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Daily Newsletter, Monday, 02/05/2001

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The Option Investor Newsletter                   Monday 02-05-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        02-05-2001        High      Low     Volume Advance/Decline
DJIA    10965.80 +101.70 10977.70 10851.40 1.01 bln   1630/1443
NASDAQ   2643.21 - 17.29  2656.02  2596.73 1.65 bln   1577/2221
S&P 100   709.66 +  4.18   709.97   703.85   totals   3207/3664
S&P 500  1354.31 +  4.84  1354.56  1344.48           46.7%/53.3%
RUS 2000  500.74 -  0.76   501.02   498.43
DJ TRANS 3069.71 - 23.05  3099.68  3056.96
VIX        24.39 -  0.36    25.65    24.34
Put/Call Ratio      0.54
******************************************************************

Bifurcated, Again

Despite triple digit gains in the Dow Jones Industrial Average
(INDU), the Nasdaq Composite (COMPX) was shunned by market
participants.  Perhaps the avoidance of tech stocks Monday had
something to do with the Cisco Systems (NASDAQ:CSCO) earnings
report tomorrow.

The networking giant's earnings reports are always highly
watched and much anticipated by fans of technology and the
Internet.  But Cisco's quarterly report this time around is
being viewed as a bit more crucial.  Because of its wide
ownership and heavy weighting in the COMPX, the potential
for collateral damage or relief should concern the majority
of market participants this week.  We know that Cisco's CEO,
John Chambers, informally talked down guidance last month
at a tech conference and again at the World Economic Forum.
And while many analysts expect Cisco to hit its estimates
for the current quarter, or perhaps beat by the usual penny
per share, the crucial data point will be the company's
guidance going forward.  Chambers admitted that visibility
into the second-half of 2001 was less clear, when translated,
means Cisco is seeing a slowdown in business.  So the
question tomorrow will be whether the market has already
discounted all the bad news into shares of Cisco or whether
the worst is yet to come.  For our readers with the ability
to listen in on the Cisco conference call, I would highly
suggest doing so - you can bet I'll be there!  It pays to
hear the guidance first hand and be able to make your own
informed decisions.

The nervousness surrounding Cisco and the related impact
on the broader tech sector weighed on the COMPX early this
morning.  The tech-heavy index gapped down this morning,
subsequently bounced off the 2600 level, and proceeded
to advance into the close of trading - I'll elaborate on
the details and reasons for the COMPX's behavior below.
But for now, let us look forward.  If the bulls return
tomorrow, the COMPX will need to clear resistance at
2660 - last Friday's close.  An advance above that
level accompanied with momentum will probably take the
COMPX back up to 2700.  Conversely, if the nervousness
ahead of Cisco's earnings report prevails again, pay
close attention to the 2600 level.  A break below will
most likely take the COMPX back down to 2500.  It's
probably best to wait for a break in either direction
and trade accordingly, instead of gaming the 60 point
range between 2600 and 2660 - unless, of course, you're
very nimble in your operations.




Along with the Cisco-related event and its ramifications on
the COMPX tomorrow, I maintain that our readers should pay
close attention to the Philadelphia Semiconductor Index (SOX.X)
and its impact on the broader tech sector.  In my very humble
opinion, the SOX was the primary force behind the COMPX's
advance in January.  And I believe the SOX will continue to
be a leading indicator for the broader tech sector.

In order to emphasize my views on a micro level, let me
share a few observations I made during today's session.
Earlier in the morning, every time the COMPX attempted to
rally the SOX acted very heavy - that is, it didn't advance
with the magnitude of the COMPX's futile attempts.  And once
the SOX broke below 650, it was almost certain, in my mind,
that the COMPX was headed towards 2600.  Sure enough, the
COMPX bounced off 2600, but only after buyers stepped into
the SOX.  Both indexes subsequently rallied into the close
on what appeared to be short covering.  Getting back to the
macro view, I think it's crucial for the SOX to trade
above its 50-dma and consolidate some of its recent losses.
If the SOX breaks below its 50-dma currently at 634,
there exist the possibility of an ugly decline to 600, which
will probably drag the COMPX back down to 2500.




The heavy trading in the SOX earlier this morning had everything
to do with a bearish report from the Semiconductor Industry
Association.  The chip business monitoring firm reported that
worldwide sales of semis were down 3 percent during the
fourth-quarter of 2000.  On top of that report, the axes at
Lehman Brothers and CS First Boston suggested that the chip
sector probably hasn't reached bottom yet.  The two brokerages
firms pointed to the rising inventory levels at leading chip
firms and the lack of demand to meet the supply.  Here again,
as is the case with Cisco, it's a question of how much
discounting of bad news has already taken place.  The market
foreshadowed all the bad news we're currently hearing last fall
and winter.  So the question remains if this is as bad as it
gets in the chip business.  The only way to filter out the
noise from analysts and industry watchers is to give the most
credence to price direction.

An example of how to filter out the noise and focus on price
might be provided by Triquint Semiconductor (NASDAQ:TQNT).
After the bell, the high-end chip company beat consensus
estimates by 3 cents per share.  Shares of Triquint were
jumping around in after hours trading at the time of writing,
adding $1 to their regular session close.  Depending on the
guidance given by the company during its conference call, shares
of Triquint might provide a good study tomorrow on my mantra of
filtering out the noise, especially in light of the bearish news
and analyst comments surrounding the chip sector today.

Away from the tech sector, it was another nice day for the
bulls in the Dow Jones Industrial Average (INDU).  The bids in
the INDU stemmed from the ongoing, and very dynamic, sector
rotations out of tech and into cyclical names.  In addition,
a mega-merger in the energy sector sparked some interest in
the broader sector.  Phillips Petroleum (NYSE:P) agreed to
acquire Tosco (NYSE:TOS) over the weekend.

The INDU's recent relative strength stems from the fact
that the Fed is on the offensive in cutting interest rates.  As
I've said before, the direct and near-immediate beneficiaries
of a lower cost of capital are those companies that are most
closely tied to the business cycle.  And that includes retailers,
financials, consumer product makers and deep cyclicals, such as
paper and chemical companies.  The list of winning sectors today
included many of the aforementioned, with the exception of
the retail sector, which appeared to pullback on profit taking.
Nevertheless, there's a bull market in many sectors of the
market away from tech and traders need look no further than the
list of industries I previously mentioned.  If you're a trader
who prefers to operate from the long side, I would suggest
trading the sectors of the market whose recent price action
suggests the path of least resistance being to the upside.  And
you won't find many of those names on the Nasdaq - at least for
the time being.  Keep in mind, however, that the path of least
resistance for the tech sector can change in the space of one
day - maybe tomorrow, maybe six months from now.  Though, don't
misconstrue my thoughts with a bearish stance on tech.  Instead,
I'm only suggesting to look for opportunities in sectors that are
working (read: advancing) in the here and now.

And if the business cycle-sensitive sectors are going to continue
advancing, the INDU needs to break out above the 11,000 level.
It inched closer today, but whether the INDU breaks out anytime
soon has to do with the amount of conviction the bulls have.
If the INDU doesn't breakout above 11,000 soon, the
aforementioned sectors I highlighted run the risk of pulling back
either on profit taking or disappointment.  In either case, the
use of stops are crucial - whether mental or hard stops, they
both work and aid in discipline.  If the INDU does pullback,
support at 10,900 appears fairly solid.




A breakout above 11,000 in the INDU might be the easiest way to
play the tape tomorrow, but be careful of head fakes, which can
be countered with stops and discipline.  Other than the
obvious in the INDU, from where I sit, tomorrow's action is
tough to game ahead of Cisco's earnings report.  The sector
rotations in the current market landscape are fast and furious,
which is why I don't necessarily count the COMPX out tomorrow.
But to reiterate my stance on the Nasdaq, I think the best way
to approach the COMPX is to wait for it to either break below
2600 or above 2660, and trade accordingly.  Yes, it's a 60
point range, but I think the risk/reward in that range is
tough to game right now.  Of course, those who want more
confirmation of a trend may want to simply wait for Cisco.

If there's one thing I can't emphasize enough, it's that the
current market condition requires...no, demands discipline.
This bifurcation nonsense in the broader market averages
makes the game all the more difficult.  And until a
discernible trend emerges, the keys to profiting in this
market are:  nimbleness, quick profit taking and discipline
as defined by a strong market thesis and stops.

Now, if you'll bare with me, I have a request for the
faithful readers of OptionInvestor.  As many of you know,
I (Eric Utley) write the Market Wrap section on this day
(Monday) every week.  As you may have noticed, I make
market observations and write commentary that is quite
different than that from Jim Brown and Matt Russ.  I try to
provide unique, value-added commentary every time I pen a
piece of work.  But I rarely receive any disagreements,
approvals, insights, or general comments from the readers
of this column.  So what I would like, if you have the
time, is let me know what I do well and what I can approve
upon.  If I can get a better grasp on the needs and demands
of my readers, then I can tailor my commentary to add more
value.  I openly welcome complaints, criticism, suggestions,
general ideas...anything that will let me know what you,
the audience, wants from me the trader/writer.  Please
send your comments to the following e-mail address:

Contact Support

Thank you.

Eric Utley
Assistant Editor


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*************
NEW CALL PLAY
*************

NEW LOW VOLATILITY CALL PLAY:

USB - U.S. Bancorp Piper Jaffray $30.18 +0.50 (+0.50 this week)

Minneapolis based U.S. Bancorp, with $86 billion in assets, is
the 10th largest financial services holding company in the nation
and operates approximately 1000 banking offices in the Midwest
and West.  The company provides comprehensive banking, trust,
investment and payment systems products to customers, businesses,
and institutions.  It operates a network of 5000 ATMs and
provides 24-hour, seven day a week telephone customer service.
The company offers full service brokerage services at
approximately 100 offices through U.S. Bancorp Piper Jaffray.
The company is the largest provider of Visa corporate and
purchasing cards in the world, and is one of the largest providers
of corporate trust services in the nation.

USB has shown a strong chart pattern for the last several
months.  After clearing the 50 and 200 dma on November 29,
USB dipped below the 50 dma of $27 only briefly on January 23,
and quickly rebounded.  USB announced earnings in line with
expectations on January 18, with earnings increasing 11 percent.
This is impressive, considering that many banks' lending
divisions suffered in the fourth quarter because the rise in
interest rates made it more difficult for them to borrow.  But
USB benefited from a more stable fee-based income structure.
USB has agreed to be purchased by FSR in a stock based
transaction expected to close in the first quarter of this year.
Shareholders of USB will receive 1.265 shares of FSR, which is
currently trading at 24.  Investors apparently like the deal,
and the stocks should respond well to news released on Monday
that the Justice Department approved the deal, with the
agreement that FSR will sell 11 of its Minneapolis/St. Paul
branches to Bremer Financial Corporation.  The $30.00 level
has been a difficult resistance level for USB since December.
However, the stock cleared it on Monday, and appears poised
to move to the next resistance level at the 52-week high of
$32.75.  Traders may want to wait for this level to be
cleared, as it could lead to smooth sailing for the shares.
Watch the banking index (BIX.X) for an indication of strength,
and watch FSR, as the two stocks will trade in tandem at this
point.  Set stops at $29.00

***February contracts expire in two weeks***

BUY CALL FEB-30 USB-BF OI=2243 at $1.15 SL=0.25
BUY CALL MAR-30*USB-CF OI= 740 at $1.65 SL=0.75

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


************
NEW PUT PLAY
************

IDTI - Integrated Device Tech. $39.75 -2.81 (-2.81 this week)

Integrated Device Technology designs, develops, manufactures
and markets a broad range of high-performance semiconductor
products.  The company serves up products for data networking
and telecommunications equipment such as routers, hubs,
switches, cellular base stations, storage area networks,
networked peripherals, servers, and personal computers.  About
70% of sales are from communications and high-performance
logic components such as embedded RISC microprocessors,
specialty memory, logic and clock management circuits, and
networking devices.

After bouncing just high enough to violate our stop when we
played it  a couple weeks ago, IDTI is back, having resumed
its downtrend.  The bloom seems to be off the rose that we
know as Technology stocks.  Operating in both sectors, IDTI is
being pressured by weakness in the Semiconductors (SOX.X) and
the Networkers (NWX.X).  Throw in fears of an earnings miss by
CSCO tomorrow night, and you can see that even in the absence
of any self-created mayhem, IDTI has not gotten the month off
to a good start.  In just the past 3 sessions, the bears have
swiped nearly 19% of IDTI's market value, knocking it down
through all of its short-term moving averages, with the closest
now being the 50-dma ($40.13) and then the 30-dma ($42).
Stochastics have resumed their downward slope, and with the
Bollinger bands now expanding again, the bears' path is clear
all the way down to the $36 support level.  If the bears really
get determined, they could force a retest of the stock's recent
lows near $30.  Finally with the Fed's actions known and
earnings season winding down, there is simply no motivation to
move stocks up, especially taking into account that IDTI missed
its own earnings estimates by a nickel.  With formidable
resistance looming between $43-44 (not to mention the 30-dma
and 50-dma), we like the possibilities created by intraday
rallies that fail to produce any follow through.  Accordingly
we will use any such rally as an opportunity to initiate new
positions as the stock rolls over, placing our stop right there
at $44.  More conservative players will want to wait for the
$38 support level to fall before playing.  In either case, look
for confirmation from strong selling volume and weakness in the
SOX and/or NWX indices to back up your decision.

***February contracts expire in two weeks***

BUY PUT FEB-45 ITQ-NI OI= 628 at $6.25 SL=4.25
BUY PUT FEB-40*ITQ-NH OI=1374 at $2.88 SL=1.50
BUY PUT FEB-35 ITQ-NG OI= 342 at $0.94 SL=0.00  High Risk!

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


*****************
STOP-LOSS UPDATES
*****************

GE   - call play
Adjust from $43 up to $45

TLAB - call play
Adjust from $61 up to $64

SPW  - put play
Adjust from $102 down to $100

HGSI - put play
Adjust from $59 down to $55

JDSU - put play
Adjust from $54 down to $53

VRTS - put play
Adjust from $94 down to $92


*************
DROPPED CALLS
*************

MUSE $77.00 -5.75 (-5.75) After breaking out over $80 a week
ago, it looked like MUSE was getting ready for a serious
breakout.  Alas, it wasn't to be, as resistance near $88 was
just too formidable an obstacle for the bulls to scale.  Since
then, the euphoria has subsided and after dueling with the bulls
at the $80 level (also the site of our stop), the bears emerged
victorious plunging our play back below this critical level by
the close.  Despite the strong afternoon bounce, we can't
justify keeping the play alive after such as sharp violation
of our stop.

CNC $15.96 -0.32 (-0.32)  Shares of Conseco have had a strong
run up since we picked this stock, hitting a high of $18.50
last week.  However, the shares have lost momentum in the last
two days, and today's action in a strong Dow was not encouraging.
While CNC may find strength again, it should have rallied today
with the insurance and financial sectors.  Thus, we are dropping
the play tonight, especially after the close below our
protective stop at $16.


************
DROPPED PUTS
************

ADBE $45.38 +1.81 (+1.81) All right boys and girls, it is time
to book some profits.  ADBE gave us a great ride down after the
stock gapped lower on a troubling earnings warning, and those
that took our initial entry point are happy with the resulting
fattening of their accounts.  In the past several sessions
however, it has become fairly clear that the stock has a bottom
in place near $43.  Rather than try to squeeze the last drop
out of this turnip, we'll go back to the produce aisle and look
for something juicier.


********************************************
Do you like OptionInvestor? Then vote
for us as a favorite site:
http://www.investorlinks.com/vote.html

Thanks for your support!
********************************************


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

$5,000 And A Dream
By Austin Passamonte

Last week's article covered the subject of proper trading account
allotment. We explored some different ratios to safely balance
option investing versus option speculating. Space, time and focus
attention (yours and mine) reached the limit at the point of
discussing small trading accounts and equally-big dreams.

I've had a few of those myself with fairy-tale endings and some
others that fell prey to the Grinch. Being an expert on the
subject (having gone broke from $5,000 more than once) I'd like
to share some observations about what these trading tuitions
taught me.

But before I do, let me offer the major portion of an email
(edited for brevity) I received last Monday afternoon as the
finishing touches were put on my article then. A few hours
earlier and I'd have plagiarized it sooner!

Thomas Frohlich, an OI and IS reader from Denmark provided a
witty and enlightening study of our hypothetical results from
some trades taken between September and December 2000 at IS.

While the examples used here are from there, the message within
Tom's extensive study and points I make to follow apply equally
to trading equity options, stock, commodities and the next market
someone invents as well. Having wrecked trading accounts in all
three arenas, I feel highly confident of doing just the same
should someone point me towards the next fiscal challenge. Come
to think of it, I've never been to Vegas or Atlantic City.

Tom gave me his complete written blessing to reprint this as we
see fit and boy, do we ever! Great effort went into what follows
on his part and I for one am most grateful for the third-party
observations made. As follows from Tom:

Dear Austin,
Thanks for a great website. Indexskybox has developed into
exactly what I hoped it would become, and it is definitely my
favorite, favorite source of information and education along with
OptionInvestor.

In one of your articles in Sunday's newsletter, you wrote about a
reader requesting a smaller amount for starting up a Swing Trade
account and you said that you would start out with $5,000 account
instead of $10,000.

After running some of my accounts into the ground during the
fall, I recently decided to actually create a Trading Business
Plan (for the first time in my 3 years of serious trading!) and
did some back-testing on your Swing Trade results from September
to December.

My idea was to take $5000 of what was left of my total account
and use that for Swing Trading. After my backtesting, I decided
that this was NOT a good idea. Let me give you some numbers and
show you why I believe this to be the case:

First, I set up some spreadsheets with all your Sep-Dec Swing
Trades just as Bill Kadlec did (Computer Analysis Trading:
Hypothetical Backtesting to Analyze a Plan). The only number I
changed was the correction in one of the QQQ trades, which you
also mentioned in a later article.

Then I added calculation formulas for the commission charges. I
understand that you do not include these in your results (and
maybe you can trade commission free), but for most of us,
commissions are real and need to be included.

The costs I included were what my broker charges me which is $20
plus $1.75 per contract, minimum $29 US. Here are the results:

OEX: The difference between IS and my results on $100,000 initial
value is $7,767 of which $6509 were commissions. Using a $10,000
account the profit would be 97% (compared to 150% using $100,000)
but falls to "only" 42% using a $5,000 account. Of course, 42% is
still good but doubling your initial account from $5,000 to
$10,000 would actually earn more than 4 times as much money.

A $5,000 account would give you $2,098 in profits (after
commissions) but you would also have paid a total of $1,508 in
commissions. "Cost of operations" is relatively high as they
"ate" more than 40% of the actual option profits achieved. There
is a great "economies of scale" in starting with a bigger
account.

QQQ: Results are very similar to the OEX results. The difference
between IS and my results on $100,000 initial value is $25,291
(quite a lot) of which $8,854 were commissions. Because QQQ
options are lower priced generally, commissions were higher and
had a greater accumulated negative effect.

Results dropped from +105% on a $100,000 account to +77% for a
$10,000 account and "only" +42% for a $5,000 account. Again, you
could make almost 4 times the profit by using $10,000 instead of
$5,000.

My personal conclusion was that $5,000 was just too small to
swing trade. It really doesn't work on the SPX and OEX. Only on
the QQQ could it be used as option prices are generally lower,
but a few extra dollars gives you significantly better results,
and moves you further away from the "gray" area of $4,000 or
$3,000 which yields almost nothing or leaves you with a loss
(although you might have a good time doing it!).

The solution is either not to swing trade until your account has
grown in size using other strategies in the meantime or dedicate
a larger part (20% instead of 10%) of your total account to swing
trading (I don4t need to say that I chose the latter, do I?)

There are numerous websites out there with all sorts of inventive
systems that claim that they will make you rich if you just
follow their advice and when you take it apart and study it, it4s
all [bunk]. I certainly don4t count IS in that category, but I
really don4t like that you are suggesting that it's possible to
take a $5,000 trading account and turn it into $50,000. In
"commission reality", that is very difficult.

I am not writing this to shamelessly criticize you because I
think you are all doing a fantastic job and I am learning
continuously but because I am sure that there are traders out
there that will believe in whatever new idea you throw at them,
without critically testing these ideas. I know because I was one
of them until recently! "Waauuw, Austin says it can be done with
only 5 grand. I have 5 grand! Hey, now I wannabe a swingtrader."

This is what they need to know: Warning: if you have $5,000 or
less available for swing trading then swing trading is probably
not for you, yet. Sad but true. Build up $10,000 and you stand a
much better chance of surviving longer term. If you do attempt it
prior (because some of you will), use only QQQ or OEX options.

Oh, and choose a trending market when you start trading! :) Let4s
hope February brings better market conditions! Best wishes,
Thomas Frohlich, Denmark

.. well Tom, you raise many valid points for us to address. The
instruction to choose a trending market being my favorite! We'll
begin with the last, first.

OI and IS exist for the greater education of option traders who
strive to shorten their learning curve. All of us at both sites
work very, very hard to save new people from the trials &
tribulations we endured.

Much like raising children, many listen but few hear. I had to
learn my own lessons not once but several times and still fall
prey every now & then this very day. Can we really be saved from
ourselves by others?

The hardest part about long-term successful trading is that it
takes the exact opposite action from us that human emotion would
normally direct. Trying to fade our own emotions is precisely the
degree of difficulty involved, nothing more.

One of those being greed. Most if not all of us secretly if not
outwardly hope to turn small accounts into massive ones. And
soon. Is there a trader alive who wouldn't?

The definition of fast is usually in half the actual time it
would possibly take to occur and one-tenth the time it reasonably
should. Patience is not the small-account option trader's virtue.

But enough logic & reasoning, let's get right to the nuts & bolts
of turning scant into plenty!

First of all as you aptly point out, small accounts cannot take
much heat at all. The least little draw down hurts. Cost of doing
business as described above is the reason for that. Also, profit
returns must be good size... scalping $75 trades while paying $40
commission will not work.

The simple answer is to just take trades with the best chance to
win. And exactly which ones are those? I've never in my life
taken a trade where I felt my odds to win were less than 50/50 at
worst. I don't even take "lottery plays" unless I'm pretty sure
the markets have a god chance of moving in my favor. Sadly, I
lack the clairvoyance needed to pre-screen wins from losses
before they are played.

I would say there are two diverse camps trading high-risk option
strategies. The first group are traders with plenty of money who
want to speculate with a little. Win or lose, it's less costly
and lasts much longer than a trip to Vegas.

The second group are traders who barely managed to scrape $5,000
or so together and have hope up to and including the point of
desperation to multiply it many-fold. A lot of hopes and dreams
are stacked on top of that and reality is filtered out even
though it resonates in the back of their minds.

Our attempt to take a $5,000 trading account and follow the same
high-risk/high reward swing trade approach I've used for years is
designed to serve as a real lesson in actual application of
trades. It's one thing to write about theory, could have and
should have but a whole other ballgame is doing it in front of
all who care to watch.

I choose a high-end target of $50,000 or 1000% return in a year
not out of hype or false hope, but as a possibility. If year 2001
markets behave like they did in 1999 I like our chances to get
there. If they behave like year 2000 I REALLY like our chances,
but a continuation of January's sideways chop for several months
would give us no chance at all.

Now I'm the first to agree that anyone with only $5,000 to trade
is much better off with credit spreads or covered calls. I also
know that is not what most will or want to do. The fact also
remains that favorable market conditions does allow a solid
chance to ratchet such an account up many hundreds of percent.

A number of traders have done that and more in mere weeks when
markets are moving. Timing is everything and hindsight is
perfect. At this moment in time we have no idea what the next
eleven months will bring. Nothing more than a random guess. All
we can do is start right now and do the very best we can to
achieve success with what we're given.

Some strategy is in order. We need to win early & often to reach
the safety of critical mass that $10,000 offers. Sliding
backwards below $4,000 and $3,000 makes it much, much harder. At
first we will risk 5% of our balance on any given play and be
picky as possible about entry & exit points. Early wins will make
all the difference for our breathing room.

If our account should melt, we will be forced to risk higher
percentages, play further OTM contracts while balancing time
premium remaining and/or limit ourselves to certain markets only.
We might become even more selective about trade selections as
well.

Just like newly-hatched sea turtles scurrying down the beach
through a gauntlet of danger, once we reach the relative safety
of sufficient capital (or ocean water in the turtle's case) our
chances are much better to thrive.

The whole objective of this live lesson is to be exactly that; a
lesson in how to survive unknown future conditions with real
money on the line. A trader using small accounts for equity
options, stocks or e-mini futures must follow the exact-same
natural laws that we do. Cost of operation through commissions
and slippage on stops can make the difference between profit or
loss.

Big accounts enjoy the relative safety large numbers naturally
offers. We have chosen to begin with less than ideal out of
respect and request from many who are trying to do the same. It
is possible but difficult and we need to know the pitfalls in
order to avoid and survive.

I would like to personally thank and commend Thomas Frohlich for
taking considerable time and effort to sit down, write a trading
plan, analyze the risk/reward and most importantly share it with
all of us. I can assure you it has helped me and our fellow peers
in the trenches realize what limitations we have and how to avoid
them. Anyone who intends to trade small accounts for profit in
high-risk methods regardless of target symbol or approach is much
more aware from the education you provided us.

Permit us some favorable market conditions for our trading
approach and I like all of our chances even better than before!

Best Trading Wishes,

Contact Support


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**********************
PLAY OF THE DAY - CALL
**********************

TLAB - Tellabs, Inc. $67.00 +2.00 (+2.00 this week)

TLAB designs, manufactures, markets and services data, voice
and video transport, switching/routing and network access
systems that are used worldwide by public telephone companies,
long-distance carriers, alternate service providers, cellular
service providers, cable operators, government agencies and
utilities.  Through its various acquisitions, the company is
also able to offer voice-quality enhancement products for
wireless, satellite-based, cable communication and wireline
telecommunications, as well as managed high-speed transport
solutions which operate in Synchronous Digital Hierarchy and
Dense Wavelength-Division Multiplexing (DWDM) environments.

Most Recent Write-Up

The rally that had stagnated a little over a week ago, received
new life when TLAB announced earnings on January 23rd that were
in line with analyst estimates.  The lack of bad news seemed to
cheer the bulls and they continued to bid the price higher,
helped out this past Tuesday when Gruntal & Co. initiated
coverage of the company with an Outperform rating.  The coverage
came a day after TLAB announced that they would acquire Future
Networks, a voice and data cable modem company, for $181 million
cash.  The company expects the acquisition to shore up its
position in the cable data and telephone markets.  Apparently
investors liked the deal, despite the fact that it is expected
to dilute earnings by 6 cents in 2001 and a nickel in 2002.
Technically TLAB is looking a bit overextended, so we need to
keep an eye out for profit taking.  Stochastics have now
flattened out in overbought territory and with the price
bumping up against the upper Bollinger band, we are going to
need strong buying interest to keep the rally alive.  While
momentum players might be inclined to buy further strength,
they need to play with caution, as they may find themselves
in the unfortunate position of buying at the high of the day.
But if this fits your style, look to buy a breakout over the
$66 resistance level, with an eye to further resistance between
$67-68.  If you can exercise a bit of patience, look for small
pullbacks to support near $63, or the vicinity of our stop at
$61.  Whatever your entry strategy, monitor the health of the
Telecom sector for signs of weakness, by keeping an eye on
Merrill Lynch's Telecom HOLDER (AMEX:TTH).

Comments

TLAB's relative strength continues to impress.  Despite a wavering
tech sector for the better part of Monday's session, TLAB held
strong through mid-day and powered higher in the final half-hour
of trading.  If the late-day, massive accumulation is a sign of
trading Tuesday, TLAB could be set to breakout above near-term
highs.  Look for an advance on strong volume above $68, or $68.50
for the more conservative traders.  From there, it could be a
quick pop to $70.  Additionally, a pullback to support near $66,
on light volume could provide an entry.

***February contracts expire in two weeks***

BUY CALL FEB-60 TEQ-BL OI=3070 at $7.63 SL=5.25
BUY CALL FEB-65*TEQ-BM OI=4077 at $3.88 SL=2.50
BUY CALL FEB-70 TEQ-BN OI=2585 at $1.38 SL=0.75  High Risk!
BUY CALL MAR-65 TEQ-CM OI=2901 at $6.50 SL=4.50
BUY CALL MAR-70 TEQ-CN OI=2643 at $4.13 SL=2.50
BUY CALL MAR-75 TEQ-CO OI=7189 at $2.19 SL=1.00

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


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