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Daily Newsletter, Monday, 02/26/2001

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The Option Investor Newsletter                   Monday 02-26-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        02-26-2001        High      Low     Volume Advance/Decline
DJIA    10642.50 +200.60 10642.50 10421.90 1.12 bln   2201/ 853
NASDAQ   2308.50 + 45.99  2309.73  2238.64 1.74 bln   2427/1338
S&P 100   655.80 + 13.16   655.83   639.83   totals   4628/2191
S&P 500  1267.65 + 21.79  1267.69  1241.71           67.9%/32.1%
RUS 2000  488.31 + 10.86   488.31   477.45
DJ TRANS 2978.24 + 48.17  2981.05  2925.05
VIX        27.34 -  3.00    30.11    27.15
Put/Call Ratio      0.52
******************************************************************

Waiting For Alan Greenspan To Speak

In a volatile but positive day for the markets, the NASDAQ
Composite rose for a second day in a row, adding 45.7 points, or
2%, to finish the session at 2,308.2.  Perhaps investors feel
that the downside risk here is minimal.  Wayne Angell of Bear,
Stearns and Company stressed the need for another inter-meeting
cut and set an 80% chance for a move before March 20.  With
renewed optimism that the Federal Reserve may cut interest rates
very soon, the Dow Jones Industrial Average gained 200.2 points,
or 1.9%, to close at 10,642.1.  Almost 1.1 billion shares traded
hands on the New York Stock Exchange, while 1.8 billion traded
on the NASDAQ Stock Market.  Breadth was decidedly positive,
with advancers outpacing decliners by 21 to 9 on the NYSE and by
24 to 13 on the NASDAQ.  Respectable gains took place in mid and
small cap stocks, as reflected by the Russell 2000 Small Cap
Index (RUT), up 2.3%, and the Midcap Index (MID), up 2.5%.

Holding the dubious honor of being the only tech sector to drop
today, semiconductors were led downward by Texas Instruments
(NYSE:TXN -1.00) when they said that lower demand for technology
products due to the economic slowdown will result in
lower-than-anticipated revenue for 1Q which is 20% less than that
of the sequential 4Q.   Customers continue to cancel or
reschedule backlog orders.  Their cost-reduction plan includes
the temporary idling of manufacturing facilities, shortened
workweeks in certain areas, a hiring freeze, cuts in
discretionary spending, and a voluntary retirement program.  The
PHLX Semiconductor Index (SOXX) dropped 1.4% to 599.85.

Microsoft (NASDAQ:MSFT +2.81) held on to most of its gains upon
news of the beginning of antirust arguments in the new
administration, despite the surfacing of a Wall Street Journal
report that the company is negotiating with the Federal Trade
Commission to settle charges that advertisements targeting
Palm's hand-held devices were false and misleading.  Citing
lawyers close to the case, the WSJ article said the FTC found
that Microsoft's "Can Your Palm Do That?" campaign deceptively
highlighted features that weren't available unless buyers
spent more to upgrade to wireless capability.  Apparently, the
wireless requirements were contained in nearly unreadable
print at the bottom of the ads.

Shares of Cisco Systems (NASDAQ:CSCO -0.94) suffered from
Credit Suisse First Boston's note that they have lowered their
earnings estimates for the second half and for fiscal 2002, as
well as their price target due to the slowing U.S. economy.
The firm said Cisco's results should be "somewhat buffered"
from the slowdown by large deals in the service provider
market, allowing it to avoid weaker dot.com and CLEC
customers.  "CLEC" stands for competitive local exchange
carriers, such as AT&T (NYSE:T +0.89) and Sprint
(NYSE:FON +0.02).   Also, Cisco's diverse product line helps
it to compensate for areas where growth is slowing.

Heard about any more job cuts lately? Citing the U.S. economic
downturn and turmoil in the telecommunications industry, 3Com
is (NASDAQ:COMS +0.47) is cutting 1,200 jobs to boost
profitability.  Shares gained 5.2% to $9.50.

The Dow felt the affects of Procter & Gamble’s (NYSE:PG -3.92)
warning this morning that it may miss estimates for the second
half of its fiscal year due to the impact of the devaluation of
the Turkish lira.  P&G is Turkey's twelfth largest business with
over $400 million in annual sales.  P&G shares lost 5.2% to
$71.11.

The most active stock on the New York Stock Exchange was Nokia
(NYSE:NOK +1.41), which climbed 6.6% to $22.75 despite downgrades
from Goldman Sachs and Merrill Lynch.  The mobile phone giant
secured a contract worth about $230 million to supply GSM 900 and
GSM 1800 network expansion to Chinese operator Fujian Mobile
Communications Company.  Goldman lowered its rating to Market
Performer from the Recommended while Merrill lowered its
assessment to intermediate-term Accumulate from Buy.  Merrill
said it remains a long-term believer in growth opportunities
in the communications equipment sector but it expressed concern
that Nokia will not be able to meet its internal revenue growth
objectives of 30 to 35% in the first half of 2001 due to a soft
handset market.  The firm also thinks it will be difficult for
Nokia to reach 20% margins in its mobile phone business due to
intense price pressure.

While I would not exactly call it Merger Monday, interesting
partnerships are appearing out of the woodwork.  EMC Corporation
(NYSE:EMC +0.00) and Toyota Motor Corporation (NYSE:TM +0.81)
announced a three-year sponsorship agreement for Toyota's
Formula 1 racing team.  EMC's logo will appear on Toyota's
Formula 1 racecar.  EMC's stock has been down with last week's
announcement that they may miss their $12 billion revenue
target for 2001.

In another alliance, i2 Technologies (NASDAQ:ITWO +5.94) joined
with Intel (NASDAQ:INTC -0.44) to speed up deployment of i2's
e-marketplace and supply chain management applications powered
by Intel-based servers.  The agreement covers joint sales and
marketing programs, i2 product roadmap alignment, on-site Intel
engineering technical services and support and "how-to" guides.
Although financial terms were not disclosed, i2 rallied 5.9% to
$35.50, still 68% off of its 52-week high.

The Federal Reserve approved a request by Charles Schwab
Corporation (NYSE:SCH +0.43) and its wholly owned subsidiary
U.S. Trust Corporation to acquire Minneapolis-based Resource
Companies, Inc., along with its subsidiary bank, Resource Trust
Company.  Resource Companies, Inc. operates only in Minnesota
and represents less than 1% of total deposits in banks and other
financial institutions in the state, the Fed detailed.  After
the acquisition, Schwab would remain the 43rd largest
commercial bank in the United States, with total consolidated
assets of $35.6 billion.

A division of Enron Corp. (NYSE:ENE -0.44) called Enron Energy
Services has signed a $1.3 billion energy management agreement
with drug manufacturer Eli Lilly and Company (NYSE:LLY +1.44).
Enron will manage Lilly's supply of electricity and natural
gas for facilities in Indiana and operate and maintain energy
assets and upgrade the infrastructure.  Enron's services are
expected to increase efficiency at Lilly facilities.

The CBOE Gold Index (GOX) rallied 6.8%, and has added 16.3% in
the past three trading sessions, reaching the highest level
since September of 2000.  Stocks in the sector include Newmont
Mining (NYSE:NEM +1.11), Barrick Gold (NYSE:ABX +0.82), and
Coeur D'Alene Mines (NYSE:CDE +0.07).  April gold futures
gained $4.70 to $266.80, helped by news out late Friday that
Comex gold inventories fell 22,135 ounces to approximately
1.67 million ounces.

On the economic report front, sales of existing homes fell in
January to their lowest level in a year.  The National
Association of Realtors reported that sales declined by 6.6% to
a seasonally adjusted annual rate of 4.65 million.  Economists
expected the annual rate to increase to 5 million.  Americans
are obviously less confident about our economy, even while the
Federal Reserve is lowering interest rates.  We can all relate
to the other current factors in home buying decisions, such as
stock market volatility, higher energy prices and slower job
growth.

Looking Ahead

The fun begins tomorrow.  The U.S. Consumer Confidence Report
for February has the potential to move the markets because
everyone knows that Mr. Greenspan will pay a great deal of
attention to it.  Bear, Stearns and Company expects confidence
to fall to 106.0 from 114.4 in January because a similar
decline has already been reported in the University of
Michigan's consumer sentiment report.  They also note that a
very close relationship exists between consumer confidence
and the NASDAQ.

Our first look at capital spending in 1Q appears in Tuesday's
Durable Goods Orders Report for January.  Orders are expected
to have fallen 4.5% in the month.  Bear, Stearns and Company
expects that the 150% surge in aircraft orders in December and
November partially reversed in January.  Both orders and
shipments of non-defense capital goods are expected to have
declined, suggesting another decline in business equipment
spending in Q1 after the 4.7% drop in Q4.

Wednesday brings us Mr. Greenspan's testimony on Monetary
Policy before the House Financial Services Committee at 9:30
am ET.  Join the market in attempting to determine what each
of his comments really mean.  I know I will understand him if
he happens to say something about lowering interest rates now
instead of waiting until March 20.  On Friday, Mr. Greenspan
testifies on Current Fiscal Issues before the House Budget
Committee.

Bear, Stearns and Company looks for the NAPM survey of
business conditions in February to fall for the 12th
consecutive month, from 41.2 to 40.5.  (For comparison, the
NAPM index bottomed out at 39.2 during the last recession.)
Many feel that such a decrease will result in an interest
rate cut very soon after this Thursday report.

Has the NASDAQ reached a bottom?  I am not convinced because
we really have not yet seen the capitulation selling that
shakes out the final round of sellers allowing the market to
turn around.  Now that investors are paying attention to real
earnings, and rightfully so, the market should reflect
anticipated improvements about six months ahead.  Watch your
favorites, and be ready for the change in sentiment.

PJ Mitchell
Contributing Analyst


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

CIEN - CIENA Corporation $77.25 +2.75 (+2.75 this week)

Helping to satisfy our insatiable demand for bandwidth, CIEN
makes dense-wavelength division multiplexing (DWDM) systems for
use with long-distance fiber-optic communications networks.
CIEN offers optical transport, intelligent switching and multi-
service delivery systems that enable service providers to
deliver and manage high-bandwidth services to their customers.
The company’s MultiWave DWDM systems allow optical fiber to
carry up to 40 times more data and voice information without
requiring more lines.  CIEN's customers include long-distance
carrier, competitive local exchange carriers (CLECs), Internet
service providers and wholesale carriers.

The NASDAQ rally that began on Friday afternoon following Wayne
Angell's prediction of an early interest rate reduction early
this week struggled for much of today before gaining traction.
The bulls finally got the upper hand towards the end of the day
driving the Technology index to close at the high of the day.
Leading the charge both Friday and today was our new play CIEN.
One of the few remaining high-flyers with a triple-digit PE
ratio, CIEN has outperformed the broader NASDAQ, largely due to
its stellar earnings report just over a week ago.  Not only did
the company beat analyst estimates by 4 cents (29%), but it also
increased its revenue growth rate to a beefy 131%.  Not only
that, but management failed to commit the cardinal sin of
cautioning of slowing growth.  Quite the opposite, all was
sweetness and light at the Optical hero's conference call as
President and COO Gary Smith claimed that the shift in Telecom
spending is actually benefiting the company due to its optimal
product portfolio. Although the stock rallied immediately after
the report bearish sentiment in the broader Technology market
dragged the stock down for a retest of its lows near $68-70 late
last week.  Once the interest rate speculation hit the newswires
on Friday, buyers showed up in bulk, driving the stock nearly 6%
higher by the close.  Tenuous action on the NASDAQ gave buyers a
couple of dips today to buy the stock at a discount, but as the
intraday lows kept getting higher, it became clear that CIEN
wants to run.  Throw in a Stochastics oscillator that is just
coming out of oversold, and showing signs of bullish divergence,
and CIEN looks like a strong play.  Of course we do have the
problem that the stock has been locked in a downtrend with the
rest of the NASDAQ and the Networking sector (NWX.X) since late
October.  The descending trendline is sitting at $80, also a
recent area of resistance.  Conservative traders will want to
wait for strong buying to propel our play through this level
before taking a position.  CIEN will likely find more resistance
at $85, with the $90 level being very difficult to penetrate, as
there is lots of historical resistance and this is also the site
of the 200-dma, currently at $89.72.  With the tenuous nature of
the recovery in Technology stocks, we want to give CIEN room to
move, so we are placing our stop down at $69.  Aggressive
traders can target shoot intraday dips near $75, $72, or $70, so
long as the bears are unable to violate our stop.  Trade in the
direction of the broader index, as it will be hard for CIEN to
buck a bearish trend in the NWX.X.

BUY CALL MAR-75 UEE-CO OI=2152 at $8.50 SL=6.00
BUY CALL MAR-80*UEE-CP OI=5132 at $6.38 SL=4.25
BUY CALL MAR-85 UEE-CQ OI=5077 at $4.50 SL=2.75
BUY CALL APR-85 UEE-DQ OI= 917 at $9.00 SL=6.25
BUY CALL APR-90 UEE-DR OI=2045 at $7.25 SL=5.00

SELL PUT MAR-70 UEE-ON OI=2392 at $ 3.75 SL=5.75
(See risks of selling puts in play legend)

http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN


MER - Merrill Lynch $63.50 +2.27 (+2.27 this week)

Merrill Lynch is one of the world's leading financial management
and advisory companies with offices in 44 countries and total
client assets of about $1.7 trillion.  As an investment bank,
it is the top global underwriter and market maker of debt and
equity securities and a leading strategic advisor to corporations,
governments, institutions and individuals worldwide.  Through
Merrill Lynch Investment Managers, the company is one of the
world's largest managers of financial assets.

The brokerage index rebounded with gusto today, gaining over
3.5%.  As one of the premier brokerage firms, Merrill Lynch
is well positioned to benefit from further strength in this
index.  On a daily chart, MER's pattern is very similar to
that of XBD.X.  The stock responded dramatically to the first
interest rate cut by the Federal Reserve by hitting a high of
$80 by the third week in January.  Subsequently, MER sold off
with the overall market, and reached strong support at $56.70
last week, when the VIX spiked up to over 35.  For the last
five days, MER has made a pattern of higher lows at $56.70,
$58, and $61, and is now poised to break out above its nearly
converged 200 dma of $64.56 and 10 dma of $64.98.  MER may
have moved up today on an article in the Wall Street Journal
which stated that Bank of America was planning to expand its
asset management business and hire additional stockbrokers,
and mutual fund salespeople.  This contradicts previous beliefs
that the brokerage stocks were suffering from decreased revenue
which showed few signs of recovering.  In addition, the prospect
of an intra meeting rate cut is helping the financial sector.
The market may exhibit wild moves over the next few days, as
investors wait to see if the rumor becomes reality, so traders
must be very careful.  If MER can clear the $65 level on heavy
volume, it should be able to move to $68, and the 50 dma of
$69.45.  Conservative traders may want to wait for such a move.
Alternatively, traders could take positions at current levels,
if accompanied by strength in XBD.  Set stops at $60.

BUY CALL MAR-60*MER-CL OI=2153 at $5.40 SL=3.50
BUY CALL MAR-65 MER-CM OI=3350 at $2.55 SL=1.25
BUY CALL APR-60 MER-DL OI=1747 at $7.50 SL=5.25
BUY CALL APR-65 MER-DM OI=4660 at $4.80 SL=3.00

http://www.premierinvestor.net/oi/profile.asp?ticker=MER


BRCD - Brocade Communications $48.63 +2.94 (+2.94 this week)

Brocade Communications is a provider of Fibre Channel switching
solutions for Storage Area Networks (SANs), which apply the
benefits of a networked approach to the connection of computer
storage systems and servers.  The company's family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements and improve the performance
between their servers and storage systems.  This provides the
ability of increasing the size and scope of a company's SAN,
while allowing them to operate data-intensive applications,
such as data backup and restore, and disaster recovery on the
SAN.

It's been a rough month for Storage Area Networking leader
Brocade, as the stock has so far spent most of February below all
its major moving averages.  Recently joining the ranks of the
NASDAQ 100 (QQQ), shares of BRCD have fallen in sympathy with the
Tech-heavy index, as fears of a slowing economy finally hit the
once thought to be immune Storage sector.  Despite beating Street
estimates by a penny in their recent record earnings report,
shareholders exited on mass on the comments made by the CEO that
they would guide lower going forward.  On a technical note,
overhead resistance from the 5-dma had been a glass ceiling that
has weighed heavily on BRCD's share price.  The stock had been
falling on heavy volume the past couple of weeks but late last
week, it appeared that BRCD may have turned the proverbial
corner.  Despite EMC cutting revenue growth forecasts, BRCD moved
higher and it appears that at current levels, there may be
willing buyers to support the stock.  But make no mistake, this
is an aggressive call play so risk management will be key.
Today's gain of 6.43 percent on over 1.35 times the ADV put BRCD
back above its 5-dma line, now at $45.16.  The 10-dma looms just
overhead, at $50.58.  A break above this moving average on volume
could be the signal for conservative traders to take a position.
Aggressive traders looking for entries on intra-day dips may find
support at the 5-dma, $45, $43 and $40.  Just make sure BRCD
continues to close above our stop price of $42.  In both cases,
correlate entries with strength in competitors QLGC and MCDT.

BUY CALL MAR-45 UBF-CI OI=5743 at $6.50 SL=4.50
BUY CALL MAR-50*UBF-CJ OI=2448 at $3.75 SL=2.00
BUY CALL MAR-55 UBZ-CK OI=6314 at $2.13 SL=1.00
BUY CALL APR-50 UBF-DJ OI= 645 at $7.63 SL=5.25
BUY CALL APR-55 UBZ-DK OI= 532 at $4.50 SL=2.75

http://www.premierinvestor.net/oi/profile.asp?ticker=BRCD


VRTS - Veritas Software $68.94 +6.56 (+6.56 this week)

Veritas Software is the industry's leading enterprise-class
application storage management software provider.  They furnish
storage management software for protection against data loss and
file corruption, efficient file processing and networks back-up.
Veritas (Latin for "truth") has made its name by partnering with
such technological heavyweights as Hewlett-Packard, Microsoft,
and Sun Microsystems, all of which have licensed and embedded
Veritas products in their operating systems.  Its purchase of the
network and storage management software group of disk drives
maker, Seagate Technology, doubled Veritas' size and gave Seagate
approximately a 33% stake in the company.

It's been said that the last ones to fall are usually also the
first to bounce back.  With Tech stocks out of favor for quite
some time now, the Storage sector was able to hold up where the
Biotechs, Networkers and Semiconductors were unable to.
Companies in the space were thought to be immune because their
fantastic growth rates could more than compensate for any
economic slowdown.  However, with industry peers BRCD and EMC
both guiding lower going forward, as well as VRTS itself, the
sector recently took a stumble.  Spending the entire month of
February in a downtrend, shares of VRTS have been declining
steadily, but the price/volume action of late last week suggests
that the worst may have now been priced into the stock.  The high
volume hammer candlestick formations last Thursday and Friday
hints that weak holders of the stock may have capitulated.  With
selling pressure abating, buyers could find themselves with less
overhead resistance.  Positive comments from Dain Rauscher
Wessels analyst Sarah Mattson, along with a 12-month price target
of $150 on Friday may also bring back the bulls and bargain
hunters.  Bounces off support at $68, $65, $62 and our stop price
of $60 could allow aggressive traders to make a play, but confirm
with volume.  A break above $70 on volume could be a much safer
entry point, provided that rival LGTO and Gorilla of the Storage
sector EMC are also moving higher.

BUY CALL MAR-65 VIV-CM OI=1187 at $ 9.75 SL=7.00
BUY CALL MAR-70*VIV-CN OI=1974 at $ 7.00 SL=5.00
BUY CALL MAR-75 VUQ-CY OI=1168 at $ 5.00 SL=3.00
BUY CALL APR-70 VIV-DN OI=  42 at $12.38 SL=9.25
BUY CALL APR-75 VUQ-DY OI= 190 at $10.00 SL=7.00

SELL PUT MAR-60 VIV-OL OI= 719 at $ 3.13 SL=5.00
(See risks of selling puts in play legend)

http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS


****************************
NEW LOW VOLATILITY CALL PLAY
****************************

MCLD - McLeodUSA $15.69 +2.13 (+2.13 this week)

McLeodUSA provides selected telecommunications services to
customers nationwide.  Integrated communications services
including local services are currently available in many
Midwest, Southwest, Northwest and Rocky Mountain states.
Long distance, advanced data and internet services are
available in all 50 states.  McLeodUSA is a facilities-based
telecommunications provider with 396 ATM switches, 50 voice
switches, approximately 1.1 million local lines, and more
than 10,700 employees.

In a market plagued by grim earnings outlooks, MCLD exceeded
expectations in its last earnings report, and reiterated its
upbeat forecast for the coming year.  On January 30, MCLD
reported revenues of $1.4 billion, up 54% from last year, and
an increase in the number of employees by 32%.  After falling
from a high of $20.75 on January 30, MCLD hit strong support
last week at $11.50, and has since rebounded strongly.  On a
conference call last week, MCLD's management stated that they
expect year end revenue to be $2.1 billion, an increase of
50% from last year, with an expectation for EBITA to increase
in the range of 270%.  Upgrades from CSFB and Goldman Sachs
helped the positive trend in MCLD.  CSFB gave MCLD a strong
buy rating with a 12 month price target of $39, stating that
the stock's current risk/reward valuations are among the
most attractive in the telecommunications sector. In a surge
of momentum at the close, MCLD cleared its 10 dma of $14.13,
and is now poised to make a shot at the 50 dma of $16.69.
Traders can take positions at current levels, or at a break
above $16.69 if it is accompanied by strength in the CLEC
sector.  Watch others like XOXO and GX for an indication
of sector strength.  Set stops at $14.

BUY CALL MAR-12.5 QMD-CQ OI=583 at $3.63 SL=1.75
BUY CALL MAR-15  *QMD-CC OI=624 at $1.63 SL=0.75

http://www.premierinvestor.net/oi/profile.asp?ticker=MCLD


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

No new puts today


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

EMC - call play
Adjust from $39 up to $42

MSFT - call play
Adjust from $55 up to $57

LH - call play
Adjust from $144 up to $150

WAG - call play
Adjust from $42.50 up to $43

ADBE - put play
Adjust from $34 down to $33


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

MO $46.50 -0.52 (-0.52) As we cautioned over the weekend, MO
was in danger of violating our $47 stop.  With a revival of
all the major indices today, money came out of defensive
stocks, and the stock couldn't hold it's ground.  The morning
recovery gave way to selling pressure in the afternoon, and MO
fell to close very near the low of the day, and more
importantly, below our stop.  With bearish divergence now
appearing on the daily Stochastics oscillator, and a violated
stop, we have no choice but to boot MO from our playlist.


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

NETE $50.09 +1.84 (+1.84) The bears took one last shot at
pushing NETE underwater this morning, but the persistent
strength of the broader markets helped the stock to recover
after hitting a low near $43.  Today's low was above Friday's
low, and we are now seeing bullish divergence in the
Stochastics oscillator.  Given the strength of the NASDAQ
today, and the steady recovery in shares of NETE, we are
content to take our accumulated profits off the table and move
on to the next high-odds play.

ARBA $19.69 +2.00 (+2.00) Our play in ARBA has been a
particularly good one for intra-day traders last week, as it had
traded in a fairly predictable range during that time.  This
sideways action has also suggested that the stock may have found
a bottom.  Today, ARBA was helped by an advancing NASDAQ, gaining
over 11 percent on 1.45 times the ADV.  This surge put ARBA not
only above its 5-dma at $18.47, but also ahead of our stop price
at $19.  While resistance overhead from the $20 level and the
10-dma at $20.63 continue to hold, we are sticking to our sell
rules an closing out this play.

BBOX $51.63 +2.88 (+2.88) The 5-dma (now at $50.12) has acted as
an almost impenetrable barrier for BBOX in the month of February,
as shares of the retail network provider have been unable to
close above that point all month long.  That is, until today, in
sympathy with a rising NASDAQ, the stock managed to close up 5.9
percent.  While volume was only half the ADV and the 10-dma (at
$52.02) held firmly, the close above our stop price of $49 puts
BBOX on the drop list.

ITWO $35.50 +5.94 (+5.94) Part of making a successful play is in
waiting for the right entry point to appear.  Friday's negative
price/volume action in shares of ITWO did little to suggest what
was to come on Monday's trading.  The stock gapped up today on
news of an alliance with leading Chipmaker Intel.  This was
enough to ignite a buying frenzy, as the stock opened above $30
resistance and spent the rest of the day moving higher on volume
to close up over 20 percent on 1.5 times the ADV.  Today's rally
suggests that the downtrend may soon be broken, as suggested by
the close well above our stop price of $32.  With requirements
for entries not met and no plays made, we are dropping coverage.

QLGC $44.25 +2.38 (+2.38) QLGC released news today stating that
Sun Microsystems is shipping products which use the QLGC Fibre
Channel switches.  The market liked the news, and the stock
responded well.  While the semiconductor sector is still
lagging the other indexes, QLGC demonstrated a high level of
strength toward the market close.  At this point, we think it
is prudent to drop the play as it closed above our stop level.

WEBM $52.38 +3.63 (+3.63) WEBM released news today that Cisco
had selected WEBM's technology as the business integration
platform for enabling the real time exchange of inventory and
product request information.  That news, in combination with
overall market strength, as well as strength in the software
index spurred by Microsoft, closed the door for our WEBM put
play.  While the stock remains in a long term downward trend,
it closed above our stop price, and we are thus dropping it
tonight.


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

Ultimately, Success Depends Upon Your Own Discipline
By Molly Evans

It was time well spent with over one hundred other traders at a
Larry Williams seminar in Chicago this past weekend.  Williams
entered the ranks of legendary traders upon his amazing feat of
winning the Robbins World Cup Championship for Futures Trading,
turning $10,000 into $1,147,000.  He confessed that he was up to
$2.4M at the high but "there was a bit of a retracement in the
market called the crash of October '87."  While the setback
took his little pile of dough down to a mere $750,000, amazingly
Williams was able to claw his way back 53% in the last two months
of the year after that unfortuitous market swoon.

While I had obviously heard of Larry Williams, I had never had
exposure to any of his writings or theory.  It was Austin who
insisted my husband, Dan, and I come to meet Wendy and him
so that Dan and Wendy could do the fun things while Austin and I
got "higher learned."  Quite admittedly, I am loathe to ever turn
down a getaway trip to the Windy City even if it does entail
sitting in a conference room most of the weekend.  Suffice it to
say, it was good to see my friends and while I've been to too
many seminars lately, this one well exceeded any expectations I
had going into it.

So let's talk about seminars for a moment.  A good one makes you
feel so confidant and assured that you've come away knowing "how
to do it now."  You're impressed by the speaker's presence and
skills.  You vow to incorporate all that you've learned into your
own trading and to never again make those mistakes that have
wounded you in the past.  Yet, somehow when you get back to your
own environment, you find it's not that easy to apply what you've
learned.  How does it work for the expert and not work for you?
I think that one element of this problem is that it's difficult
to change your way of thinking or to rearrange your own programmed
mind to interpreting data and acting in the same manner as the
expert.

Skills can be taught.  Richard Dennis and William Eckhardt proved
it could be done.  They were the two legendary traders that taught
a group of interviewed, rigorously tested and handpicked
candidates their system of trading.  This group, known as the
Turtles, belongs to an exclusive class and many of the
individuals have gone on to become top money managers in the
field.  In fact, when Jack Schwager sought mega successful
traders to be interviewed for the second of his three Market
Wizards books, he found that 44% of the top traders as reported
by the Managed Accounts Reports were in fact, former Turtles.

So if trading can be a taught talent, then why aren't there more
successful traders?  What are the hindrances to success in
modeling an expert?  It shouldn't surprise you to learn that it
is psychology.  Psychology is the wiring that invokes us to act
upon fear and greed, the two most prevalent liabilities in the
undoing many a trader.  Because traders are human, the
performance of any behavior requires process of information in
the brain.  Behavior is then required to design and execute a
system of trading.  To duplicate the behavior of an expert, one
must be schooled in the ingredients of that behavior.

It is great to go to a well-organized and informative seminar.
This is where successful traders discuss their methodologies and
approach or should I say "the ingredients" of their behaviors
within the market.  You learn the non-psychological aspects of a
trading system.  As Austin and I discussed this weekend, that in
itself is invaluable.  How can you know it if you don't know it?
These are things we go to seminars and read books to learn.

Jack Schwager and Dr. Van Tharp have worked with a number of
great traders and investors to determine what they have in common.
We learn through their studies that attempting to duplicate the
methods of one great trader is not enough for most people.  Yet
if one will study the commonalities of a number of good traders,
then you learn what's really important to the success of all of
them.  None of our legends have the exact same method.  Larry
Williams had some totally different approaches to trading to which
I have ever been exposed.

Having been to a number of seminars and reading a huge
assortment of books over the past couple of years, I've found a
few common elements.  Do you know what they are?  Sure you do.
Desire, persistence, confidence and most of all, money management.
This is a tricky topic.  Most books and speakers pay just lip
service to the topic as money management is such a subjective
matter.  What is important to individual traders however, is to
pin this down precisely for themselves.  How much is enough of
a position and how much is too much?  The gurus all have their
formulas and recommendations but only the individual trader can
make the ultimate determination for himself.  I can tell you,
the answer doesn't come easily.  It's something that is learned
through trial and error.

Position sizing is one of the first rules that a trader should
incorporate into their business trading plan.  Whether you elect
to jump in all at once or to scale into the position, you then
must stay true to it.  Next, the stop loss, another highly
subjective determination comes into play.  What's your uncle
point?  The keys to success are all about limiting and downsizing
risk.

Traders, professional and novice, blow up every single day in
failing to address these very sensitive issues.  As I realized
this weekend, seminars are great for exposure to new ideas and
methodologies but in the end it won't matter how many seminars
one has attended or books that have been read if he or she
doesn't practice disciplined money management.

We're living in tumultuous times in the market.  Whether you're
coming to the Denver conference or going to go check out Larry
Williams  yourself, at least keep yourself in the game by
playing by the rules.  The other pearls in the chest are but
moot points if you're without capital.

Austin and I have switched our evenings for responsibility of the
Trader's Corner articles.  I'll now be penning the Monday night
columns and he's moving to Thursday nights.  Be careful out there
and I'll see you next week.

MKE


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

EMC - EMC Corporation $45.00 +0.00 (+0.00 this week)

EMC wants to be your storage solution.  The company designs,
manufactures and markets a wide range of enterprise storage
systems, software, networks, and services.  The company’s
products store, retrieve, manage, protect and share information
from all major computing environments including mainframe, UNIX,
and Windows NT.  With offices around the world and a 35% growth
rate for the first 9 months of the year, EMC is effectively
filling its role as the worldwide storage leader.

Most Recent Write-Up

In the wake of negative news and earnings warnings from the
Storage sector, EMC fell through the $50 support level last
week.  Compounding the stock's problems, the company joined the
crowd and issued its own warning, cautioning investors of
slowing growth.  Still expecting to meet its $12 billion revenue
target for the year, EMC revised sales growth estimates downward
to the 25-35% range.  Following this admission, the stock traced
a new 52-week low of $34 on Thursday before the buyers returned.
After helping the stock to recover to the $39-40 level by
Thursday's close, we saw buyers increase their enthusiasm late
on Friday.  Major support between $32-34 got the bulls started
on Thursday, and then former Fed governor, Wayne Angell got the
party going again Friday afternoon with his prediction of a Fed
rate cut early next week.  Speculation aside, the bottom line is
that buying was strong going into the close on Friday, and this
could be the beginning of a significant recovery.  After
declining more than 50% in the past 3 weeks, EMC seems to be
significantly oversold, and with daily Stochastics turning up
out of the oversold region, we are more than happy to step up
and take a piece of the developing recovery.  Conservative
entries can be considered on a continuation of the Technology
rally that pushes EMC through the $46 level.  Aggressive traders
that are looking for a better entry point can consider new
positions on a bounce from either the $42 or $40 level.  Keep a
short leash on the play, as a drop through our $39 stop will be
a clear sign that the bears are back in charge.

Comments

EMC is attempting to rebound from its recent sell-off.  The stock
finished Monday's trading strongly, which may portend higher
prices for the data storage giant in the near-term.  Traders might
look for entries on light volume pullbacks to support at the $43.50
level.  Those looking to play momentum might wait for EMC to clear
the $46 level on heavy volume in conjunction with strength in the
Nasdaq Composite (COMPX).  After $46, EMC will face minor
resistance at $47 before attempting to retest the $50 level.

BUY CALL MAR-40 EMC-CH OI=10026 at $7.00 SL=5.00
BUY CALL MAR-45*EMC-CI OI= 4632 at $4.00 SL=2.50
BUY CALL MAR-50 EMC-CJ OI= 7974 at $2.13 SL=1.00
BUY CALL APR-45 EMC-DI OI= 1380 at $6.50 SL=4.50
BUY CALL APR-50 EMC-DJ OI= 2953 at $4.13 SL=2.50
BUY CALL APR-55 EMC-DK OI= 1699 at $2.69 SL=1.25

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


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