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Daily Newsletter, Monday, 06/25/2001

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The Option Investor Newsletter                   Monday 06-25-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
	  06-25-2001        High      Low     Volume Advance/Decline
DJIA    10504.22 -100.37 10644.24 10468.12 1.03 bln   1302/1780
NASDAQ   2050.87 + 16.03  2060.06  2026.40 1.48 bln   1893/1882
S&P 100   632.03 -  4.12   640.05   629.24   totals   3195/3662
S&P 500  1218.60 -  6.75  1231.50  1213.60           46.6%/53.4%
RUS 2000  484.19 -  4.46   490.20   483.75
DJ TRANS 2646.31 - 30.18  2685.98  2644.03
VIX        23.25 +  0.75    23.82    22.26
Put/Call Ratio      0.63
******************************************************************

Tedium is the Worst Pain

It was John Gardner's monstrous character who uttered the
preceding pontification in his book titled Grendel.  I think
the monster's opinion aptly applies to the current psychology
among market participants.

We need look no further than Monday's tepid volume across the
major market averages to discover the lack of commitment among
participants.  Trading on the New York Stock Exchange (NYSE)
barely topped 1 billion shares.  And a mere 1.5 billion shares
exchanged on the Nasdaq.  Not only was trading volume light,
but the Nasdaq Composite (COMPX) bounced within an extremely
narrow range of 34 points.  In a word: tedious.  The Dow Jones
Industrial Average (INDU), on the other hand, saw a bit more
volatility, but more on that later.

The narrow range in the Nasdaq Composite Monday was a product
of several factors.  For starters, our all-too-familiar 2060
resistance level capped the COMPX's early morning rally attempt.
Further, sellers did not possess the conviction to take the
COMPX any lower than its intraday low last Friday around the
2025 level.  And finally, there's the Fed factor.

Over the last three trading days, the COMPX has been capped by
the 2060 level, while finding support around 2025.  Its tight
trading range has made it very difficult to discern an edge on
the COMPX, let alone a trend to trade.  Perhaps the best strategy
to cope with the recent narrowness of the COMPX is to buy near
strong support levels and sell near strong resistance levels.
But that strategy does require quite a bit of nimbleness and will
lose its efficacy if the COMPX breaks one way or the other this
week.

For momentum or trend traders who prefer breakouts, I'm once again
going to turn to the 2060 resistance level as the area to key
off.  If the COMPX can trade and subsequently CLOSE above the
2060 level, I think it will have a good shot at working its way
up to at least 2100, possibly between 2120 to 2150.  (2120 is
significant because that is the site where the COMPX broke down
below the neckline of its head-and-shoulders and 2150 is the
current site of that neckline.)

For traders leaning bearish, in the very short-term, I think the
2025 support area in the COMPX, which has held for the last
three days of trading, is worth monitoring.  But, keep in mind,
just below that general area lies the psychological support
level of 2000, reinforced by the technical support of 1975.  As
I alluded to earlier, until the COMPX definitively breaks in
one direction, the recent price action lends to patience,
however painful.




While the COMPX spent Monday meandering between technical
levels, the sellers ran rampant in the Dow.  The INDU broke
below the 10,560 area - an area that had attracted buyers in
recent sessions - early Monday morning and subsequently traded
below the critical 10,500 level, before rebounding into the
close.  (On a side note, the breakdown in the Dow below the
10,560 area Monday illustrates how to gauge key technical
levels in the current market environment and trade off of
those levels.  That is, have your action points in place and
trade what the market gives you.)

Coming away from Monday's trading, there are two observations
I'd like to lay forth concerning the Dow.  The first is that
its break below 10,500 is most disconcerting and may pressure
the broader markets.  But the second, and perhaps more
encouraging, point is that the Dow was able to claw its way
back above 10,500 into the close of trading Monday.  That was
definitely a psychological victory for the bulls, despite the
Dow shedding 100 points.  As the Daily Chart of the Dow clearly
depicts below, there's not much support below the 10,500
level, except for two lows around the 10,440 level traced in
late April.  Hence the significance of 10,500, including the
fact that it is the site of the Dow's 38.2% retracement level.
Below 10,500, however, the next meaningful support that I can
find is around 10,230 - its 50% retracement level.




The Dow could very well bounce from the 10,500 level this week
and, in fact, may trace a relative low at that site.  So how
you trade the Dow and its 30 components right now is a matter
of style and risk tolerance.  Dip buyers can scale into relatively
strong Dow stocks at the 10,500 level with tight mental stops
just below, or the shorts can look to sell relatively weak Dow
stocks on any further decline below 10,500.  And to get a better
feel for which direction the Dow might trade, we can turn to
the price action in the S&P 500 (SPX.X).  The S&P's advance
above the 1225 resistance level late last week proved to be a
bull trap, or head fake.  The S&P settled right on the 1225
level Friday, but Monday's weakness across the Bank, Retail,
Cyclical and Drug sectors dragged the broad market index below
1225.  We're now left with minor support around the 1210 area,
and major support at 1200.  But again, monitoring the direction
in the S&P should help to better gauge the Dow.




To segue from the broader market, the CBOE Internet Index
(INX.X) rebounded Monday after its recent two-week pullback.
In a research report, U.S. Bancorp Piper Jaffray Net analyst,
Safa Raschtchy, opined that Yahoo (NASDAQ:YHOO) would beat the
high-end of estimates for its current quarter.  The high-end, by
the way, is pegged at 1 cent per share in earnings and $184
million in revenues.  Nonetheless, shares of Yahoo did boost the
INX and carried several Web shares higher.  The INX finished 6
percent higher, led by the nearly 14 percent gain in shares of
Yahoo and substantial gains in shares of eBay (NASDAQ:EBAY),
HomeStore.com (NASDAQ:HOMS) and DoubleClick (NASDAQ:DCLK), among
others.  The INX has been extremely volatile over the past two
months relative to the COMPX and may offer trading opportunities
for both bulls and bears in the short-term.

My sense is that much of Monday's advance in the INX stemmed from
frantic short covering, especially noting the closes in Yahoo,
eBay and DoubleClick - parabolic, baby!  Each of the four
aforementioned stocks have fairly high short interest, and Safa
Raschtchy's positive comments on Yahoo induced fear into the
bears.  The move in the INX Monday could very well be perpetuated
this week if the shorts remain on edge, so it may be worth while
to monitor the Internet complex this week.

The Biotech Sector (BTK.X) fared far worse than its Nasdaq
cohort in the Internet sector.  That's because Biogen
(NASDAQ:BGEN) was the recipient of several downgrades, following
its detailing of disappointing results last Friday for one its
drugs under development for the treatment of psoriasis.  Those
results released last Friday prompted a slew of downgrades
Monday morning which continued to pressure shares of Biogen.  The
stock finished $5.46, or 9 percent, lower - shares have lost over
$12 in just the last two trading days!  The Biogen-related selling
across the biotech sector has weighed heavily on the BTK, which
had recently been a bright spot within the tech sector.  For
those who monitor the BTK closely, keep a very close eye on that
575 level!

The warnings season rolled on after the bell, with Applied Micro
Circuits (NASDAQ:AMCC) reporting that it would post a net loss
of between 4 to 6 cents for its current quarter, while its
previously lowered guidance had set forth expectations for 2 cents
per share in profits.  The Applied Micro warning is not at all
surprising.  Its biggest customers are: Alcatel (NYSE:ALA), Cisco
(NASDAQ:CSCO), JDS Uniphase (NASDAQ:JDSU), Juniper (NASDAQ:JNPR),
Nortel (NYSE:NT) and Tellabs (NASDAQ:TLAB).  The vast majority of
the aforementioned have already warned so the impact of Applied
Micro's news may be minimal.  Nevertheless, keep in mind that
Applied Micro competes with the likes of PMC-Sierra (NASDAQ:PMCS),
Triquint Semiconductor (NASDAQ:TQNT), Vitesse (NASDAQ:VTSS) and
Maxim Integrated Products (NASDAQ:MXIM).  Applied Micro shed
$1 in the after hours session.

To revisit my ranting, the tedium we've been enduring recently
is, in large part, a product of the Federal Reserve's meeting
this week, which begins tomorrow (Tuesday).  It's a two day
meeting that culminates with the Fed announcing its decision
on short-term interest rates Wednesday afternoon around 2:15 p.m.
EST.  Currently, the Fed Funds target rate is set at 4.00
percent.  And the market, along with those dismal scientists
(economists), are divided between whether or not the Fed will
cut by 25 or another 50 basis points.  This event Wednesday, in
my very humble opinion, could break the Nasdaq out of its
trading range.  My sense is that a 25 basis point cut would
cause a sell-off while a 50 basis point cut would rally the
Nasdaq.  But, I'm sure that opinion is shared by many market
participants so I don't know how much credence it garners.  In
addition to the actual announcement on the cut, the market
will be listening for guidance on whether or not any further
cuts lie ahead.

There are innumerable scenarios that we could set forth concerning
the Fed announcement Monday and the market's reaction.  What it
boils down to is knowing your risk tolerance and time frame and,
more importantly, having a strategy in place for multiple
scenarios.  Finally, recall the last rate cut.  Remember how the
Nasdaq and Dow faded following the cut on May 15th?  And remember
the following day and the massive advance across the broader
markets...Innumerable!

For those unfamiliar with the ways of point & figure charting,
especially the intricacies of the awe-inspiring Bullish Percent,
I highly recommend checking out Jeff Bailey's Online Seminar
on these very topics Tuesday night.  You can sign up through
the following link:

http://www.premierinvestorseminars.com/onlineseminars/jeff062601.asp

Eric Utley
Editor
www.OptionInvestor.com


************************************
New Online Seminar Schedule for July
************************************

Many different seminars from the comfort of home!

Imagine being able to learn the tips and tricks of investing
without leaving your home. You can do that with our new online
seminar product. Taught by the professional traders you read
every day and now those traders are available to answer your
questions.

The seminars average 2 hours and are interactive. You will be
able to ask questions and the presenter will answer your
questions in real time with charts and diagrams.

Click here for the complete list!

http://www.premierinvestorseminars.com/seminarcalendar.asp


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

The Market is a Paine
By Jeffrey Canavan

According to Paine Weber, their Index of Investor Optimism
fell to a four-year low.  The reading came in at 104, which
was well below May's reading of 113.  Basically, only 44%
of the sample population is optimistic, compared to a
reading of 51% last month.  The decline was mostly
attributed to rising concerns over energy prices.

The Mickey Indicator, which measures the attendance at Walt
Disney World as a gauge consumer sentiment, is currently
down 7% for the current quarter.

On the positive side, sales of previously owned home
increased by 2.9%, while analysts were only expecting the
number to come in flat.  The real estate market continues
to hold up tremendously well in the face of a slowing
economy.

Overall the market sentiment remains pensive ahead of the
Fed's announcement on Wednesday.  Perhaps it's just me, but
it seems that there is a lot less hoopla ahead of this Fed
meeting.  Could it be that we've become numb to the Fed's
rate cuts?

===

Commitments Of Traders Report: 06/19/01
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange.

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 tend
to be wrong.

===

S&P 500
Commercials   Long      Short      Net     %Change  Open Interest
6/05/01      323,109   400,509   (77,490)    13.1%     510,122
6/12/01      353,074   423,257   (70,183)    (9.4%)    562,025
6/19/01      301,376   371,121   (69,745)    (0.6%)    457,618

Most bearish reading of the year: (111,956) - 3/6/01
Most bullish reading of the year: (41,144)  - 5/1/01

Small Traders   Long      Short      Net      %Change
6/05/01        154,233    76,632    77,601      10.5%
6/12/01        167,720   100,610    67,110     (13.5%)
6/19/01        128,296    56,038    77,258      (7.7%)

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01

Comments:
We've changed the way we present this data to give readers
more information, but if the shock is too much, please let
us know.  We've left in the previous two weeks data to give
traders a better feel for how the data is trending.  For
example, Commercial are still net bearish by 69,745
contracts, but if we look at the past two weeks we can see
that is a 10% improvement from the net bearish reading of
77,490 on 6/05/01.  The next piece of data we've added is the
number of contracts long, and the number of contracts short.
This helps to give readers an idea of how the change in net
position came to be.  This week the number of commercial short
positions dropped from 423,257 to 371,121.  Things are looking
good on the surface, since the institutions are shorting less.
But if we look at the number of commercial long positions we can
see that number also dropped from 353,074 to 301,376.  So the
reduction of both long and short positions is more of a
reflection of market indecision.  That brings us to our next new
column, Open Interest.  Open interest is the total number of
positions outstanding (keeping in mind that one long contract and
one short contract equals one position).   The general theory
behind this data is that a rising market should be supported by
rising open interest (new positions being added).  The other new
column is just the percentage change in net position.  Changes of
5% or greater in commercial net position are generally regarded
as significant.  Lastly, we've added the most bullish and bearish
readings of the year to give readers an idea of where we stand
from a historical perspective.

===

Nasdaq-100
Commercials   Long      Short      Net     %Change  Open Interest
6/05/01       25,098    36,433    (11,335)   (1.5%)    51,660
6/12/01       33,586    44,234    (10,648)   (6.1%)    68,245
6/19/01       23,480    34,097    (10,617)   (0.3%)    47,202

Most bearish reading of the year: (15,521) - 3/13/01
Most bullish reading of the year:  (1,825) - 1/02/01

Small Traders  Long      Short      Net      %Change
6/05/01        11,217    10,062    1,155     (60.3%)
6/12/01        18,374    16,264    2,110      82.7%
6/19/01        14,284     8,403    5,881     178.7%

Most bearish reading of the year:  (1,028) - 1/02/01
Most bullish reading of the year:   8,460  - 3/13/01

Comments:
We can see that commercial traders have been slowly reducing
their net bearish position, but the reduction in both long and
short positions tells us that there is a general lack of
conviction in either direction.  Small traders, ever optimistic
about technology, and have increased their net bullish stance by
178%.  Hmmm, if they tend to be on the wrong side?

===

Dow Jones Industrials
Commercials   Long      Short      Net     %Change  Open Interest
6/05/01       22,717    16,888    5,829      0.3%      35,257
6/12/01       37,886    22,611    6,239      6.6%      37,886
6/19/01       22,611    12,346    1,876    (232.6%)    22,611

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year:  8,925  - 5/22/01

Small Traders  Long      Short      Net      %Change
6/05/01        3,881     8,132    (4,251)     (0.6%)
6/12/01        5,332     9,637    (4,305)      1.3%
6/19/01        3,884     7,555    (3,711)    (13.8%)

Most bearish reading of the year:  (7,572) - 5/08/01
Most bullish reading of the year:   1,909  - 1/16/01

Comments:
Ahhhhhhhhhh!!!!!  A 232.6% drop in the net bullish position of
commercial traders!  Actually the percentage change can be a bit
deceiving since these contracts are thinly trade when compared to
the S&P 500, but nevertheless the trend is disturbing.  Notice
how institutions started dumping their long positions in the Dow
just before the likes of Merck and Alcoa started to warn about
earnings.


*************
NEW CALL PLAY
*************

MVSN - Macrovision Corp. $60.20 +1.65 (+1.65 this week)

Helping to keep intellectual property rights intact, MVSN
designs, develops and licenses copy protection and rights
management technologies.  Integral to the entertainment
industry, the company provides copy protection for major
Hollywood studios, independent video producers, PC games,
digital set-top box manufacturers and digital pay-per-view
(PPV) network operators.  In addition to helping content
owners protect content such as videocassette, DVD and PPV
movies, and PC games, MVSN also provides the ability to
electronically market that content in a secure manner.

Readers that follow the intraday updates got a leg up on our
MVSN play an hour before the market closed, as my colleague
Jeff Canavan highlighted the compelling technical developments
on the daily chart.  In case you missed it, here are the
salient details.  The top of the bullish wedge is resting at
$61 and MVSN is just on the verge of cresting that level.  The
bulls have been running into resistance between $61-62 since the
middle of April, owing to the fact that it is the 38%
retracement of the stock's decline that began around Labor Day
last year.  A quick glance at the Point and Figure chart reveals
a triple top at that level.  A breakout above the $62 level will
finalize the triple-top breakout and open the door for the bulls
to drive MVSN towards the $70 resistance level, also the site of
the 50% retracement.  The Point and Figure chart demonstrates
the breakout of the bullish triangle very effectively, showing
the recent breakout that occurred as the stock cleared $58.
This most recent breakout gives us a convenient location for our
stop ($55), just above the converged 10-dma, 30-dma and 50-dma
near $56.  This will be a good level for dip buyers to initiate
new positions.  While a solid bounce at $56 or even $58 would be
a bargain of an entry point, the highest odds for success will
come from waiting for the bulls to push through the $62 level
before initiating new positions.

BUY CALL JUL-60*MVU-GL OI=1081 at $4.70 SL=2.75
BUY CALL JUL-65 MVU-GM OI= 190 at $2.70 SL=1.25
BUY CALL JUL-70 MVU-GN OI= 650 at $1.45 SL=0.75
BUY CALL AUG-65 MVU-HM OI=  51 at $4.70 SL=2.75
BUY CALL AUG-70 MVU-HN OI=   1 at $2.15 SL=1.00

SELL PUT JUL-55 MVU-SK OI= 352 at $1.75 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 738 K
http://www.OptionInvestor.com/charts/chart.asp?symbol=MVSN


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

MERQ - Mercury Interactive $52.37 -2.10 (-2.10 this week)

As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.

Despite last week's strength in the Software sector and
stellar gains today by Internet stocks such as YHOO and EBAY,
MERQ just can't seem to attract any buying interest.  A quick
look at the daily chart reveals a deteriorating technical
picture with decreasing highs and lows in price.  The
oscillators mirror that weakness, having been nowhere near
overbought territory in over a month.  With clearly defined
support and resistance levels, MERQ gives us a trade setup that
allows us to control our risk - a windfall in this type of
market.  After falling through the $58 support level, we can
see that this level has become resistance again.  Target
shooters can look to initiate new positions on a bounce from
this level or below with the understanding that a close above
$58 will trigger our stop and have us exiting the play.
Trend-followers will want to wait for MERQ to fall through the
$50 support level, as that will complete the descending
triple-bottom breakdown on the Point and Figure chart.  That
breakdown will open the door for a test of the $44-45 support
level, providing a quick profit for vigilant traders.  Due to
its relative weakness with respect to the broader Technology
market, poor reception of the Fed's decision on interest rates
tomorrow could have the stock trading at or even below those
levels before the week is out.

BUY PUT JUL-55 RQB-SK OI=2976 at $6.60 SL=4.50
BUY PUT JUL-50*RQB-SJ OI=2633 at $4.00 SL=2.50
BUY PUT JUL-45 RQB-SI OI= 710 at $2.25 SL=1.25

Average Daily Volume = 4.55 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=MERQ


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

OPWV - call
Adjust from $24 up to $25

RATL - call
Adjust from $23 up to $24

HGSI - put
Adjust from $66 down to $64

NETE - put
Adjust from $34 down to $32


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

No dropped calls tonight


***********
DROPPED PUT
***********

No dropped puts tonight


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

Simplify Technical Analysis By Using Divergence
By Mark Phillips

When I first began to study the Financial markets, I immediately
fell into the familiar pattern that I learned while studying
Engineering so many years ago.  If there is a problem, there
must be a solution, and not only that, we should be able to
describe that solution with one or more closed-form equations.
It should be entirely mathematical and predictable, right?
Naiveti is not restricted to youth, it seems.

So off I went, purchasing the tools I would need for my
endeavor, a computer, several charting programs that promised
to hold the key perpetual winning trades, a data service,
innumerable books on Technical Analysis from the likes of
Jack Schwager, John Murphy and Martin Pring.  Surely all the
wisdom of the ages and the secret to plucking money out of the
market would be contained within my new acquisitions.  All I had
to do was find the nuggets and meld them together into a
trading strategy.

I started first with the computer programs, as it seemed the
logical point to begin.  Afterall, I was an engineer who
worked constantly with computers, and hadn't found the computer
program I couldn't lick, WITHOUT reading the manual.  How's
that for foolish arrogance! It didn't take long to figure out
that I had dived into a world with its own language, and I
needed a dictionary in a big way.  Each program had numerous
ways of displaying price charts, each with its own unique
advantages, and literally hundreds of technical indicators,
all of which could be reprogrammed, modified and combined
into the "perfect trading system".

So I did what any self-respecting engineer would do, I
diligently read and reread all my new books, and actually read
the manuals for the computer programs.  Gradually I came to
understand what I had my hands on, and how to use it.  Terms
like Stochastics, RSI, MACD, Bollinger Bands, and On Balance
Volume began to make sense to me, and what I discovered was
that while there were literally hundreds of indicators
available, I could only use a few at a time.  I might be able to
put 35 technical studies on a chart, but there is no way to make
sense of the resulting jumble of criss-crossing squiggles on the
page, much less use them to determine a logical and well
considered plan of action for trading.  Besides that, it is
often possible to put enough indicators on a chart that you get
strong signals both to the long and short side -- at the same
time!!  Now that can really leave you scratching the old
noodle!

So now I needed a way to boil all my newfound knowledge down to
the 2 or 3 magic indicators that would make successful trading
as easy as rolling off a log.  I really liked the patterns I saw
from oscillators like Stochastics, Momentum, MACD and RSI, but
there were dozens of these oscillators.  They all painted a
similar picture; some were more responsive, while others were
more consistently accurate.  I needed to choose 2 or 3 and learn
how to use them.  I finally settled on Stochastics and RSI, but
the long list of losing trades told me there was still something
missing.

I went back to my Technical Analysis books and began searching
for some nugget of wisdom that I had somehow overlooked.
Periodically the term 'Divergence' would pop up with an
accompanying chart or two, but it seemed rather subjective to
me.  Then I stumbled across a book by William Blau titled
"Momentum, Direction and Divergence."  Inside the dust jacket,
I noted that Mr. Blau was an electrical engineer -- hmmm, birds
of a feather.  So I figured, if divergence is important enough
to be listed in the title of a technical analysis book written
by a fellow engineer, there must be something to it, right?
Well, after reading the book, I have to report that I didn't
find the holy grail, BUT it did convince me that I needed to
learn more about the concept, believing that it was one of the
final obstacles standing between me and trading success.

After considerable study, and endless hours of staring at and
manipulating charts and technical studies, the fog began to
clear and I could see the fruits of my labors.  Divergence is
a subjective tool, requiring some interpretation, which is
probably why it took so long to sink into my thick skull.  Once
the light went on, the pieces began to fall into place almost
by themselves.  I finally settled on two oscillators,
Stochastics and RSI, and determined to only place trades based
on these indicators when they both gave me a strong divergence
signal.

Now that you've learned more about my journey than you probably
cared to know, would you like to see what I learned?  Well, I'm
going to show you anyways.  Let's start with a basic description
of what Divergence is.  Divergence consists of higher highs (or
lower lows) on the price chart that are not matched by higher
highs (or lower lows) on the oscillator.  It can be viewed the
other direction as well.  Divergence also consists of higher
highs (or lower lows) on the oscillator that are not matched by
higher highs (or lower lows) on the price chart.  What this
Divergence tells us is best described with annotated charts, so
for clarity, let's look at a couple of examples.  To keep the
charts as uncluttered as possible, I will only use the
Stochastics oscillator in these examples.  But bear in mind
that divergence can be used with any oscillator that bounces
between overbought and oversold extremes.




It sure looks like some serious weakness is brewing in the
NASDAQ back around late January.  How valuable would that
little observation have been back then?  Even though
oscillator inflection points that occur in either the overbought
or oversold regions are stronger than those in between these
levels, both can provide excellent signals.  With Stochastics,
I use the Slow Stochastics line (shown in red) due to the fact
that it is smoothed and provides more consistent results.

Let's see if maybe we can find a slightly more positive example.
Let's take a peek at the daily chart for AOL Time Warner
(NYSE:AOL), and see what it tells us.




With a lower low in price and a higher low on the Stochastics
oscillator, we have a strong case for bullish divergence here in
early April.  And true to form, it paid off in spades, as AOL
launched itself up the charts with the rest of the Technology
sector, gaining better than 40% in 2 short weeks.

While Divergence is not the magic indicator that I have searched
long and hard for (like all the rest, it is sometimes early,
late or simply wrong), but it does something very valuable for
us.  It allows us to more accurately interpret the signals on
our charts without having to add a plethora of technical studies
that simply clutter the charts and make them harder to read.
While Divergence doesn't always pan out the way we expect, when
it is right, the moves it forecasts can be significant.

Through the use of a couple oscillators and drawing some simple
trend lines, we can uncover some truly amazing trading
opportunities.  So now that you know the basics, grab your
favorite charting program and start drawing some trend lines on
your favorite oscillators.  There's no telling what little gems
you may uncover.


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

OPWV - Openwave Systems $29.87 +1.20 (+1.20 this week)

Openwave Systems is a provider of Internet-based communication
infrastructure software and applications, serving over 150
communications service providers with over 500 million
subscribers.  Among OPWV's customers are wireless network
operators, wireline carriers, Internet Service Providers
(ISPs), portals, and broadband network providers.  OPWV has a
broad portfolio of products, including wireless Internet
infrastructure and browsers, unified messaging, mobile email,
directory services, voice processing and instant messaging.

Most Recent Write-Up

Reflecting the recent trend in the broad Technology market, OPWV
is managing to lead a recovery in the Wireless sector due to
their strong position in wireless-enabling software.  Recall
that one of the leading sectors in the NASDAQ last week was
Software, due to the better than expected earnings report from
ORCL, coming on the heels of ADBE's better than expected
results.  With the bad news already out from many of the players
in the Wireless market (such as NOK, PALM and RFMD), investors
seem to be taking the attitude that the bad news is out and they
are ready to rally.  While we are early in the move, we can see
that the $25 level once again provided support, and an
opportunity for the daily Stochastics oscillator to stabilize
and begin to emerge from oversold territory.  Look for an
intraday dip to the $27-28 level, or even solid support near
$25 to provide entry, if you like to buy the dips.  Otherwise,
hold on and wait for OPWV to clear the $32 resistance level
before playing.  Keep in mind, there is a gap between $34-38,
which will need to be filled by the bulls.  But the bears will
be lying in wait to sell into that rally, so keep a tight reign
on your position until you see the $38 level in your rear-view
mirror.  Above that, resistance will be waiting near $40,
confirmed by the bearish resistance line on the Point and
Figure chart.

Comments

Shares of OPWV pleasantly surprised us with their relative
strength Monday.  After pulling back from its May highs, the
stock appears poised to advance.  With a two-day base built
around the $29 level, traders can look for entries on any
pullback to that area.  Conversely, those who prefer to enter
on strength might look for a breakout above $31, backed by
volume, to gain entry into this play.  Its relative high sits
near $32.50, but beyond that, OPWV has little resistance until
$35.

BUY CALL JUL-25 UGE-GE OI= 933 at $6.70 SL=4.50
BUY CALL JUL-30*UGE-GF OI=1728 at $3.90 SL=2.50
BUY CALL JUL-35 UGE-GG OI=4644 at $2.15 SL=1.00
BUY CALL AUG-30 UGE-HF OI= 123 at $5.20 SL=3.25
BUY CALL AUG-35 UGE-HG OI=  52 at $3.50 SL=1.75

SELL PUT JUL-25 UGE-SE OI=1860 at $1.50 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 6.41 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=OPWV


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