Option Investor

Daily Newsletter, Thursday, 06/14/2001

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The Option Investor Newsletter                  Thursday 06-14-2001
Copyright 2001, All rights reserved.                         1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        06-14-2001        High      Low     Volume Advance/Decline
DJIA    10690.13 -181.49 10868.48 10659.47 1.22 bln    926/2152 
NASDAQ   2044.07 - 77.59  2101.05  2043.36 1.73 bln   1010/2713
S&P 100   629.42 - 10.50   639.92   628.99   totals   1936/4865
S&P 500  1219.87 - 21.73  1241.60  1218.90           28.5%/71.5%
RUS 2000  495.38 -  9.74   505.12   494.79
DJ TRANS 2710.56 - 64.40  2779.68  2707.64
VIX        26.20 +  1.81    26.43    24.81
Put/Call Ratio      0.72

Long, Hot Summer Day

The major market averages slipped at the open Thursday,
subsequently taking out the key support levels we've been
monitoring this week.  What was more disconcerting about
Thursday's decline was that volume measurably increased.  About
1.2 billion shares accompanied the slide on the New York Stock
Exchange (NYSE), while roughly 1.7 billion shares were
exchanged en route to the Nasdaq's decline.

The current market environment might be best described as
fragile.  And if you agree with that premise, then you might
also agree that uncertainty is an element the market can
currently do without.  But news from across the Atlantic
this morning, which had been surfacing earlier in the week,
injected a fair amount of uncertainty into the market.  The
European Commission (EC) had been scrutinizing the proposed
merger between General Electric (NYSE:GE) and Honeywell
(NYSE:HON), and that scrutiny surfaced in a bad way Thursday.
Sources close to the deal quoted GE officials as saying they
were "not optimistic" on the completion of the merger and
that the demands for divestitures from the EC were

Needless to say, the reports from Europe this morning cast a
shadow of doubt over the impending merger, which caused shares
of the to-be-acquired Honeywell to plunge more than $5.  What's
more, prior to General Electric's bid, United Technologies
(NYSE:UTX) had been looking to acquire Honeywell.  And as the
reports sailed across the Atlantic Thursday morning,
arbitrageurs began to sell shares of United Tech as the
expectation for the company to step in and buy Honeywell grew.
Shares of United Tech finished more than $3 lower in the wake
of the arbitrage-related selling.  One bright note is that the
arbitrageurs who sold United Tech short were forced to cover
their similar short positions in General Electric, which is
currently on the OIN call list.  Nevertheless, all three
stocks are components of the Dow Jones Industrial Average
(INDU) and the losses in shares of Honeywell and United
Tech were responsible for the lion's share of its losses

In addition to the General Electric-Honeywell uncertainty,
several downgrades in the tech sector pressured the Nasdaq
Composite (COMPX).  Most notably, Merrill Lynch (NYSE:MER)
analysts cut their rating on optical cable maker Corning
(NYSE:GLW) along with reducing earnings estimates.

The aforementioned events caused the Nasdaq to open right
at our critical 2100 level Thursday morning.  Following the
expiry of amateur hour, the COMPX took a turn for the worse
and traded lower throughout the day.  On both the daily
chart below and the point & figure chart, I don't see much
significant support for the COMPX until the psychological
level of 2000.

Readers of this column will note on the chart below that I've
laid a different retracement bracket over the COMPX.  I've
simply retraced the COMPX's advance in early April in an attempt
to better measure risk/reward and determine new support and
resistance levels following the COMPX's break and subsequent
close below 2100.  The first level I'd like to point out is
2060, which is the 38.2 percent retracement level from the COMPX's
trough at 1619 to its peak around 2330.  The COMPX bounced around
this level Thursday afternoon, but later fell and closed below it.
As such, 2060 may become an area of resistance in the near-term
and traders with a bearish stance may look to short weak Nasdaq
stocks on any advance up to that level.  Of course, the BIG
resistance level now becomes 2100, but 2060 may serve that
purpose in the very short-term.  On the downside, our new
retracement bracket yields support around 1975, which is close
enough to the 2000 level to add credence.

Unless traders already got short on the break below 2100
Thursday morning, I feel that it may be best to stand on the
sidelines for the time being because at its current levels, the
COMPX is rather difficult to gauge from a purely technical
perspective.  Perhaps the best risk/reward in the short-term
would be to short any advance up to 2060 or 2100.  But,
momentum-based strategies might be rather difficult to manage
in light of the COMPX's current levels.

I'd like to point out one more quick observation I made this
afternoon concerning the Nasdaq.  The Nasdaq-100 (NDX.X), which
is a measure of the largest 100 companies in the Nasdaq Stock
Market by market capitalization and also the source of the QQQs
(AMEX:QQQ), stopped right at a significant retracement level
Thursday afternoon.  The chart below illustrates a similar
retracement we viewed on the COMPX above: an ascending
retracement, from trough to peak.  You'll note that the Nasdaq-
100 stopped right at its 50 percent retracement at roughly
1710, which is also the site of its gap higher in early
April.  This development is both interesting and not by any
stretch of the imagination a coincidence.  Of course, if the
Nasdaq-100 were to break below 1710 in the very short-term,
it may offer some shorting opportunities in weak Nasdaq stocks.
But, then again, a bounce from this level is certainly possible.
Stay tuned!!!

The risk/reward dynamic in the Dow is currently very similar
to the Nasdaq's.  The Dow broke below our key 10,800 support
level en route to closing right around 10,700.  The latter
level did act as price magnet near the close of trading
Thursday, so traders might watch that area closely in the
near-term.  But aside from 10,700, the Dow doesn't have real
support until 10,500.  Here again with the Dow, however, it's
in between key levels which can make it rather difficult to
discern an edge and gauge risk/reward.

The observation we made concerning the S&P 500 (SPX.X) in
Wednesday's Market Wrap proved to be a telling indicator for
the broader market.  Readers might recall that the S&P broke
below its ascending neckline (support) Wednesday, which
resulted in the broad market index taking out yet another
support level at 1225 Thursday.  On the downside, the S&P now
has support right around 1200, which like 2000 for the COMPX,
is psychologically significant.

The news after the bell Thursday echoed the price action in the
broader markets.  JDS Uniphase (NASDAQ:JDSU) issued a horrific
earnings warning.  I won't go into too much detail about
JDS Uniphase's warning, but I will highlight the fact the
company guided down to a loss of 5 to 8 cents per share for its
June quarter, while previous estimates had the company pegged
to earn 5 cents.  That's bad!  JDS Uniphase was one of the
stocks we highlighted last Sunday as a candidate to warn, and I
can assure you a lot of other market participants were
expecting the same.  So the impact of JDS Uniphase's warning
Friday remains a variable.  Although shares of JDS were down
about $1.50 in the after hours session following its warning,
the Nasdaq futures were slightly higher???

Yes, you read that correctly.  Futures were higher at time of
writing.  Even though the major market averages closed below
their respective critical support levels, and JDS warned,
there's the distinct possibility that the market attracts
buyers Friday for several reasons.  First, the expiration of
equity options, index options and futures contracts - also
known as triple witching - takes place Friday.  This phenomenon
can impact the market in wild ways, especially in light of the
volatility this week.  Speaking of volatility, the CBOE Market
Volatility Index (VIX.X) continued along its near-parabolic
path higher Thursday, closing at 26.20.  The VIX has jumped
by 14 percent in just the last two days, which signals fear is
on the rise.  Finally, point & figure aficionados should make
note that the Bullish Percent reading for the Nasdaq-100 is
quickly approaching OVERSOLD levels.

In short, keep in mind that the market tries to confound the
largest number of participants at any given time.  And judging
by, among other indicators, the spike in the PUT/CALL ratio
Thursday, a lot more participants are bearish.  (The PUT/CALL
ratio measures the number of puts versus calls and jumped
more than 40 percent Thursday to 0.73.)  Having said all of
that, there exists a possibility that the market bounces
Friday, which should concern the trader types among our
readers.  (Remember what happened Tuesday following Nokia's
(NYSE:NOK) warning...)

Insofar as investor types are concerned, Thursday's action is
very, very difficult to digest.  Although my sense is that the
broader market averages will fall a bit further over the
near- or intermediate-term, the bigger picture is beginning
to make sense.  Let's keep in mind that the Nasdaq staged one
of its greatest one-month rallies ever during April.  Those
gains need to be digested, and they currently are.  But, what's
the likelihood that the markets trade sideways, or slightly
lower through the summer, the economic recovery in the U.S. is
pushed back to late 2001 or early 2002, which sets the stage
for a prolonged, sustained rally into the fall?  From where
I sit, that's the bigger picture.

Both investor and trader types can benefit from our online
seminar series.  We have a great line-up for the latter-half
of June, including presentations by Jim Brown, our all-star
analyst, Jeff Bailey, appearances by our combos gurus, Mark
and Ray, and a few appearances by yours truly.

As always, questions are more than welcome:


Eric Utley

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-17 7 Steps to Play Picking - Eric Utley
Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins
Wed Jun-20 Entry Point, Exit Point - Jim Brown
Thr Jun-21 Day-Trading for People WIth Day Jobs - Jon Farnlof
Sun Jun-24 Ask The Analyst - Eric Utley
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:


Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

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


Bears Reign Supreme
By Russ Moore

It was evident from the get-go that buyers would be hard to come
by today as markets headed south from the opening bell despite a
better than expected PPI number.

Inflation concerns were put to rest, at least for today, as the
Producer Price Index (measuring prices at the wholesale level)
came in with an increase of 0.1 percent and a core rate (ex. Food
and energy) up 0.2 percent falling right in line with

Investors appeared disinterested in the positive data as they
jumped onto the sell wagon. The DOW ended with a triple digit
loss or 1.7 percent decline. The NASDAQ dropped 3.6 percent, its
fifth consecutive losing session, and the Big-cap NDX shed 4.4

Volume was up slightly with NYSE trading 1.22 billion and the
NASDAQ seeing 1.75 billion shares traded. Market breadth was of
course negative, with losers outpacing winners by a 22/9 margin
on the NYSE and a 27/10 advantage on the NASDAQ.

Defensive sectors were in vogue today as drug, and gold issues
ended higher.

Other market catalysts included what looks to be a failed merger
between Honeywell and General Electric. Excessive European
regulatory demands were blamed for the breakdown. Honeywell
shares were off 11.6 percent while G.E. saw its shares rise
by 3.2 percent.

Tomorrow promises to be another wild one on Wall Street as
options on indexes and individual stocks, along with futures,
all expire. In addition, investors will have a few more bits of
economic data to chew on. CPI, Michigan Sentiment and May
production and capacity utilization are all out and could set
the tone for market direction.

We talked yesterday of 10,800 and 2,100 being support levels on
the DOW and NASDAQ. Today's action took care of those numbers
and now investors may have to look for "windows" to find the
next level of support. Windows, or gaps, appeared between April
17 and 18 on the DOW, NASDAQ, and SPX. First level support is
often found at the lower end of the second candle while the
next level of support can be found at the high price of the
first candle. Following this scenario we should see support at
1,995 and 1,941 on the NASDAQ, 1,200 and 1,192 on the SPX and
10,226 and 10,216 on the DOW.

Yes, it seems a long way down to 10,200 on the DOW but remember
that is only 490 points lower than today's close. The blue chip
index has dropped 485 points since June 5.


Thursday 06/14 close: 26.20

Thursday 06/14 close: 59.46

30-yr Bonds
Thursday 06/14 close: 5.64%

Total Put/Call Ratio: .89

Equity Option Put/Call Ratio: .80

Index Option Put/Call Ratio:  1.19


NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   33.60
Current close: 42.25

Volume/Open Interest
Maximum calls: 50/89,708
Maximum puts : 45/80,983

Moving Averages
 10 DMA 46
 20 DMA 47
 50 DMA 45
200 DMA 62


S&P 100 Index (OEX)
52-Week High:  834.93
52-Week Low:   548.16
Current close: 629.42

Volume/Open Interest
Maximum calls: 680/7,702
Maximum puts : 530/9,723

Moving Averages
 10 DMA  649
 20 DMA  655
 50 DMA  641
200 DMA  689


S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:   1081.19
Current close: 1219.87

Volume / Open Interest
Maximum calls: 1250/43,450
Maximum puts : 1250/46,577

Moving Averages
 10 DMA 1259
 20 DMA 1271
 50 DMA 1238
200 DMA 1317


52-Week High:  11,518.83
52-Week Low:    9,047.56
Current close: 10,690.13

Volume / Open Interest
Maximum Calls: 100/51,047
Maximum Puts   100/73,242

Moving Averages:
 10 DMA 10,979
 20 DMA 11,050
 50 DMA 10,746
200 DMA 10,635


CBOT Commitment Of Traders Report: Friday 06/08
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        +77601     +70242        -77490     -68496
Total Open
Interest %       (+33.61%)  (+33.61%)    (-10.71%)   (-9.48%)
                 net-long   net-long      net-short  net-short

                     Small Specs             Commercials
DJIA futures
Open Interest
Net Value          -4251      -4226          +5829     +5812
Total Open
interest %      (-35.39%)    (-30.65%)      (+14.71%)  (+16.24%)
                 net-short   net-short     net-long    net-long

                     Small Spec              Commercials
Open Interest
Net Value         +1155      +2912         -11335    -11508
Total Open
Interest %        (+5.43%)   (+14.80%)     (-18.42%) (-18.82%)
                 net-long   net-long      net-short net-short

What COT Data Tells Us
Indices: Almost no perceptible change across the all-important S&P
and thinly traded Dow futures markets. Current data is
unretreivable for the ND01 contracts until Tuesday, 6/12 but we
can assume it is relatively unchanged based on the first two
markets, being the thinnest volume and least-traded contracts of
the these three.

Gold: Commercials are now at a five-year net short extreme, while
small specs are opposed at a five-year net long extreme in full
speculation. Commercials are end users of gold and are hedging
current inventory purchased at lower prices. They seem to feel the
risk/reward clearly lies to the downside in prices right now and
made a dramatic move from accumulation to distribution in the past
four weeks:

5/08: 17,247 contracts net-long
5/15: 13,915 contracts net-short
5/22: 65,250 contracts net-short
5/29: 68,443 contracts net-short
6/05  42,314 contracts net-short

Commercials backed off their five-year historical short and may be
poised to begin accumulating again soon.

These recent moves are volatile in an otherwise quiet market. Many
felt that the latest move was merely a short-squeeze and retail
rally while the real move in gold could begin this summer if the
economy remains weak and inflation pressures build.

Data compiled as of Tuesday 06/05 by the CFTC.


Please visit this link for Market Posture:



Study Says: Analyst System Is Broken
By Jane B Fox

In the April 27 edition of Investor's Business Daily (IBD) I
noticed a small sidebar that read, "Conflicts of interest and
other problems lead to biased research that can cost investors
dearly."  "Only 1% of 28,000 stock recommendations in 2000 were
"sell" says First Call, even as the Nasdaq dived nearly 40%.
Precursor said analyst pay is often driven by investment
banking  deals creating a conflict between the responsibility to
investors  and to the firm's clients."

This study just gives credence to what we've known all along.

Do you remember the $1000 price target for QCOM last year? Then
not to be out done, another analyst came out with a $1000 price
target on ICGE! ICGE is now trading at 2.53!! What insanity!

Then there was 24/7 Media, an internet advertising company. In
March 2000 11 analysts rated it a strong buy, 2 said it was a buy
and one (brave soul) rated it as a hold. Nobody gave this stock a
sell rating. That was when 24/7 was $60; the stock trades today
at $.40. And in case you missed it, that is a decimal in
front of the 4. In May of 2000 the stock had fallen to $18 but
Credit Suisse First Boston's analyst Richard Petersen not only
kept his buy on it, he set a new price target of $50. Prudential
analyst James Dougherty maintained a strong buy until August 30
when the stock had fallen 76% to $14. The stock finally got
downgraded on November 8 when they missed earnings and announced
200 layoffs. Dougherty, however, kept a buy rating on the stock
all the way down to $0.59.

By the way, their respective firms employ neither Petersen nor

Unfortunately, this scenario repeated itself over and over again,
all the way through the tech massacre, analysts downgrading a
stock only after the bad news was out.

Right at the top of the market in March 2000, Wall Street
Analysts cheered the loudest for technology stocks with buy after
buy ratings. How many sell ratings do you remember? I don't
remember any.

Then there is R F Micro Devices (RFMD), a wireless equipment
maker. In March of 2000 four analysts rated it a strong buy and
eight a buy. You couldn't find a hold or a sell rating on this
stock if your life depended upon it. But over the next year it
lost 90% of its value.  How did these analysts not know
this was going to happen? Granted we had a tech meltdown but the
Nasdaq didn't fall 90%. Then once again when the damage had been
done the ratings and opinions changed and the stock was
downgraded. Too late for all the investors who bought it in March
of 2000.

Has anyone counted the number of upgrades and downgrades the SOX
index has had in the last few months? It could make you dizzy
trying to keep up with it all.

A clue that analyst's opinions aren't worth the paper they are
written on comes from mutual fund managers. They're besieged by
analyst touting their latest recommendations. Their phone calls
are as welcome as a telemarketers call during trading hours.
Kevin Weneck of the Polynous Fund gives his opinion of analysts;
"I can spend my day talking to people who run companies or I can
spend my day talking to those who have opinions on how the
companies are run. I'd rather spend my day concentrating on

Well it seems like the analysts are starting to worry about their
reputations, although, not worried enough to take the blame
themselves. Read on.

An organization, The Association for Investment Management and
Research (AIMR), recently met in Los Angeles to talk about
how the prestige of the Wall Street analyst has fallen like a dot
com stock price. Unfortunately though, little came of the meeting
because of the internal conflict within the ranks.

Arthur Zeikel, an AIMR board member, thinks a lot of the problems
they are having are because of the collapse of the Internet
bubble and that things will return to normal. I would like to
know what he considers "normal."

However, an AIMR spokesman had a different take on it. He wasn't
about to pretend that analysts don't have a conflict of interest
inside their firms. He admitted it is tough to be an analyst
inside a firm that has an investment arm trying to get millions
of dollars from the companies you cover and want to downgrade.

One of the conference's main speakers, Donald Straszheim,
president of the Milken Institute, said the conflict has gotten
to serious proportions. He stated when he was Merrill Lynch's
chief economist from 1985 to 1997, most revenue came from
institutional investors. Today most revenue comes from the
investment-banking arm, thus the conflict.

Zeikel conceded that analysts offend a lot of people when they
put a sell recommendation on a stock, however valid it may be, so
they just don't do it. At least they don't do it often. Case in
point is that sell recommendations only make up 1% of all
analysts recommendations in a bull or bear market. He then went
on to say that we the investor have to learn the "body language"
the analysts use. We have to learn the "lingo" in that a strong
buy or outperform is a buy but a hold is sell. I don't know about
you but I would just prefer to get a buy or sell and forget the

The senior vice president of AIMR, Patricia Walters, even went so
far as to say that individual investors should leave the stock
picking to the professionals and we should all buy Mutual Funds.
Now let's see where in IBD are the mutual funds listed? Here we
go - I wonder if I can short them, or can I buy options?

Then the AIMR president came out and decided to blame the media.
He had the audacity to say, "News sometimes gets confused with
entertainment." So I guess when we get a downgrade or an upgrade
in a stock it is just for our entertainment. I think I would
prefer to check out the movie listings for my entertainment. Give
me a break!

The one good thing that came out of the meeting is later this
year the AIMR will come out with research objectivity standards
that specify the best practices firms and analyst can follow.
AIMR hopes firms that adopt the standards will publicize that
fact, giving them a competitive edge that will let investors know
which analyst are straight up.

I'll believe when I see it but stay tuned.

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When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


PSFT $38.70 -4.50 (-6.28) The stock's return to higher support
at the $43 and $44 levels earlier in the week implied that a
charge towards the 52-week high ($53.87) could be in the
forecast.  Industry news augmented the company's own positive
bias, but it just wasn't enough to keep investors on the line.
PSFT got knocked out of the running in today's session,
violating our $42 closing stop.  The critical slide under 2100
in the NASDAQ incited a major sell-off in shares of PSFT as well
as related issues like SEBL, ORCL and SAP.  Coverage is hereby
dropped this evening.

THQI $51.10 -4.93 (-2.51) At first, it appeared the market
conditions would offer us a nice pullback to $53 near-term
support and present a solid entry into this stellar performer.
The stock's chart pattern defined its strength and dynamic
momentum; however without a rebound in the NASDAQ in the late
afternoon, it got real ugly.  The cuts in share prices were
across the sector today with ATVI, ERTS and TTWO all getting
singed.  THQI finished fractionally above our closing stop
today, but its strong advances of late leave THQI wide open for
additional profit taking; especially considering the probability
of more dissent in tomorrow's market.

CEFT $50.81 -2.12 (-1.80)  CEFT was a solid-gold trooper bucking
the broader technology trend since last week, but as all good
things must come to an end, this play's finished.  CEFT
experienced a healthy pullback, a bit too robust actually.  It
slipped under the 10-DMA and settled back below $51, the
vicinity of its previous resistance.  A rebound off this
precarious level and resumption of its uptrend is improbable at
this point.  Sector-mates FDC and PAYX also are experiencing a
bearish disposition.  We're retiring CEFT this evening.

EXTR $25.22 -5.11 (-6.88) The carnage in the Networking sector
continued today, following more bearish developments from
previous leaders LU and NT.  Despite its recent strength, EXTR
just couldn't dodge the sellers, falling below our $28 stop
midday, and never looking back.  Investors are waking up to the
likelihood that there will not be a second-half recovery and the
bulls are being put out to pasture as the bears are putting
their newly-sharpened claws to work.  The fledgling rally has
been broken, and with a broken stop and the NASAQ falling
through resistance, EXTR gets pushed onto the drop list tonight.

VRSN $50.10 -3.91 (-5.56) After several valiant attempts to get
a sustained rally going, VRSN bulls finally threw in the towel
today, letting the stock fall below the vaunted $52 support
level.  Needless to say, that means our stop at $53 was violated
at the close, and it is looking increasingly likely that there
is more pain in store for the bulls.  VRSN just couldn't scale
the wall of worry that has continued to build this week in the
sea of earnings warnings and poor economic news.  Clearly, it is
time to drop VRSN and look for healthier plays.


AIG $80.75 +0.23 (-0.01)  Without beleaguering a moot point, AIG
needed to break the $80 support level to create the momentum
necessary for profitability.  AIG simply doesn't want to go up
and it doesn't want to go down in despite of the optimum
conditions today.  The fractional trading range, between $80 and
$81, gripped our attention; but, the time factor wore us thin on
patience.  If by any chance you have open positions, look for
the IUX.X to round off a day's action under the 760 level, or
perhaps more wisely, exit gracefully.

EBAY $64.06 +2.25 (+0.51) It has been amazing over the past 2
days to see EBAY hold its ground, and actually advance, while
the rest of the Technology sector has been beaten back to its
lowest levels since the end of April.  On volume 25% over the
ADV, EBAY managed to post a solid gain on Thursday.  Although
our $66 stop is still intact, we are concerned that any broad
market recovery could catapult shares of the online auction firm
to new recent highs, and we don't want to be looking for bearish
trades at that time.  Given the amazing relative strength in
shares of EBAY, we'll pack it in and look for weaker prey.

Why put all your risk into one stock when you can play the
index instead?

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The Option Investor Newsletter                  Thursday 06-14-2001
Copyright 2001, All rights reserved.                         2 of 2
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MSFT $68.90 -1.79 (-4.29) Mr. Softee, a powerful DOW component,
is taking it across the chin as both major indices flounder
helplessly at the mercy of uncertain investors.  But let's not
forget who'll lead the inevitable technology rally.  It's
obvious the NASDAQ needs to find its legs before MSFT slips
below the $67 level, at which time we'd immediately exit the
play.  The devastating position of the GSO.X at 207 further
lends a bearish predilection.  We'd like to see the Software
Index rally through 240 over the short-term.  If $67 holds amid
the adversity, then traders might consider taking entries as
MSFT moves back through $68 and $69 on the recovery.

CB $77.56 -.03 (+1.18) Given the carnage in the broader markets
over the past 2 sessions, the performance of CB has been
outstanding, as it has broken above the $77.50 resistance level
and actually held those gains.  But the daily chart should give
the bulls cause for concern, with a double doji; normally an
indication of indecision, and possibly weakness following an
uptrend.  We need to keep a sharp watch for profit taking and
are protecting ourselves by inching the stop up to $75.  The
insurance index (IUX.X) weakened again today and is no longer
being supported by the 10-week ascending trendline.  This
negative development should serve to keep bullish traders on
their toes, until such time as CB shows its determination to
continue higher.  Conservative traders will take a volume-backed
move through $79 as their signal to go long, while more
aggressive traders can continue to target shoot intraday dips
in the $75-76 range.  Just make sure that the buying volume is
strong on the rebound before playing and watch out if the IUX
index is continuing to fall.

GE $48.86 +1.01 (+0.72) Unless you cut yourself off from all
news sources the past 2 days, you know that the lead story has
been the fate of the GE-Honeywell merger, which has been under
sharp scrutiny by the EU.  Apparently the demands from the other
side of the pond were too extreme for CEO Jack Welsh, and while
the final word is not yet out, expectations are that the merger
is a no-go.  The reason this is so important to our play is the
level of arbitrage that likely existed going into the merger.
Those tied into that play were short GE and long Honeywell.
They've been unwinding those positions over the past 2 days
giving a buying boost to shares of GE.  Sure enough, GE actually
managed to briefly crest the $50 level today before falling back
in the afternoon to close just below $49.  There are two ways to
play.  Either target dips near $48 or near our $46 stop if you
have an aggressive approach.  More conservative players will do
best by waiting for a volume-backed move through $50 before
taking a position.


NETE $31.14 -4.16 (-6.59) NETE continues to reap rewards for put
players; particularly with today's dramatic 11.8%, or $4.16
drop.  A bearish slide to $30.95 on heavy volume tested the
historical support near $30 and $31.  If the selling extends and
there's a breach of this bottom support, we might experience an
encore of March's decline.  Take a look at a chart for visual
confirmation.  This high-volume descent took the share price
towards $15 at a rapid pace.  In the event of an advancing
marketplace however, expect buyers to start nibbling on this
volatile issue as it hovers around the $30 level.  Be prepared
with mental stops.  We've made a major revision to our CLOSING
stop in light of the sharp cut in share price.  OI will exit the
play if NETE finishes a session above the $35 mark.

TLAB $26.00 -1.04 (-4.92) Between the Juniper Networks and Nokia
sagas, economic data curling investors' toes, and the broader
indices testing major supports, it's no wonder TLAB's been
packing a punch!  TLAB's lost over 16.8%, or $5.21 this week and
looks like it wants to keep rolling downhill.  The faithful
downtrend line allowed even the risk-adverse to buy into the
momentum waves.  The continuous pattern of 52-week lows however,
raises the inevitable question: "where's the bottom"?  In an
effort to safeguard profits, we've lowered our CLOSING stop to
$28.  The 10-dma trails above at the $31 level.  In an extreme
situation, aggressive traders might shoot for a rollover play at
that line of resistance.  Otherwise, you may want to play
subsequent descents from $26 in a declining market environment.
Exit aggressively.

MWD $57.35 -2.05 (-7.24) Since its inception on Tuesday evening,
MWD is proving profitable.  Wednesday's action saw MWD tumble
below the crucial $60 level, with losses extending into today's
session.  The two-day 5.3% cut was exceptional.  Even in
comparison to other powerhouse financials like JPM, AXP and MER,
Morgan Stanley's decline went a step beyond.  The further
breakdown of the Banking Index's supports bodes well going into
tomorrow.  The BKX.X broke 880; although it made a nice bounce
off 876 in a valiant, but unsuccessful attempt to recover.  Look
to buy into additional weakness as MWD makes a charge for $54;
although if the Bollinger Bands' theory plays out, traders might
be looking for an entry from the 10-dma, near $62, and ride a
rollover.  As unlikely as it is that the financials will have a
major turnaround tomorrow, be prepared for anything during these
turbulent times.  Our revised closing stop is set significantly
lower at $60.

SFA $40.90 -2.07 (-13.33) The market didn't give us the
opportunity to play SFA from its topside price levels near $55,
instead SFA just keep slipping through the relative supports.
Buying into the weakness provided a broad spectrum of entry/exit
strategies for the conservative and aggressive types alike.
Today's bounce off $38.60 indicates buyers started bottom
fishing, so keep this in mind if the techs begin to rally.
We've lowered our CLOSING stop to $44 from $53 in accordance
with the heavy losses of the past two sessions.  Volume topped
100+ K intraday.  If the losses extend into tomorrow, consider
targeting $35 on the downside.

ELNT $27.01 -1.29 (-3.99) Wednesday's Semiconductor selloff
continued today, driving the Semiconductor index (SOX.X) down
near the $600 level for the first time in the past 2 weeks.  As
would be expected, our ELNT play continued to perform, falling
below the $28 support level before finding a bit of buying
support in the late afternoon.  The stock closed at its lowest
level since April 17th, the day before the Fed's surprise
interest rate cut.  While there is still a bit more potential
downside left in the play, look out for support in the $25-26
area.  We would recommend taking profits if ELNT reaches this
level as it will then have closed the gap from April 18th.
Aggressive traders can still target new positions on intraday
rallies to the $28-29 level, as continued sector weakness is
likely to push the stock lower from there.  We are lowering our
stop to $29 tonight, as a close above that level would indicate
the bulls are coming back into the stock with conviction.

NEWP $26.80 -3.25 (-5.33) There wasn't much buying interest to
be found in Networking stocks the past 2 days, as measured by
the 10% loss in the Networking index (NWX.X).  For its part NEWP
went with the flow, giving up a whopping 17.5% since Tuesday's
close.  Judging by the dismal earnings warning from JDSU after
the close tonight, there will be more pain inflicted on both the
stock and sector in Friday's trading session.  For the record,
NEWP is trading at its lowest level since April 10th and is fast
approaching its yearly low of $21.50.  In order to preserve our
profits to date, we are bringing our stop down to $30, the top
of today's gap.  Aggressive traders can use intraday rallies to
initiate new positions, so long as the sellers keep NEWP below
the $30 level on a closing basis.  Given the JDSU news tonight,
more losses are likely in the near term, which will produce new
entries as the stock drops below the $26 support level.

PMCS $29.25 -2.14 (-5.45) Sure enough, the Networking index
(NWX.X) continued to fall on Thursday, which combined with
yesterday's losses to hand the sector a solid 10% loss.  With
the abysmal JDSU earnings warning, the bears have been
vindicated in stating that there is more downside in store for
the sector.  Suffering the double indignity of operating in
both the Networking and Semiconductor sectors, PMCS had
virtually no chance of upward movement today as the
Semiconductor index (SOX.X) fell sharply again, ending the day
just above the $600 support level.  After falling steadily for
the past 2 days, PMCS is below the $30 level for the first time
since April 17th.  While there is likely more downside in the
days ahead, we want to watch out for support near $26-27.  This
makes aggressive entries the most palatable in the next few
sessions.  Look for failed rallies near $31 or even the $33-34
range to provide for attractive entry points, as PMCS is likely
to remain under pressure as earnings warning season continues.
Move stops down to $34, as a rally through this level will
clearly spell the end of the bearish trend.

QLGC $51.32 -3.64 (-4.99) It seems that no sector of the
Technology market is safe from the bears, and that was evident
in today's session, as even the Storage sector came under
pressure.  QLGC tried valiantly this morning to hold support at
the $54 level, but as the broad market decline picked up steam,
there was no holding the bears back.  By the time the closing
bell rang, QLGC had posted a 6.6% loss on volume that nearly
doubled the ADV.  That is just what we like to see in our put
plays, and with earnings warnings continuing to flow like water,
it looks like we are destined to see more losses in the days
ahead.  Daily Stochastics are rolling sharply lower, and the
price is below the 30-dma (now at $52.02).  Aggressive entries
can be taken on any intraday bounce that fails to penetrate our
stop, now at $57.  Violated support at $54 is another likely
level for new positions.  Conservative traders can consider new
positions on a drop through the $49 level, but watch out for
support, which should start to materialize near $46.

RIMM $27.82 -2.60 (-5.00) Along with the broader Technology
sector, RIMM has had a rough go of it over the past 2 days.
Tuesday's rally proved to be a great shorting opportunity, as
RIMM has given up more than $4 since that time.  Falling to its
lowest level in the past month, RIMM is about to test the $27
support level, and could find buyers lying in wait there.  Those
that entered the play in the low $30's may want to consider
taking profits should RIMM drop to $26-27.  With earnings
warnings still flying fast and furious, any intraday rallies
look like attractive entry points, and aggressive traders will
want to target failed rallies near our lowered stop at $30.
Part of our cautionary stance towards our RIMM play centers on
the weak volume seen today, coming in at only about 60% of the
ADV, indicating that the selling may have just about run its

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IDPH - IDEC Pharmaceuticals $70.35 +1.85 (-1.31 this week)

IDPH researches and develops therapies for the treatment of
cancer and autoimmune and inflammatory diseases.  IDEC was the
first-ever to received FDA approval of a monoclonal antibody,
called Rituxan, that is now the most widely used treatment of
non-Hodgkin's lymphomas in the U.S.  The company has two other
anti-cancer drugs in the approval process and five more are in
the pipeline.

The Biotechnology Index stormed higher throughout May, ramping
up to a six-month high (674) after analysts upgraded four of its
major components: IDPH, PDLI, AFFX, and DNA.  Overall, it
expected the biotechnology industry will outperform other
sectors in 2001.  Notwithstanding the recent pullback in the
BTK.X, which was due to plain old consolidation and general
market conditions, we're initiating coverage on Idec
Pharmaceuticals this evening.  The company has recently been the
recipient of a slew of analyst coverage in light of Rituxan's
extraordinary growth.  This pipeline moneymaker currently is
prescribed for non-Hodgins lymphoma and potentially, a range of
hematologic disorders.  Going forward, while IDPH's valuation
may be considered expensive according to some analysts, the 2Q
revenues look grand.  Two Wall Street firms raised earnings
estimates for IDPH when drug-market research firm IMS Health
reported Rituxan's sales in April reached $62.4 mln.  This week,
MSDW raised their 2Q sales forecast to $216 mln from $180 mln
and the 2Q earnings estimates to $0.15 from $0.13.  Banc of
American Securities also raised its forecast to $184 mln and
its quarterly estimates to $0.14.  Both analysts have a Strong
Buy and Buy recommendation on IDPH, respectively.  Peter
Ginsberg of Bancorp Piper Jaffray also reiterated a Strong Buy
rating and upped his price target to $73 from $62.  Now wouldn't
it be sweet if the BTK.X would rally off 580 and return to its
higher levels!  A come-back in both the sector and broader
market provides the optimum environment to begin new plays on
IDPH.  If however, IDPH makes a defiant charge for $75 the 52-
week high (set on June 6th) and there's volume to back its
claim, then enterprising traders might jump into the upward
momentum.  Keep a closing stop at $65, but don't discount lower
entries in volatile session.  Aggressive traders may want to
target shoot for a position in the vicinity of $66 and $67,
which is bolstered by the 20-DMA.

BUY CALL JUL-65 IHD-GM OI=3464 at $8.80 SL=6.25
BUY CALL JUL-70*IHD-GN OI=6612 at $6.10 SL=4.00
BUY CALL JUL-75 IHD-GO OI= 196 at $3.70 SL=2.00
BUY CALL JUL-80 IHD-GP OI=3218 at $2.10 SL=1.00

Average Daily Volume = 3.98 mln

TEVA - Teva Pharmaceutical Inds. $63.50 +1.03 (+2.60 this week)

Producing drugs in all major therapeutic categories, TEVA is a
fully integrated global pharmaceutical company.  In the area of
proprietary drugs, TEVA has focused on products for the central
nervous system disorders, primarily the development of Copaxone,
a treatment for relapsing-remitting multiple sclerosis.  Through
its U.S.-based subsidiary, the company manufactures 137 generic
products in 210 generic forms, which are distributed and sold in
the United States.  TEVA also manufactures over 270 generic
products, which are sold primarily in the Netherlands, the
United Kingdom and Hungary.

With the broad market weakness that has emerged again this week,
some money is finding its way back into the Drug sector, and we
can see the Pharmaceutical index (DRG.X) trying to solidify the
$400 support level and push higher.  While some of the larger
Drug companies have had a hard time making progress, smaller
companies such as TEVA have been performing well.  After
clearing the $57 resistance level 2 weeks ago, the stock has
spent much of the intervening time dancing with its 200-dma
(currently $61).  The past 2 days saw the stock move decisively
through this level and it is now challenging resistance at $65.
Volume has been solid, running very close to the ADV, and any
significant move higher will be accompanied by continued strong
buying interest.  We are initially placing our stop at $60, and
would consider any intraday dips (followed by strong bounces, of
course) to be attractive entry points for the next leg higher.
More conservative players will want to wait for TEVA to clear
the $65 level before initiating new positions.  While the stock
has been outperforming the DRG index, we need to keep an eye on
this index.  Broad sector weakness will clearly be felt by TEVA
and keep the bulls in check.  On the other hand, if the DRG
index gets moving into rally mode, TEVA should continue to
outperform, likely challenging resistance first at $68, and
then $70.

BUY CALL JUL-60 TVQ-GL OI=400 at $5.50 SL=3.50
BUY CALL JUL-65*TVQ-GM OI=313 at $2.80 SL=1.50
BUY CALL SEP-65 TVQ-IM OI=273 at $5.10 SL=3.00
BUY CALL SEP-70 TVQ-IN OI=327 at $3.10 SL=1.50

SELL PUT JUL-60 TVQ-SL OI=710 at $1.60 SL=3.25
(See risks of selling puts in play legend)

Average Daily Volume = 1.16 mln


SRNA - Serena Software $27.50 -1.50 (-2.97 this week)

Serena Software is a provider of eBusiness software change
management (SCM) solutions.  The company's products and
services are used to manage and control software change for
organizations whose business operations are d3ependent on
managing information technology (IT).  SRNA's product
offerings support the industry standard IBM mainframe
platforms, including MVS, and are marketed under the brand
name Full Cycle mainframe.  This product suite automates the
software application life cycle and creates an IT environment
that facilitates concurrent development efforts by separate
programming teams, improves process consistency, enhances
software integrity and protects valuable software assets.

Despite a continuing string of positive news announcements and
industry alliances, SRNA hasn't been able to overcome the
bearish trend in the overall Software industry.  Failing to
crest the $240 resistance level late last week, the Software
index (GSO.X) has had a dismal week, falling 14% in the past 5
days.  This decline is likely the primary culprit behind the
weakness in shares of SRNA, which caused the price to reverse
right at the 200-dma (currently $30.57).  The significance of
the 200-dma, along with formidable resistance at the $31 level,
gives us a solid level at which to place our stop.  We knew
something was wrong earlier this week when the stock fell below
its 10-week ascending trendline (then at $29).  Weakness over
the past two days dragged SRNA down to the $28 support level,
and the fact that buyers didn't support the stock at that level
this afternoon, hints at a more sustained decline in the near
future.  Aggressive traders can use intraday rallies to initiate
new positions as the stock rolls over from the $30-31 level,
while more conservative players will want to target entries on
further weakness as SRNA falls through the $26 level.  Place
stops at $31, and watch the GSO index for further sector

BUY PUT JUL-30.0*NHU-SF OI=68 at $4.50 SL=2.75
BUY PUT JUL-25.0 NHU-SE OI=20 at $1.90 SL=1.00
BUY PUT JUL-22.5 NHU-SX OI=43 at $1.10 SL=0.50

Average Daily Volume = 584 K


MSFT - Microsoft Corp $68.90 -1.79 (-4.29 this week)

Microsoft is the #1 software company in the world.  They
develop, manufacture, license, and support a broad range of
software products including Windows operating systems, server
applications, the popular MS Office suite, and a Web Browser.
CEO and co-founder, Bill Gates still owns 15% of Microsoft.

Most Recent Write-Up

Mr. Softee, a powerful DOW component, is taking it across the
chin as both major indices flounder helplessly at the mercy of
uncertain investors.  But let's not forget who'll lead the
inevitable technology rally.  It's obvious the NASDAQ needs to
find its legs before MSFT slips below the $67 level, at which
time we'd immediately exit the play.  The devastating position
of the GSO.X at 207 further lends a bearish predilection.
We'd like to see the Software Index rally through 240 over the
short-term.  If $67 holds amid the adversity, then traders
might consider taking entries as MSFT moves back through $68
and $69 on the recovery.


If the Nasdaq stages a rebound during Friday's session, shares
of Microsoft could very well lead the charge.  The software
giant's shares have held up relatively well during the recent
carnage in tech land.  Look first for a bounce from its intraday
lows Thursday around $68.50.  Conversely, an advance back
above the $70 level may offer entry opportunities, but only if
the Nasdaq itself is advancing.

BUY CALL JUL-65 MSQ-GM OI=20507 at $6.30 SL=4.25
BUY CALL JUL-70*MSQ-GN OI=48704 at $3.40 SL=3.10
BUY CALL JUL-75 MSQ-GO OI=46467 at $1.45 SL=0.75
BUY CALL JUL-80 MSQ-GP OI=42072 at $0.60 SL=0.00

Average Daily Volume = 43.9 mln

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Is This A Buying (or Bailing) Opportunity?

The equity markets continued their recent decline Thursday amid
persistent fears about the outlook for corporate earnings.

Wednesday, June 13

U.S. stocks tumbled today amid another round of earnings warnings
and negative analyst calls.  The NASDAQ closed 48 points lower at
2,121 and the Dow industrial average dropped 76 points to 10,871.
The S&P 500 index was down 14 points to 1,241.  Trading volume on
the NYSE reached 1.06 billion shares, with advances and declines
almost equal.  Activity on the NASDAQ was light with 1.54 billion
shares exchanged and losers outpacing winners 20 to 17.  In the
bond market, the 30-year Treasury fell 4/32, pushing its yield up
to 5.66%.

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

Hca Health    (NYSE:HCA)  AUG45C/JUL45C  $0.55  debit  calendar
Universal     (NYSE:UHS)  JUL37P/JUL40P  $0.35  credit bull-put
Health Mgmt.  (NYSE:HMA)  JUL20C/JUL17P  $0.20  debit  synthetic

The downward bias in the market provided some excellent entry
opportunities in our new combinations.  The synthetic position in
Health Management was the only play that was not available near
the target debit.  We will monitor the position for a favorable
entry price during the next few sessions.

Market Activity:

Technology stocks continued to slump today on concerns over new
data that suggests the economy remains weak and worries that the
earnings outlook will not rebound for many months.  The NASDAQ
sectors were particularly sluggish with networking, hardware and
Internet issues leading the sell-off.  Cisco Systems (NASDAQ:CSCO)
was one of the biggest losers, falling to $19 after ABN Amro cut
its 2002 earnings estimates and price target on the stock, saying
market conditions remain challenging "with few indications of a
recovery in the second half of the year."  The mobile phone group
continued to slide with Ericsson (NASDAQ:ERICY) plummeting to $5
after Lehman Brothers widened its 2001 loss estimates, saying the
"near-term trends are challenging."  Merrill Lynch slashed its
handset shipment forecast after Nokia's (NYSE:NOK) recent warning,
saying that a reduced outlook for handset sales translates into a
lower demand for the worldwide cellular phone market.  Shares of
Lucent (NYSE:LU) also weighed on the industry, tumbling to the $7
range after Standard & Poor's cut its debt rating to junk status,
citing significant concerns about the company's ability to return
to profitability amid a declining demand in the telecom industry.
The outlook was no better in the industrial groups as Dow stocks
Eastman Kodak (NYSE:EK), Microsoft (NASDAQ:MSFT), Hewlett-Packard
(NYSE:HWP) and Honeywell (NYSE:HON) led the blue-chip index lower.
Rumors that the merger between Honeywell and General Electric may
be facing additional obstacles pushed HON shares deep in the red
and HWP fell to $27 after saying weakness in the U.S has spread to
other regions and that the timing of a recovery is still unclear.
In the broader markets, a number of select industrial production
and manufacturing shares ended the day higher but the majority of
S&P 500 sectors retreated.

Portfolio Activity:

Our portfolio suffered the same fate as the overall market with
losses seen in both the industrial and technology segments.  The
few stocks that moved higher were in the broader market and only
small gains were achieved.  General Motors (NYSE:GM), A.G. Edwards
(NYSE:AGE), Shire Pharm (NASDAQ:SHPGY), Pepsi (NYSE:PEP), Costco
(NASDAQ:COST) and National City (NYSE:NCC) were among the bullish
issues.  Of course, the bearish plays were favorably affected by
the downward bias and positions in Microsoft (NASDAQ:MSFT), Kohl's
(NYSE:KSS), Christopher and Banks (NASDAQ:CHBS), Optimal Robotics
(NASDAQ:OPMR), Electronic Data Systems (NYSE:EDS) and Total Fina
Elf (NYSE:TOT) were among the best performers.  Despite the recent
market slump, almost all of our credit spreads and premium selling
positions are expected to expire profitably.  In addition, we have
enjoyed some excellent profits from the Calendar Spreads group and
the Straddles section.  With only two days left until June options
expiration, the plays we are watching for potential adjustments
include Merrill Lynch (NYSE:MER) and Stone Energy (NYSE:SGY).

Thursday, June 14

U.S. equity markets continued their recent decline Thursday amid
persistent fears about the outlook for corporate earnings.  The
Dow industrial average closed at 10,690 after a triple-digit loss
of 181 points.  The NASDAQ finished down 77 points at 2,044.  The
S&P 500 index ended 21 points lower at 1,219.  Trading volume on
the NYSE was a above average 1.22 billion shares, with declines
doubling advances 2-to-1.  Activity on the NASDAQ was average with
1.74 billion shares exchanged, and losers beating winners by more
than 2-to-1.  In the bond market, the 30-year Treasury rose 8/32,
pushing its yield down to 5.64%.

Market Activity:

The broad market selling continued today as investors began to
focus intently on the negative outlook for the U.S. economy and
corporate profits.  Shares of Honeywell (NYSE:HON) dropped amid
concerns over the merger with General Electric (NYSE:GE) and the
pessimism surrounding the possible failure of that deal quickly
spread to industrial issues.  After submitting a final plan of
action to gain approval for their proposed merger, GE officials
said they were not very optimistic their proposal will meet with
EUC regulatory approval.  The news sparked a massive sell-off in
HON shares, taking the Dow to recent lows.  Also weighing on the
blue-chip average were shares of International Paper (NYSE:IP),
Hewlett-Packard (NYSE:HWP), American Express (NYSE:AXP), United
Technologies (NYSE:UTX) and Intel (NASDAQ:INTC).  Losses in the
technology index group were driven by software, networking and
chip issues, and fiber-optic and broadband issues also weakened
significantly.  Corning (NYSE:GLW) was among the downside movers
after Merrill Lynch downgraded the company on new concerns that
GLW's high margin fiber-optic business will perform below even
its worst-case scenario over the next few quarters.  Problems in
the networking sector continued as Lucent (NYSE:LU) plummeted on
speculation that the planned sale of two manufacturing plants to
Flextronics (NASDAQ:FLEX) had been cancelled.  The Electronics
Manufacturing sector slumped after UBS Warburg said it does not
believe Solectron's (NYSE:SLR) outlook for the upcoming quarter
and beyond will be positive, based on the current state of the
company's end markets and is thus maintaining a cautious stance
in the stock.  In the broader market, drug issues were among the
few upside movers with the Dow's two pharmaceutical components;
Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK) closing higher
after UBS Warburg issued some upbeat comments on the safe-haven
group.  The brokerage said that sector valuations are attractive
and long-term investors should focus on high-growth stocks such
as Pfizer (NYSE:PFE), Pharmacia (NYSE:PHA) and American Home
Products (NYSE:AHP).  The rest of the broad market saw declines
in the utility, natural gas, oil service, banking, cyclical and
biotechnology segments.

Portfolio Activity:

Today's activity offered little positive news for traders with
bullish positions but we did experience some positive events in
the Straddles section.  One of our speculative positions from
last month achieved profitability as Norfolk Southern (NYSE:NSC)
dropped below $20 for the first time in a month.  The overall
credit for the straddle reached $2.60, providing an acceptable
gain in the position, considering the recent range-bound market.
The Jabil Circuits (NYSE:JBL) straddle (from last Sunday) has
exceeded our most optimistic expectations and with the issue down
$5 over the course of the week, the position has achieved a 100%
gain.  Checkfree (NASDAQ:CKFR) and Brocade (NASDAQ:BRCD) are also
offering favorable profits and Taro Pharmaceuticals (NASDAQ:TARO),
Merck (NYSE:MRK) and Kos Pharmaceuticals (NASDAQ:KOSP) have seen
big moves as well.  The only issues in this category that have
failed to generate profits in June are Alliance Capital (NYSE:AC)
and British Airways (NYSE:BAB) and both of these positions have
another month until expiration.

With only one day remaining for June options, the outlook is dim
for the stock market.  Analysts say the "road to recovery" will
be longer than expected and many experts are starting to suggest
that profits may not recover until well into next year.  That is
not the outlook that investors want to hear and the recent slide
in share values has made it very difficult for anyone to believe
the market will recover in the near-term.  Although today's PPI
data clears the way for the FOMC to make further reductions in
short-term interest rates, it is unlikely the effects of lower
borrowing costs will be seen in the coming months.  However, the
"triple-witching" expiration of stock options, index options and
futures contracts always brings excitement to the trading floor
and with any luck, tomorrow will offer a welcome reprieve to the
recent selling pressure.  (One can only hope, right?!?)

Questions & comments on spreads/combos to Contact Support
                       - UPCOMING SEMINAR -
On June 18, I will be conducting an instructional seminar for new
traders who are interested in the fundamentals of "time-selling"

The general topics of discussion will be:

- Increasing portfolio returns with long-term options (LEAPS)
- Reducing the cost of these options with covered-calls
- Learning to sell time (and potential) for a profit

You can take the seminar without leaving the comfort of your home
or office.  It is interactive and you can ask questions after the
presentation.  You do not need any special software to attend
the presentation but you must have a 56K Internet connection or
faster for best results and a separate phone to listen to the
audio portion.

If you are interested in this seminar, please click here for more


                           - NEW PLAYS -
CSCO - Cisco Systems  $17.74  *** Reader's Request! ***

Cisco Systems (NASDAQ:CSCO) and its subsidiaries are engaged in
networking for the Internet.  The company's hardware, software
and service offerings are used to create Internet solutions so
that individuals, companies and countries have seamless access
to information, regardless of differences in time and place.
Cisco solutions provide a competitive advantage to customers
through more efficient and timely exchange of information, which
in turn leads to cost savings, process efficiencies and closer
relationships with their customers, prospects, business partners,
suppliers and employees.  These solutions form the networking
foundation for companies, universities, utilities and government
agencies worldwide.

The upcoming seminar on Calendar Spreads is starting to generate
some interest (probably due more to the declining market, rather
than anything I have to say) and one of our readers asked if we
would consider this position for an example in the presentation.
Fortunately, I already have a number of illustrations for the
discussion but I do think this spread warrants review by those
traders who like to participate in time-selling positions and
have a neutral-to-bearish outlook for CSCO in the near term.
In addition to the favorable effects of premium erosion, this
spread can also be easily transitioned into a bullish play if
the underlying issue makes an unexpected recovery in the coming
weeks.  The simplest adjustment would be to sell the OCT-$17.50
Put for a credit, establishing a put-credit spread with a cost
basis below the sold strike.  Traders with an interest in this
type of strategy should consider attending the upcoming seminar
on common "time-selling" strategies and techniques.

PLAY (conservative - bearish/calendar spread):

BUY  PUT  OCT-15.00  CYQ-VC  OI=34602  A=$1.50
SELL PUT  JUL-15.00  CYQ-SC  OI=15749  B=$0.50

ITG - Investment Technology  $49.50  *** Rolling Over? ***

Investment Technology Group (NYSE:ITG) provides equity trading
services and transaction research to institutional investors and
brokers in the United States, Canada, Australia and Europe.  The
company is a full-service trading firm that uses technology to
increase the effectiveness and lower the cost of trading.  The
company offers services including POSIT; QuantEX; SmartServers;
Electronic Trading Desk; ITG Platform; ACE and TCA; ITG/Opt; ITG
Access, and Research.  ITG generates profits on a per-transaction
basis for all orders executed.  Trading orders are delivered to
the company from its front-end software products, QuantEX, ITG
Platform and ITG Access, as well as other vendors' front-ends and
direct computer-to-computer links to customers.  Orders may be
executed through POSIT, the New York Stock Exchange, certain
regional exchanges, market makers, electronic communication
networks systems that trade equity securities and alternative
trading systems.

Stocks in the brokerage group have been struggling recently and
today this issue emerged in one of our primary technical scans;
identifying potentially failed rallies on issues with bullish
options activity.  In this case, the premiums for the (OTM) call
options are slightly inflated and the potential for a successful
recovery is significantly affected by the resistance at the sold
strike price; a perfect condition for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-60  ITG-GL  OI=220  A=$0.50
SELL CALL  JUL-55  ITG-GK  OI=148  B=$1.15

                         - STRADDLES -
VOD - Vodafone Group  $22.95  *** Down, Down, Down! ***

Vodafone (NYSE:VOD) is a wireless telecommunications company with
worldwide operations through its subsidiary, joint venture and
associated undertakings.  Vodafone also has interests in wireless
telecommunications businesses in the Middle East and Africa.  The
company provides a full range of wireless communications services,
including cellular, personal communications services, paging and
data communications.  Vodafone has interests in countries on five
continents and based on last year's data, Vodafone has almost 40
million customers, excluding paging customers, and served markets
covering a total population of 400 million people worldwide.  The
company's operations are divided into the geographic areas of
Europe, Middle East and Africa; the United Kingdom, the United
States and Asia Pacific.  Vodafone owns 45% of Verizon Wireless,
a wireless operator formed by the combination of the cellular
operations of Vodafone, Bell Atlantic and GTE.

Based on analysis of its historical option pricing and technical
background, this position meets the fundamental criteria for a
favorable straddle.  The issue has theoretically cheap premiums,
a history of adequate price movement and with the stock hitting
a two year low today, there will likely be additional volatility
in the company's share value.  As with any recommendation, the
play should be evaluated for portfolio suitability and reviewed
with regard to your strategic approach and trading style.  Also,
current news and market sentiment may have an effect on the issue
and its movement, so review the position thoroughly and make your
own decision about its outcome.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUL-22.50  VOD-GX  OI=1857   A=$1.55
BUY  PUT   JUL-22.50  VOD-SX  OI=15140  A=$1.15


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