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Daily Newsletter, Monday, 03/05/2001

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The Option Investor Newsletter                   Monday 03-05-2001
Copyright 2001, All rights reserved.                        1 of 1
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        03-05-2001        High      Low     Volume Advance/Decline
DJIA    10562.30 + 96.00 10571.60 10468.50  928 mln   1649/1406
NASDAQ   2142.92 + 25.29  2163.09  2127.96 1.50 bln   1810/1846
S&P 100   638.43 +  4.54   639.21   633.89   totals   3459/3252
S&P 500  1241.41 +  7.23  1242.55  1234.04           51.5%/48.5%
RUS 2000  475.79 -  1.09   479.78   475.65
DJ TRANS 2939.40 + 24.21  2946.09  2908.70
VIX        29.22 -  1.64    31.30    29.15
Put/Call Ratio      0.68
******************************************************************

The Market Shrugs Off Chip Warnings

The major indices stayed within a somewhat tight trading range
after rising in early action.  Volume was unusually light at
926 million shares on the NYSE and 1.5 billion on the NASDAQ
Stock Market.  The threat of a 30-year snowstorm in the
Northeast kept some traders off Wall Street.  The worst of the
storm is expected to hit tonight.

The Dow Jones Industrial Average added 96 points or 0.9% to
10,562.30.  Market breadth was marginally positive on the NYSE,
with advancers outpacing decliners by 17 to 14.  New 52-week
price highs on the Exchange totaled 128 versus 17 new lows.
The NASDAQ Composite moved up 25.3 points or 1.2% to 2,142.90.
Certainly, it was nice to see the NASDQ Composite refrain from
diving after chip companies issued warnings and many stocks
were downgraded.  Winners nearly matched losers on the NASDAQ,
while 102 issues hit a new low and 58 logged a new high.

Apparently, Prudential's downgrade of 15 stocks was done to
highlight the stocks that still rightfully have Strong Buy
ratings, including AXT Inc. (NASDAQ:AXTI +0.19), Emcore
(NASDAQ:EMKR +0.44), Micron Technology (NYSE:MU +2.91), Texas
Instruments (NYSE:TXN -0.36) and Xilinx (NASDAQ:XLNX +0.75).
Among the stocks getting downgraded were Microchip
(NASDAQ: MCHP), Atmel (NASDAQ:ATML +0.19), Pericom
(NASDAQ:PSEM +0.06) and Safe (NASDAQ:SAGI +0.17).  Prudential
believes that semiconductor up cycles exhibit double peaks,
which guides its thesis that the chip stocks should bottom
some time in the next six months.  The PHLX Semiconductor
Index gained 5.2% to 612.3.

Chipmakers warning today included Cypress Semiconductor
Corporation (NYSE:CY +0.27), LSI Logic Corporation
(NYSE:LSI +0.51) and Vitesse (NASDAQ:VTSS +1.25).  Cypress
said it will earn 30 to 34 cents per share in 1Q, versus the
expected 56 cents, blaming poor demand and changes to its
business model.  The company has decided to let one of its key
customers order and receive chips, but not take ownership until
it actually uses them.  LSI Logic said that its 1Q revenue and
profit will miss previous expectations, falling 30% from the
prior quarter's level of $751 million.   A 12% decline was
originally expected.  Vitesse said it now expects to earn
between 21 cents and 22 cents per share in its fiscal 2Q,
having previously predicted earnings of 26 cents to 27 cents.
Vitesse predicted revenue will be between $150 million and
$160 million, well below its previous forecast of $180 million
to $190 million. These warnings came as the Semiconductor
Industry Association (SIA) said that global sales of
semiconductors in January fell 5.7% from December, blaming
excessive inventories and poor demand for goods using the
chips.  George Scalise, SIA president, said "Current
forecasts suggest the inventory adjustment will be completed
by the end of the third quarter and end-market product demand
will improve later in the year."  Compared to January 2000,
the Japanese market grew 23.2% in January of 2001, the
Asia/Pacific market grew 2.9%, the Americas market rose 15.4%,
and the European market 14.6%.

EMC Corporation (NYSE:EMC +0.20) has decided to focus on
international business to help meet their 2001 revenue target of
$12 billion.  Speaking at a Morgan Stanley investment conference,
CFO Bill Teuber said there is plenty of room for the data storage
giant to expand its business in Asia and Europe.  EMC's stock has
been weak since late last month when the company said it might
miss its revenue goal.

Prudential also made bearish comments about e-commerce software
firms, saying the current economic climate is beginning to impact
"even the best-positioned software companies."  The firm left its
ratings intact but slashed 2001 and 2002 revenue and earnings
estimates on Art Technology (NASDAQ:ARTG -1.00), BroadVision
(NASDAQ:BVSN -0.41), E.phiphany (NASDAQ:EPNY -0.44), eGain
Communications (NASDAQ:EGAN -0.03), and Interwoven
(NASDAQ:IWOV -0.62).  Prudential said it believes reduced
visibility for these companies presents a risk as "deferrals
of application software purchases are just beginning to be felt
now."  Also, current international strength may not last,
according to Prudential.  Art Technology was hardest hit, losing
4% to $23.12.

Reports of secret talks between Wal-Mart (NYSE:WMT -0.55) and
Amazon (NASDSAQ:AMZN +2.62) to form a strategic alliance appeared
in the British Sunday Times.  This could be a successful
combination of on-line expertise with a great customer base.  Wal
Mart could use some help in gaining better Internet presence,
and Amazon could use help in the cash department.  Although these
rumors have not been verified, industry watchers are questioning
how the deal would affect Amazon's alliance with Toys R Us Inc.
(NYSE:TOY -0.25), which currently operates a co-branded retail
toy Web site, in competition with Wal-Mart, the top seller of
toys in the United States.

Finally, not a warning!  Verizon Communications (NYSE:VZ -1.38)
said it is on track to meet its operational and financial targets
for 2001. Earnings for 2001 are expected to be between $3.13 and
$3.17 a share, with revenue growth in between 8 and 10%.  Shares
still dropped 2.5% to $48.13.

AT&T (NYSE:T +1.16) rose to $23.56 on a favorable court ruling
last Friday by a U.S. appeals court that overturned federal
rules limiting the number of cable customers one company can
serve.  Merrill Lynch analyst Jessica Reif Cohen said the
court's decision "paves the way for more consolidation and is a
huge win for cable companies."  Other cable operators benefiting
today included Comcast Corporation (NASDAQ:CMCSA +1.62) and
Cablevision Systems (NYSE:CVC +1.44).

The economy in the services sector improved in February according
to the National Association of Purchasing Management (NAPM).  Its
non-manufacturing survey rose to 51.7% in February from 50.1% in
January. Readings over 50 show expansion of activity.  The index
"indicated more life in the economy than it did in January," said
Ralph Kauffman, the head of NAPM's survey.

Although February's 101,731 layoff announcements were up 187% from
last February's 34,415, total announcements are actually down 28%
from January according to outplacement firm Challenger, Gray &
Christmas.  However, layoffs have been above 100,000 for three
straight months for the first time in the survey's eight-year
history.  Automobile, telecom and retail sectors have been most
heavily hit by announced layoffs so far.

It looks like investors finally stopped pouring money into stock
mutual funds.  Trim Tabs reported Friday that investors pulled
about $13.4 billion out of stock funds in February, the first
month of redemptions since August of 1998.  While both the Dow
Jones Industrial Average, S&P 500 Index and NASDAQ Composite have
shown similar percentage increases since 1998, the NASDAQ has
climbed and descended by far the steepest peak during that time.
Technical analysts are worried about the buying, which reflects
complacency during the NASDAQ's decline of the last year.
According to Investor's Business Daily, the remote possibility
of mass redemptions worried the Federal Reserve enough to
research the topic.  If fund shareholders all decide to sell at
once, managers may be forced to sell massive amounts of stock
to pay off investors.  Given that mutual funds own about 20%
off all the stock outstanding, this would likely drive stock
prices lower.  The Fed study, published in December, says that
scenario is unlikely because managers have enough cash to meet
redemptions and often have bank credit as a backup.  Outflow
the past 13 years has been because investors aren't buying
enough to offset normal redemptions.

A quick perusal of top industry groups based on stock price
action in the last six months (published by the Investor's
Business Daily) reveals that many retail and medical sectors are
holding their places high on the list.  Those retail groups have
actually improved their standings over the last three months.
Regional banks also make a good showing on the list.  The only
tech sectors appearing in the top half include computer
services, educational/enterprise computer software, and
military electrical systems.  As you already knew, most tech
stocks have had dismal price action in the recent past, even
though technology still has the greatest growth potential.
The fact that those sectors have not started to recover yet
tells us that other overriding economic factors are keeping
investors out of technology for the time being.


After the Bell

Xilinx warned as scheduled after the close, saying that February
was weaker than expected and sequential revenue will decline by
as much as 15% in the March quarter.  Currently, analysts expect
earnings of 27 cents per share on revenue of $481 million.
During the prior quarter, Xilinx had net income of 31 cents per
share on revenue of $450.1 million. Based on Xilinx's new
projections, revenue could be as low as $382.5 million.  After
rising 1.8% to $43.25 in the regular session, shares were down
31 cents in after hours trading at the time of writing.

TriQuint Semiconductor (NASDAQ:TQNT +0.25) warned that earnings
per share this quarter could fall to 14 cents, and revenue to
$80 million, down from $90.3 million in the previous quarter.
Shares are trading up 6 cents to $19.06 in after hours trading.


Looking Ahead

Tomorrow brings us the Factory Orders Report for January.  Bear,
Stearns and Company analysts believe that the large drop already
reported for orders of durable goods, down 6% in January,
virtually guarantees a large decline in total factory orders,
forecasted to drop 2.2%.  This report will also provide the
first look at inventory investment in the first quarter of 2001
and the first readings from 2001 on orders and inventories for
various high-tech goods.

The Beige Book on Wednesday will not create much market
reaction after last week's policy comments from Mr. Greenspan.
The most important report this week ahead of the FOMC meeting
on March 20 is the Non-farm Payrolls Report for February.
Bear, Stearns and Company reports that a number of
employment-related indicators have eroded since the last
employment report. Also, February payrolls should fall due to
January's large gain, which appeared to have been partially
weather related. This is especially true in the construction
sector, where payrolls surged 145,000 in January, versus an
average monthly increase of 17,000 over the last 12 months.
Analysts expect that payrolls posted a small gain of only
50,000 in February, with private payrolls rising only 40,000.
Manufacturing payrolls are expected to fall sharply again as
suggested by the fall in the NAPM employment index.

While the weather in New York may keep the trading volume down
tomorrow, expect some volatility this week into the payroll
report.  Trade safe and use stops, or drive safe and go skiing.


PJ Mitchell
Contributing Analyst
www.OptionInvestor.com


************************************
Spring Options Workshop and Bootcamp
April 5th-9th, Denver Colorado
************************************

OptionInvestor is proud to announce our third annual Spring
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The detailed schedule will be posted in about two weeks. There
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*************
NEW CALL PLAY
*************

UBS - UBS AG $157.95 +3.15 (+3.15 this week)

UBS Warburg is a business group of UBS AG, one of the largest
financial services firms in the world with 78,000 employees in
more than 40 countries. In the United States, UBS Warburg's
securities activities are conducted through UBS Warburg LLC and
PaineWebber Incorporated, U.S.-registered broker-dealers. The
firm is a leader in equities, corporate finance, M&A advisory and
financing, financial structuring, fixed income issuance and
trading, foreign exchange, derivatives and risk management. UBS
Warburg also offers a full range of innovative wealth management
servicesthrough PaineWebber, and provides private equity
financing through UBS Capital.

We are initiating an aggressive call play on shares of Swiss
banking giant UBS for reasons both fundamental and technical.
The company has been displaying its competitive prowess recently,
with it's hiring of top guns away from its rivals.  Dipping into
the deep end of CS First Boston's talent pool to boost its
American investment-banking department, UBS also grabbed a top
banker from Morgan Stanley.  What's more, the company recently
announced that it would be buying back as many as 5 billion Swiss
francs worth of its own shares starting today.  This is a move
that could greatly reduce UBS' float and traditionally, company
buy-backs have been a bullish sign.  Technically, the stock still
needs to break out of a downward trending regression channel, but
a recently successful test of its 100-dma, now at $152.95 could
mean strong bounce ahead.  We are placing our protective stop
price just above this major moving average, at $153.  Today's
advance of just over 2 percent, putting the stock above both its
5 and 10-dma (at $157.51 and $157.74), is a step in the right
direction.  However, this is a bottom-fishing trade so proper
risk management is key to reducing the overall risk profile of
this play.  Pullbacks to moving average support could provide
targets of entry for higher risk players, but confirm with
volume.  For the more risk averse, wait for a strong break above
resistance at $160 before jumping in.  In both cases, confirm
upward direction with movements in sector peers such as BSC, LEH,
MWD.

***March contracts expire in less than two weeks***

BUY CALL MAR-155*UBS-CK OI=223 at $5.10 SL=3.00
BUY CALL MAR-160 UBS-CL OI= 33 at $2.20 SL=1.00
BUY CALL MAR-165 UBS-CM OI= 22 at $0.90 SL=0.00
BUY CALL APR-160 UBS-DL OI=  0 at $6.20 SL=4.25  Wait for OI!!
BUY CALL APR-165 UBS-DM OI= 26 at $3.90 SL=2.50

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


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

LMT - Lockheed Martin Corp. $38.44 +0.14 (+0.14 this week)

Lockheed Martin is a highly diversified global enterprise that
researches, designs, develops, manufactures and integrates
advanced technology systems, products and services.  The
company operates through four principal business segments:
Systems Integration, Space Systems, Aeronautical Systems, and
Technology Services.  Accounting for over 40% of revenues, the
Systems Integration division includes missiles and fire control,
naval electronics and surveillance systems, aerospace
electronics, controls systems, and command and control systems.
Aeronautical Systems make up another 22% of revenues and
consist of tactical aircraft, airlift, and aeronautical
research programs.

The antithesis of the Technology sector, Defense (not to be
confused with defensive) stocks have been in a consistent
uptrend.  As one of the biggest and most diversified companies
in the sector, LMT has been leading the charge higher.  After
bottoming near $16 a year ago, the stock has found favor among
investors due to its defensive nature.  By last fall, the stock
had risen into the mid-$30s and consolidated while the country
waited to find out if the incoming presidential administration
would be Republican, knowing that this outcome would be more
favorable to Defense stocks.  After the election was resolved,
shares of LMT resumed their uptrend, reasserting their
attraction to investors as the broader markets have continued
to weaken over the past 6 weeks.  Although the Stochastics
oscillator is in overbought territory on both the daily and
weekly charts, the stock looks like it has more upside
potential, so long as it obeys the long-term trendline, which
is sitting just above $37.  Combine that with the fact that the
stock has established some decent support at this level, and $37
looks like a good location for our stop as well.  With buyers
pushing LMT up to kiss the upper Bollinger band almost on a
daily basis, aggressive traders will likely get the best entries
as the stock bounces from support near our stop.  Just make sure
that support is holding, before jumping into new positions.
Conservative traders can consider new positions as the stock
moves to new yearly highs (above $38.64), but need to be
cautious with the upper Bollinger band sitting at $38.75, and
long-term overhead resistance looming at $39.

***March contracts expire in two weeks***

BUY CALL MAR-35 LMT-CG OI=4716 at $3.80 SL=2.25
BUY CALL APR-35 LMT-DG OI=  26 at $4.89 SL=3.00
BUY CALL APR-40*LMT-DH OI= 195 at $1.89 SL=1.00
BUY CALL JUN-40 LMT-FH OI=3026 at $2.80 SL=1.50
BUY CALL JUN-45 LMT-FI OI=  88 at $1.30 SL=0.75

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


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

ISSX - Internet Security Systems $42.75 -7.44 (-7.44 this week)

Internet Security Systems is the leading global provider of
security management solutions for the Internet, protecting
digital assets and ensuring safe and uninterrupted ebusiness.
With its industry leading intrusion detection and vulnerability
assessment, remote managed security services, and strategic
consulting and educational offerings, ISS is a trusted security
provider to more than 8,000 customers worldwide, including 21
of the 25 largest US commerical banks and the top 10 US
telecommunications companies.  Founded in 1994, ISS is
headquartered in Atlanta Georgia with offices in North America,
Aisa, Australia, Europe and the Middle East.

The internet security software sector held up for weeks while
many of the other technology sectors, such as telecommunications,
semiconductor, and networking stocks collapsed.  However, ISSX
and its brethren in the networking security industry, such as
CHKP and RSAS are now becoming victims of a new round of brutal
selling.  While these companies design and manufacture products
which are essential for secure communications, it seems that
investors are starting to question their high valuations.
Robertson Stephens recently downgraded ISSX to a long term
attractive, stating that company purchases for add on network
vulnerability and intrusion detection could get delayed as
companies delay purchasing additional networking equipment.
ISSX demonstrated a consistent pattern over the last twelve
months of poking through its closely aligned 200 and 50 dmas
and then falling below them, to make a long term series of lower
highs.  The last failed attempt to clear its then 200 dma of
$75.43 and 50 dma of $72.22 occurred on February 20 and, since
that point, ISSX shares have lost nearly half their value.
Today, the selling occurred on more than double the average
daily volume, and took the stock to a new 52-week low.  To
compound the problem, the software index was among the weakest
in the Nasdaq today, as GSO.X is at a 52-week low.  ISSX has
broken below the important support level of $50, which held
since January of 2000.  Support at $40 dates back to July of
1999, and if this level is violated, there is little support
until the $30 level.  An aggressive entry point could be a
failed attempted rally from the $43 level.  Conservative put
players might want to wait for a drop below $40 with heavy
volume.  Monitor others in the sector such as CHKP for weakness,
and preferably wait for weakness in GSO.X as well.  Set stops
at $47.

***March contracts expire in two weeks***

BUY PUT MAR-50*ISU-OJ OI=139 at $8.50 SL=6.00
BUY PUT APR-45 ISU-PI OI=106 at $7.38 SL=5.00
BUY PUT APR-40 ISU-PH OI= 38 at $4.50 SL=2.75

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


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

PPG - call play
Adjust from $51.50 up to $52

IDTI - call play
Adjust from $30 up to $32

BGEN - put play
Adjust from $72 down to $70

NEWP - put play
Adjust from $49 down to $46

MERQ - put play
Adjust from $56 down to $49


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

VRSN $46.94 -3.63 (-3.63) Unfortunately, the good news
released by VRSN last week could not counter the prevailing
weak trend in the software index.  While the Nasdaq composite
staged a small rally, the software index (GSO.X) opened
lower and faded toward the end of the day.  VRSN formed a rounded
bottom pattern but closed down for the day, and below our stop
level.  As such, we are dropping it tonight and would use any
strength early Tuesday to exit positions.

VRTS $59.81 -3.81 (-3.81) We mentioned on Sunday that VRTS would
be hosting a mid quarter conference call after Monday's closing
bell, recommending that traders may want to wait until this event
has passed before making a play.  This turned out to be a good
move as investor nervousness ahead of the company update caused
the stock to drop almost 6 percent today on over 1.8 times the
ADV, in spite of a generally good day for the Storage sector.  As
always, we maintain discipline when it comes to our stop loss
rules and with the close below our protective price of $63, we
are dropping coverage of this play.

BOL $50.02 -2.25 (-2.25) The bout of profit taking that emerged
Friday afternoon continued unabated through today's session,
and BOL has now given up more than 8% in the past 2 sessions.
Support at the ascending trendline ($52) gave way without a
struggle, as the stock plunged through our stop, and even the
200-dma at $50.21 couldn't halt the bears' assault.  The daily
Stochastics oscillator has gone into free fall, and in
combination with volume 70% above the ADV, BOL looks like it has
more room to fall.  With the technical violations along with our
stop falling victim to the bears, it is clearly time to move it
to the drop list.

DJ $60.70 -3.20 (-3.20) Our low volatility call play took a walk
on the wild side today, as news that the New York Times would be
cutting its profit outlook going forward rocked the media and
publishing group.  Today's drop of over 5 percent on almost twice
the average daily volume resulted in the stock closing not only
below its 5 and 10-dma (at $62.19 and $61.47 respectively), but
also our stop placed at $62.  With $62.25 now broken, the next
strong support lies just below at $60.  Look for an oversold
bounce off this level to exit on strength.


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

No dropped puts tonight


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

Buy If You Must But Set Your Stops
By Molly Evans

Anyone can pick a stock to buy and have reasonable success at
profiting from the stock's performance in a broad-based bull
market.  The Wall Street Journal and CNBC regularly profile
amateur investment clubs and even young students that have
done well to convincingly argue this assertion.  Look at all the
titles on book shelves in a bookstore's investing section.
There are all kinds of books telling you how to buy stocks.
Buying is what gets people pumped up.  They have all these hopes
and dare I say, expectations for the stock they are taken with.
Buying is fine as long as one will prudently manage the risk he
assumes when acquiring shares or options of stock.

It is obvious that the market is at a critical juncture here.
The Dow and the S&P 500 are on the brink of joining the Nasdaq
in a primary bear market.  The Nasdaq has seen critical mass lost
from its coffers.  However, in the face of downward momentum,
people keep asking if this or that is "a buy" yet.  Investors who
only peripherally watch the markets as they go off to their day
jobs are getting ancy to "buy something."  After all, if you're
supposed to "buy low" and "sell high", current price tags on the
hot names of yesterday seem like bargain basement prices to them.

I won't argue the point.  Actually, there are some encouraging
signs for an interim rally.  Selling pressure seems to be
abating and novices are getting anxious to throw their hard
earned money into the market so they can catch "the bottom" or
they can at least make the mistake of doubling down on a loser
they've held.  If CSCO looked good at $80 last year when they
bought it, it ought to look really good here at less than
$25.00/share.  Fine.  Get it.  However, it is imperative that
we smaller investors not take the hits when the next big
wave of distribution from bigger holders hits.  Money management
is the key to success for the small investor and trader.

When friends and family ask me what to buy, I say I don't know.
I don't really follow individual stocks anymore but they have
what they like in mind anyway.  They'll pick a technology name
no doubt since they watched with wild-eyed wonderment as the
sexies soared what seems like just yesterday to them. Fine.
Whatever.  Our job, as the more informed, is to advise them
how to prudently manage the trade if it goes against them.
They'll tell you they're in it for the long haul but nevertheless
you'll sleep better yourself knowing you advised well.

Once the purchase is made, objectivity goes out the window.
The buyer thinks the stock should just take off now that he's in.
But, as we know, the trade should be treated inanimately.  If the
stock doesn't do what is expected of it - whether it to go up
or in the case of shorting/puts - go down, it should be sold (or
bought to cover).  Everyone should have his or her own reasonable
stop loss point.  We can argue "how much" ad nauseum but in terms
of the price of a stock, a 15% loss is telling you something is
wrong.

In the case of some of the technology stocks, a 10 - 15%% swing
is nothing.  I'm looking at VRSN, AEOS, CHKP and PSFT right now.
They're all off 10% or more for just this day.  I would argue
that these are trading stocks.  They're not screaming buys and
they're not something I would recommend to my grandma to invest
in at this point.  She'd look at it tomorrow and see that she's
lost a quarter of her investment and have a heart attack.

Sometimes you'll have to go back to the notion of why you bought
the stock in the first place to evaluate how the stock has held
up to your expectations.  Did you buy in anticipation of good
earnings?  Did it fail to go up on those great earnings?  Did it
not go down as much as you thought it would with those dismal
earnings (if you had shorted or putted the stock)?

Market action will tell you much about your stock.  If the rest
of the market is rallying, is yours a laggard?  Laggards are
losers.  A pro doesn't sit there and say, "Well, I'm going to
watch it just one more day."  Often, the delay in the asking and
searching for "why?" is costing you money.  There's no point in
sitting there moping about a stock that fails to act according to
your expectations.  It's nothing personal.  Really.  So you're
wrong.  So what?  Everyone in this business is most of the time.
Get out of it and get to the next trade.  As Justin Mamis, author
of "When To Sell" wrote, "there's nothing like being distracted
by being proven wrong to cause you to miss the next chance to
be right."

Say "your friend" has done the right thing by setting a stop loss,
is taken out on a downdraft and then watches helplessly as the
stock rallies and does what he thought it was going to do in the
first place.  It's totally maddening.  The amateur is dejected
and scowls at how "they" stole it from him and are getting rich
while all he can do now is to watch helplessly.  Does a pro do
that you think?  Not a chance!  A pro sees the new tape action
for what it is - a new opportunity.  Tell your friend to buy it
back even higher than what he originally bought it for and see
if it doesn't have a happier conclusion this time.

A reversal indicates that sellers have been cleaned up and is
clear for takeoff to the next level.  However, know that there
are going to be sellers at every level for a long time to come
now.  There's a mountain of overhead.  There are millions of
people praying, "Please God.  Just let CSCO get back to $70 and
I'll never invest another dime again."  Yes, it's going to take
awhile to see new highs again.  But there are opportunities, as
always.

Whether it be you, your family or friends "investing," stop
loss orders should still be employed to protect against widening
losses in this ever-volatile market.  Maybe the bottom is in; I
highly doubt that but a stop will serve to allow you to have an
even better entry into your coveted stock when the market does
get closer to it.  If the stock moves up, great.  Move your stop
up.  A stop loss order should be placed just below the lowest
price of the stock's prior support.  Generally, such a "lower
low" can be considered THE price at which the market is telling
something has gone wrong.

As Mamis says, "The effective use of protective stop loss orders
requires a sensible purchase in the first place."  Don't chase
these stocks.  They're not going anywhere in a big hurry.  They
will come back to support levels.  If you're a shorter or a
putter, WAIT until they're overbought in the oscillators.  Look
at the volume.  Rallies on no volume.  Mmmmph!  My favorite.
Put those babies.  Take your profits and move on.  This is a
trading market and people are going to have to learn that profits
will be there one day and gone the next.  Trends will likely be
short and volatile.  Well-placed stops are the only way to protect
one's capital in this environment.  A professional's foremost goal
is to not be trapped in something with widening losses.  You do
the same.


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

NEWP - Newport Corporation $44.00 +1.63 (+1.63 this week)

The Newport Corporation is a global supplier of precision
components and automated assembly, measurement, and test
equipment for use in the fiber-optic communications,
semiconductor equipment, computer peripherals, and scientific
research markets.  The Company's high precision products enhance
productivity and capabilities of the Fortune 500 corporations,
government agencies, and the other technology clients it serves.
Optical components and devices for vibration and motion control
account for about two-thirds of the company's sales.

Most Recent Write-Up

As a manufacturer of machines used to produce Semiconductors and
Fiber Optic components, the fortunes of NEWP are intimately
connected to the goings on in the Chip and Networking sectors.
With book-to-bill ratios falling rapidly and news of plant
closings from many Semiconductor companies, along with earnings
warnings and lowered projected revenues by networking giants such
as Cisco and Nortel, it's no wonder that shareholders are
worried.  What's more, analysts have picked up on the bearish
sentiment.  ABD AMRO downgraded the stock from an Add to a Hold
rating.  Wit SoundView followed suit, dropping NEWP from a Strong
Buy to a Buy rating.  The company attempted to do some damage
control, by stating their intentions to grow sales 66 percent in
2001. This news was met by a skeptical market, as the stock has
continued its downward path.  High volume activity this week was
not surprising, as on Thursday NEWP was added to the S&P MidCap
400 Index (MID).  On Friday the stock experienced a bout of post
index addition blues.  This along with a weak NASDAQ resulted in
a drop of over 16 percent on over 1.6 times the ADV.  The break
below support at $45 is ominous indeed.  Look for this level to
act as an obstacle, with additional resistance from the 5-dma at
$48.64, providing aggressive entry points.  We are moving down
our stop from $55 to $49.  A break below Friday's low of $41.38
may be a signal for conservative players to play, using AMEX's
Networking Index (NWX) and Semiconductor Index (SOX) to gauge
Sentiment before doing so.

Comments

NEWP was buoyed by a friendly Nasdaq Monday, which may have
presented a favorable entry point into new put positions.  The
stock traded in an uncharacteristic tight range on extremely
light volume.  As such, if the sellers return Tuesday morning
watch for weakness in the Nasdaq and look to enter new puts
if NEWP breaks below current levels at $44.  A more conservative
trader might wait for downside momentum to increase and watch
for NEWP to take out its intraday low from Monday at $42.69.
Make sure to confirm weakness in the Nasdaq and optical sector
before entering new put positions in NEWP!

***March contracts expire in two weeks***

BUY PUT MAR-45*NZZ-OI OI=148 at $5.88 SL=4.00
BUY PUT MAR-40 NZZ-OH OI=296 at $3.38 SL=1.75

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


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