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Daily Newsletter, Tuesday, 06/19/2001

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The Option Investor Newsletter                  Tuesday 06-19-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        06-19-2001        High      Low     Volume Advance/Decline
DJIA    10596.67 - 48.71 10740.79 10563.66 1.17 bln   1500/1543 
NASDAQ   1992.66 +  4.03  2057.19  1978.25 1.97 bln   1589/2159
S&P 100   626.66 +  2.19   634.40   624.18   totals   3089/3702
S&P 500  1212.58 +  4.15  1226.11  1207.71
RUS 2000  489.73 -  1.80   495.63   488.71
DJ TRANS 2660.58 - 36.84  2703.60  2654.54
VIX        24.92 -   .91    25.71    24.63
Put/Call Ratio      0.73
******************************************************************

Cisco CEO Talking Again!

This summer is shaping up to be anything but dull. Earnings
warnings promise to be more plentiful than watermelon seeds
and more dangerous than fireworks and dry grass. Cisco CEO
John Chambers lit the fuse on his earnings bomb today with
comments that he is still optimistic about the business but
he did not want to comment on current quarter earnings.
The last time he tried to talk down analysts estimates the
story ended with a serious earnings warning. With TLAB warning
after the bell today and JNPR and NT already on the books as
early confessors, the odds are good CSCO will disappoint again.







The biggest warning today was TLAB which is now looking for
a breakeven quarter compared to analyst estimates of $.29.
This is a huge drop and they are citing "dramatic changes" in
the telecom landscape as the cause for the current problems.
They refused to comment on any future quarters due to zero
visibility. This was just another in a long line of warnings
in this sector which does not give investors a warm fuzzy
feeling that things have bottomed. There are conflicting
reports that Europe and Asia is also weakening and that has
been the plug in the dike in the past.

JBL also warned today following in the footsteps of SLR on
Monday. JBL said they were now expecting $.13 - $.15 instead
of the nineteen cents expected by analysts. They cited no
guidance past this quarter due to a continued deterioration
in the macro business. The conference call was very negative
and produced no hope for quick improvement.

AMR also warned today claiming that slowing business traffic
and increased oil prices would impact their quarter and their
year. The transportation sector as evidenced by the Dow Jones
Transportation Index has fallen off a cliff. After breaking
3000 on May-22nd it has been accelerating to the downside.
It closed today at 2659. After the bell UAL also warned that
they expect a decline in second-quarter earnings and a double
digit drop in unit revenues. They cited the worsening economic
slowdown, higher labor and fuel costs.

Semiconductors are under pressure again as more and more analysts
point to pricing pressure from an increasing buildup of inventory
in all areas. With rumors that Intel is stuffing the channel at
the expense of AMD it is expected that both will have trouble
making their numbers. The expected PC rebound for the third
quarter has yet to appear and retailer inventory is stacking up.
The price war currently under way for components is shrinking
margins and squeezing revenues. INTC at $26 is considered by
some to be still overvalued based on the outlook for the next
four quarters. AMD at $25 has already fallen back to April
levels and the "PC bounce" gains from May have disappeared.

Teradyne, a supplier of testing equipment used in the manufacture
of semiconductors, said they would post their first quarterly loss
since 1991 following the sharp drop in demand by chip makers.
They now expect a loss of up to ten cents per share instead of
the small gain of one to two cents several analysts expected.
They claim business has deteriorated in every segment of its
product line. They claim that their customers are facing an
unprecedented level of uncertainty in demand for all chips.
Come on, now what was the real problem?

There was a bright side to the market today. It was the Oracle
outlook from last night. The Ellison comment that "this quarter
may have been the bottom" was good enough to bounce both the
Dow and Nasdaq into positive territory at the open but as the
facts appeared the sell off began again. Oracle was so desperate
to make their reduced estimates that one major customer got a
90% discount and last minute discounts of -50% to -60% were
common. I guess you can sell anything if you give it away and
the morning software bloom wilted as the day wore on. Still it
was good enough to power the Nasdaq into positive territory at
the close, breaking a seven session losing streak. It was only
"technically" a broken streak since the gain was only four
points but we will take anything we can get.

The Dow gave up almost a 100 point gain to close down -48 as
it became increasingly apparent that the GE/HON deal was dead.
The Wall Street Journal is reporting after the close that the
final blow from the European regulators will be dealt tomorrow.
That will depress HON and unless GE can make up the slack the
Dow may suffer as a result. On the plus side there is a move
underway in the Bush administration to settle the tobacco suit
and that could help Phillip Morris on Wednesday. MO could also
help offset the drop in HON.

With the TLAB warning and the ripple down from that on Wednesday
the Nasdaq may come under pressure once again. It is currently
hanging on by a thread at the 2000 level and should this fail
we could see another round of drops as further earnings warnings
appear.

I just spoke with my staff this week about trying to find the
bright side of every market day and present that in the market
commentaries. You would have to look real hard to see any bright
points today. A failed rally, warnings by the minute, gloom
and doom everywhere. Surprise! That may be the bright side.
When nobody wants stocks that is the time to buy. The VIX is
neutral at 25 and the advance/decline ratios were only barely
negative. There is a positive undercurrent but you must look
really hard to find it. We may not be at the bottom yet but
we may be close. There is support here at 2000 (which will be
tested at the open tomorrow) and Dow support is less than 100
points away at 10500. We are very oversold and the Arms Index
is pointing to a near term buying opportunity. Remember, the
Fed meets next week and the betting crowd is calling for another
-50 basis point cut. We have not seen any pre-cut rally yet and
when the talking heads start using the meeting in every paragraph
for filler we could see some bottoming.  I am not saying
jump out of the bed in the morning and go long but I would
start looking really hard for some possible plays just in case
somebody warns positively and sets off a Fourth of July rally.

Enter passively, exit aggressively!

Jim Brown
Editor


****************************
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****************************

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You do not need any special software to take the seminar but
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If you are interested in these seminars please click here
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Thr Jun-21 Day-trading for people with day jobs - Jon Farnlof
Sun Jun-24 Determining Support and Resistance - Derek Baltimore
Tue Jun-26 Assessing Risk with Point and Figure - Jeff Bailey

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****************
MARKET SENTIMENT
****************

Deciphering the Data
By Jeffrey Canavan

Commitments of Traders data can be a little deceiving if you just
focus the net position of traders, or it can be downright
confusing if you don't follow the data on a regular basis.  Let's
wade our way through it, and see if we can make some sense of it.

Currently commercial traders (institutions) are net short S&P 500
futures by 70,183 contracts.  This may look bad on the surface,
but lets go back in time a little to see how this developed.  The
most bearish S&P 500 reading of the year was (111,956) on 3/6/01.
Institutions continued to get less bearish as the year progressed,
and lowered their net short position to (41,144) on 5/1/01.
Things were looking up, but then out of nowhere the net bearish
position fell back down to (72,034) on 5/15/01.  How could
institutions be getting more bearish when we were on the brink of
a new raging bull market?

Lets suppose we all manage a $1 billion worth of stock.  Perhaps
the market looks a little over extended on 5/15/01 and due for a
pullback.  There is also the threat of the upcoming warning season
that could ravage our portfolio, so how could we protect our
assets?  We could write 10 million covered calls on the stock we
own, or we could short some S&P futures to give us a little
insurance.  As warning season starts to unwind, we can start to
unload some of our insurance, and the net short position should
start to drop.

That could help to explain why the commercial net short position
improved by 9.4% last week to a reading of (70,183), and the S&P
500 continues to hold above 1,200.  If the S&P 500 remains above
1,200 I would like see that confirmed by a further improvement in
the net bearish position of commercial traders.

The Dow continues to be the only index with a commercial net long
position, but even the bearish reading in the Nasdaq-100 managed
to improve by 6%.

The market volatility indices are also telling us that the current
market sentiment is more cautious, than panicked.  Even with the
Dow closing in negative territory, the VIX fell to a less fearful
reading of 24.92.  The Nasdaq-100 Volatility Index (VXN.X) did the
same, and fell to a reading of 55.24.

In conclusion, I would currently call the market sentiment
cautiously optimistic, but that is contingent on some key support
levels holding.

===

VIX
Tuesday 06/19 close: 24.92


VXN
Tuesday 06/19 close: 55.24


30-yr Bonds
Tuesday 06/19 close:  5.69


Total Put/Call Ratio: .73


Equity Option Put/Call Ratio: .53


Index Option Put/Call Ratio:  1.42

===

NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   33.60
Current close: 41.82

Volume/Open Interest
Maximum calls: 50/98,296
Maximum puts : 40/51,984

Moving Averages
 10 DMA 44
 20 DMA 46
 50 DMA 45
200 DMA 61

===

S&P 100 Index (OEX)
52-Week High:  834.93
52-Week Low:   548.16
Current close: 626.66

Volume/Open Interest
Maximum calls: 650/4,788
Maximum puts : 600/5,817

Moving Averages
 10 DMA  640
 20 DMA  649
 50 DMA  644
200 DMA  686

===

S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:   1081.19
Current close: 1212.58

Volume / Open Interest
Maximum calls: 1250/12,190
Maximum puts : 1200/24,448

Moving Averages
 10 DMA 1241
 20 DMA 1258
 50 DMA 1244
200 DMA 1313

===

DJIA (INDU)
52-Week High:  11,518.83
52-Week Low:    9,047.56
Current close: 10,596.67

Volume / Open Interest
Maximum Calls: 114/ 5,956
Maximum Puts   108/13,093

Moving Averages:
 10 DMA 10,843
 20 DMA 10,948
 50 DMA 10,799
200 DMA 10,627

*****

CBOT Commitment Of Traders Report: Friday 06/15
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        +67110     +77601        -70183     -77490
Total Open
Interest %       (+25.01%)  (+33.61%)    (-9.04%)   (-10.71%)
                 net-long   net-long      net-short  net-short


                     Small Specs             Commercials
DJIA futures
Open Interest
Net Value          -4305      -4251          +6239     +5829
Total Open
interest %      (-28.76%)    (-35.39%)      (+14.44%)  (+14.71%)
                 net-short   net-short     net-long    net-long


                     Small Spec              Commercials
NASDAQ 100
Open Interest
Net Value         +2110      +1155         -10648    -11335
Total Open
Interest %        (+6.09%)   (+5.43%)     (-13.68%) (-18.42%)
                 net-long   net-long      net-short net-short


What COT Data Tells Us
----------------------
Indices: Commercials did lighten their net-short positions on the
S&P but not by a notable amount.

Gold: Commercials continued to lessen their net-short positions
dropping 32,000 contracts since May 29. Inflation concerns may
usher in a new wave of buyers and it looks like the Commercials
are thinking along those lines.

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
6/12  36,544 contracts net-short

Data compiled as of Tuesday 06/12 by the CFTC.


***********
OPTIONS 101
***********

Covered Calls on the Cheap
By Mark Phillips

In a bull market like we have seen up until early last year, it
seemed like you could just buy Call options and watch your
account grow month after month.  In case you haven't noticed,
the market has changed significantly and if you are still
playing by the old rules, it is unlikely that you will be
playing for very long.

The recent oscillations in the market are enough to make even
the most seasoned trader seasick, but once you recognize the
new pattern that has developed, you can adjust your trading
strategy to take advantage of it.  It really doesn't matter if
you are looking at NASDAQ stocks or NYSE stocks, there are a
lot of equities that have spent the past 2 months trading
sideways.

A safer way to profitably trade options in a turbulent market
like we have now is to extend the time horizon from short-term
to long-term.  Buying more time costs more up front, but allows
you more time to be right.  Designed for option traders wanting
a longer time frame, LEAPS provide the ability to take advantage
of the great entry points provided by this turbulent market,
while avoiding the rapid time decay of short term options.  Of
course, if the market is heading south in a hurry, it doesn't
matter how much time you buy, you are still going to get burned.

We need a market with most of the downside removed before we
start contemplating new long-term long positions.  With the Fed
on our side, it seems clear that the downside in this market is
limited, and the only big question is when economic conditions
will improve.  While we are waiting for those conditions to
arrive, we can generate consistent cash flow using the tried and
true (although sometimes dull) strategy of Covered Calls

The term "Covered Call" normally refers to writing calls against
a long stock position, but since a LEAP can be used as a
substitute for the stock, the term "Covered Call" is still
appropriate.  The big difference between writing Covered Calls
against stock vs. LEAPS is that with LEAPS you do not want to
have the short-term option exercised.  In other words, you don't
want to get called out of the LEAP you just bought.  This would
result in having to liquidate your long LEAP position, and you
would throw away all the extra time value acquired by purchasing
the LEAP.  There are several different Covered Calls approaches
that can be employed, but the one we will cover here (and my
personal favorite) involves writing front month calls against
the LEAP with the goal of having them expire worthless.

The first part of the strategy involves purchasing the LEAP at a
good entry point (sounds easy, huh?).  Although LEAPS give you
the ability to profit without having the perfect entry point,
exercising the discipline necessary to achieve a good entry
point will obviously improve the profitability of the position.
Simply put, we want to purchase the LEAP when the stock bounces
from a major support level.  It helps immensely if the daily
(and ideally, the weekly) Stochastics oscillator is making a
northward move out of oversold territory.  And just to add a
little extra insurance, let's make sure the sector in which our
chosen equity operates is on a similar recovery path.  Once the
LEAP has been purchased, we need to wait for the stock to
appreciate before writing our short-term call against the LEAP.

Covered Calls on LEAPS is the type of strategy that I prefer to
leg into - specifically, the front month call is sold against
the LEAP when the underlying stock moves up to resistance and
rolls over.  Since you want the call that you sell to expire
worthless, you want to sell a strike above the resistance level
that you think will hold.

The big advantage to using LEAPS as opposed to buying shares
when choosing to trade a Covered Call strategy is cost, and
consequently Return on Investment or ROI.  When trading covered
calls, we have to either own 100 shares of the underlying stock
or a LEAP before we can write the short-term calls.  If we
assume a $50 stock, it will cost us $5000 just to establish the
long side of the position.  But if we opt for LEAPS, we can
establish the same position (with 18-24 months to be right) for
as little as $1000-1500.  The premium we receive for the
short-term call will be the same in either case.  Spending only
20-30% as much for the LEAP as the underlying shares gives us
a much higher ROI for the same move in the stock.

Let's look at a hypothetical example and bring it all into
focus.  Assume we purchase 100 shares of stock JKLM for $50 per
share for a total cost of $5000.  Have you noticed that almost
all hypothetical examples use stock XYZ?  I thought I'd be a
little different.  Then we wait for a rise in the stock, and
since we were careful about our entry point, over the next 2
weeks, the stock gradually rises to $62 per share.  As it begins
to run out of steam, we decide to sell the JUL-65 Call (just
above major resistance) for $3.  Just like clockwork, the stock
begins to decline and on expiration Friday is resting at $56.

So let's check our ROI on the position.  The stock has
appreciated by $6 and we get to keep the $3 premium from the
expired call that we sold for a total gain of $9.  Divide 9 by
50 for percentage return and we get an ROI of 18%.  Not bad for
a month's work, but let's see what happens with the LEAP.  Let's
assume we bought the JAN-03 $50 LEAP for $12.00, for a total
cost of $1200.  With the same stock movement, we would likely
see an appreciation of $3 in the LEAP by July expiration, and
would still get to pocket the $3 from the expired short-term
call.  Sure, we only gain a total of $6 on the position, but
let's do the math and I think you'll see the light.  Divide 6 by
12 and we get an ROI of 50%.  I don't know about you, but I like
those numbers a whole lot better.

Ok, I know you are wholly unimpressed with my hypothetical
example and want to see real numbers from real trades.  Your
wish is my command, but I'm out of space for tonight.  Tune in
next time, and I'll cover a couple of real-world examples, and
you can see that the numbers really do add up.  As an added
bonus, we'll cover what to do when a LEAPS covered Call position
goes bad.

Until next time.


**************
BROKERS CORNER
**************

What can I learn from a Market Maker?
By Jeffrey Wright
Options Principal, PreferredTrade, Inc.

The typical market maker on one of the four Options Exchanges
spends his professional life in the small confines of a trading
pit; surrounded by other market makers, each watching the market
and waiting for order flow to reach his or her exchange post.
 What decision-making process does the options market maker deal
with each trading day?

As the market maker is trading throughout the day, just like a
retail customer, aspects of the trading strategy do not always go
as planned.  So, if a market maker makes a mistake, does not get
filled on his hedge or the market gaps against his position, what
will he or she do?  The prudent course of action is to remedy the
mistake quickly and not make the situation possibly worse by
waiting it out.  The idea of waiting and maybe the stock will rise
to sell some shares or go back down and buy the needed shares to
hedge is more than likely going to compound the mistake.  The
market maker has to try to stay unemotional, get out of trouble
quickly, and never panic. As usual, all of this comes under the
heading of "easier said than done."  Obviously, this is also true
for the retail trader.

The market maker will examine the order book to try to find an
order, which he can trade to offset the position not properly
hedged.  And finally, a market maker would rather take a quick
loss of a few hundred dollars than try to wait and have to take
a loss of a couple of thousand dollars at the market close or the
next trading day.  The professional trader is not attempting to
make an investment, but rather is simply trading the position to
make a profit.

A market maker does not participate in every order coming into
the crowd on the exchange floor.  If the market maker either
missed a large trade or the trade was not on his particular
market, there are still ways to turn this to an advantage.  The
market maker will look at his position and at times offer an
offsetting trade for the trade he did not participate in.  For
example:  If a large order of 1000 contracts trades, the crowd
purchases them and the market maker does not buy any for one of
the above reasons.  The market maker can examine what calls he
would buy or puts he would sell to the crowd.  The crowd will be
attempting to hedge the large trade and more than likely there
will not be an unlimited amount of stock to trade at an attractive
price.  The market maker can propose a trade to first help himself
and fit into his position and also assist someone else in the
crowd who did not hedge his portion of the original 1000 contract
trade.

A retail customer can effectively employ the same idea by
examining time and sales in individual options.  Time and sales
with most quote providers will show all trades and which exchange
the trades took place on.  A trading crowd will have more
incentive to trade with you if it can offset the risk in their
position.

You can also use this concept with different months as well.  If
the crowd traded the 1000 contracts in the front month, then they
will have a higher likelihood to make a trade in a further out
month to offset the first trade.  There are numerous possibilities
you can come up with to benefit you and the crowd with the same
trade.

The fast paced environment on the trading floor can be intimidating
to the retail trader.  The retail trader needs to remember to
employ the same degree of discipline a market maker exhibits in
order to be successful.  If one trade does not fit your position,
think about taking a small hit today rather than a total loss at
expiration.  Remember to research the time and sales information
and use the large trades you did not participate in to your
advantage to have markets move in your direction.  This is a way
where the retail trader and the market maker can both benefit from
the same trade.

To contact Preferred Trade click here:
http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN


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**************************************************************


PICKS WE DROPPED
****************

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.


CALLS:
*****

FFIV $13.55 -1.56 (-1.46) Mirroring the overall Technology
market on Tuesday, FFIV gapped higher, only to deteriorate
throughout the session, ending the day very near its lows.
With volume well above the ADV and the stock falling right
through our $13.50 stop late in the day, there is no way to
justify keeping it on the play list.  Although FFIV managed to
eke out a close above our stop, the uptrend that originally
attracted us to the stock has been broken, and it is clearly
time to go.

TEVA $62.95 -1.71 (-2.93) On the heels of ORCL's upbeat earnings
report last night, traders moved out of Drug stocks today in
favor of their favorite Technology darlings.  Although the love
fest didn't last much longer than amateur hour, it was enough to
spell the end of our play on TEVA.  Instead of rebounding when
Technology stocks lost their lustre, TEVA continued to
deteriorate right up to the closing bell.  We managed to harvest
a quick gain on Friday, as TEVA rallied strongly, but there
hasn't been an opportunity to play this week.  With today's
close below our $63 stop, TEVA is relegated to the drop list as
we only want to focus on plays that are behaving like they
should.


PUTS:
*****

No dropped puts tonight


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The Option Investor Newsletter                  Tuesday 06-19-2001
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:
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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
IndexSkybox.com:
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************************************************************


********************
PLAY UPDATES - CALLS
********************

IDPH $70.00 -1.47 (-0.35) The broader biotech sector, as measured
by the Biotechnology Sector Index (BTK.X), was pressured Tuesday
in the wake of an earnings warning issued by Waters (WAT).  The
company supplies instruments to biotech concerns and its warning
caused IDPH to pullback on relatively light volume.  However, we
need to see IDPH snapback in the coming session or two if the
we're going to maintain our bullish stance on the stock.  It's
currently consolidating around the $70 level and we'd like to
see it bounce from this level early Wednesday to confirm our
bullish stance.  Going forward, traders can opt for an entry on
any light volume pullback to IDPH's recently established
ascending support line, which now sits at $69.  Conversely,
traders might look to go with the trend and enter IDPH at
current levels if and only if the BTK shows strength early
Wednesday.  Watch for the BTK to advance back above the 600
level.

CB $78.21 -0.04 (-0.79) CB has been like the Energizer Bunny
over the past couple weeks, gradually creeping higher.  So it
should come as no surprise that the bulls decided to take a
break for the first part of this week.  The stock is
consolidating its recent gains above the $78 level, and we are
encouraged by the mild volume.  The next challenge will come in
the form of the $80 resistance level, and once cleared,
conservative traders can consider new positions.  Closing above
this level will open the door for a run at $85, a feat that will
require the return of strong buying volume.  While CB is
consolidating, aggressive traders can target intraday dips near
the $78 or even $76.50 intraday support levels.  Keep in mind
that our stop is resting at $76.  A close below that level will
break the uptrend and send CB to the drop list in a hurry.

FRX $72.00 +1.03 (+1.77) Money flowed out of defensive stocks
this morning, finding its way back into Technology shares on the
heels of ORCL's better than expected earnings report.  The
euphoria was short-lived though and by the end of amateur hour,
Drug stocks were catching some bids.  FRX didn't miss a beat,
gapping up at the opening defiance of the early weakness in the
Pharmaceutical index (DRG.X) to add to its gains from Monday.
Trader's looking for a tradable intraday move were disappointed
though as the stock spent the remainder of the day in a tight 75
cent range.  Position traders like the pattern though as they
jumped into new positions yesterday as FRX bounced from the $70
level.  The daily Stochastics oscillator is starting to show
signs of life, and the rally ought to really get moving once it
emerges from oversold territory.  Support still looks solid near
$70, and aggressive traders will want to target intraday dips
above this level, while conservative traders are holding their
breath, waiting for the stock to clear the $72 intraday
resistance level on solid volume.  Keep stops in place at $67,
just below major support.

GE $48.87 -0.13 (+0.06) If GE company officials are to be
believed, the merger with Honeywell has zero chance of being
approved by the European antitrust regulators.  This leaves GE
to trade strictly on its own merits.  The buyers are trying
valiantly to get it moving to the upside, but with the converged
30-dma ($49.81) and 200-dma ($49.67) looming directly overhead,
it may take a couple attempts before they get it right.  On a
positive note, the 50-dma ($48.75) is rising and has been
providing support for the past couple sessions.  As these action
points squeeze together, GE will break one way or the other.
Market permitting, it should head higher, and conservative
traders will want to take advantage of a volume-backed move
through the $50 level.  Buying the dips near the 50-dma or the
38% retracement level ($47) will work for aggressive traders,
but watch out for a dip that doesn't stop.  A close below our
$46 stop will have us jettisoning the play due to lack of
performance.

QCOM $50.31 +0.27 (+0.96) Following an upbeat earnings report
from ORCL last night, the bulls made a valiant attempt to drive
both the NASDAQ and QCOM higher.  Although it looked good at the
open, the NASDAQ's gains all but disappeared by the closing
bell.  QCOM suffered a similar fate, as a nearly 5% gain
dwindled to only 27 cents at the close.  The bears seem to be
selling into the morning rallies, but QCOM is gradually working
its way higher.  Keep in mind that this is a short-term play,
where we are looking to capitalize on a bounce from the $48
level to perhaps $55.  While buying strength on a move above $52
can still work, make sure you watch carefully and protect your
profits as QCOM approaches $55.  More aggressive traders will
want to target intraday dips near the $49-50 level for
initiating new positions, but remain mindful that we have a
tight stop at the $47 level.  A close below that level will
signal that the bears are back in charge and it will be time for
us to move on.


*******************
PLAY UPDATES - PUTS
*******************

NETE $29.45 -0.81 (-1.69) The late-day weakness in the Nasdaq
Tuesday finally caused NETE to fall and ultimately close below
the $31 level, which has buoyed NETE during the last two
sessions.  The bearish close in NETE is encouraging, at least
for those on the short side of this stock.  Going forward,
the $31 level should now serve as resistance and traders can
use any light volume advance back up to that level as an
entry point, particularly if the Nasdaq continues to stall.  On
the downside, NETE may now find support around the $27.50
area, which is a significant retracement level.  Traders
already in this play can look to book gains around the
$27.50 level if NETE does, in fact, find support there.
Otherwise, a breakdown below that level should offer either
confirmation of further downside or additional entry points
for those not in the play yet.  We have lowered our protective
stop to the $34 level in order to give NETE room to work
lower.

TLAB $21.20 -1.10 (-4.51) One word: Success!  Since we picked
up bearish coverage on TLAB, the stock had lost roughly $10,
based upon Tuesday's close.  However, after the bell Tuesday
TLAB issued a terrible warning that caused the stock to lose an
additional $3 in the after hours session.  TLAB has been
especially weak recently and smart money was probably already
shorting ahead of the company's earnings warning Tuesday
evening.  That leaves us with a couple of scenarios.  First,
we may witness a "sell on the rumor, cover on the news" event.
That is, the smart money shorts already in the stock may
choose to buy back their short bets Wednesday morning.  If
that happens, traders with open positions might consider
locking in gains.  The other possible scenario is that the
shorts don't cover, and TLAB drifts lower throughout Wednesday's
session.  It's best to use a "wait and see" approach for
those not in this play.  But again, for those with open put
positions on TLAB, don't get too greedy and consider booking
some gains Wednesday.  Our stop has been lowered to $23,
and we may lower it again Wednesday, depending upon how
TLAB trades.

EMLX $32.01 +1.96 (-0.87) While bullish traders may have been
gratified to see EMLX post a gain on Tuesday, a quick look at
the intraday chart shows that the bulls didn't have much staying
power.  After the stock gapped up at the open, the familiar
selling pattern took hold, driving the price below the $31 level
before a last minute bounce near the close.  There is no arguing
that the downtrend is still in place, and the bears are clearly
enjoying their day in the sun again.  The 50% retracement of the
April-May gains ($30.88) is acting as support, and conservative
traders will want to see EMLX trade below the $30 level on
strong volume before taking a position.  A drop through that
level will open the door for a test of the $26.50 level (61%
retracement level), which is followed by a fair amount of
congestion in the $23-26 range.  Keep in mind that our bearish
price target from the Point and Figure charts is $12, leaving us
plenty of room to the downside.  More aggressive entries can be
taken on a failed rally below our $35 stop, most likely in the
vicinity of $33-34.

QLGC $46.99 -1.91 (-5.12) Oh what a glorious day to be a put
player!  QLGC jumped up with the rest of the NASDAQ stocks right
at the opening bell, but the euphoria was short lived.
Aggressive traders got an early opportunity as the stock failed
to penetrate the $53 resistance level and headed lower from
there.  Then again around the lunch hour, timid buyers propped
the stock up to the $50 level.  But when the pros came back from
lunch, they promptly whacked the stock again, sending it as low
as $46 before a slight recovery at the end of the day.  A $7
intraday move is nothing to sneeze at, and it looks like we
could see more of the same in the near future.  Volume was brisk
at 65% above the ADV, indicating that there is plenty of supply
at current price levels.  There are a couple of cautionary
signals on the chart, however.  The daily Stochastics is buried
in oversold territory, QLGC bounced from the 50-dma ($46.45)
late in the day, and the stock is resting just above the 38%
retracement of its April-May gains.  While aggressive traders
can continue to target new entries on failed rallies below our
stop (now at $53), more conservative entries will materialize on
a drop through the $45 level on its way to our final target of
$37.

RIMM $25.29 +0.07 (-2.24) It was an exciting day for bullish
traders in RIMM.  After all the excitement generated by ORCL's
earnings report last night, RIMM gained a whopping 7 cents on
the day.  In an all-too-familiar pattern, most NASDAQ stocks
(including RIMM) gapped up at the open, only to fall back
throughout the day, leaving investors to watch their profits
slowly bleed away.  As option traders, we can play both
directions with equal aplomb and this is exactly the type of
action we can use to our advantage.  Aggressive traders could
have entered the play shortly after the open or during the
lunchtime lull.  In either case, they are sitting on some nice
profits this evening.  News certainly isn't improving in the
Wireless sector, and RIMM looks like it has further to fall.
Using the python approach, we are tightening our stop on RIMM
to the $27 level.  There is no sense risking our profits to
an unexpected move.  Aggressive traders can continue to target
failed rallies near this level, while more conservative traders
will want to step into the play on continued weakness below the
$24.50 level, near today's lows.

SRNA $27.45 +1.40 (-0.30) The entire Software sector got a boost
on Tuesday from ORCL's positive earnings report, and by the end
of the day, the Software index (GSO.X) was the only
Technology-related index to finish in the green.  So it comes as
no surprise that our bearish play on SRNA posted a gain on the
day.  But look at that intraday price action.  A gap up in the
morning, followed by flat trading for much of the day, and then
a decline into the close.  While it would have been nice to see
more of an afternoon decline, it was likely kept afloat by
sector strength.  It was encouraging to see that the bulls
couldn't push the stock through the $28 resistance level from
the past several days, keeping our $30 stop unchallenged.
Another failure to penetrate the $28 level could provide for a
good entry point, although really aggressive traders might hold
out for an intraday pop near $30 before venturing into the play.
Ideally we want to see the strength on the GSO index begin to
fade, as that will yank the rug out from under the SRNA bulls.
Look for conservative entry points as the price falls below the
$25 support level, with an eye towards taking profits on a drop
to the $20-21 congestion zone.

TMPW $53.35 +0.02 (-2.26) Riding the wave of euphoria that
gripped Technology investors this morning on the heels of ORCL's
better than expected earnings report, TMPW gave us an attractive
entry point shortly after lunch.  The stock had been holding
onto its morning gains, treading water just above the $54.50
level.  That all came to an end shortly after 12pm ET as the
price began to fall, coincident with a rollover in the intraday
Stochastics oscillator.  This was the second day in a row that
selling pressure came to a halt right at the 50-dma (currently
$52.63), and it will take a strong bearish effort to push the
stock through that support level.  Keep in mind that the bullish
support line on the Point and Figure chart is resting at $51,
coincident with historical support in the $50-51 range.
Resistance is solidifying near $55, so we are lowering our stop
to $56.  Aggressive entries can still be targeted on a failed
rally near this level, while more conservative traders will want
to wait for a decisive drop through the $50 level before
stepping into the fray.


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**************
NEW CALL PLAYS
**************

RATL - Rational Software $25.15 +2.30 (+1.91 this week)

Rational Software provides a platform for software development
that speeds time-to-market while improving software quality.
This integrated full life-cycle solution combines software
engineering best practices, market-leading tools, and
professional services.  Ninety of the Fortune 100 build
software with the Rational solution.

The software sector has been trading relatively well recently
and may lead any rally attempt in the Nasdaq.  That premise
was given credence Tuesday, following Oracle's positive
earnings report.  The broader software sector, as measured
by the Software Index (GSO.X), has, for the most part, been
trading sideways for the past two months.  The general price
action in RATL has followed a similar pattern.  However, both
the GSO and RATL bounced off key support levels Monday.  For its
part, the GSO attracted buyers at the 200 level, while bulls
charged into RATL at the $22.50 level.  If RATL's pattern
of relatively higher lows continues, the stock could very
easily make its way up to the $28 level in the short-term.  For
this to happen, we'd like to see the GSO advance above the 215
level.  If the GSO rallies above 215 early Wednesday, traders
might consider entering RATL call plays at current levels and
targeting the $29 level on the upside.  Alternatively, for those
with a little more patience, consider waiting for RATL to
breakout above the $29 level, which is significant because of
the supply on the point & figure chart at that level.  Although
$29 is still $4 away from its current level, we wanted to pick
up coverage on RATL earlier in an attempt to better prepare for
any breakout that might occur.  Initially, we are setting stops
at $22, which is just beneath RATL's rebound point Monday at
$22.50 and should protect against any whipsaws.

BUY CALL JUL-22.5 RAQ-GR OI= 203 at $4.40 SL=2.75
BUY CALL JUL-25.0*RAQ-GE OI=1093 at $3.00 SL=1.50
BUY CALL JUL-30.0 RAQ-GF OI=1784 at $1.20 SL=0.75
BUY CALL AUG-25.0 RAQ-HE OI=  52 at $4.00 SL=2.50
BUY CALL AUG-30.0 RAQ-HF OI=  15 at $2.05 SL=1.00

SELL PUT JUL-22.5 RAQ-SR OI= 386 at $1.50 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 5.52 mln
http://www.premierinvestor.net/oi/profile.asp?ticker=RATL


ENE - Enron $46.18 +1.48 (+1.08 this week)

Originally only an energy company, in recent years ENE has moved
into the communications market as well.  Through its
subsidiaries, the company is primarily engaged in the
transportation of natural gas through pipelines throughout the
United States, and the generation, transmission and distribution
of electricity to markets I the northwestern United States.  ENE
also markets natural gas, electricity and other commodities and
finance services worldwide.  Most recently, the company has
moved into the Communication business, developing an intelligent
network platform to provide bandwidth management services and
deliver high bandwidth applications.

Giving buyers just what they wanted today, ENE reaffirmed
its earnings estimates the day after the Federal Energy
Regulatory Commission (FERC) established price ceilings on
wholesale electricity rates for 10 Western states.  This
seemed to appease the buyers, as the stock halted its recent
decline near $42.50 this morning and tacked on nearly $4 from
its intraday lows on heavy buying volume.  While this is a
very aggressive play, given the recent decline, it looks like
ENE could be due for a bounce, at least to the $50 level.
Daily Stochastics are reversing in oversold territory, the
stock bounced from support dating back to November of 1999,
and the stock achieved the $44 bearish price target recently
generated on the Point and Figure chart.  We are starting the
play with a tight stop at $43, and aggressive entries can be
taken on any strong bounce above this level.  It was encouraging
to see ENE clear the $45 intraday resistance level without so
much as a hiccup, and a bounce near that level looks like the
best bet for new entries.  A continuation of Tuesday afternoon's
rally can be considered for new entries, but we want to be
cautious as the stock approaches the $48 resistance level.
Consider taking profits as ENE approaches $50, as we are likely
to see some profit taking near that level.

BUY CALL JUL-45*ENE-GI OI= 3848 at $3.50 SL=1.75
BUY CALL JUL-50 ENE-GJ OI=12939 at $1.40 SL=0.75
BUY CALL AUG-50 ENE-HJ OI=  121 at $2.00 SL=1.00
BUY CALL AUG-55 ENE-HK OI=  268 at $0.85 SL=0.00

SELL PUT JUL-45 ENE-SI OI= 5148 at $1.95 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 4.20 mln
http://www.premierinvestor.net/oi/profile.asp?ticker=ENE


*************
NEW PUT PLAYS
*************

CMVT - Comverse Technology $53.60 -2.42 (-6.33 this week)

Comverse is the world leader in multimedia telecommunications
applications.  Through its Comverse Network Systems division,
the company markets its Access NP and TRILOGUE INfinity Enhanced
Services Platforms, which enable wireless, wireline, and
internet companies to offer enhanced telecommunications services
to business and residential customers.  Among these services
are voice and fax messaging, call answering, and web
information services.  Comverse also offers Intelligent
Peripheral/Service Node, supporting next-generation personal
communication services such as pre-paid wireless, mobile
number portability, call screening, and mobile attendant
functions.

The carnage in the Telecom industry recently has not been
kind to shares of CMVT, despite the fact that the company
recently posted solid earnings.  In contrast to most other
companies in the sector, CMVT beat estimates by a penny and
is continuing to increase its revenues at a 36% annual rate.
In typical sell-the-news fashion, investors began selling the
stock a couple days after the well-received earnings
announcement, and it has been locked in a persistent downtrend
ever since, falling below all its major moving averages.  The
real kicker came today, as CMVT fell through what should have
been support at the $56 level on volume that was 40% over the
ADV.  There is very little in the way of support until the $50
level, likely making for some easy pickings down to that level.
Conservative players can enter new positions as CMVT drops
below the $53 level on continued strong volume.  While there
could be some support near $50, we are looking for continued
selling pressure to push the stock down to $48 or even $45
before the buyers come to its rescue.  Aggressive traders will
want to take advantage of the market's recent habit of selling
into rallies by initiating new positions on any failed rally
near the $56 level.  Place stops at $57.

BUY PUT JUL-55 CQV-SK OI=4427 at $5.70 SL=3.75
BUY PUT JUL-50*CQV-SJ OI=1441 at $3.50 SL=1.75
BUY PUT JUL-45 CQV-SI OI= 517 at $1.90 SL=1.00

Average Daily Volume = 5.52 mln
http://www.premierinvestor.net/oi/profile.asp?ticker=CMVT


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

FRX - Forest Laboratories $72.00 +1.03 (+1.77 this week)

One of many specialty pharmaceutical companies, Forest
Laboratories develops, manufactures and sells both branded
and generic forms of ethical prescription and non-prescription
drug products.  . Some of the company's more notable products
are Celexa (for depression), Tiazac (for hypertension and
angina), and respiratory products Aerobid, Aerochamber and
Tessalon.  Additionally, the company produces Infasurf, a
lung surfacant for the treatment and prevention of respiratory
distress syndrome in premature infants.  FRX markets its
products directly to physicians using the company's own
specialized sales force.

Most Recent Write-Up

Money flowed out of defensive stocks Tuesday morning, finding
its way back into Technology shares on the heels of ORCL's
better than expected earnings report.  The euphoria was
short-lived though and by the end of amateur hour, Drug stocks
were catching some bids.  FRX didn't miss a beat, gapping up at
the opening defiance of the early weakness in the
Pharmaceutical index (DRG.X) to add to its gains from Monday.
Trader's looking for a tradable intraday move were disappointed
though as the stock spent the remainder of the day in a tight 75
cent range.  Position traders like the pattern though as they
jumped into new positions yesterday as FRX bounced from the $70
level.  The daily Stochastics oscillator is starting to show
signs of life, and the rally ought to really get moving once it
emerges from oversold territory.  Support still looks solid near
$70, and aggressive traders will want to target intraday dips
above this level, while conservative traders are holding their
breath, waiting for the stock to clear the $72 intraday
resistance level on solid volume.  Keep stops in place at $67,
just below major support.

Comments

Slowly, but surely, the Drug Sector Index (DRG.X) continues
to advance.  As capital flees the technology space of the market,
part of it is finding its way in drug shares.  FRX epitomizes
that fact and is one of the strongest stocks within the group in
terms of relative strength.  Any weakness in the Nasdaq Wednesday
should lead to further upside in FRX.  Look for an advance above
Tuesday's intraday high at $72.46 for entry points and confirm
direction in the DRG.

BUY CALL JUL-70*FRX-GN OI= 266 at $4.70 SL=2.75
BUY CALL JUL-75 FRX-GO OI= 952 at $2.15 SL=1.25
BUY CALL AUG-70 FRX-HN OI= 313 at $6.00 SL=4.00
BUY CALL AUG-75 FRX-HO OI= 664 at $3.40 SL=1.75
BUY CALL AUG-80 FRX-HP OI=  92 at $1.70 SL=0.75

SELL PUT JUL-70 FRX-SN OI=1625 at $2.40 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.38 mln
http://www.premierinvestor.net/oi/profile.asp?ticker=FRX


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