Option Investor
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Daily Newsletter, Thursday, 06/28/2001

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The Option Investor Newsletter                  Thursday 06-28-2001
Copyright 2001, All rights reserved.                         1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        06-28-2001        High      Low     Volume Advance/Decline
DJIA    10564.73 +131.37 10646.45 10438.66 1.30 bln   1882/1213 
NASDAQ   2125.32 + 50.72  2157.32  2096.88 1.93 bln   2319/1398
S&P 100   635.33 +  8.89   640.63   626.69   totals   4201/2611
S&P 500  1225.82 + 15.13  1234.44  1211.07
RUS 2000  502.99 +  7.41   503.31   495.58
DJ TRANS 2765.56 + 65.36  2780.21  2700.78
VIX        22.58 -   .99    23.34    21.65
Put/Call Ratio      0.50
******************************************************************

And A Sigh Of Relief Was Heard By All!

In case you live in a closet the big news of the day was the
unanimous Appeals Court ruling over turning the breakup order
for Microsoft. They also said that Judge Jackson had acted
inappropriately in the case. They said Microsoft did not use
monopoly power in bundling their Explorer browser but did say
that they had been a bully in the operating system arena.







The news about Microsoft was followed by extreme volume on the
Nasdaq. The volume in MSFT stock was so heavy that it shut down
the two main systems on the Nasdaq and MSFT stock was halted for
trading for about three hours. By the time trading resumed the
competing press conferences had thrown a cloud over the real
impact of the verdict and trading was muted. The Microsoft team
was quick to trumpet their "free to innovate" mantra and the Justice
Dept was yelling "still an operating system monopoly" from every
corner. There are numerous benefits and gains as well as questions
on both sides of the verdict. The Appeals Court sent the case back
to a lower court to decide several issues as well as come up with
a new remedy in the case. Microsoft spokesman said that today's
ruling drastically narrowed the case and said they will continue
to work to resolve the remaining issues without the need for
continued litigation. Read that as "we want to settle -PLEASE !!"

The ruling while closing another chapter in the Microsoft saga
also will solve nothing for anybody. Yes, it is positive for
MSFT but until they settle they still have to tread lightly. An
aggressive MSFT would only aggravate competitors and the states
that had sued them. Microsoft needs to be humble and contrite,
beg forgiveness and settle quickly before the case gets complicated
again as everyone attempts to get their pound of flesh.

Many analysts point to the Microsoft verdict almost two years
ago as the downfall of the Nasdaq. They also suggest that this
decision will trigger the long awaited tech rally. MSFT stock
closed up only +1.57 after all the shouting was over. Surprised?
Many thought MSFT would soar double digits when the case was
decided. In reality MSFT has already gained almost +81% from its
$40 low in Oct of last year. This represents a +$166 billion
addition to their market cap and is +$35 billion more than
the entire market cap of Cisco. Many point to the very narrow
trading range around $70 for the last 2.5 months as evidence
that the verdict was already priced into the stock. I have to
admit I am surprised at the paltry gains today after the huge
volume spike after the announcement. While this case is far from
over the possibility of a favorable outcome is much greater. This
will remove many sellers from picture and prompt many long term
buyers to consider Microsoft as an investment again. As MSFT
goes, so goes the Nasdaq. With possibilities of a settlement on
the horizon the possibilities of a rally are strong.

Despite all the positive sentiment today surrounding the MSFT
verdict, reality continued to plague us. PMCS warned that they
would now post a loss of minus seven to nine cents for the
quarter instead of the two cents previously expected. They also
warned they would take an undisclosed charge in the 2Q for
unsold inventory. This hit AMCC and BRCM which are in the same
business and had already warned on their own. PMCS actually
gained on the day and was trading up almost $1 in after hours.
BRCM and AMCC were also posting gains. Is the chip sell off
over? It would not be up to me to say that but it is clear
that continued bad news is having no impact and investors
are moving back into those stocks.

Liberate Technology warned that they would miss estimates
slightly and AFOP said they would come in at a nickel loss.
The big mover after the close was Ingersoll Rand (IR) which
said they would miss by -20% to -30% and saw no U.S. rebound
anytime soon and were seeing growing weakness in Europe and
Latin America. IR fell from a close of $43.50 to $41 in
after hours trading.

Other market moving news today was an offer by GE to sell
off some of their avionics business in an effort to get the
EU to approve the Honeywell merger. The markets loved it and
felt the door was left open to get approval and HON gapped
up over +$3 on the possibilities. Close but no cigar! After
the close the EU said that they would not approve the
merger and it now appears dead. The last minute proposal
was struck down and there appears no other avenue in the
wings. HON dropped almost -$4 in after hours and GE gained
+$1 on the news.

Iraq gets another chance to be in the limelight this week
as rumors abound that they will start pumping oil again.
Oil has already sunk to a 14 month low on news of much
stronger than expected supplies and a lower than expected
demand. Oil companies sold off quickly and airlines and
trucking companies gained more ground. Federal Express
announced earnings that beat the street by twelve cents
but warned that earnings and revenues would miss estimates
going forward due to slowing corporate shipments and
higher costs. However the stock soared on the news of a
hiring freeze and cost cutting efforts that FedEx said
would help them regain their profits. FDX gained +1.91
or +5% on the news.

Greenspan must be taking his Geritol because he is one
active Fed head today. He spoke this morning at the Federal
Reserve Bank of Chicago at the opening of the new visitors
center. He also speaks again tonight at The Economic Club
of Chicago on the Impact of Energy on the Economy. Analysts
will be listening to see if his energy speech is going to
dwell on the inflation impact of higher costs and if he
will talk about productivity increases to offset energy
costs. Of course they will also be sifting each sentence
to see if there is any rate change bias as well. This is
the first time he has spoken about energy since the crisis
began over a year ago.

The minutes of the FOMC meeting in May were released today
and they showed that the economic slowdown was lasting longer
than the committee members had originally anticipated. They
were mixed on whether the economy had bottomed but all still
believed that a recovery would occur later this year. Wishful
thinking? They were unconcerned about future inflation and
the bias was still toward a monetary policy of expansion.
There was a dissenting vote to cut -50 points in May but
they could not muster any support for only a -25 point cut.
Obviously others came to the same opinion in the last month.
There was an indication that the members felt they were coming
near the end of the easing process (and this was in May) which
means they really think that the process is almost done with
the June cut. They also felt the tax cut would stimulate the
economy and prevent the need for them to continue cutting.
The release of the minutes corresponded with the afternoon
market decline as traders realized the Fed was probably done.
The Fed funds futures still point to an 84% chance of another
-25 point cut at the August 21st meeting but it is really
too soon to speculate on whether that will hold.

New jobless claims fell for the third week in a row and could
be showing that the worst is over. However, it could be just
a seasonal blip that indicates that the newly unemployed were
simply taking a summer vacation before heading back to the
treadmill. Next week has several important reports including
the non-farm payrolls and I will touch on that in the Sunday
newsletter.

Fearless Friday forecast: Futures are up on both the S&P and
the Nasdaq. The HON/GE merger news will take a toll on the Dow
with HON down -3.50 in after hours but the GE gains should
help. MSFT should gain as the spin doctors try and suggest
that the end, although not close, may be in sight for long
term investors. Semiconductors are up in after hours and the
sentiment appears to be bullish. Historically the week before
the 4th of July is up due to end of quarter window dressing
and retirement funds coming into the market at the six month
window. The Russell-2000 is poised to end the month over 500.
The Russell-2000 is undergoing a huge rebalancing this week
with about 150 companies leaving the index and another 150
being added. Companies being added have been rising steadily
over the last couple weeks as speculators moved into position
ahead of index funds which will have to rebalance their holdings
on Friday as well. Once this rebalancing is over there is likely
to be a bleed off as those speculators move on to other projects.
I look for decent volume Friday with a bullish bias. With the
Nasdaq gains from this week there could be some profit taking
which hopefully will be offset by new buyers encouraged by the
MSFT decision. I told you Tuesday techs were not dead and
I was criticized for it. Make your own decision if you don't
like mine. I suggested QLGC at $57.74, it hit $64.74 today.
I will take a two day gain of +$7 every week! How about you?

Enter passively, exit aggressively!

Jim Brown
Editor


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index instead?

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

Rally, Window Dressing, Asset Allocation, or Court Ruling?
By Jeffrey Canavan

Was today the start of a new rally, or merely an end of quarter
anomaly?  The way the markets faded into the close tends to make
me believe the latter.  If you believe in statistics, the last
day of the second quarter has been down 7 out of the last 10
years.  The performance of Microsoft today also clouds the
picture. After the entire ruckus that surrounded the software
maker's court ruling, Microsoft finished up a meager $1.60.
What's good for GM is good for America use to be the mantra
chanted on Wall Street, but that credo has been updated to -
what's good for Microsoft is good for America.

As you can tell, my market bias for tomorrow was leaning towards
the bearish side, and then PMC Sierra warned that their loss
would be wider than expected for the current quarter.  That
cinched it, the market is heading lower tomorrow...no...wait a
second...PMC Sierra is $1.50 higher in after hours trading.
I've stopped trying to rationalize these reactions to earnings,
and my best guess at the market's sentiment is that that the
bulls may lack conviction, but the bears look afraid to pull the
trigger.  I leave you with some of PMC Sierra's financial data to
play analysts with.

          Revenue     Cash Flow    Inventory  (in millions)
03/26/00   $114         $ 23          $ 9
06/25/00   $161         $ 54          $13
09/24/00   $198         $114          $32
12/31/00   $220         $182          $54
04/01/01   $119         $-21          $63
07/19/01*  $ 93            ?           ?

Question:
Assuming an optimistic 15% growth rate, how many quarters would
it take for PMC to get back to $220 million in revenues?

Answer: 7 quarters

===

Market Volatility
VIX   22.44
VXN   48.71

Put/Call Ratio
Total            .50
Equity Only      .40
OEX             1.35
QQQ              .41

Bullish Percent Data: Readings above 70 are considered
overbought, and readings below 30 are considered oversold

NYSE          42
NASDAQ-100    34
DOW           54
S&P 500       44

10-Day Arms Index  1.24
Readings above 1.25 are bullish, and readings below .85 are
bearish.  These signals don't occur often and tend be early, but
when the do, they can signal significant market turning points.

        Advancers     Decliners
NYSE      1878           1216
NASDAQ    2308           1407

        New Highs      New Lows
NYSE       152            37
NASDAQ     137            45

Advisory Sentiment   Bullish   Bearish
                       51%      30.6%

===

CBOT Commitment Of Traders Data as of 6/19/01
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)
Net Value        +72258     +67110         -69745    -70183
% of OI         (+39.20%)  (+25.01%)      (-10.37%) (-9.04%)
                 net-long   net-long      net-short  net-short

                     Small Specs             Commercials
DJIA futures     (Current)  (Previous)     (Current) (Previous)
Net Value         -3711       -4305         +1876     +6239
% of OI          (-32.56%)  (-28.76%)      (+8.2%)   (+14.44%)
                 net-short   net-short     net-long    net-long


                     Small Spec              Commercials
NASDAQ 100      (Current)  (Previous)     (Current) (Previous)
Net Value         +5881      +2110         -10617     -10648
% of OI          (+25.92)   (+6.09%)      (18.44%)   (-13.68%)
                 net-long   net-long      net-short net-short


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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:
*****

CHKP $49.60 -3.10 (+0.81) On apparent rumors about a pending
earnings warning, CHKP failed to participate in the broad market
rally on Thursday, which immediately raised a cautionary flag.
There appeared to be no concrete news concerning the stock, but
things got decidedly more interesting around 3pm ET.  Suddenly,
heavy selling came into all CHKP and then other Internet
Security stocks like VRSN and ISSX.  With heavy selling volume
appearing throughout the group, it appears that somebody knows
something that we don't.  Even though our $48 stop has not been
violated, the prudent move is to get out of the way before we
get run over.  We are dropping the play tonight as we don't want
to have a play open where there may be factors at work that we
are unsure of.

QCOM $57.60 +2.04 (+3.03) Performing better than we had
originally expected, our QCOM play is ready for pasture.  We
were quite pleased as it managed to crest the $55 level in its
recent rally and kept it alive to take advantage of further
gains.  The stock seemed to just run out of gas this afternoon
near $59, and with the formidable overhead resistance in this
area, it appears unlikely that the stock will be able to
continue higher in the near term.  We're more than happy to
book the gains accrued since we began coverage near $49, picking
the stock's near-term bottom!  In the current market environment,
we need to content ourselves with moderate gains on a consistent
basis, and to that end, we're dropping QCOM.


PUTS:
*****

ENZN $61.39 +5.49 (-0.55) ENZN announced the placement of $400
million in convertible notes late Wednesday, which may have
added to its strength Thursday.  Or, its advance may have
stemmed from massive short covering.  In either case, the volume
was notable on which ENZN rallied, which ultimately settled the
stock above our stop at $60.  Look for any weakness below the $60
level Friday in order to exit open positions.

EMLX $37.61 +2.98 (+4.91) All good things must come to an end,
and with its break out of the recent trading range, EMLX has
broken a pattern which had been providing small but consistent
gains for nimble day-traders.  Storage stocks found favor with
the bulls over the past few sessions, and what was looking like
a possible rollover entry last night turned into a violated stop
at the open this morning.  EMLX rallied right from the opening
bell, clearing our $36 stop and the 50-dma by the close.  With
our technical pattern broken, it is time to move EMLX to the
drop list.

MERQ $58.74 +1.89 (+4.27) Yesterday's rally in shares of MERQ
turned out to be just a preview of more to come today.  Buyers
were lined up to grab shares of the company, pushing volume
above the ADV and posting another solid gain.  The opening
price was the low of the day and MERQ quickly blasted through
our $58 stop price, never to return.  With oscillators pointing
up, it looks like further price gains are in the cards, so
we'll step aside, dropping MERQ tonight.


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The Option Investor Newsletter                  Thursday 06-28-2001
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:
http://www.OptionInvestor.com/htmlemail/4963_2.asp


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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.

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IndexSkybox.com:
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********************
PLAY UPDATES - CALLS
********************

RATL $29.21 +1.22 (+2.91) Shares of RATL gapped higher Thursday
morning and spent the better part of the day trading between the
$29 and $29.50 levels.  The gap higher did not allow for favorable
new entries into the play, but was obviously a welcome for those
with open positions.  As for new entries, traders can now turn to
the $30 level for an action point.  However, we need to see
volume pick-up on any breakout attempt - Thursday's trading was
quite inactive.  It's reasonable to expect RATL to trade around
its current levels to consolidate its recent run, so a pullback
from current levels is not out of the question.  Nevertheless,
we may witness a breakout in the coming days, which will most
likely depend on the direction of the Nasdaq.  Continued strength
in the COMPX, along with the GSO.X, should allow for RATL to
break above $30 and offer new entries for those who prefer
trading breakouts.  Trade according to the direction in the COMPX
and GSO.X, and note that we have raised our protective stop up to
$26.

MEDI $47.43 +2.26 (+2.13) The biotech sector (BTK.X) rebounded
Thursday, which set MEDI free to advance.  MEDI is one of the
stronger stocks within the group, so any continuation of the BTK's
rebound should allow for our play to work higher.  However, MEDI
did stop short of its 200-dma Thursday, which currently sits at
$48.23.  We're speculating that MEDI may trade sideways for a few
more days, finding support near its 10-dma at $44.38, or higher
around $45, before breaking out above its 200-dma.  Then again,
the stock could very well break above its 200-dma as early as
Friday morning.  Depending upon strategy preference and risk
tolerance, traders can use either a high-volume advance past $48.23
as an entry point or a low-volume pullback to support.  In either
case, make sure to confirm direction in the COMPX, followed by
referencing the BTK.  If MEDI breaks above its 200-dma, we could
see an advance into the mid-$50's over the short-term, at which
point traders can lock in gains.  We're moving our stop up to $43.

CEPH $72.50 +2.39 (+3.90) We got the breakout that we had been
gaming in CEPH Thursday.  The stock advanced above the $70 level
on volume that confirmed the move.  For traders who did enter
calls on the breakout Thursday morning, be aware that there
exists some minor resistance around the $75 level, and thereafter
at CEPH's all-time high around $83.  The $75 level may be a site
to lock in gains for those with open positions or it could also
serve as an entry point for those without positions, should CEPH
advance above that level.  Pullbacks back down to the $70 level
may also transpire, which could offer traders entry points,
provided any weakness occurs on light volume.  CEPH does appear
very technically strong and its breakout Thursday was by the
textbook.  As long as the Nasdaq and BTK continue to work
higher, CEPH should build on its recent gains.  In terms of
exit points, depending risk tolerances, traders can turn to
the $75 level, or wait for an advance up to $80.  We have moved
stops up to $68.

MWD $64.01 +1.36 (-1.04) MWD rebounded nicely Thursday, following
its slump in the wake of the Fed's announcement on rates
Wednesday.  However, the stock is having trouble getting above
the $65 level, which coincides with the Brokers Index (XBD.X)
having trouble clearing its 500 resistance level.  We need to
see both the XBD and MWD clear their respective resistance
levels in the short-term if we're to keep our play alive.  That
said, a volume-backed advance above the $65 level would offer
entry into new MWD call positions, with the $70 level serving
as the upside target, or exit point.  Keep an eye on the S&P
500 (SPX.X) as well as the XBD when gauging MWD.  Our stop
currently sits at $61.

ADBE $46.86 +2.51 (+3.28) News that the appeals court reversed
the MSFT breakup ruling gave the Software sector a much-needed
shot in the arm on Thursday and ADBE had a rather impressive
day.  Although the stock failed to hold above the $48 resistance
level, the bulls did manage to test this level and hold onto
most of their intraday gains.  Volume was strong as ADBE rallied
throughout the day, helping the stock to post its highest close
since mid-April.  After such a strong move, the bulls will
likely need to consolidate their gains, and we would look for
some profit taking to provide fresh entries on a bounce in the
$44.50 or $46 area.  Of course the bulls could continue to
charge ahead, and a continued upward push would provide for
fresh momentum-based entries as the stock surges through the $49
level.  With the late-day weakness, we are moving our stop up to
the $43 level.  A close below that would represent a definite
change to the technical picture.

FRX $72.36 +1.03 (+0.26) After solidifying support in the $71
area, FRX took advantage of today's broad market advance to
push through the 30-dma (currently $72.09).  The bulls look to
be gaining strength here and provided that the market can add
to its gains, the next obstacle will be the $74 resistance
level.  While the Pharmaceutical index (DRG.X) did manage to
post a gain on Thursday, it is far from returning to bullish
mode, and we need to see better health here before FRX is likely
to post a sustained rally.  While volume has been respectable,
it is still running about 30% below the ADV, and a sustained
move will need the support of strong volume.  Target intraday
dips in the $71 area for new entries or wait for the bulls to
crest $74 on strong volume.  With the recent consolidation above
the critical $70 level, we are moving our stop up to $69 to
minimize our downside risk.

MVSN $65.20 +2.24 (+6.65) Yesterday's play of the day continued
to be a favorite of the bulls on Thursday as buyers solidified
the recent advance through the $62 level.  The breakout on the
Point and Figure chart has now been confirmed and with MVSN now
solidly above its 38% retracement of the long-term decline, we
should see an advance to the $70 area in the days ahead.  Our
daily Stochastics are now deep in overbought territory, and it
wouldn't be a surprise to see the $63 level retested.  A
successful test and bounce from this level would provide an
attractive entry point for the next leg up.  Continuing to buy
the breakout as MVSN heads higher is certainly a viable
alternative.  Target a move through the $67 intraday resistance
level, but make sure that volume remains near the ADV.  Waning
volume will be an early sign that the rally is losing steam.
In the wake of the recent breakout, we are moving our stop up
to $63.

OPWV $32.45 +1.92 (+3.78) Continuing the rally that began last
week, OPWV had some help from the broader market on Thursday.
Clearing the $32 resistance level provided a solid entry point
for traders today, and with the daily Stochastics still in
ascent mode, it looks like an assault on the 38% retracement
($33.50) is in the cards.  Then the bulls will have to contend
with the $36 historical resistance level, as it is also the site
of the converged 30-dma ($35.89) and 50-dma ($35.70).  New
entries can be taken on an intraday bounce from the $30 or $32
support levels or on a continuation of the rally through the $34
level.  The one disconcerting issue in today's rally is the fact
that volume was downright anemic, at less than half the ADV.  If
the bulls are going to push through that overhead resistance,
they'll need to push volume much closer to the ADV in the
process.  Move stops up to $29 and watch out for weakness in
other Wireless stocks and the broader technology market.


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

NETE $28.99 +0.08 (-1.15) NETE charged past our stop at $31
early Thursday morning, but keep in mind that our stop is set
on a settlement basis.  Nonetheless, NETE suffered a terrible
rollover Thursday afternoon and continues to trade very
"heavy" relative to the COMPX.  That fact, combined with our
substantial gains in the stock are the reasons we're choosing
to maintain coverage.  Furthermore, keep in mind that NETE
competes with Symantec (SYMC), which issued a terrible earnings
warning not too long ago.  Shorts may be expecting the same thing
from NETE.  In terms of new entry points, traders can look for
light volume advances up to the $31 level, and look for subsequent
rollovers.  Or, consider entering on a breakdown below $27.50.
In terms of exit points, those with existing positions and
good gains can look to book 'em on any weakness below $27.50.

HGSI $58.36 +2.36 (-4.14) With the broad-based market rally
that appeared the day after the Fed delivered its latest
interest rate cut, even the Biotechs participated, pushing
HGSI right up to our $60 stop today.  Then just after lunch,
the sellers came out of the woodwork, pushing the stock lower
right up to the closing bell on increasing volume.  While HGSI
still posted a solid gain on the day, it looks like the bears
just took it in stride, selling into the rally.  HGSI is now
sitting just above the $58 intraday support level and the 50%
retracement level at $57.25.  A drop through this level looks
attractive for initiating new positions to the downside as we
target a return to the $53 level.  We don't want to get
complacent though.  Reinvigorated bulls could be back in buy
mode tomorrow, and if they can manage a close over our $60
stock, we'll know for certain that the situation has changed.
Watch the Biotechnology index (BTK.X) for sector weakness.  If
the BTK begins to break down again, HGSI will likely follow
suit.

NVDA $91.92 +1.07 (+0.62) Oscillating in a holding pattern this
week, NVDA seems to be consolidating ahead of its next big move.
Bulls will point to the fact that the $89 support level held and
the intraday lows are getting higher, while the bears will focus
on the fact that the $93-94 level has proved to be impenetrable
resistance.  We just want to trade profitably, and until the
descending trendline (currently $93.50) is decidedly broken,
NVDA looks poised to deliver another downward move.  Failed
rallies near resistance still look attractive for new entries,
although the more cautious approach will be to wait for the
stock to fall through the $89 support level on strong volume.
We are leaving our stop in place at $96, and as long as this
level remains unbroken, it should continue to keep the bulls
in check, providing attractive entries whenever the price rolls
over.  We are still looking for a return to the $82-83 level as
our first price target, and that move will provide some healthy
gains for our play.


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

BSYS - BISYS Group $59.91 +2.14 (+2.43 this week)

BISYS is a leading provider of outsourced business process
solutions, strategically positioned as the only single-source
integrator of banking, investment, and insurance solutions.  This
unique array of products and services integrates core processing
platforms with contemporary Internet- and browser-based solutions,
and currently supports more than 15,000 financial institutions
and corporate clients.

We are attracted to shares of BISYS for fundamental and
technical reasons.  For starters, the company's earnings
estimates are actually trending higher, which is a rarity in the
current economic environment.  In addition, the stock trades
with a relatively low implied volatility of around 35, which
translates into cheaper option premiums.  More importantly,
however, is the stock's breakout Thursday on strong volume.  BSYS
had been consolidating around the $55 level - the site of our
stop - for three weeks prior to its advance above the pivotal
$58 level Thursday.  Volume behind the move totaled just over
1 million shares, while BSYS' 30-day average volume is around
600 K shares.  The weekly chart for BSYS displays an even longer
period of basing, which essentially began in late 2000.  We're
gaming an extended run in the stock, and this play is most
definitely for those who prefer trading breakouts, hence the
liberal stop.  A pullback in the near-term may offer a better
entry point for those who'd rather not chase stocks higher in
the current market environment.  However, BSYS' point & figure
chart does reveal a bullish price objective in the low $80's,
so we're willing to ride this play higher for a relatively
longer period of time, market conditions permitting.  Use BSYS'
competitors in FISV and FDC to discern its sector direction
when planning trades.

BUY CALL JUL-55 BQY-GK OI= 89 at $5.60 SL=3.50
BUY CALL JUL-60*BQY-GL OI=150 at $1.75 SL=0.75
BUY CALL JUL-65 BQY-GM OI=  0 at $0.30 SL=0.00  Aggressive!
BUY CALL AUG-60 BQY-HL OI=  0 at $3.20 SL=1.50

Average Daily Volume = 602 K
http://www.OptionInvestor.com/charts/chart.asp?symbol=BSYS


VRTX - Vertex Pharmaceuticals $47.44 +2.28 (+2.41 this week)

Seeking to discover, develop and commercialize novel
small-molecule drugs that address significant markets with
major unmet medical needs, VRTX is a relatively small, but
potent biotechnology company.  Targeting the treatment of
viral diseases, cancer, auto-immune and inflammatory diseases
and neurological disorders, the company's drug design platform
integrates advanced biology, chemistry, biophysics and
information technology to make the drug discovery process
more efficient and productive.

It has become increasingly difficult to interpret how news
developments will affect a stock's price.  So yesterday's
announcement that VRTX had solved the 3-D atomic structure of
the GSK3 beta enzyme and would use that knowledge to target
Diabetes treatments may be completely irrelevant to the movement
in the stock over the past 2 days.  After bottoming near $40 on
Tuesday, the stock has seen an impressive rally get underway,
with VRTX posting a 17% 3-day gain.  Although volume is still
ticking along just below the ADV, the buying volume has been
rising the past few days as it has moved through the $46.50
resistance level and the converged 10-dma ($44.92) and 30-dma
($44.71).  The Point and Figure chart paints a bullish picture
as well, with today's gains completing a quadruple-top breakout
and showing a tentative bullish price target of $63.  Before
getting anywhere near that level though, there will be some
intermediate resistance levels to scale, most notably the early
June highs near $51.  Momentum traders can enter the play on a
continuation of the recent rally which pushes the stock through
today's highs near $48.  Bargain-hunters may be able to gain
entry on a pullback to $45-46 level.  We are initiating coverage
with our stock down at $43.  Look for increasing volume and
strength in the Biotechnology index (BTK.X) to confirm VRTX's
strength before playing.

BUY CALL JUL-45*VQR-GI OI= 618 at $4.90 SL=3.00
BUY CALL JUL-50 VQR-GJ OI=1263 at $2.40 SL=1.25
BUY CALL JUL-55 VQR-GK OI= 419 at $1.10 SL=0.50
BUY CALL AUG-50 VQR-HJ OI=  31 at $4.20 SL=2.50
BUY CALL AUG-55 VQR-HK OI=  13 at $2.40 SL=1.25

SELL PUT JUL-40 VQR-SI OI= 605 at $1.80 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 1.12 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=VRTX


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

APWR - AstroPower $48.16 +2.41 (+5.06 this week)

AstroPower produces the world's largest solar electric
(photovoltaic) cells and a full line of solar modules.  The
company is a fast-growing innovative manufacturing and
engineering company, headquartered in Newark, Delaware.  The
company is committed to bringing the benefits of clean
renewable energy to the world.

Shares of APWR have advanced recently in the wake of the
malaise that is known as the energy crisis.  In addition, the
company recently won a contract to supply some 500 solar power
systems to a housing community in California.  So, why are
we initiating bearish coverage on the stock?  To begin with,
the recent advance in shares of APWR came on relatively light
volume, which doesn't give as much credence to its price
action.  Further, the recent pullback in the price of traditional
energy may dampen the excitement over alternative energy providers
such as APWR.  Additionally, the stock ran right up to its 61.8
retracement level of its most recent decline, anchoring near
its high around $57.58 and its low around $36.25.  Finally, and
most importantly, the stock ran up to its descending bearish
resistance line on the point & figure chart, which currently
sits at $50.  The combination of the four aforementioned factors
allows for a relatively low-risk/potentially high reward in
entering puts near current levels.  We'll be able to control
risk with the point & figure chart by setting our stop at the
$51 level - just above the supply line to allow for head fakes.
Traders who would rather not enter put plays on strength can wait
for a rollover from current levels and look for the stock to
breakdown below the $46.90 level, whereupon weakness would be
evident.

BUY PUT JUL-50 PUW-SJ OI= 2 at $4.90 SL=3.00
BUY PUT JUL-45*PUW-SI OI=68 at $2.40 SL=1.25

Average Daily Volume = 366 K
http://www.OptionInvestor.com/charts/chart.asp?symbol=APWR


VRSN - VeriSign, Inc. $56.38 -0.91 (-2.15 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

VRSN has spent much of the past month struggling to crest the
$60 resistance level, all to no avail.  The bulls made another
attempt during today's broad market rally, were once again
turned back by the bears, and we now have a daily Stochastics
oscillator that has rolled over and is just dropping out of
overbought territory.  Given the recent price action, which has
really been unable to advance, the rise and rollover of this
oscillator really portends significant weakness.  Up until the
90 minutes of trading today, it looked like the stock might
actually keep its gains and make another attempt tomorrow.  That
was before rumors surfaced that competitor CHKP would be issuing
an earnings warning.  Not only did that serve to kick CHKP off
the call list, but it landed VRSN squarely on the put list after
the stock suffered a 6% loss in the final 90 minutes of trading.
With the formidable $60 resistance still in place, that seems
like a logical place for our stop.  Consider new positions on a
failed intraday rally to the $58-59 area, or as the stock falls
through the $55 support level.  Further support will come in at
the intraday levels of $54, $52 (the site of the 38% retracement
of the April-May gains) and $49.  Watch VRSN's competitors such
as CHKP and ISSX for signs of continued weakness, as that will
help to stack the odds in our favor.

BUY PUT JUL-60 QVR-SL OI=1039 at $6.70 SL=4.75
BUY PUT JUL-55*QVR-SK OI=2524 at $4.00 SL=2.50
BUY PUT JUL-50 QVR-SJ OI=1324 at $2.20 SL=1.25

Average Daily Volume = 8.31 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=VRSN


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

CEPH - Cephalon $72.50 +2.39 (+3.90 this week)

Cephalon seeks to discover, develop and market innovative products
to treat neurological disorders, sleep disorders and cancer.  The
company is committed to providing patients and the medical
community with novel therapies to treat unmet medial conditions
through its proprietary research programs and by acquiring
promising products for clinical development and commercial sale.

Most Recent Write-Up

We got the breakout that we had been gaming in CEPH Thursday.
The stock advanced above the $70 level on volume that confirmed
the move.  For traders who did enter calls on the breakout
Thursday morning, be aware that there exists some minor
resistance around the $75 level, and thereafter at CEPH's
all-time high around $83.  The $75 level may be a site to lock
in gains for those with open positions or it could also serve as
an entry point for those without positions, should CEPH advance
above that level.  Pullbacks back down to the $70 level may also
transpire, which could offer traders entry points, provided any
weakness occurs on light volume.  CEPH does appear very
technically strong and its breakout Thursday was by the textbook.
As long as the Nasdaq and BTK continue to work higher, CEPH
should build on its recent gains.  In terms of exit points,
depending risk tolerances, traders can turn to the $75 level,
or wait for an advance up to $80.  We have moved stops up to $68.

Comments

CEPH's breakout Thursday has positioned the stock to move higher
in the very short-term.  Add to that fact that CEPH is one of
this quarter's best performing stocks, and we could see our play
work higher Friday.  Watch for an advance above its intraday
high Thursday as $72.80.

BUY CALL JUL-65 CQE-GM OI= 250 at $8.90 SL=6.25
BUY CALL JUL-70 CQE-GN OI=1476 at $5.20 SL=3.25
BUY CALL JUL-75*CQE-GO OI= 359 at $2.75 SL=1.50
BUY CALL AUG-70 CQE-HN OI=1419 at $8.00 SL=5.75
BUY CALL AUG-75 CQE-HO OI=1083 at $5.40 SL=3.50

Average Daily Volume = 1.91 mln



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