Option Investor

Daily Newsletter, Monday, 05/07/2001

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The Option Investor Newsletter                   Monday 05-07-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        05-07-2001        High      Low     Volume Advance/Decline
DJIA    10935.20 - 16.00 10995.30 10893.60 0.93 bln   1458/1592 
NASDAQ   2173.55 - 17.98  2215.37  2166.51 1.75 bln   1823/2041
S&P 100   657.46 -  1.28   661.13   654.64   totals   3281/3633
S&P 500  1263.51 -  3.10  1270.00  1259.19           47.4%/52.6%
RUS 2000  489.64 -  3.25   494.59   489.46
DJ TRANS 2850.64 - 18.55  2869.72  2848.36
VIX        28.11 +  0.39    28.87    27.67
Put/Call Ratio      0.56

Stuck In A Moment

"And [we] can't get out of it," said my favorite rock-and-roll
band, U2.  I think the Irish lads' lyrics pretty well sum up
the action in the broader markets Monday.  The major market
averages were stuck in a trading range for the better part of
the session as the battle between the underlying fundamentals
and technical levels paused.

Volume on both the NYSE and the Nasdaq was light, very light.
Roughly 930 million shares traded on the NYSE and a mere 1.7
billion shares exchanged on the Nasdaq.  Moreover, the intraday
ranges of the Dow Jones Industrial Average (INDU) and the
Nasdaq Composite (COMPX) were tight, very tight.  The COMPX
reached an intraday peak of 2215, but fell only as low as 2170 -
a 45 point range!  The INDU traded in a 100 point range, which
was a far cry from the 300 point swings we've been witnessing
recently.  Obviously, the light volume and tight trading ranges
are very indicative of indecision on the part of market
participants and a reluctance to commit.

Now, there are two takeaways from the recent consolidation.
The first is that the major market averages, as measured by
the INDU, COMPX and S&P 500 (SPX), are merely biding time at
current levels before the next leg higher.  And the longer
the averages base, the stronger the ensuing rally once the
catalyst is presented.  The second, and less friendly takeaway,
is that the averages are growing top-heavy and ready to rollover,
as key resistance levels lie just above each of the three

Along with the BIG resistance levels I'll address below, the
market is waiting for additional confirmation on the economic
and corporate profit fronts.  The fast-approaching May 15th
FOMC meeting is obviously of concern to the market, and
participants are still debating whether or not the Fed will cut
by another 50 basis points or only 25.  Two key economic
releases later this week are likely to impact the Fed's
decision, and may strengthen the case for another 50 basis
point cut following the terrible jobs report last Friday.  The
Labor Department is scheduled to release weekly jobless claims
Thursday morning, with estimates calling for a number north of
400,000.  In addition, retail sales for April are slated for
release Friday morning.  Consensus estimates call for a mere 0.2
percent rise, dampened by a slump in auto sales.  The April
producer price index (PPI) will be released Friday morning in
conjunction with retail sales, but should prove to be more of
a non-event.  What we'll want to focus on are the jobless
claims and sales numbers and, should they come in worse-than-
expected, the Fed would be more inclined to cut by 50 basis

On the corporate profit front, all tech eyes will turn to
the Cisco Systems (NASDAQ:CSCO) earnings report Tuesday
evening.  Following the networking giant's earnings warning
in early April, consensus estimates were drastically slashed
and currently call for the firm to earn 2 cents per share.
For the first time I can recall, Wall Street is somewhat
confused over Cisco's quarter.  The high-end of estimates are
calling for the firm to earn 4 cents per share, while the low-
end has Cisco pegged to breakeven.  In short, there is room
for Cisco to surprise in either direction.  Along with the actual
number reported, we'll want to listen closely to the guidance.
Shares of Cisco have rallied from the $13 level up to $20 in
the space of a month.  And I know that there was a bullish note
put out last week from a Morgan Stanley analyst, but I think a
lot of Cisco's recent advance was predicated upon an improvement
in the networking business.  So, we'll want to hear from Chambers
& Co. that the telecom business has, indeed, improved or else the
stock is at risk for a pullback, which will carry the COMPX lower.
However, the bullish analyst note last week and its bullish
reception by the market tells me that participants are just
waiting to jump all over Cisco and take it along with the
COPMX higher.

But if the COMPX is going to move substantially higher, it will
need to clear some pretty heavy congestion just above current
levels.  On the chart below, you'll note the retracement
bracket I've placed over the COMPX's move from its relative
high in January at 2892 down to its relative low in early April
near 1619.  The 50% retracement of that move lies at the 2250
level, and shortly thereafter lies 2300.  If the COMPX can
clear this 50 point range of resistance, I honestly believe it
will work its way up to 2600 or 2700.  The only question is
whether or not the COMPX clears that range on its current push
higher (It could do it with help from Cisco).  If it doesn't, a
rollover at current levels and subsequent break below 2100 will
set up some good shorts.  In the meantime, I think the most
prudent strategy is to wait for a break in either direction and
trade accordingly.

For the SPX, I've also laid a retracement bracket over its recent
downside forecast, and readers will note a very interesting
development similar to that on the COMPX chart.  Like the COMPX,
the SPX is also running into resistance at the key 61.8%
retracement.  However, readers will also notice that the SPX
has formed an inverse head-and-shoulders (HNS), which is
suggesting it wants to work higher, much higher!  Interestingly,
the shoulders of the SPX H&S are reinforced by the 50%
retracement...very interesting.  Here again, like the COMPX, I
think the most prudent approach is to wait for a break either
above or below key levels and trade accordingly in the SPX names.
I'd put resistance at roughly 1265 - 1280 range and support
around 1230.

As far as the INDU is concerned, we're ALL obviously watching
the 11,000 level and waiting, and waiting for the breakout.
The thought of another 50 basis point cut by Greenspan,
reinforced by this week's economic data, might be the catalyst
that finally pushes the INDU over 11,000.  But like the COMPX
and SPX, if the INDU fails to advance above 11,000, it's
likely to rollover, where a breakdown below support might offer
traders profits from the short side.  Of course, I'm sure that
many market participants are shorting the INDU names at
current levels, betting that the blue chip index doesn't make
it above the elusive 11,000 on this push.

The thought I'd like to reinforce, and the reason for my U2
inspired title, is that the markets are stuck in a trading range
and it's awful difficult to find conviction, or an edge for
that matter, in the current tape.  I think the best bet is to
wait for a catalyst to emerge, either bearish or bullish, monitor
the technical levels and trade accordingly.  As much as I want
to be overly bullish, I don't think the major indices will push
through the above discussed resistance levels on this leg higher.
We recently witnessed a parabolic move higher, especially in the
COMPX, and those types of moves are not necessarily conducive to
the extension of a rally.  Instead, what we need is an extended
basing period, where the shorts are slowly suckered in and the
weak longs are weeded out.  Having said that, the longer the
major market averages hold at current levels, and don't break
down, the more bullish I will grow.

On a final note, Dell Computer (NASDAQ:DELL) said late Monday
evening that it would meet its first-quarter estimates, which are
set for release on May 17th.  While the box maker said it would
cut 3,000 to 4,000 jobs, it also reported that its operating
margin will be higher-than-expected.  But, company officials
also said, "[Dell] remains cautious about the outlook for the
balance of the year."  The Dell comments, while still cautious,
suggest that business conditions are beginning to stabilize.
What we need to hear now is that demand is picking up, and
maybe Cisco will bring that news Tuesday evening.

Eric Utley
Assistant Editor


CAT - Caterpillar Inc $51.51 +0.96 (+0.96 this week)

Caterpillar is a Fortune 50 industrial company and the world's
leading manufacturer of construction and mining equipment, diesel
and natural gas engines, and industrial gas turbines.
Caterpillar also offers innovative financing options through its
Financial Products Division.  Caterpillar is dedicated to both
sustaining and improving the quality of life.  The company is
guided by its Code of Worldwide Business Conduct in meeting or
exceeding local environmental regulations, developing solutions
to customers' environmental challenges, in advocating free trade
and in taking the lead in the business community on important

Fundamentally favorable conditions have led to technical strength
in CAT, and with that, the stock has been on a steady advance.
While still off from its all-time high, sitting just above the
mid-60's level, the prospect of an improving economic environment
and continued rate cuts from the Fed may spur demand for the
company's products, leading to higher than expected earnings
growth.  If this is the case, then the favorable Fed action could
benefit deep cyclical stocks for some time to come, possibly
giving this play a longer and more profitable holding period.
Positive analyst coverage has also been helping CAT to climb ever
higher.  Last week, the stock was upgraded by Dresdner Bank, from
an Add to a Buy rating, following upgrades from Legg Mason (from
a Buy to a Strong Buy) and Morgan Stanley Dean Witter (from
Neutral to an Outperform).  Over the past six months, the stock
traded in a range between support at $40 and resistance at $50.
With this technically and psychologically important level now
surpassed, a short to intermediate upside target of at least $60
is reasonable indeed, though CAT may encounter some historical
resistance at $55.  At this point, we would ideally recommend
entering on a pullback.  Horizontal support is strong at $50 and
our closing stop price of $49.  Bounces off 5-dma, near $49.50,
may also provide traders with a potential target to shoot for.
Those looking to enter on strength may wait for the buyers to
return, taking CAT above today's intra-day high of $51.51, before
jumping in.  In making a play, keep an eye on competitors DE and
DOV, as well as the movement in the NYSE.

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

BUY CALL MAY-45 CAT-EI OI=3892 at $6.70 SL=4.50
BUY CALL MAY-50*CAT-EJ OI=4678 at $2.40 SL=1.25
BUY CALL JUN-50 CAT-FJ OI= 513 at $3.60 SL=1.75
BUY CALL JUN-55 CAT-FK OI=1804 at $1.40 SL=0.75
BUY CALL AUG-50 CAT-HJ OI=2781 at $5.00 SL=3.00
BUY CALL AUG-55 CAT-HK OI=1557 at $2.80 SL=1.50


YHOO - Yahoo! Inc. $19.98 -0.15 (-0.15 this week)

Yahoo! Inc. is a global internet Internet communications,
commerce and media company that offers a comprehensive branded
network of services.  The company's principal offering is an
online navigational guide to the web.  The company also provides
online business and enterprise services designed to enhance the
productivity and Web presence of Yahoo!'s clients.  Yahoo! has
offices in Europe, Asia Pacific, Latin America, Canada, and the
United States.  Under the Yahoo! brand the company provides
broadcast media, communications, business, enterprise and
commerce services.

Fans of internet stocks may have started to notice that the
overall sector has started to show real technical strength lately
after nearly a year of being bashed, and blamed for the woes
of the Nasdaq.  INX.X made a clean break above its 50 dma of
169.57 on April 18, the day of the Fed's surprise rate cut.
The index has added to its gains since then, and has remained
above the 200 level since the beginning of May.  If investors
decide to go shopping for internet stocks again, few are as
well positioned as YHOO from both a fundamental and technical
standpoint.  As the leading search engine for the web, YHOO
offers brand name recognition as well as strong online ratings.
In addition, YHOO's chart indicates that the upside potential
may be greater than the downside risk in the near term,
provided that the market conditions stay favorable, and the
sector remains strong.  It was quite a fall from YHOO's 52-week
high last June of over $150 to its 52-week low of $11.38 on
April 3.  However, YHOO's daily chart shows a nice, smooth
rounded bottom forming since January, with a move above YHOO's
50 dma of $17.75 on April 26.  YHOO failed to move above
resistance at $23.70 last week, but the pullback exhibited by
the stock since then is consistent with the pattern of higher
lows formed since the beginning of April.  Optimistic comments
made by Chairman Tim Koogle at the company's annual meeting on
April 27 have helped restore investor confidence, as Koogle
stated that he feels YHOO stands to gain from online advertising
in coming years, and that the shake out in the internet stocks has
left the company with fewer competitors.  This week may be a
volatile one for tech stocks, with Cisco's earnings due on
Tuesday, as well as an upcoming Fed meeting, so pick entry
and exit points carefully.  A move over the 10 dma of $20 could
be a good entry point, if INX.X and others like AOL and EBAY
are strong.  Traders with stronger nerves could wait for a
pullback to $19.  We are setting closing stops at $17.50, so
be prepared to exit if YHOO closes below this level.

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

BUY CALL MAY-15   YHZ-EC OI= 3943 at $5.30 SL=3.25
BUY CALL MAY-17.5*YHZ-EW OI= 9489 at $3.00 SL=1.50
BUY CALL MAY-20   YHZ-ED OI=11182 at $1.40 SL=0.75
BUY CALL JUN 17.5 YHZ-FW OI=  187 at $4.00 SL=2.50
BUY CALL JUN-20   YHZ-FD OI=  548 at $2.60 SL=1.25



HGSI - Human Genome Sciences $59.45 -2.32 (-2.32 this week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

Despite breaking above its 6-month descending trendline last
week, the Biotechnology index (BTK.X) is about to be engaged in
a major battle.  Twice in as many weeks, the BTK has topped out
at $580, the site of major resistance.  Although the price
highs exceeded those of mid-April, the oscillator highs were
significantly lower, setting the stage for some sector-wide
bearish divergence.  That just sets the stage for our new play
on HGSI, which brings its own list of problems to the party.
First off, the stock topped out just below the 200-dma
(currently $66.70) last Wednesday, the final stages of bearish
stochastics divergence are being put in place, and all the
oscillators are firmly pointed at the basement.  After a
lethargic rally attempt this morning, HGSI fell back from the
$64 resistance level, consistently losing ground throughout the
day.  While aggressive traders can target shoot new positions
on another failed rally near $64 (also the location of our
stop), more conservative players will want to wait for
intensified selling action to push HGSI below the $58 support
level before taking a position.  So what have we got?  The
NASDAQ is having a hard time maintaining ground because it has
run too far, too fast.  The Biotechs are under-performing the
NASDAQ and the BTK has several strikes against it.  And finally,
we have a stock within the weak sector, which can't seem to keep
its head above water.  Sounds like the recipe for a successful
put play, don't you think?

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

BUY PUT MAY-60*HHA-QL OI=750 at $4.70 SL=2.75
BUY PUT MAY-55 HHA-QK OI=720 at $2.50 SL=1.25
BUY PUT JUN-60 HHA-RL OI=184 at $8.00 SL=5.75
BUY PUT JUN-55 HHA-RK OI= 94 at $5.60 SL=3.50
BUY PUT JUN-50 HHA-RJ OI= 29 at $3.70 SL=2.25



STOR - call play
Adjust from $13.50 up to $14

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

GMST - put  play
Adjust from $42 down to $41

JNPR - put  play
Adjust from $64 down to $62

NVLS - put  play
Adjust from $53 down to $52

PMCS - put  play
Adjust from $44 down to $43


BRCD $44.02 -3.63 (-3.63) The bulls were stymied at every
attempt to push stocks higher on Monday, and BRCD fell victim to
the consistent profit taking, closing below the critical $45
level.  We saw some nice gains on the play last week as the
stock continued to run higher, but it looks like it is time to
let this one go. Nervousness about the economy and what the Fed
will do next week pushed BRCD to close below both intraday
support and our stop at $45.  After taking a chunk of the
gains provided from the recent run, we are perfectly happy to
remove BRCD from our playlist tonight and go in search of the
next winner.

SEBL $44.10 -3.80 (-3.80) As frustrating as it is to admit, it
appears we arrived too late for the recent run on SEBL.  The
combination of the magnitude of the recent rise in price, along
with concerns about the economy has served to keep the
Technology sector from seeing significant gains in recent days.
Correspondingly, our play has been stuck in a narrow range for
the past few days, confined at the upper end by $49 resistance.
SEBL finally broke out of the range today, but unfortunately it
broke down through our stop $46 and never recovered.


TBL $50.50 +1.83 TBL did offer put players some opportunity
for gains last week, with a dip to a low of $47.10 on Wednesday.
However, after months of failed rallies from spiky lower
highs, it appears that TBL is making a serious attempt at a
real rally, as today's close positions the stock just above the
long term downward trend line.  While this may very well turn
out to be another trap for the bulls, TBL has closed above our
stop level of $50, and, as such, we are dropping it tonight.


Dow Theory Applied - Part III of III
By Molly Evans

For the past two weeks, Dow Theory has been explored and described.
Recall that Charles Dow lived from 1851-1902 and was a journalist
through most of his adult life.  While covering an assignment in
1879 for The Providence Journal on the mining boom in Leadville,
Colorado, Dow met prominent men of the financial community.  Dow
realized that financial journalism could be of significant utility.
From that point forward, Dow began to concentrate his efforts on
the financial aspects of the mining industry.

Dow met the man who would become his business partner, Edward D.
Jones, in 1880 in New York when he began writing for the Kiernan
News Agency.  Just two years later, Dow and Jones left Kiernan and
developed their own news service, Dow Jones & Company.  In 1883,
Dow Jones & Company began to print a daily news sheet, a precursor
to what would come to be known as The Wall Street Journal.  The
Journal itself would not come to be until July 8, 1889 with Dow
as the editor and Jones taking care of the business details.  It
was in Dow's editorials that historians have had a field day in
bringing about Dow Theory.  Dow himself never considered his
commentary to be a philosophy or science.  He merely reflected
his observations while others decided that it was a valid theorem.

As so many have subsequently interpreted Dow's compositions, Dow
Theory has been subject to various translations.  It's great to
read about and ponder all of this but to be of any utility to
ourselves, wouldn't it be interesting to hear Dow's commentary
on today's market?  Sadly, that is not possible.  However,
we can apply the basic concepts that he observed more than one-
hundred years ago to see if there aren't some correlations and
interesting observations to be made about the market we find
ourselves faced with today.

I'll enumerate each concept, offer a basic description and
then will add my own interpretation of how today's market
manifests these tenets.

1) Everything known about the stock and the averages is reflected
in its price.

Dow Theory specifies that the closing prices are the only ones
that should be considered.  The closing price is that which
informed investors are willing to carry positions overnight.

The large active stocks typically move in step with the averages
but individual issues may deviate from the broader market
because of individual circumstances.

2) The market has three trends in play at any one time.

The primary is the secular trend, the secondary is the
intermediate or counter trend and the tertiary is the
day-to-day movement.

This is the one that may or may not be at a crossroads.  The
question is: has our long term bull market ended?  For the
Nasdaq, yes.  However, the world looks to the U.S. Dow as
the "U.S. Market."  The Dow has been in a secular up trend
since 1982.  In that time span and up until the present day,
the Dow has increased nearly 1290%.

The Dow continued to make higher highs until January 14, 2000
when it topped at 11,750.   Since that time, the Dow has twisted
about its 200 dma and has recently begun to make lower lows only
to quickly snap back to and around the 200 dma.  One could
apply other modern day technical analyses of the pattern
being traced by Dow price action as a bull flag on a weekly

It is perplexing that there are definite differences of opinion
concerning whether the Dow is in an uptrend or downtrend.  For
the past two years, there has seemingly been no trend other than
the intermediate trends that cause it to shift about that 200 dma.

In terms of the intermediate trend, some would say that the Dow
is presently experiencing a contrary upside rally in what has
otherwise become a secular bear market.  The Dow did enter the
area that is a widely accepted and precise definition of a bear
market - that of a 20% decline from the high.  However, according
to my interpretation of Dow Theory, the Dow is indeed in a bear
market as it has failed for over a year now to make a higher

Furthermore, Graham and Dodd's Security Analysis credit Dow for
the recognition of accumulation and distribution, stating that
Dow believed, "when movements of several weeks or longer are
confined . . . to a ranger of 5 per cent, a 'line' is said to
have been formed suggesting either accumulation or distribution."

If we look at the Dow for the past year, price has remained in
a zone of 10,300 on the downside to 11,000 on the upside.  This
represents just over six percent, which is close enough to Dow's
suggestion of five percent for me.  The question is:  are shares
being accumulated or distributed?  Dow's answer to that would be
to note whether both the transports and the industrials broke out
to the upside or to the downside of the "line."  If one average
crosses the line while the other does not, the move is said to be

3) The primary trends have three phases.

For a bull market this would be accumulation, increasing activity
and then speculative frenzy.

A bear market's phases are manifest by distribution, acceleration
to the downside and finally, further weakening, erosion and
nothing but bad news.

We've seen a speculative frenzy in the Nasdaq through 1999 and
early 2000.  The result was that of distribution, acceleration
then relentless erosion and now questionably, accumulation.
The Nasdaq has just illustrated beautifully for us all the phases
of a trend.  The question in the back of everyone's mind however
is: Is there a new secular trend or is this higher pricing action
just a counter secondary trend?  That answer will come in time
with either higher highs or lower lows.

For the Dow we must await a breakout to higher highs or lower
lows as well.  The Dow acted as though it would topple decisively
just six weeks ago.  Yet, buyers bought the dip with a fever at
that time, taking the Dow back toward the highs of its six percent
weekly range.

4) The Dow industrials and the Dow transports must confirm each

The logic of this is that the industrials and the transports are
independent of each other yet dependent upon each other as well.
For the industrials to get their product to market, they must use
the transports.  When one of the averages is doing well, the
other should be doing well too.

This is where Dow Theory starts to get more interesting.  If the
transports should confirm the industrials, is anyone paying
attention to what the transport index has been doing?

Like the industrials, the transport average is stuck twisting
around its 200 dma since at least April of last year.  When the
Dow plunged to 9100, a new lower low, the transports did not
confirm by making a lower low as well.  To the contrary, the
transports made a higher low. Furthermore, the transports range
is a much more volatile 15% - 17% for the past year.

I shall conclude that the transports and industrials have made
inconclusive moves respective of each other.  It should be noted
that the transports and the industrials dependence on one another
has lessened.  The industrial average now includes many companies
whose goods and services need not be transported and several of
the transport companies are in fact commercial services
themselves and not contributors to production for the industrials.
Nevertheless, Dow had a brilliant observation for his time and
he was in fact, the one to develop the averages.

One could make the argument that in today's market, the Dow
utilities average would be the better choice for comparison and
confirmation.  Were we to inject the utilities in for the
transports, we would see that the utilities failed to make
any kind of lows with the coincident industrials plunge.  In
fact, the utilities are near their highs and the 200 dma is
up sloping.  Yet, the weekly stochastics show bearish
divergence and lack of momentum behind the move of the last
six weeks.  One wonders whether Dow would have thought the
utilities to be of importance in confirming an industrials
movement as so much of the industrial companies warning have
pointed to higher energy costs having been such a dramatic
factor on their bottom lines.

5) Volume should confirm a trend.

An overbought market becomes dull on rallies and active on
declines.  An oversold market will become dull on declines and
active on rallies.  Large volume is present at the end of a bull
market and light volume characterizes the end of a bear market.

If this is true, then in my opinion, it bodes ill for the Dow.
Go back to the first chart of the monthly Dow trend.  It's taking
all that volume to just sustain it at 11,000 and hasn't been able
to push it on through to higher highs.

That being said, I have to conclude that it bodes ill for the
Nasdaq as well if in fact, volume should decline at the end
of a bear market.  The volume on the Nasdaq has been as strong
as it ever was.

6) A trend remains intact until a definite reversal signal is

An uptrend is signified by higher highs and higher lows and a down
trend is characterized by lower lows and lower highs.  To break
this uptrend, prices must have at least one lower high and one
lower low.  Obviously, the reverse is true to break the downtrend.
When a reversal in the secular trend is signaled by both the
industrials and the transports, the odds of the new trend
continuing is at its greatest.

And herein lies our ultimate frustration.  The Dow is teasing
with aspirations to go higher but seems to get a few hundred
points over the 200 dma only to be knocked down again.  The
transport's action has been inconclusive in confirming any
movements by the Dow even if that average's utility as a
confirming factor is in question.

Parting Thoughts

Charles Dow often wrote about valuations, "It is always safer to
assume that values determine prices in the long run.  Values have
nothing to do with current fluctuations.  A worthless stock can
go up 5 points just as easily as the best, but as a result of
continuous fluctuations the good stock will gradually work up to
its investment value."

In 1941, according to Richard Russell of The Dow Theory Letters,
George Shaefer, another Dow disciple wrote, "The philosophy of
Charles Dow always gave first consideration to values, then to
economic conditions and third to the action of both the industrial
and rail averages.  When the low point of a bear market is
reached, values will be the first indication of a change in

The current PE of the DJIA is 23; for the S&P 500 it is 24.  The
current dividend yield is 1.25%.  These are valuations over that
which have marked the top of every prior bull market.  Again,
as Richard Russell notes, "history has shown that when PE ratios
are as high as 22, the expected median return over the coming
ten years is five percent.  What does median mean?  It means that
there may be mini-bull and mini-bear markets over the coming ten
years, but when these are all averaged out, the median will be
below five percent."

I hope you have enjoyed and learned from this series.



JNPR - Juniper Networks $57.08 -4.05 (-4.05 this week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  The routers provided
by the company combine the features of the JUNOS Internet
Software, high performance ASIC-based packet forwarding
technology and Internet-optimized architecture into a
purpose-built solution for service providers.

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This is clearly an aggressive play, and we may be tilting at
windmills here (read: fighting the Fed), but the Networking
index (NWX.X) is showing definite signs of weakness.  While the
NWX managed to move to new recent highs last week, these new
highs were not confirmed by a comparable rise in the daily
Stochastics oscillator before price action began to weaken.
Take a look at the chart, and you can see the bearish divergence
setting up.  Sure enough, JNPR is running into formidable
resistance near $68, and despite its recovery off the lows on
Friday, looks vulnerable to more selling next week.  The rebound
off the lows brought JNPR right up to the $64 resistance level
(also the location or our stop), providing a nice entry for
aggressive traders before the stock rolled over, ending the day
just above the $61 support level.  As the stock sold off into
the close, selling volume was on the rise, indicating we could
see more weakness in the week ahead.  Should sellers start to
exert their influence on the NASDAQ ahead of the FOMC meeting on
May 15th, it is entirely possible that JNPR could test the $50
support level.  The pivotal event for next week will likely be
the CSCO earnings report, set to be released Tuesday after the
closing bell.  As a bellwether for the Networking sector,
investors will likely be focused on the outlook more than the
actual numbers.  If visibility is still absent, look for JNPR
and other leading Networking stocks to feel the pain of the
bears' assault.  Aggressive entries can still be considered on
an intraday bounce near the $64 level (our stop), while those
looking for a more conservative entry will want to wait until
JNPR falls below the $60 level before taking a position.


Despite the relatively tepid trading in the broader Nasdaq,
JNPR shed $4 during Monday's session.  Part of the weakness
may stem from the upcoming Cisco Systems earnings report.
There have been rumors that Cisco is capturing market share
from Juniper in a big way, which may come to realization
Tuesday evening.  We're looking for the nervousness to
continue in shares of JNPR early Tuesday.  Traders can take
new positions at current levels or on a break below $57.
Target the $54 level on the downside, and those looking to
minimize risk might close positions before Cisco's earnings
report after the bell Tuesday evening.

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

BUY PUT MAY-60*JUX-QL OI=13882 at $6.60 SL=4.50
BUY PUT MAY-55 JUX-QK OI= 6111 at $4.20 SL=2.75



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