the close.  As we head into the heart of earnings season, we can
look forward to MYGN's numbers which, according to Investor
Relations, are set to be released on February 6th.  On the news
front today, the drug development deal between Bayer and Curagen
demonstrated that genetic database companies are in a sweet
spot, holding critical information that drug development
companies need, and are willing to pay for.  Just to be safe, we
have moved our stop up slightly, and it now sits at $54.  Any
intraday dip near this level that is followed by a strong bounce
(i.e. volume) will provide aggressive investors with an
attractive entry point.  More conservative players will want to
wait for the bulls to crest the $63 resistance level before
stepping into the play.  Don't forget the issue of liquidity;
MYGN options are thinly traded, so make sure the it fits your
risk profile before playing.

BRCM $117.88 -5.31 (-5.31) A flat to down day for the Chip sector
translated to a day of consolidation for BRCM as the stock pulled
back 4.31 percent on average volume, ending its 5-day winning
streak.  Traders were holding their breath in anticipation of
INTC's earnings report tonight, so news from the company about a
2.4 gigabit per second IP security processor was largely ignored.
Currently, the stock is caught between a narrow area between
support from the 5 and 10-dma (currently at $112.76 and $102.75
respectively) and resistance overhead from the 50-dma, now
sitting at $123.  The 50-dma provided staunch resistance today,
with sellers lining up at that level.  If the bulls can outnumber
the bears and carry the stock above this moving on volume, this
would allow for a conservative entry.  For those willing to take
some risk, a pullback to support at $115, the 5-dma, and $110
could allow for an aggressive entry but make sure the stock
closes above out stop price of $114, and confirm entries with the
Philadelphia Semiconductor Index (SOX).

LRCX $20.19 +0.50 (-0.50) A pullback on low volume for shares of
LRCX today is not surprising, considering its recent run up and
nervousness of traders surrounding INTC's earnings report.
Giving back 2.42 percent for the day, volume was light, less than
85% of ADV.  This is a good sign considering that yesterday, the
stock was downgraded by WF Van Kasper from a Buy to a Hold
rating.  When a stock continues to not only hold its price but
advance on volume in the face of downgrades, this suggests
underlying strength and confidence on the part of investors in
the company.  Nevertheless, LRCX closed below its 5-dma for the
first time in two weeks.  On a further pullback, look for support
at $20, $19.50, $19, the 10-dma at $18.90 and our stop price at
$18.50.  In buying a bounce, wait for volume to pick up before
taking a position.  For conservative traders, wait for LRCX to
trade back above its 5-dma with conviction before jumping in,
confirming sector strength with Merrill Lynch's Semiconductor

MER $73.63 -0.63 (-0.63) Despite closing down fractionally for
the day, shares of Merrill Lynch made a new all-time intra-day
high.  Trading volume was average and it appears that traders
were willing to take some gains off the table as MER headed
higher into blue-sky territory.  However, the uptrend since late
November is still firmly intact, with the 5 and 10-dma continuing
to serve as support.  Look for pullbacks to these two moving
averages (currently at $72.83 and $71.95 respectively) as
potential aggressive targets to shoot for, along with horizontal
support at $73.50, $72 and our stop price of $70.  As always,
confirm bounces with buying volume before initiating a play.  For
an entry on strength, if the buyers return with conviction,
taking MER definitively through the $75 mark, this could allow
conservative traders to take a position, but in doing so, make
sure that competitors GS and LEH are also moving in the same

MSFT $52.56 -0.94 (-0.94) We will be dropping our call play on
MSFT tomorrow ahead of its earnings report on Thursday but until
then, the gorilla of the software sector could give us one last
profitable trade.  Today the stock pulled back fractionally ahead
of Intel's earnings report, with traders sitting on the sidelines
awaiting the results.  This uncertainty was reflected in today's
light trading volume, less than 70 percent of ADV.  MSFT did
however find support from its 10-dma, now at $50.35.  Look for
another bounce off this level as a potential entry point, but
only if sentiment in the NASDAQ is positive, with buying volume
confirming the mood.  As well, make sure MSFT moves back quickly
above our stop price of $51.  If renewed optimism brings back the
buyers, taking the stock above its 5-dma at $53.15, this could
allow for an entry on strength.  We cannot stress enough the
importance of exiting this play before the earnings report, as
historically the number of stocks that rise substantially after
an earnings report is less than one in ten.

SLR $37.79 -0.83 (-0.83) Consolidation was the theme for today,
as shares of Solectron traded in a narrow range between support
from the 5-dma at $37.25 and resistance at $39.  News that its
subsidiary SMART Modular Technologies received approval for its
184-pin DIMMs to be used with First International Computer's new
AMD-based motherboard did little to move the stock, as trading in
many Tech issues was light in anticipation of bellwether Intel's
earnings report. If the market likes what it hears tonight
post-earnings, then a break through resistance at $39 on volume
could allow conservative investors to enter this play, but
resistance at $40 will be the key level to take out, with the 50
and 200-dma converged at that level.  For higher risk players,
look for a dip to the 5-dma, $36.50, the 10-dma at $35.63 and our
stop price at $35 for possible entry points, but make sure that
peers CLS, FLEX and JBL also bounce before jumping in.

UBS $167.27 -2.55 (-2.55) It appears that our caution regarding
the gap between $165 and $170 was well-justified, as trading in
the stock allowed shares of UBS to fill that gap on a dull day
for the Financial sector.  Opening the day lower than Friday's
close, the stock fell just below the $165 mark before buyers
jumped in the bid the stock quickly higher.  While the stock
closed down 1.5 percent, trading volume continues to be anemic,
only 30 percent of ADV.  Aggressive traders may look for another
test of $165 as a possible entry point as this is also our stop
price, make sure UBS closes above this key support level.  With
today's close, UBS could find formidable overhead resistance at
$169, where the 5 and 10-dma are currently converged.  If buying
volume picks up, lifting the stock above this level with
conviction, this could allow conservative traders to initiate a
play, but correlate entries with peers such as BSC, LEH, MWD.

VRSN $78.38 -6.50 (-6.50) After last week's stellar run, a little
pullback for shares of VeriSign before moving higher is probably
good for the stock.  Price/volume action has been in-line with
normal profit taking, as the recent ease in share price has been
on decreasing volume.  The bounce off support from the 10-dma
(now at $75.81) was also a good sign.  For the day, VRSN closed
down 7.66 percent on about 65% of ADV.  At this point we would
like to see the stock start to move higher, considering that our
stop price of $78 lies just below today's close.  A bounce off
this level as well as $75 and the 10-dma could provide aggressive
traders with higher risk entry points.  In making such as play,
make sure that volume is on your side as well as sector sympathy
through competitors ENTU, CHKP, RSAS.  If VRSN moves back above
its 5-dma at $80.67 with conviction, this would allow for a less
risky entry point.

WCOM $21.31 -0.44 (-0.44) The 100-dma, currently sitting at
$22.48, is proving to be formidable resistance.  Ever since
hitting that level in last Friday's trading, shares of WCOM have
retreated, suggesting that the stock may need to gather up
strength before challenging that level again.  This could be a
buying opportunity as the stock closed down about 2 percent today
on 70% of ADV.  Price/volume action would suggest that some
profit taking is going on near current levels, with some traders
happy to cash in some recent gains, allowing new hands to take
over this play.  Support can be found in increments of $0.50 from
$21 down to our stop price of $18.50.  The 5 and 10-dma, now at
$21.21 and $19.80 may also provide support.  In buying a bounce,
wait for buying volume to confirm a renewed uptrend before
jumping in.  If WCOM manages to break through resistance at $22
on volume this could allow conservative traders a safer way to
enter this play, but only if Merrill Lynch's Telecom HOLDR (TTH)
is moving in the same direction.

AEOS $49.75 +0.50 (+0.50) A nice pop to $51.13 on respectable
volume rivaled the immediate resistance from January 4th.  As we
move forward with this sector play, look for a rally through $52
before taking additional positions.  Our stop remains firmly set
at $47.  On the one hand, the developing support at $48.50 and
$49 is bullish; however, the narrow trading leaves little room
for error.  If AEOS is to continue providing profitable trading
opportunities, it needs to make a break into new territory soon.
Today, JPM Morgan reiterated a Buy recommendation and upped its
12-month target price to $62 from $52.  The company isn't
expected to report earnings until mid-February.

ARBA $36.31 +1.13 (+1.13) A 3.2% move to the upside and bullish
close at just a fraction from the intraday high provides a
satisfactory level confirmation to start off this week's
trading.  We're looking for ARBA to make a significant recovery
off its recent lows and return to its higher trading levels
above the $50 mark.  Again today, there was a battle of upgrades
versus downgrades when it came to ARBA.  All in all, analysts
have mixed views.  But let's keep in mind that while these
comments can cause fluctuations in trading, sector strength and
market direction often has a much greater effect.  We'll
continue coverage on ARBA if it maintains a bullish disposition
above the $32 level and can move through the overhead resistance
at the 5 and 10 DMAs at $38.36 and $39.69, respectively.

SNPS $50.25 -1.31 (-1.31) Mild profit taking and overall sector
weakness took SNPS down a notch in today's trading.  But the
silver lining was two-fold.  First there was the obvious - an
entry point at a relatively firm level of support and second,
the lower volume levels demonstrated a positive bias going
forward.  And in the news, this technology leader announced that
its DFT Compiler product was selected by editors at Test &
Measurement World Magazine to receive the publication's "Best in
Test" Award for 2001.  While the company's earnings aren't
expected until the end of February, we have to depend on pure
momentum to boost the price level over the short-term.
Therefore, look for SNPS to rally through the $52 level before
taking additional positions; unless you're more aggressive.  We
continue to keep a tight leash on SNPS and will exit on weakness
below the $49 mark.


AIG $84.81 +2.63 (+2.63) Could that be an entry point forming?
Or is it the death knell for our play?  Along with the rest of
the Insurance sector (IUX.X), AIG has been falling like a stone
since the first of the year.  This isn't exactly a surprise, as
it was high time that investors pocketed some profits from the
gains they had amassed since last spring.  After riding the
lower Bollinger band lower for the last 7 days, AIG was due to
bounce, and bounce it did, gaining $2.63 to end the day just
fractionally below our $85 stop.  The action tomorrow will be
telling.  A rollover from here will be the signal for aggressive
traders to initiate new positions, while a continuation of the
recovery will spell the end of our play.  More conservative
players will want to wait for AIG to fall through the $83 level
before jumping aboard.  In either case, watch the broader
Insurance sector for confirmation of your trade.  AIG will
likely mirror the action of the IUX.X in the near term.
Earnings are currently scheduled for February 8th, meaning we
still have plenty of time to ride the stock lower, so long as
it doesn't violate our stop first.

PMI $52.25 +1.88 (+1.88) Finally getting a much-needed bounce,
the Insurance Sector (IUX.X) recovered a tiny fraction of its
losses over the past 2 weeks.  PMI followed the broader index
higher, managing to eke out an almost $2 gain, while detaching
itself from the lower Bollinger band again.  If traders follow
their pattern from last week, this is simply a prelude to a
renewed downward move.  By bouncing today, some of the upward
pressure has been relieved, making it possible for the bears to
come back in force over the next few days.  Support at $50 is
still intact, meaning that conservative traders can use a
violation of this level as their trigger point for entering new
plays.  Today's bounce took the stock within spitting distance
of our $53 stop, and aggressive traders will want to keep a
careful eye on the market action in the next day or two.  A
rollover near current levels will solidify the $53 support
level, while a continued recovery will spell the end of our
play.  Don't jump the gun, trying to wish the stock in "your"
direction.  Wait for the confirmation of selling volume and
weakness in the broader Insurance sector before playing.  PMI
reports earnings on January 24th, so we still have another
week in which to play the stock, so long as the technicals

CB $71.75 +2.69 (+2.69) The 5-dma, now sitting at $72.58,
continues to be the key moving average to watch in playing CB.  A
good day for many old economy stocks allowed shares of Chubb to
bounce from oversold levels today but moving average resistance
continues to be formidable.  While the stock gained back 3.89
percent on almost twice the ADV, we will continue to watch for
failed rallies above the 5-dma and also our stop price of $73,
but only if the sellers return on volume to confirm the rollover.
A close above our stop price could signal a halt to CB's
downward momentum, so exercise patience and caution as the stock
approaches resistance.  A safer play would be for selling
pressure to return, taking CB below $70 support before making a
play.  With the lack of company-specific news so far this New
Year, sector sympathy will most likely be a key factor in the
stock's movements.  So keep an eye on peers such as CI and ALL
before making a play.

MMC $102.56 +2.31 (+2.31) A superb day of trading for the more
aggressive types!  The buyers were lined up at the opening bell
to take MMC off the century mark.  A mad dash to $105.38 almost
killed our put play, but the share price rolled over before it
could penetrate the 10-dma ($107.19).  The high-volume selling
promptly returned MMC to bearish levels and provided profitable
returns to day traders.  Subsequent moves below the 5-dma
($103.11) and $104 stop may entice put players to take
additional positions, but remember to watch for the $100 level
to offer support on the decline.  A breakdown under this level
would, of course, provide better downside confirmation; although
MMC's divergence from the rising S&P's Insurance Index (IUX.X)
today was a convincing touch.

MRK $83.31 +1.88 (+1.88) Uncertainty over some key Tech earnings
reports tonight put traders in the defensive mode today and with
that, they went back to the good old reliable drug stocks.  This
helped shares of Merck to end the day with a gain of 2.3 percent.
However, the rally was with little conviction, as volume was
just over 80 percent of ADV.  And despite closing above its 5-dma
(currently at $82.71) for the first time this year, resistance
from the 10-dma (at $84.75) continued to hold.  Look for another
failed rally above this moving average as well as our stop price
of $70 as an aggressive signal to enter this play, but wait for
selling volume to confirm the rollover.  If good earnings reports
or renewed optimism for Tech stocks take the NASDAQ higher, money
could again leave the Drug sector.  A plunge back below the
5-dma, with traders leaving MRK on mass, could allow for a more
conservative entry.  In both cases, keep an eye on Merrill
Lynch's Pharmaceutical HOLDR (PPH) as a gauge of MRK's sector.

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NETE - NeteGrity Inc $46.25 +2.25 (+2.25 this week)

Netegrity  is a provider of software and services that manage and
control user access to Web-based e-commerce applications.  The
company's SiteMinder product is a directory-enabled secure user
management system, which is used to build and manage what is
commonly known as a portal.  Netegrity also offers professional
services that support its software product offerings.

A run into earnings is always an enticing play for trend
traders; especially when there's relative strength in the sector
and analysts are tooting positive comments.  There is a
relatively tight frame with NETE's earnings' release being just
around the corner on Thursday, January 25th (after the market);
however, with the stock recovering at a rapid pace and bullish
technical developments to boot, the profit opportunities should
be abundant.  Consistent buying recently took NETE off its lows
of $30 and drove it through the near-term 5 & 10 DMAs, now
converged at the $40 level.  The steadfast advances have also
raised the near-term support upwards to $43 and $45.  And
recently, Gerard Klauer Mattison started new Buy coverage on the
stock and issued a $60 price target.  While it's possible NETE
could tack on another 30 to 35% over the short-term, let's focus
on the present.  The ascending support at $40 and $43 currently
offers a selection of entry points on dips; although the more
fainthearted may want to buy into a higher-volume rally as NETE
makes headway in an advancing market.  The next line of strong
opposition is at the 200-dma ($50.44), so it may be wise to lock
in profits as NETE approaches that anticipated resistance.  In
regard to protective stops, ours is firmly set at $40 - we'll
exit the play on a bearish close below that level.  It's also a
good idea to watch other software stocks that are moving in the
market such as BEA Systems (BEAS), Microsoft (MSFT), Micromuse
(MUSE) and Nuance Communications (NUAN) to help define the
general sentiment across the sector - you want to put as many
chips in your corner as possible!

BUY CALL FEB-40 UPN-BH OI=  22 at $ 9.25 SL=6.25
BUY CALL FEB-45 UPN-BI OI=3000 at $ 6.25 SL=4.25
BUY CALL FEB-50*UPN-BJ OI=  48 at $ 3.75 SL=2.00
BUY CALL MAR-40 UPN-CH OI= 470 at $12.38 SL=9.25
BUY CALL MAR-45 UPN-CI OI= 513 at $ 9.50 SL=6.50
BUY CALL MAR-50 UPN-CJ OI=   3 at $ 7.50 SL=5.25


BVSN - BroadVision $16.81 +1.00 (+1.00 this week)

BroadVision is the leader in personalized e-business
applications.  The company's comprehensive suite of integrated
applications is built for delivery via the Web and wireless
devices.  BVSN's software solutions enable businesses to use
the Internet as a platform to conduct electronic commerce,
provide online customer self-service, deliver targeted
information to constituents, and provide online financial
services.  Each of these capabilities can be made available
to customers, suppliers, partners, distributors and employees
across an extended enterprise.

Apparently finding a bottom in early January, shares of BVSN
have been under pressure along with the rest of the Software
sector, falling by more than 80% in the past 6 months.  The end
of tax-loss selling seemed to lift some of the bearish pressure
on the stock and since the first of the year, it has managed to
nearly double in price.  Responding to the dramatic recovery,
SG Cowen downgraded a basket of Software stocks including BVSN
last Thursday.  Dropping their rating from Strong Buy to Buy
seemed to have no effect as both the sector and BVSN continued
to track higher.  We are now in the heart of earnings season and
BVSN is set to release its quarterly results on January 25th.
This date is unconfirmed at this point, but we will endeavor to
get a confirmed date from the company before the Thursday
update.  While the rally over the past week has been
encouraging, BVSN has a long ways to go before it will have
successfully broken out of the long-term downtrend that began
back in March of last year.  The descending trendline (currently
at $22.50) is likely to present formidable resistance to the
stock, but in the meantime, we can profit from the near-term
uptrend.  Given the sharp rise in the stock over the past week,
some consolidation may be necessary before the stock is ready
to challenge this level.  Daily stochastics have entered the
oversold zone, and the upper Bollinger band is looming at
$18.88.  In addition, daily volume has been declining for the
past week, indicating that the buying pressure is weakening.
Now that we have the negative factors out of the way, let's look
at motivations for buying calls.  Last week's recovery took out
the $14-15 resistance level, and this looks like a good level
for aggressive players to step into new positions.  We have
placed a nice tight stop at $14, as we expect this level to
contain any bouts of profit taking in the near-term.  While the
daily stochastics have reached the overbought zone, they are not
yet weakening, and the weekly stochastics have just emerged from
the oversold zone, indicating plenty of upside opportunities in
the weeks ahead.  More conservative players will want to enter
new positions as the stock moves through the $17 intraday
resistance level.  Regardless of your entry strategy, wait for
a resurgence of buying volume, accompanied by a positive NASDAQ
before playing.

BUY CALL FEB-15   QVB-BC OI=1091 at $4.00 SL=7.50
BUY CALL FEB-17.5*QVB-BW OI= 906 at $2.88 SL=5.75
BUY CALL FEB-20   QVB-BD OI=1025 at $1.88 SL=3.75
BUY CALL MAR-15   QVB-CC OI= 903 at $4.88 SL=8.50
BUY CALL MAR-17.5 QVB-CW OI= 435 at $3.63 SL=6.75
BUY CALL MAR-20   QVB-CD OI=1964 at $3.00 SL=5.25


CMCSK - Comcast Corporation $44.88 +1.19 (+1.19 this week)

Founded in 1963, Comcast has grown from a single system cable
operation into one of the world's leading communication
companies, focused on broadband cable, commerce and content.
Comcast Cable is the country's third largest provider of cable
services, and is expanding its cable operations to deliver
digital services, provide faster Internet service with Comcast @
Home, and develop and deliver innovative programming.  QVC is the
premier electronic retailer, providing TV and web-based shopping
in the US, the UK, and Germany.

Having spent most of last year building a base, it appears now
that shares of Comcast Corporation may be ready to break out and
move higher.  A number of fundamental factors are helping the
stock to rally on accelerating volume.  Recent investor interest
in Telecom service provider stocks such as AT&T and WCOM have
spilled over to the Cable sector, as traders go bargain-hunting
for low-PE high-growth potential stocks.  An environment of
easing interest rates should also help the bottom line going
forward.  What's more, fierce competition between infrastructure
manufacturing companies could greatly reduce the cost of capital
expenditures in the near future, giving capital-intensive build
out projects a faster payback period as well as increasing the
company's internal rate of return.  Recently CMCSK was able to
raise $1.5 billion, giving the company not only a vote of
confidence, but also a significant deposit into its war chest.
Today, despite a tentative day for most Tech issues, CMCSK closed
definitively up 2.72 percent on over 135% of ADV.  A bounce off
moving average support from the 5 and 10-dma (at $43.20 and
$42.16) could allow for ideal entry points for aggressive
traders, but note that there is also horizontal support in
increments of $0.50 from $44.50 to our protective stop price of
$42.  If CMCSK can break through $45 with conviction, this would
allow more conservative traders to take a position, but make sure
sector sympathy is on your side by keeping a watch on the
movements of competitors COX and CHTR.

BUY CALL FEB-40 CQK-BH OI= 260 at $6.00 SL=4.00
BUY CALL FEB-45*CQK-BI OI=1638 at $2.63 SL=1.25
BUY CALL APR-45 CQK-DI OI=1645 at $5.13 SL=3.00
BUY CALL APR-50 CQK-DJ OI= 192 at $3.13 SL=1.50



No new puts today


EMC - Emc Corp $69.88 +1.06 (+1.06 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.

Most Recent Write-Up

The computer storage sector bucked the sluggish trend in the
Nasdaq today to post modest gains.  EMC is now sandwiched between
the 50 day moving average of $67.12, and the 200 day moving
average of $71.35.  Since EMC is scheduled to report earnings on
January 23rd after the close, we may very well see the beginnings
of a strong earnings run, as EMC's CEO stated that their earnings
should be on target with analysts' expectations for the coming
quarter and year.  A breakout over $71.35 would be an excellent
entry point as EMC moves through its new ascending trading
channel.  The next major resistance levels are $73, and the 50
day moving average of $75.  Maintain stops at the $67 level.


We were encouraged by EMC's relative strength in Tuesday's
session while the broader tech sector wavered.  EMC could lead
the charge in the tech sector Wednesday in the wake of this
evening's positive earnings reports.  New positions can be
added on a strong advance past the $72 level after confirming
direction in the Nasdaq.  Light volume pullbacks to support near
$70 would offer traders additional entries.

BUY CALL FEB-70*EMB-BN OI=27089 at $ 6.63 SL=4.50
BUY CALL FEB-75 EMB-BO OI= 4917 at $ 4.50 SL=2.75
BUY CALL APR-70 EMB-DN OI= 1899 at $11.00 SL=8.25
BUY CALL APR-75 EMB-DO OI= 2447 at $ 8.75 SL=6.25
BUY CALL APR-80 EMB-DP OI= 6746 at $ 6.88 SL=5.00


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Old Economy Issues Lead The Way!

A rotation into blue-chip companies helped the Dow advance today
as investors awaited earnings reports from a number of technology

Tuesday, January 16

A rotation into blue-chip companies helped the Dow advance today
as investors awaited earnings reports from a number of technology
bellwethers.  The rotation drove the industrial average to a 127
point gain, with the close at 10,652.  The NASDAQ Composite fell
slightly, ending 7 points lower at 2,618.  The S&P 500 index was
up 8 points at 1,326.  Trading volume on the NYSE was average at
1.19 billion shares, with winners beating losers 1,746 to 1,207.
Activity on the NASDAQ reached 2 billion shares exchanged, with
advances beating declines 2,420 to 1,534.  In the bond market,
the 30-year Treasury rose 15/32, pushing its yield down to 5.59%.

Portfolio plays:

Industrial stocks rallied today with old-economy issues leading
the market ahead of a slew of fourth quarter revenue reports.
The bullish activity in blue-chip issues pulled the NASDAQ to
within a few points of a positive close, but earnings-related
selling pressure weighed heavily on a number of sectors in the
index.  Among the technology companies reporting this week are
Intel (INTC), International Business Machines (IBM), Microsoft
(MSFT), Nortel Networks (NT), Advanced Micro Devices (AMD), and
Sun Microsystems (SUNW).  Investors remained cautious ahead of
the results of bellwethers in the semiconductor group and many
of the chip equipment makers took a beating after analysts at
Lehman Brothers issued a note to clients that suggested they
avoid all but the most favorable companies in the sector.  In
other technology segments, networking and software shares fell
and telecom issues retreated from recent gains.  On the Dow, a
long list of companies are set to unleash quarterly results this
week including Caterpillar (CAT), United Technologies (UTX), J.P.
Morgan Chase (JPM), and Eastman Kodak (EK).  General Motors (GM)
is also among the earnings players and today the Dow leader was
among a group of bullish issues such as Alcoa (AA), Honeywell
(HON), General Electric (GE), Merck (MRK), Procter & Gamble (PG),
Wal-Mart (WMT), and Walt Disney (DIS).  Within broader market
sectors, retail, drug, financial, paper, transport, chemical and
consumer products issues edged rallied while gold, biotechnology
and oil stocks generally consolidated.  Utility shares were also
among the losers as the California energy crisis continued.  The
state's two leading utilities saw their credit ratings cut to low
junk status by leading rating agencies, putting them in default of
bank loans and credit lines and moving them closer to bankruptcy.

Our portfolio enjoyed a number of positive surprises but most of
them involved issues in older positions.  Stocks in the food group
were among the day's winners after Ralston Purina (RAL) accepted
a buyout offer from Switzerland's Nestle for $10 billion.  Nestle
said its $33.50 per share offer represented a premium of 36% to
Ralston's recent value and shares of RAL closed at $31.50.  Our
calendar spread section has enjoyed favorable gains with Ralston
in the past and traders who were still in the (MAR-30C/JAN-30C)
neutral position found themselves with a small closing credit to
end the play.  Among other stocks in the food group, Kellogg (K)
added $0.56 to end near $26 and a similar spread in that issue is
also offering a small profit.  In the pharmaceuticals segment,
shares of CuraGen (CGRN) jumped over $9 after the genomics firm
said it had signed two drug-development agreements with German
chemicals and pharmaceuticals giant Bayer AG.  The company said it
has formed an alliance to develop treatments for obesity and adult
onset diabetes, and also to allow Bayer to draw on the company's
expertise in genetics to evaluate experimental medications.  Our
current position was a downward adjustment from a bullish credit
spread and now the play should end with a positive outcome.

Issues in the delta-neutral category were also active today and
one of our speculative earnings straddles reached a new maximum
profit.  The position in Mips Technologies (MIPS) traded as high
as $7, a 100% profit in just over one week.  Our new position in
Cytec (CYT) is also performing well and the overall credit is up
to $7.88.  Conservative traders should begin to look for early
exit opportunities as the monthly ROI for the straddle increases.
All of our current Credit Strangles are profitable but traders
who didn't take the easy money on Orthodontic Care Centers (OCA)
last week were probably regretting it after today's $3.31 slump
in the issue.  The play yielded a $0.88 profit Friday but now it
is trading near break-even and the bearish move on heavy volume
suggests there may be additional downside activity in the coming
sessions.  Don't let this one turn into a loser!

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

One of our readers asked for some new synthetic positions.  Based
on the current price or trading range of the underlying issue and
its recent technical history or trend, these bullish plays offer
favorable profit potential and relatively low downside risk.

AVNT - Avant! Corporation  $23.81  *** New Products! ***

Avant! develops, markets and supports software products that
assist engineers in the physical layout, design, verification,
simulation, timing and analysis of advanced integrated circuits.
The company's products are primarily software tools that allow
users to create, simulate and verify IC design and manufacturing
processes on a computer.  Avant!'s products are compatible with
most commonly used ICDA tools and are easily integrated into the
customer's existing design environments and methodologies through
industry standard interfaces.  Avant!'s products primarily are
written in C programming language, run on UNIX workstations such
as those from Sun Microsystems and Hewlett-Packard, and support
industry standards such as GDSII Stream format, EDIF, VHDL,
Verilog, SDF, SPEF, SPF, DSPF and PDEF.

Avant began to rally early in the month after an extended stay
in a trading range near $15.  Then the company announced a slew
of new product designs and investors pushed Avant's shares to a
two-year high.  With quarterly earnings due in a few weeks, there
is excellent potential for continued upside movement and the key
will be to enter the position at a favorable cost basis.  After
today's retreat, there will likely be another few sessions of
downward movement and we will try to achieve a higher premium as
the issue approaches a short-term support area near its 10 DMA.
Traders should "target shoot" a credit in the position initially,
to allow for a brief consolidation in AVNT's share value.

PLAY (conservative- bullish/synthetic position):

BUY  CALL  FEB-25.00  NVQ-BE  OI=13   A=$1.38
SELL PUT   FEB-22.50  NVQ-NX  OI=108  B=$1.00

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $921 per contract.

HI - Household International  $55.19  *** Earnings Due! ***

Household International provides middle-market consumers with
several types of loan products in the United States, the United
Kingdom and Canada.  The company offers home equity loans, auto
finance loans, MasterCard and Visa credit cards, private label
credit cards, tax refund anticipation loans and other types of
unsecured loans.  It also offers credit and specialty insurance.
The company's operations are divided into three primary segments:
Consumer, which includes the branch-based and correspondent
consumer finance, private label credit card and auto finance
businesses in the United States; Credit Card, which includes the
MasterCard and Visa business in the U.S.; and International,
which comprises the company's foreign operations which include
the United Kingdom and Canada.

Over the past few weeks, we have identified a number of favorable
issues in the Credit Services group and with the potential for
lower interest rates in the near future, these companies are
expected to perform well in the coming months.  The growth and
stability of Household International is superior to almost every
competitor in its industry and a favorable environment of interest
rates will directly benefit the company's revenue growth.  With
earnings due out tomorrow, we may be able to catch the issue in a
brief sell-off, and enter the position at a better-than-expected
cost basis.

PLAY (conservative- bullish/synthetic position):

BUY  CALL  FEB-60  HI-BL  OI=1113  A=$1.12
SELL PUT   FEB-50  HI-NJ  OI=207   B=$1.12

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1,785 per contract.

SHOO - Steven Madden  $10.06  *** Hot Sector! ***

Steven Madden designs, sources and sells fashion footwear under
the Steve Madden and David Aaron brands for women and girls of
ages six to 45 years.  The company's products are designed to
appeal to style-conscious consumers in the girls', juniors' and
women's market segments.  The company distributes its products
through Steve Madden retail stores, one David Aaron store, six
outlet stores, its e-commerce Website (www.stevemadden.com) and
more than 3,000 department and specialty store locations in the
United States and Canada.  The company's product line includes
core products, which are sold year-round, complemented by a wide
range of updated styles designed to establish or capitalize on
market trends.  Their business is comprised of a wholesale
division, a retail subsidiary and a private label subsidiary.
The company also has entered into licensing agreements for other
on-footwear accessory products.

Stocks in the Retail Apparel-Footwear group are "hot" and since
our last play in this issue didn't go as expected, we decided
to offer a "revenge" position.  Based on the recent technical
break-out in SHOO and the bullish activity in the sector, this
position offers excellent speculation for traders who favor the
outlook for the issue.  Once again, investors should target a
credit in the position initially, to allow for a consolidation
in SHOO's share value.

PLAY (speculative-bullish/synthetic position):

BUY  CALL  MAR-12.50  SEU-CV  OI=40   A=$0.56
SELL PUT   MAR-7.50   SEU-OU  OI=109  B=$0.25

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $230 per contract.


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