Option Investor

Daily Newsletter, Thursday, 05/31/2001

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The Option Investor Newsletter                  Thursday 05-31-2001
Copyright 2001, All rights reserved.                         1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        05-31-2001        High      Low     Volume Advance/Decline
DJIA    10911.94 + 39.30 10978.96 10865.94 1.15 bln   1829/1232	
NASDAQ   2110.49 + 25.99  2140.07  2092.48 1.79 bln   2253/1587
S&P 100   646.23 +  3.27   650.13   642.01   totals   4082/2819
S&P 500  1255.82 +  7.74  1261.91  1248.07          59.1%/40.9%
RUS 2000  496.50 +  2.54   493.96   500.79
DJ TRANS 2945.90 + 44.29  2947.16  2901.65
VIX        25.96 +  0.17    26.74    25.09
Put/Call Ratio      0.71

Earnings Warning Season Already?

Just another fun summer trading day. Volume on the NYSE was barely
decent at 1.1 billion and the Nasdaq managed only 1.8 billion but
the sentiment was positive. There was no big name tech stocks
claiming the world was coming to an end and traders bought the
Wednesday dip. Shorts began covering again after reaping big
profits from the three day drop. The Dow has seen three of
these accelerated oversold bounces since the sell off began on
May 23rd.

Was it the absence of bad news that powered the markets today?
Maybe, but there is surely more just around the corner. Oracle
lead the rumor board today with analysts expecting a warning on
Friday or Monday. The rumor is a 10% drop in revenue and if that
comes to pass, most feel it is already priced into the stock. This
may not be bad news and Larry Ellison would rather hug Bill Gates
than say something negative about his company or business outlook.
This means any warning should be wrapped in as positive a package
as possible.

Novellus was one of the positive stories of the day when they
held their analyst conference call after the close. They affirmed
their current guidance for this quarter but said they were still
experiencing cancellations and delays in orders. They said all
geographic regions remained weak. The CEO said they were at a
loss as to what is going on in the economy. He also warned that
the expected upturn in the 3Q was not yet in sight. He maintained
their revenue targets for the full year but warned that orders
and consumer demand must increase or he would be forced to drop
that number. Sounds like wishful thinking on his part.

Nextel also reaffirmed their revenue target of $7 billion on
Thursday. They said their recent changes to manage the drop in
orders was gaining traction and allowed them to minimize problems.
They are the largest independent U.S. wireless company and they
expect to add two million new subscribers this year.

So much for the good news. Altera warned today that sales would
fall further than previously expected. This was the second
consecutive warning as they wade through one of the worst chip
slumps in history. The most important warning was the mention
of a "sharper than expected decline in the international channels."
Another Europe and Asia recession warning similar to the SUNW
warning on Tuesday. After previously lowering estimates, ALTR
refused to give a specific per share estimate for the current
quarter. Does not sound good.

Another chip company, IDTI, also warned after the bell that
revenues would drop around -44% from the prior quarter. They
said sales were down -24% in the same period. They still see
a slowing of end-market demand which began in 2000. No new
news but just another strike against the chip sector.

Software companies were hogging the news today led by Microsoft
which is releasing the Windows-XP product soon as well as a
new Office-XP Suite of programs. currently there are over 250
million Office users. This is a significant cash cow for MSFT
and coupled with the Windows-XP product will give Microsoft a
significant shot in the wallet. Office accounts for over $8
billion a year in MSFT income. Siebel Systems was also in the
news with new coverage initiated by Asset Partners with a buy
rating up to $64 a share. He felt SEBL should remain at the top
of the software sector and be a stronger grower than the rest of
the crowd.

The market internals were good with advances beating decliners
on the NYSE and the Nasdaq. The up volume on the NYSE was 2:1
over the down volume. John Hancock Advisors said that "depending
on whose estimates you believe there is between $2 and $4 trillion
in cash on the sidelines. With interest rates sure to go down
again institutional investors feel like it is time to be moving
into the more aggressive areas of the stock market." If this
was the case today then why did the Dow lose over half of its
intraday gains? The Nasdaq followed suit as well giving back
30 of its 55 point intraday gain. The answer could be short
covering in front of tomorrows Employment report. With the
Jobless Claims inching up again to 419,000 on Thursday, there
is a good chance the Employment Report could show a worsening
economy. It could also show an improving economy and the shorts
did not want to get caught in another blowout open.

If the report is benign the pressure could come back into the
market in anticipation of the summer doldrums. Our fate Friday
will hinge on that report. Jobs are expected to fall another
-30,000 and unemployment rise to 4.6%. In April payrolls fell
-223,000 which was the biggest drop in seven years and another
unexpected drop of that magnitude would be disastrous. Another
negative report of any kind should force the Fed to cut rates
again. With a bleak earnings season approaching the hope of yet
another rate cut may be all investors have left to cling to.

The Nasdaq broke a three day slide but the sell off in the
afternoon shows traders were not willing to hold profits over
night. That points to just an oversold bounce and possibly a
volatile Friday. The VIX has been climbing steadily since last
week and is back in the 26 range. Put buying is increasing
which indicates investor caution is increasing. Whether that
caution is warranted remains to be seen and only time will
tell us where the bottom actually occurred. We are significantly
under resistance on the Nasdaq at 2200-2250 so that should not
be a problem on Friday. Support is at 2050 which gives us a
-60 point risk to the Nasdaq. After the Employment Report on
Friday the economic schedule for next week is sparse with
nothing of any major significance. If the report proves positive
and the markets do not rally then there is real trouble under
the hood. We need to be patient and wait for clear upward
direction to appear before going long. Remember, patience
produces profit.

Seminar problem: The registration process for Austin Passamonte's
Optimizing Your Day Trading Skills seminar on Sunday was broken.

Readers who registered for this seminar are not really registered.

If you want to attend this great presentation and talk directly
to Austin Passamonte then you MUST REGISTER AGAIN. I apologize
for the inconvenience but accidents do happen. All the other seminar
registrations were processed correctly. You only need to re-register
for the two hour Optimize Your Day Trading Skills course. Here is
the correct link:


Enter passively, exit aggressively!

Jim Brown

Optimizing Your Day Trading Skills
Online Interactive Seminar This Sunday

Austin Passamonte, Editor of IndexSkybox.com will present
a two hour interactive online seminar on Sunday June-3rd.
He will discuss getting into high-odds trades at the right
time, getting out of successful AND unsuccessful trades.
Also exit points for long term survival and success. He will
teach how to learn without burning in the process, market
timing, stock/index selection, indicators, account management
and the tools needed to do it right.

Click here for more information:


June Online Seminar Calendar

You can take the following seminars without leaving the
comfort of your home or office. They are interactive and
allow you to question the presenter during the presentation.

You do not need any special software to take the seminar but
you must have a 56K Internet connection or faster for best
results and a separate phone for the audio portion.

If you are interested in these seminars please click here
for more information.


Sun Jun-3  Optimize Your Daytrading Skills - Austin Passamonte
Wed Jun-6  Introduction to Technical Analysis - Derek Baltimore
Thr Jun-7  Using Volatility to Pick Stocks - John Seckinger
Sun Jun-10 Advanced Chart Reading & Retracements - Eric Utley
Sun Jun-10 Basic Technical Analysis - Austin Passamonte
Mon Jun-11 Psychology of Trading as a Business - Matt Russ
Tue Jun-12 Starting with Point & Figure Charts - Jeff Bailey
Wed Jun-13 Ask the Analyst - Eric Utley
Wed Jun-13 Basic Option Strategies - Jim Brown
Thr Jun-14 Using Volatility to Pick Stocks - John Seckinger
Thr Jun-14 Basic Candlesticks - Jon Farnlof
Sun Jun-17 7 Steps to Play Picking - Matt Russ/Eric Utley
Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins
Tue Jun-19 Understanding Option Volatility - Matt Russ
Tue Jun-19 Profiting From Failed Technical Patterns - John Seckinger
Wed Jun-20 Chart Patterns, Flags, Pennants, Wedges - Derek Baltimore
Wed Jun-20 Entry Point, Exit Point - Jim Brown
Thr Jun-21 Day-Trading for People WIth Day Jobs - Jon Farnlof
Sun Jun-24 Determining Support and Resistance - Derek Baltimore
Sun Jun-24 Ask The Analyst - Eric Utley
Mon Jun-25 Using Retracement Levels - Matt Russ
Tue Jun-26 Assessing Risk with Point & Figure - Jeff Bailey
Tue Jun-26 Charting, Stage Analysis - Mark Wnetrzak, Ray Cummins
Wed Jun-27 Big Cap Strategies - Jim Brown
Wed Jun-27 Conservative CC/NP - Mark Wnetrzak, Ray Cummins

Click here for a detailed explanation of each:


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A Surprise On The Unemployment Front?
By Matt Russ

The major market indices sold off into the close today ahead of
tomorrow's Unemployment Report.  Traders have been anticipating
this number for a couple weeks now.  Will we get a surprise,
higher-than-expected uptick in the Unemployment number?  After
today's late-session squaring of positions, the report will be
market-moving.  The market expects 4.6%.

After Wednesday's SUNW-influenced collapse, the Nasdaq recouped
some of its losses today, despite the late-session sell off
from 2140.  This is the same level at which sellers entered the
market on Wednesday after the gap down and will continue to be
the next resistance area.  Support currently lies at 2100 and
more solidly at 2077, the point at which higher volume buying
took place on Wednesday.  This support coincides with the $44.10
area on the QQQs, with resistance at $46.

Just as I suspected, the SPX went for its bearish objective
of the head-and-shoulders mentioned on Sunday.  It hit that
target of 1247 on Wednesday, trading as low as 1245.  The SPX
has advanced rather nicely since that low, until it encountered
resistance at 1262.  This will be a challenge going forward, as
well as 1265, which was previous support prior to gapping lower
on the SUNW news.  On the OEX.X, 642 was tested both today and
Wednesday, holding strong as support.  I would like to see
645 hold as support with the OEX settling at 646.  This is
dependent on the Unemployment report tomorrow.  The 650 level
continues to be resistance and the point from which the index
sold off into the close.

DOW 30
Previous support from Tuesday at 10970 was a flash in the pan
Wednesday and threw up a big bear signal as the Dow slid lower.
This breakdown gave short players a chance to ride the INDU for
about 100 points.  Support was found at 10865 both yesterday and
today.  A break of this level will give another sell signal.
However, depending on the Unemployment Report tomorrow, it looks
like the INDU might be fixin' to consolidate its recent move in
the 10900 - 11,000 area.  Solid support lies at 10800.  Resistance
will be in that 10970 area and overhead at 11,000.

Tomorrow's action awaits the verdict of the Unemployment Report.
Traders have been talking about the number and how it will affect
the market.  It's one of those things: if it is higher than 4.6%,
do traders feel relief that the Fed will continue to be on our side?
And vice versa.  Regardless, all we care about is the reaction of
the markets, so watch those levels and trade smart.

Until we meet again,

Matt Russ

CBOT Commitment Of Traders Report: Friday 05/25
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs are not.
Extreme divergence between each signals a possible market turn in
favor of the commercial trader’s direction.

                     Small Specs               Commercials
S&P 500          (Current)  (Previous)     (Current)  (Previous)
Open Interest
Net Value         +63916     +65713         -70908      -72034
Total Open
Interest %       (+31.81%)  (+32.56%)      (-10.01%)   (-10.15%)
                 net-long   net-long       net-short   net-short

DJIA Futures
Open Interest
Net Value          -7101      -7166          +8925       +8151
Total Open
Interest %       (-51.65%)  (-54.70%)      (+23.70%)   (+22.89%)
                 net-short  net-short      net-long    net-long

Open Interest
Net Value           +444      +4578          -9946      -12711
Total Open
Interest %        (+2.24%)  (+26.20%)      (-14.87%)   (-21.87%)
                  net-long  net-long       net-short   net-short

What COT Data Tells Us
Indices: Commercials held their net short positions on the S&P 500
at 10 percent. Small Specs showed a tremendous reduction in net-long
positions on the NASDAQ 100 while the Commercials lightened up on
their net-short positions on the tech index.

Data compiled as of Tuesday 05/22 by the CFTC.


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The Option Investor Newsletter                  Thursday 05-31-2001
Copyright 2001, All rights reserved.                         2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

Why put all your risk into one stock when you can play the
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market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at


AMGN $66.38 +0.56 (+1.21) The biotech sector found strong support
at the 600 level today, and AMGN recovered part of the losses
from yesterday's market sell offs.  Despite the overall weakness
we experienced in the technology sector on Tuesday and Wednesday,
AMGN is currently above its 200-dma of $65.31, and the pattern
of lower highs from April 11 is still intact.  Good news which was
released in May regarding several of AMGN's drugs under
development have helping to boost the stock price, and if we can
see a little more strength in the Nasdaq and the BTK.X, AMGN
might be able to move above the current level of resistance at
$67.  From there, resistance is fairly light until $70, so
traders might want to wait for a breakout above $67 with heavy
volume before taking positions.  Otherwise, the current level
could be a decent entry point for more aggressive traders.
Continue to set closing stops at $65, and monitor others in the
biotech sector.

NOVN $30.88 +0.57 (-1.07) It appears the 200-dma ($33.45) is
quite a formidable adversary on the upside.  NOVN has
continually tested this resistance since its initial run-up the
previous week.  As the share price oscillates in the 5 & 10 DMA
zone, you might find an entry into this call play at the $30
support level, but this is risky because of the lower volatility
associated with NOVN.  It may be better to buy into a strong
momentum wave as NOVN moves through $33 and $34.  We're setting
a closing stop at $30 to protect against general weakness in the
biotech stocks.  A bullish sign would be to see the
Biotechnology Index (BTK.X) shatter its own 200-dma line
($618.26) and for NOVN to follow its lead in an advancing

CB $75.35 -0.85 (+2.13) We initiated our call play on business
insurance firm Chubb yesterday due to positive sector sentiment,
analyst upgrades, its high relative strength and a break above a
key resistance level.  The stock has recently been advancing in
spite of softness in the broader markets.  After yesterday's
strong move, CB took a technically healthy breather today, as
some minor profit taking resulted in a retreat of 1.12 percent.
Volume was light, less than 75 percent of the average daily
volume.  This is a good sign, especially considering that the
stock managed to end the day above support at $75 and the 200-dma
(now at $75.26).  Bounces off these key points, along with the 5
and 10-dma (currently at $74.67 and $74.39) may provide
aggressive players with potential entry points, but confirm with
volume and make sure that CB continues to close above our stop
price of $74.  It appears that $76.60 is acting as resistance for
the stock at the moment.  A surge above this level with
conviction would allow the more risk averse to enter on strength,
preferably with rivals ALL and CI confirming upward momentum.

CEFT $50.70 -0.02 (+0.10) Since its breakout move on Monday,
shares of electronic transaction processing giant Concord have
been in consolidation mode, digesting its mid-May rally.
Nonetheless, the latent strength in CEFT has been making itself
apparent.  Yesterday, despite a down day for the broader markets
across most sectors, the stock not only held up, but managed to
end the day with a slight gain.  While CEFT gave back those gains
today, the minor pullback was on relatively weaker volume.  Now
trading in a narrow range between support at just below $50 and
resistance at $51.50, the sideways movement over this past week
has given the stock some more upside room in its ascending
channel.  Now nearly the bottom of its up-trend line, higher risk
players may consider entering on successful tests of support at
the 5-dma at $50.35, the psychological $50 level, the 10-dma at
$49.31 and our closing stop price of $49.  A safer entry would be
to wait for CEFT to take our $51.50 on volume.  In both cases,
correlate entries with strength in competitors FDC and PAYX.

IMCL $49.65 +2.33 (-0.41) The Biotech bulls came out charging
this morning after being pummeled by the bears in yesterday's
session.  It was a bit dicey mid-day yesterday as IMCL briefly
fell below our $47 stop, but buyers helped to buoy the stock
enough to help it close above that critical level.  This morning
started out positive and got better as the day progressed,
rewarding the aggressive traders that bought the bounce
yesterday afternoon.  IMCL announced the early achievement of a
$5 million clinical milestone in its IMC-C225 agreement with
Merck KgaA and investors cheered.  Volume has been coming in
just below the ADV, and IMCL is once again approaching the
pivotal $50 resistance level.  With the Biotechnology index
(BTK.X) back on the upper side of $600, it looks like the bulls
are going to keep control for the time being.  Conservative
traders will still want to wait for a volume-backed rally
through $50 resistance before initiating new positions, while
more aggressive players can still consider new entries on
intraday dips, so long as our $47 stop remains intact on a
closing basis.

OAKT $10.36 +0.18 (-0.94) After yesterday's loss, the bulls came
out swinging this morning and made a valiant attempt at
reclaiming some of their lost territory.  Alas, it wasn't to be,
as the $11 level proved impenetrable, and OAKT fell back to end
the day just above $10.  Amidst indecision and uncertainty in
the broader technology markets, and with unemployment on the
rise, it was encouraging to see that our play managed to stay in
double-digit territory throughout the day.  But lookout
tomorrow, as fear of darkness (the weekend) could prompt traders
to liquidate positions to be flat over the weekend.  We are
still waiting for the bulls to muster enough conviction to power
through the formidable $12.50 resistance level.  Perhaps next
week will give us what we desire.  Remember that this is a
momentum play and we don't want to buy the dips.  So watch for
continued strength in both the Networking index (NWX.X) and
Semiconductor index (SOX.X) to accompany a breakout over the
$12.50 level before taking a position.  Our stop is still
sitting at $9.50; a close below that level will mean the end of
our play.


BMY $54.24 -0.65 (+0.04) Upper resistance is holding firm at our
$55 closing stop while the downward pressure is getting buoyed
at $54.  The tight squeeze doesn't allow for viable entries,
unless you’re an aggressive type who's willing to risk an upside
breakout.  Patience for direction supplies a better alternative.
With the exception of United Healthcare (UNH), the other major
drug companies like PFE, MRK, AHP, and LLY are also trading
sideways.  Look for volume around 500 K intraday to back a
breakdown from the converged 5 & 10 DMAs at $54 before jumping
into this put play.  And remember, watch out for the bulls to
charge BMY as it nears last Thursday's intraday low ($51.93).

MIR $39.30 +0.38 (-1.65) On the back of Bush's energy plan, many
energy investors were seeing green.  But the recent change in
our Senate reversed that sentiment.  While some might find a
Democratic Senate refreshing, the power companies are cowering
in anticipation of what lies ahead.  After already succumbing to
the negative pressure effecting the sector, MIR suffered a
technical breakdown on Wednesday.  A clean break of the 30-dma
created the potential for additional losses.  Today's $38.16 low
is just above the next challenge found at the 50-dma and the $37
level.  If MIR breaks this support with any conviction, look out
below.  Keep protective stops in place at $41.  Be prepared to
exit if the bulls take MIR above this mark on a close.

BLDP $54.10 +2.93 (-4.40) Traders who entered on weakness
yesterday as we suggested found themselves in a quickly and
nicely profitable position, as shares of the Canadian fuel cell
maker fell sharply in sympathy with a weak NASDAQ.  Opening just
above support at $55, the stock spent the rest of the day heading
lower, closing down $4.58 or 8.22 percent on 1.45 times the
average daily volume.  Today, BLDP managed to bounce, gaining
back 5.73 percent on relatively weaker volume.  Despite this up
move, the stock now has to contend with numerous points of
overhead resistance, at our closing stop price of $55, the 5 and
10-dma, at $55.64 and $56.73 respectively, and horizontal
resistance at $54.50.  Look for failed rallies as the stock
approaches these levels to provide aggressive entries.  Continued
weakness leading to strong selling pressure, taking BLDP below
the $53.50 level, may allow cautious traders to make a play.
Just be aware that the stock may find support at $53.  A break
below this level could be a safer play, as long as peers FCEL and
PLUG are also moving lower.

JNPR $42.53 +2.32 (-9.63) The bulls are getting weaker by the
day, especially in the Networking sector.  JNPR is leading the
way lower, having given up nearly 23% in the first two days this
week.  While buyers tried to stage a recovery this morning, the
effort was only half-hearted, providing vigilant bears with an
attractive entry point as the rally stalled near $44.50 after
the lunch hour.  JNPR gradually headed lower for the remainder
of the day as volume continued to rise.  While the stock managed
to post more than a 5% gain on the day, and volume was right at
the ADV, the intraday picture looks less rosy.  By the time the
closing bell rang, JNPR had given up more than two-thirds of the
gains it had accrued after the gap up open.  With the bears
still firmly planted in the driver's seat, the game plan remains
the same.  Aggressive traders will want to target failed rallies
in the vicinity of $44-45 for new positions, so long as our $45
stop remains intact.  More conservative entries will materialize
as JNPR drops through support, now resting at $40.  Continue to
watch the action on the Networking index (NWX.X).  Solid
resistance seems to be forming in the $415-425 area, and it
should continue to thwart the bulls attempts to put together a
meaningful rally

NEWP $32.23 +1.43 (-6.53) The Networking sector has once again
become the bears' favorite playground and NEWP is one of the
chief whipping boys.  So far this week, our play has fallen
through the 50-dma (currently $35.93) and shattered the 6-week
support at $35.  While today's recovery, which came on pretty
solid volume, gave NEWP investors a brief respite, it looks like
just another opportunity to enter new put plays.  After steadily
marching higher for much of the day, NEWP ran into resistance
near $33 and began its decline into the close.  The intraday
charts of the NWX are showing definite signs of weakness, and
this is bleeding into the NEWP chart.  Aggressive entries will
continue to appear on a rollover from the $33 intraday
resistance level or from the $35 level, also the location of our
stop.  If you would prefer confirmation before playing, wait for
NEWP to fall through the $30.50 level on solid volume before
taking a position.

PMCS $31.30 -0.02 (-5.90) Picking on the weakling continues to
pay dividends as PMCS couldn't even post a gain when the rest of
the market was at least pretending to have a recovery day.
Sure, the stock got a strong start this morning, but very
quickly ran into problems near the $33 resistance level.  Morgan
Stanley's Mark Edelstone's reduced earnings estimates on the
company yesterday is likely still having a negative impact.
After struggling to work higher for much of the day, the bulls
finally gave up and let the bears have their way into the close.
Giving up all of its intraday gains, PMCS couldn't even
challenge the 50-dma ($34), further solidifying this level as
resistance.  Not only was the price action weak, but so was the
volume, barely hitting 60% of the ADV.  To make matters worse
for the bulls, volume was on the rise as price was falling
throughout the afternoon.  Our stop is still resting at $35,
and aggressive entries can be taken on any rollover below that
level.  More cautious players will want to wait for selling
volume to push PMCS below $31 before initiating new positions.

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ITG - ITG Inc. $50.50 +0.47 (-2.24 this week)

ITG is headquartered in New York with offices in Boston,
Los Angeles, Dublin, London, Melbourne, Sydney, Tel Aviv and
Toronto.  As the leading provider of technology-based equity
trading services and transaction research to institutional
investors and brokers, ITG generates superior trading results
for its clients. ITG's services help clients to access liquidity,
execute trades more efficiently and make better trading decisions.
ITG's cutting edge trading tools are easy to use and interface
seamlessly with clients' workflow.  As an electronic broker,
ITG differentiates itself with institutional customers via
front-end or desktop services that provide unique content and
connectivity. In the electronic trading marketplace, through its
POSIT system, ITG is the premier confidential stock-crossing
system for the industry.

ITG has been in a strong upward trend since early December,
and faltered to fall below its 200-dma in March.  Since then
the stock has been on a roll, and has established a pattern
of higher lows, with stubborn resistance at the $55 level.
Good earnings, multiple upgrades, and a renewed interest in
electronic brokers may provide the necessary catalyst to
start the ball rolling again.  On April 18, ITG reported that
their earnings had increased 16% from the year ago quarter,
and that their net revenue had increased 21% in the first
quarter.  Since then, ITG has reported that they finalized
their acquisition of ITG Europe, which is a start in the
process of globalizing their enterprise.  On May 18, Instinet
debuted on the stock exchanges in a successful IPO which
raised over $4 billion, and rallied over 20% on its first
day of trading.  This IPO was seen as a litmus test for the
public's interest in investing in ECNs and other trading
platforms, and its strong reception bodes well for the
investment community's bullishness on the sector.  Additional
consolidation in the financial services industry which has
occurred over the last few weeks include State Street's
acquisition of DST's mutual fund portfolio accounting service
business, as well as the bidding war for Wachovia Bank. ITG's
close on Thursday positioned the stock just slightly under
its 50-dma of $50.60, and a break above this level on strong
volume could be a good entry point.  Monitor others in the
financial service industry like INET and IFIN, and set closing
stops at $48.

BUY CALL JUN-50*ITG-FJ OI=407 at $2.75 SL=1.50
BUY CALL JUN-55 ITG-FK OI= 85 at $0.80 SL=0.00
BUY CALL JUL-50 ITG-GJ OI=526 at $4.50 SL=2.75
BUY CALL JUL-55 ITG-GK OI=146 at $2.55 SL=1.50

Average Daily Volume = 230 K

CD - Cendant Corporation $19.18 +0.23 (+0.31 this week)

Cendant is a diversified provider of business services,
especially in the real estate and travel industry.  Cendant's
Real Estate Division is the leader in the world's largest
industry, with affiliates responsible for more than one out of
every four homes sold or purchased in the U.S., the leading
relocation services company, and a leading home-related Internet
portal.  As one of the world's leading franchisers of mid-economy
market lodging brands and a leading car rental company, and the
world's largest timeshare exchange company, Cendant's Travel
Division is one of the largest providers of travel services
around the globe.

Despite the slow economy so far this year, Cendant has been
finding ways to win.  While many companies have been lowering
their revenue growth numbers and earnings estimates, CD has not
only been able to exceed analyst expectations, but have on a
number of occasions revised their guidance upward.  Using lowered
interest rates to raise inexpensive capital, the company has been
in acquisition mode.  It appears that analysts like what they
see.  Recently, JP Morgan initiated positive coverage on the
stock with a Buy rating and a $23 price target, with analyst
Amanda Tepper making bullish comments on the company returning to
its growth by acquisition strategy.  What's more, she expects CD
to beat Street estimates for the entire year, due to strong
growth in its real estate division.  A spin-off due this fall has
also attracted investor interest.  Today, the company's CEO
confirmed that he expected the company's next earnings report to
"exceed investor expectations."  With that, the stock gained 1.21
percent on 1.2 times the average daily volume, closing at it's
52-week high.  At this point, a break above resistance at $19.50
could allow conservative traders to make a play, as such a move
would set the stock up to challenge the psychologically important
$20 level.  For entries on pullbacks, higher risk players may
target moving average support from the 5 and 10-dma at $18.95 and
$18.63, along with horizontal support at $19 and our closing stop
price of $18.

BUY CALL JUN-17.5 CD-FW OI=3405 at $1.95 SL=1.00
BUY CALL JUN-20   CD-FD OI=7773 at $0.40 SL=0.00
BUY CALL JUL-17.5*CD-FW OI=3405 at $1.95 SL=1.00
BUY CALL JUL-20   CD-GD OI=1587 at $0.95 SL=0.00

SELL PUT JUN-20   CD-RD OI= 106 at $1.05 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 7.37 mln


A - Agilent Technologies Inc $33.54 +0.67 (-4.15 this week)

Agilent is a globally diversified technology company that
provides solutions to high growth markets within the
communications, electronics, healthcare and life sciences
industries.  They're a leading maker of analysis equipment with
over 50% of sales deriving from its Test and Measurement Unit.
In its basic form, Agilent Technologies tests the Web's parts
before they are put into action.  Blue chip customers include
AT&T, Cisco, and Pharmacia.

This diversified technology stock followed the NASDAQ down to
its relative support as the bears took the bulls by horns after
the holiday hiatus.  And it was the brazen news of a technology
crunch overseas that sent many of the NASDAQ stocks lower on
Wednesday.  As is typically the case, news gets digested and the
market finds something else to effect its indices.  However in
the case of Agilent, we're initiating put coverage on A because
of its failure to resurface above $34 and challenge its previous
support near the $36 level.  The stock exhibited a definite
divergence from other electronic instruments and control stocks.
Related issues like JBL, FCEL, CLS and BLDP were all lifted from
their respective lows as the NASDAQ made efforts to go topside
of 2100.  Agilent's technical struggle presents a lucrative
opportunity going into tomorrow.  A rollover from the recent
resistance at $34 followed by a subsequent move through $33
provides a reasonable entry into the play; particularly if
there's a negative sentiment effecting the marketplace.  Taking
a look at the stock's previous breakdown in April, you can
visually confirm from the chart that a break of the $30 would
be paramount and provide additional downside potential.  Let's
take into consideration the sharp break from its tight trading
channel and give the stock a bit of room to operate.  Set
closing stops at $35, a mark bolstered by the 5-dma technical.

BUY PUT JUN-40 A-RH OI= 806 at $6.70 SL=4.75
BUY PUT JUN-35*A-RG OI=1439 at $2.50 SL=1.25
BUY PUT JUN-30 A-RF OI= 362 at $0.45 SL=0.00

Average Daily Volume = 2.38 mln

ISSX - Internet Security Systems $48.49 +1.10 (-6.22 this week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services

After finishing its double-top formation near $61 just over a
week ago, Internet Security firm ISSX was ready for the bears to
have a little feast.  Since then, the share price has taken a
20% haircut, as the stock has declined along with the broad
Technology market.  News has been sparse over the past 2 weeks
with the exception of new coverage being initiated by DB Alex
Brown last night.  While hardly a glowing recommendation, giving
the stock a Market Perform rating seems to have stemmed the
bleeding, at least for today.  Sellers seemed to take a breather
today, and ISSX managed to post a modest gain, although it came
on downright anemic volume.  After plunging through the $49-50
support level yesterday, and failing to climb back through that
level today, it looks like $50 will act as resistance going
forward.  Sure enough, the intraday charts began to roll over
this afternoon just over the $49 level, and we saw the selling
intensify into the close.  Look for failed intraday rallies near
resistance to provide for attractive, if aggressive entry
points.  Our stop is starting out at $51, just above resistance.
With daily Stochastics still headed sharply downwards, it looks
like there is more room for ISSX to fall.  More conservative
players will want to wait for selling volume to increase,
pushing the stock below intraday support at $46.50 before taking
a position.  Below that level, support will likely appear first
at $45, and then $40.

BUY PUT JUN-50*ISU-RJ OI= 62 at $4.50 SL=2.75
BUY PUT JUN-45 ISU-RI OI= 23 at $2.20 SL=1.00
BUY PUT JUN-40 ISU-RH OI=130 at $1.00 SL=0.50

Average Daily Volume = 1.79 mln


PMCS - PMC-Sierra, Inc. $31.30 -0.02 (-5.90 this week)

PMCS designs, develops, markets and supports high-performance
semiconductor networking solutions.  The company's products are
used in the high-speed transmission and networking systems,
which are being used to restructure the global
telecommunications and data communications infrastructure.
Providing components for equipment based on Asynchronous
Transfer Mode, Synchronized Optical Network, Synchronized
Digital Hierarchy, High Speed Data Link Control, and Ethernet,
the company sells its products to over 100 customers either
directly or through its worldwide distribution channels.

Most Recent Write-Up

Picking on the weakling continues to pay dividends as PMCS
couldn't even post a gain when the rest of the market was at
least pretending to have a recovery day.  Sure, the stock got a
strong start this morning, but very quickly ran into problems
near the $33 resistance level.  Morgan Stanley's Mark
Edelstone's reduced earnings estimates on the company yesterday
is likely still having a negative impact.  After struggling to
work higher for much of the day, the bulls finally gave up and
let the bears have their way into the close.  Giving up all of
its intraday gains, PMCS couldn't even challenge the 50-dma
($34), further solidifying this level as resistance.  Not only
was the price action weak, but so was the volume, barely hitting
60% of the ADV.  To make matters worse for the bulls, volume was
on the rise as price was falling throughout the afternoon.  Our
stop is still resting at $35, and aggressive entries can be
taken on any rollover below that level.  More cautious players
will want to wait for selling volume to push PMCS below $31
before initiating new positions.


Shares of PMC-Sierra finished very poorly Thursday, and look
poised to work lower.  Use any strength off the employment
report Friday morning to gain entry from the short side.
Additionally, a breakdown below $30.50 would offer entries
into weakness.

BUY PUT JUN-35 SQL-RG OI=8500 at $5.20 SL=3.25
BUY PUT JUN-30*SQL-RF OI=2402 at $2.30 SL=1.25
BUY PUT JUN-25 SQL-RE OI=1045 at $0.80 SL=0.25

Average Daily Volume = 9.55 mln

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A Brief Reprieve!

The major equity averages recovered today as technology stocks
bounced back from a recent sell-off and blue-chip shares followed
their lead.

                         - MARKET RECAP -

Wednesday, May 30

Stocks tumbled today as earnings woes pulled technology issues
lower for a third straight session while a retreat in blue-chip
stocks drove the Dow back below 11,000.  The NASDAQ composite
dropped 91 points to 2,084 and the Dow industrial average fell
166 points to 10,872.  The S&P 500 index slid 19 points to 1,248.
Trading volume on the NYSE hit 1.15 billion shares with losers
trouncing winners 1,956 to 1,103.  Activity on the NASDAQ was
average with 1.96 billion shares exchanged.  Technology declines
nearly tripled advances 2,760 to 1,099.  In the bond market, the
30-year Treasury rose 8/32, pushing its yield down to 5.84% amid
the slide in equity values.

Tuesday's new plays (positions/opening prices/strategy):

Elect. Data   (NYSE:EDS)  JUN70C/65C   $0.70   credit   bear-call
Microsoft  (NASDAQ:MSFT)  JUN80C/75C   $0.60   credit   bear-call
Rudolph    (NASDAQ:RTEC)  JUN60C/55C   $0.00   credit   bear-call

Only two of our new positions were available in today's session.
EDS and MSFT enjoyed small rallies before falling near the end of
the day but RTEC slumped in early trading and never recovered.

Market Activity:

The stock market gave back a large portion of its recent gains
today with the Dow and the NASDAQ both finishing at levels not
seen in three weeks.  The sell-off began in technology issues on
concerns over the profit warning by Sun Microsystems (NASDAQ:SUNW).
The company's announcement surprised investors and Sun was also
the first of the bellwether companies to make a negative earnings
pre-announcement.  One analyst said the report indicated that the
"elimination of a lot of excess inventories will take much longer
than expected."  After the news, several brokerage firms slashed
their future estimates for the company and quickly issued revenue
downgrades for others in the industry.  The pessimism spread to
computer hardware stocks with the heaviest selling pressure seen
in Apple Computer (NASDAQ:AAPL), Dell Computer (NASDAQ:DELL) and
Compaq Computer (NYSE:CPQ).  Texas Instruments (NYSE:TXN) slipped
almost 10% after Morgan Stanley cut its 2001 earnings estimate for
the company, saying near-term business conditions remain difficult.
The technology sector suffered additional losses after analysts at
Morgan Stanley slashed their ratings on several telecom-equipment
makers, based on a belief that a recovery in the sector is further
away than investors think.  The sell-off eventually spread to the
blue-chips and the Dow's technology components led the recession.
Hewlett-Packard (NYSE:HWP) and Intel (NASDAQ:INTC) were among the
worst performers but cyclical shares also suffered.  Caterpillar
(NYSE:CAT) was the third biggest Dow loser, falling to $53 after
DaimlerChrysler AG's head of commercial vehicles said the company
was unsure about the potential viability of its new venture with
Caterpillar and discussions to implement the project had yet to
be productive.  Only two of the industrial components managed a
gain and ExxonMobil (NYSE:XOM) topped the group after declaring a
2-for-1 stock split and a quarterly dividend of $0.04.  Among the
broader market groups,

Portfolio Plays:

Today's downbeat session continued the recent dismal performance
for technology stocks and there was little bullish activity in
the Spreads portfolio.  Fortunately, last week's rally produced
a number of favorable exit (and adjustment) opportunities and
only a few of our longer-term positions are suffering from the
renewed selling pressure.  Stocks in the small-cap segment have
been hit hard by the NASDAQ retreat and the worst performers in
that group, Metricom (NASDAQ:MCOM) and Watchguard (NASDAQ:WGRD)
are likely to be long-term holdings as we may be assigned in the
short (Put) options.  The only positive aspect is, the sooner we
are assigned, the sooner we can start selling (covered) calls to
recover our losses.  Another recently slumping position is MRV
Communications (NASDAQ:MRVC) and although we entered the bullish
calendar spread with a large theoretical edge, the probability of
the issue reaching our sold strike; the area of maximum profit, is
currently very low.  For that reason, we plan to use any technical
"recovery" rally in the technology group to close the play for a
small ($0.25) loss.  The majority of our "time-selling" positions
have offered favorable profits and the current plays in that group,
Alexion Pharmaceuticals (NASDAQ:ALXN), National City (NYSE:NCC)
and Sinclair Broadcasting (NASDAQ:SBGI) are trading as expected.
Visx (NYSE:EYE) has been one of the few minor disappointments, as
the issue has enjoyed only brief upward movements since the rumors
of a buyout in April.  Of course, the long option does not expire
until September and there is little doubt the speculative position
will eventually be profitable.  The broad market slump has played
havoc with our debit straddles, as most of the issues have moved
back into previous price patterns.  One position that continues to
exceed all expectations is Penn National Gaming (NASDAQ:PENN) and
today the stock dropped to a low near $16, producing a profit of
over 100% for ten days in the neutral play.  Traders who closed
straddle during yesterday's slide might feel a bit of remorse but
there was really no reason to expect additional downward movement.

Thursday, May 31

The major equity averages recovered today as technology stocks
bounced-back from a recent sell-off and blue-chip shares followed
their lead.  The Dow Jones industrial average climbed 39 points
to 10,911 and the NASDAQ composite rose 26 points to 2,110.  The
S&P 500 index ended 7 points higher at 1,255.  Trading volume on
the NYSE hit 1.14 billion shares with advances topping declines
1,836 to 1,229.  NASDAQ volume reached 1.81 billion shares with
winners outpacing losers 2,264 to 1,588.  In the bond market, the
30-year Treasury jumped 1 7/32, pushing its yield down to 5.75%.

Market Activity:

Stocks edged higher today as investors shopped for bargains in the
wake of the recent sell-off.  In the technology sector, Internet,
semiconductor and software shares paced the advance and hardware
issues also showed some signs of recovery.  Stocks in the optical
segment returned to favor even as CIBC World Markets lowered its
near-term view on JDS Uniphase (NASDAQ:JDSU) due to deteriorating
fundamentals.  Among telecom issues, Sprint (NYSE:FON), Worldcom
(NASDAQ:WCOM) and Nextel (NASDAQ:NXTL) rallied while networking
bellwethers Nortel (NYSE:NT), Sycamore (NASDAQ:SCMR) and Ciena
(NASDAQ:CIEN) recovered from recent losses.  The Dow moved up on
new strength in its industrial components with Alcoa (NYSE:AA),
United Technologies (NYSE:UTX) and Caterpillar (NYSE:CAT) among
the frontrunners.  Gains in Intel (NASDAQ:INTC), Hewlett-Packard
(NYSE:HWP) and AT&T (NYSE:T) also bolstered its performance.  In
the broader market, drug stocks made the headlines after SG Cowen
offered upbeat comments on the sector, issuing a number of reasons
to be positive on major drug shares; solid fundamentals and sales,
valuations that are favorable and their recent under-performance.
Cowen's top picks were Pfizer (NYSE:PFE), Pharmacia (NYSE:PHA) and
Dow stock Merck (NYSE:MRK).  Most other S&P 500 groups rose, led
by biotechnology, oil and oil service, utility, transportation and
cyclical shares.  One analyst suggested that there are still good
opportunities in the stock market as earnings for consumer staples,
healthcare and energy issues are projected to advance 6% to 16% in
the coming year.  At the same time, the near-term outlook is less
than favorable with second-quarter earnings for S&P 500 companies
projected to fall 17% year-over-year, due mostly to shortfalls in
the technology segment.

Portfolio Plays:

One of our new positions garnered my attention today as a closing
(market-maker) trade in its OTM call options provided a brief
opportunity for profit.  Rudolph Technologies (NASDAQ:RTEC) was
recently offered as a bearish, credit-spread candidate but the
target entry was not available due to the slump in technology
issues.  On Thursday, near 1:15 P.M. EST, the spread offered a
$0.30 credit, due to a relatively large adjustment in the long
position (JUN-$60 call).  I did not see any retail participants
taking advantage of the disparity and it only lasted for a few
minutes, thus it will not be logged as a portfolio play.  Beyond
that strange activity, there was little significant movement in
the Spreads section.  The small rally in technology shares did
wonders for many of the positions in the long-term portfolio,
especially those related to telecom and computer hardware issues.
In other groups, brokerage stocks have lost some of their steam
and it would be prudent to monitor the bullish plays in Lehman
Brothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) for potential
pullbacks.  In addition, one of our bearish candidates, Optimal
Robotics (NASDAQ:OPMR) enjoyed a surprise rally after announcing
the acquisition of the information technologies service business
of Alpha Microsystems.  The acquisition will add $7 million, on
an annualized basis, to Optimal's revenue and also enhance their
installation capacity, which the company says is required by the
growth in orders of U-Scan. self-checkout systems.  This play is
comfortably at maximum profit, but things can change quickly in
this market environment and we don't want the position to become
a loser.  On the bright side, the market volatility has actually
helped our neutral credit-strangles and positions in both Linear
Technology (NASDAQ:LLTC) and Novellus (NASDAQ:NVLS) can be closed
for favorable gains.

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

One of our readers asked for some additional time-selling plays
to take advantage of the recent volatility in the stock market.
Unfortunately, there are few favorable candidates for bullish
positions as the front-month call premiums are relatively low.
However, new activity in the financial group has provided two
excellent nominees for this strategy.  While both of these plays
offer acceptable risk/reward potential, they should also be
evaluated for portfolio suitability and reviewed with regard to
your personal trading style.


AGE - A.G. Edwards  $42.52  *** Options Activity! ***

A.G. Edwards (NYSE:AGE) is a holding company that, through its
directly owned and indirectly owned subsidiaries, provides
securities and commodities brokerage, asset management,
insurance, trust, investment banking and other related financial
services to individual, corporate, governmental and institutional
clients.  The company's business, mainly with individual clients,
is conducted through one of the largest retail office networks in
the United States.  In early 2000, the company had 670 offices in
the U.S. and was providing services for over 2,700,000 clients.
Commissions, principal transactions, investment banking and asset
management and service fees have been the principal sources of
consolidated revenue for the last three fiscal years.

Brokerage firm A.G. Edwards is currently the subject of takeover
speculation and the activity in the issue's call options reflect
the optimism for a future deal.  Morgan Stanley Dean Witter has
been the most mentioned suitor for the company but some traders
say the talk is simply an old rumor that has resurfaced in the
wake of recent consolidation among other sectors in the financial
industry.  Marie Ogurick, an analyst with Sidoti, said AGE would
be an attractive acquisition for any firm that has institutional
distribution but wants more retail distribution.  However, the
analyst also said that A.G. Edwards has a strong-enough balance
to survive on its own.  The St. Louis-based firm remains one of
the few independent brokerage houses outside New York and it has
said publicly that it aims to stay that way.  Regardless of the
probability of an eventual merger, traders have flocked to the
front-month options, driving the implied volatility well above
historical levels and the conditions are ripe for a speculative
calendar spread.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  AUG-45  AGE-HI  OI=4863  A=$2.75
SELL CALL  JUN-45  AGE-FI  OI=2174  B=$1.30



JHF - John Hancock Financial  $39.61  *** S&P 500 Addition! ***

John Hancock Financial Services (NYSE:JHF) is a unique financial
services company, providing an array of insurance and investment
products and services to retail and institutional customers,
primarily in North America.  The company operates its business
in five segments.  Two segments primarily serve retail customers,
and two segments serve institutional customers.  The company's
fifth division is the Corporate and Other Segment.  The company's
retail groups are the Protection Segment and the Asset Gathering
Segment.  The Protection Segment offers variable life, universal
life, whole life, term life and individual and group long-term
care insurance products.  The Asset Gathering Segment provides
variable and fixed, deferred and immediate annuities and mutual
funds.  The company's retail business also includes its retail
distribution and customer service operations.

Shares of John Hancock Financial Services rallied today after
Standard & Poor's said the company will replace Harcourt General
(NYSE:H) in the S&P 500 index after the close of trading on June
4, 2001.  Anglo-Dutch Reed Elsevier is acquiring Harcourt General
in a tender offer expected to close on that date.  Credit Suisse
said the addition of JHF to the index will likely to propel the
issue to the mid-$40 range during the coming sessions and players
swarmed to the front-month (ATM) call options in anticipation of
the move.  Analysts at A.G. Edwards quickly downgraded the issue,
but the speculation was already underway.  That is exactly the
type of activity we need to initiate a "time-selling" play as
the near-term volatility is skewed in our favor.  Adept traders
who think they can successfully manage the underlying stock's
future movement should consider this position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  SEP-40  JHF-IH  OI=1371  A=$3.40
SELL CALL  JUN-40  JHF-FH  OI=405   B=$1.15



COST - Costco  $38.91  *** Low-Risk Speculation! ***

Costco Wholesale (NASDAQ:COST) operates membership warehouses
that offer very low prices on a limited selection of nationally
branded and selected private label products in a wide range of
merchandise categories in no-frills, self-service warehouse
facilities.  Costco operates over 300 warehouse clubs, with the
majority of stores in the United States, over 50 in Canada and a
number of outlets in the United Kingdom, Korea, Taiwan, as well
as one warehouse club in Japan.  The company also operates a 50%
joint venture that owns 18 warehouses in Mexico.

Warehouse retailer Costco posted fiscal third quarter earnings
today that were in-line with forecasts, even as higher energy
costs and expenses related to opening new stores weighed on the
company's results.  Net income in the quarter was only $105.3
million, compared with $120.3 million in the same quarter a year
earlier but net sales in the quarter increased 12% and sales at
stores open at least a year, a key measure of performance, also
rose 5%.  Apparently investors were happy with the results as they
pushed the issue to a recent high on heavy volume.  In addition,
the buying pressure at the close suggests the issue is poised
for additional upside activity and the solid technical support
at our cost basis limits the possibility of downside loss.  We
will target a higher premium initially, to allow for a brief
consolidation in the issue.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUL-42.50  PRQ-GV  OI=2448  A=$0.95
SELL PUT   JUL-35.00  PRQ-SG  OI=1460  B=$0.70

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,250 per contract.



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