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Daily Newsletter, Tuesday, 07/03/2001

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The Option Investor Newsletter                  Tuesday 07-03-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        7-3-2001        High      Low     Volume Advance/Decline
DJIA    10571.11 - 22.61 10595.13 10531.52  .62 bln   1594/1350	
NASDAQ   2140.80 -  7.92  2148.18  2123.75  .88 bln   1604/1846
S&P 100   638.55 -  1.41   639.94   636.22   Totals   3198/3196
S&P 500  1234.45 -  2.27  1236.71  1229.43
RUS 2000  496.83 -  1.56   499.04   495.00
DJ TRANS 2809.37 +  2.87  2817.06  2790.05
VIX        20.95 +   .66    21.41    20.84
Put/Call Ratio      0.64
******************************************************************

Fifty-Four Warnings In Two Days, Are We There Yet?

Earnings warning season is racing to a close with real earnings
starting next week but the last minute flurry of companies trying
to sneak in before the doors shut is accelerating. Actually a more
accurate reason for the flood of warnings this week is they don't
think anyone is watching. Since the majority of investors are on
vacation and away from stock TV, they timed their announcements to
avoid as much negative press as possible. Of course, sometimes it
does not matter when you warn if your warning is bad enough. ISSX
is a prime example dropping more than -$20 after saying they would
post a loss instead of a +.15 gain analysts had expected.







Dupont, which warned after the close on Monday, was high profile
and as a Dow component impacted the market negatively. They joined
Eastman Chemical in saying the growing weakness in Europe and Asia
and higher costs in energy and raw materials as the reasons for
their shortfall.

The Nasdaq held up remarkably well considering the huge number
of warnings in tech stocks. The software sector was hit hardest
with warnings from BVSN, CHKP, RATL, ITWO and EPNY. Is there
anybody left? BVSN said it would post a wider than expected loss,
its CFO resigned and it has cut nearly a third of its workforce
to counter the effects of the economic slowdown. They said customers
were postponing purchases and European demand was especially weak.
Companies in the same segment who have yet to warn are OMKT, VIGN
and BLUE. I would think they would be short/put candidates but
stocks in low single digits don't have far to fall.

ITWO CEO, Greg Brady, said he was disappointed that ITWO was not
able to make what he believed were conservative profit targets.
They are also laying off -10% of their workforce and said they
would cut deeper if business did not improve soon. CHKP said they
would hit earnings estimates but revenue would be about -$10 million
below the estimates of almost $150 million. CHKP dropped -6.36 to
$44.56 on the news. EPNY warned it will post a larger than expected
loss after a slowdown in international sales. You know the rest.

Rational Software lost -5.25 or -20% to $22.12 on news that it
would miss earnings estimates slightly but revenue would drop
substantially. Almost every analyst covering RATL cut their
estimates. JPM said the most troubling aspect was the change in
business outlook since the analyst meeting which was just held
in mid-June. The acceleration of weakness in this sector was
a concern and the revenue shortfalls from these stocks were
forcing a re-evaluation.

Compuware warned after the close that revenues would be less
than expected but earnings would top forecasts. An investor
nightmare? Revenues are down but earnings are up? Is this good
or bad? Normally bad. Earnings can be up because of a better tax
rate due to write offs, reduction in expenses due to closed
plants, lay offs, etc. Some restructuring is good but when the
economy turns up they need to be in a position to capitalize on
it. Without growing revenues investors should look elsewhere.

Payless warned today that heavy markdowns and slow sales would
push 2Q and full year earnings "well below year-ago results and
Wall Street estimates." They said the sales improvements they
had expected for June failed to appear and sales are running
"considerably below expectations." The keyword here is
"considerably." PSS lost -7.63 on the news.

With more lives than Morris the cat, the GE/HON deal has finally
died. The EU officially voted unanimously to kill the deal. The
HON board was rumored to be meeting Tuesday to replace the current
CEO with the past CEO from Allied Signal. Reportedly the board
was upset with the current CEO for multiple reasons besides the
handling of the GE merger.

Qualcomm gained +$6 on news that another in a series of technology
licensing agreements with Nokia. The cross-licensing deal expands
a previous agreement and gives Qualcomm a stronger foothold in
the CDMA marketplace. QCOM has also been working on licensing
with wireless manufacturers for the next generation of CDMA as
well. Each new level of agreements gives Qualcomm another new
stream of royalty payments for years to come.

OPEC agreed today in Vienna to leave oil output the same in
anticipation of Iraq resuming oil production soon. Oil has fallen
recently to the $25 level which is slightly lower than the $28
OPEC would like to maintain. There was quite a bit of talk about
cutting production to boost prices at the next meeting.

Economic reports continue to point to a possible improvement
with the Factory Orders jumping +2.5% and beating analyst
estimates of +1.5%. All sectors except computers and communications
rose with autos gaining +3.5%. Semiconductor orders rose but
shipments continued to fall. Still inventories are not falling
as fast as needed to forecast a quick upswing in business.
Shipments may be up but with inventories down only .5% there
is still weakness in the manufacturing sector.

In a shortened pre-holiday session trading volume was weak
as expected. The fact that the Nasdaq only dropped -8 points
with the flood of warnings was a good sign. The Russell
2000 fell as expected to 496 after closing around 510 in the
pre-weekend shuffle. Profit taking in the small caps is underway
and yet the Nasdaq is holding. The volume on Thursday is also
expected to be light and with the non-farm payrolls on Friday
many investors will want to continue waiting on the sidelines
until after that report is published and probably until Monday
to avoid being jerked around by the low holiday volume. The
markets still lack direction and advancers/decliners finished
in a dead heat at 3198 to 3196 for the day. Market sentiment
is building on the bullish side for techs but investors need
to vote with their money before we will get real confirmation.
We may not be there yet but we could be getting close. One
word of caution, the VIX has collapsed to levels not seen
since last summer when the markets rolled over and died.
This should be a warning we take to heart and watch closely.




The good news for today is this. You get to sleep late on
Wednesday and not worry about losing money on an earnings
warning before the bell. Happy 4th!!!

Enter passively, exit aggressively!

Jim Brown
Editor

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

Investors Appear Quite Timorous
By Jeffrey Canavan

Investors still look apprehensive about putting any new money
into stocks.  Our own survey revealed that 47.50% of our
readers are bullish, 31.25% are neutral, and only 18.75% are
bearish.  But clicking on a survey and putting hard earned money
on the line are two different things.

Today's investor apathy, no sector gained or lost more than one
percent, can largely be attributed to the holiday-shortened
trading session.  Traders are more focused on making sure they
have the proper food and beverage to party guest ratio, than
gauging market sentiments...I mean buying or selling stocks.

As my esteemed colleague Mr. Utley pointed out yesterday, the VIX
is approaching historically low levels.  Is it foretelling a
market top?  Previous VIX readings below 20 were also accompanied
by a sharp run up in the broader markets.  We haven't had that,
so I'm only mildly concerned about a low VIX reading.  However, I
wouldn't want to see it drift much lower.

One oddity in the market sentiment today was the put/call ratio
of the Nasdaq-100 dropping to a bearish 0.15.  The ratio had been
averaging a reading of 0.55, so the drop is quite precipitous.
It was the result of 37,518 calls being bought today, compared to
only 5,762 puts.  The shortened trading day has me questioning
this data a little bit, but combine this with the VIX, and it
might be time to snug up some stops on long positions in
technology.

I can't be completely bearish on technology with the Nasdaq-100
bullish percent getting ready to go bull confirmed, but until
that happens, I remain quick to take any bullish profits.  It may
take a week or so to see which way this meandering market is
going move.

===

Market Volatility
VIX   20.95
VXN   45.14

Put/Call Ratio
Total            .64
Equity Only      .56
OEX              .82
QQQ              .15


             Bullish Percent Data
           Current   Change   Status
NYSE          42       -      Bull Alert
NASDAQ-100    50     +16      Bull Alert
DOW           44     - 2      Bear Confirmed
S&P 500       54       -      Bear Alert

Readings above 70 are considered overbought, and readings below
30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

10-Day Arms Index  1.25

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      1587           1353
NASDAQ    1597           1850

        New Highs      New Lows
NYSE        94            20
NASDAQ      45            40

Advisory Sentiment   Bullish   Bearish
                       48%      30%

===

Commitments Of Traders Report: 06/26/01
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and 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 tend
to be wrong.

S&P 500
No significant changes in the S&P 500.  Institutions remain net
bearish, and increased that stance only slightly last week. This
should translate into the S&P 500 bouncing between 1200 and 1240
until this number budges one way or another.

Commercials   Long      Short      Net     % Of OI
6/12/01      353,074   423,257   (70,183)   ( 9.04%)
6/19/01      301,376   371,121   (69,745)   (10.37%)
6/26/01      307,889   379,955   (72,066)   (10.48%)

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      % of OI
6/12/01        167,720   100,610    67,110     25.01%
6/19/01        128,296    56,038    72,258     39.20%
6/26/01        130,914    56,269    74,645     39.88%

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

NASDAQ-100
Institutions added more long positions last week than they did
short positions.  They remain net short, but are slowly getting
more bullish.

Commercials   Long      Short      Net     % of OI
6/12/01       33,586    44,234    (10,648)  (13.68%)
6/19/01       23,480    34,097    (10,617)  (18.44%)
6/26/01       26,263    35,690    ( 9,427)  (15.22%)

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      % of OI
6/12/01        18,374    16,264    2,110       6.09%
6/19/01        14,284     8,403    5,881      25.92%
6/26/01        10,519     6,064    4,455      26.86%

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


DOW JONES INDUSTRIAL
This is probably the most surprising data of the week.
Institutions have actually turned net bearish on the Dow for the
first time since 3/20/01.  May that's why the Dow is having
trouble getting above 10,600.

Commercials   Long      Short      Net     % of OI  Open Interest
6/12/01       24,724    18,485    6,239     14.4%     37,886
6/19/01       12,346    10,470    1,876      8.2%     22,611
6/26/01       11,371    12,759   (1,388)    (5.8%)    23,163

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
6/12/01        5,332     9,637    (4,305)    (28.76%)
6/19/01        3,844     7,555    (3,711)    (32.56%)
6/26/01        4,756     6,341    (1,585)    (14.28%)

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


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

Questions on LEAPS Covered Calls - Part 2
By Mark Phillips

Welcome to another episode of "Stump the Rocket Scientist."
While that term is a bit of a stretch, those of you that know me
are aware that I did spend a decade in a prior life as a Control
System Engineer for NASA.  All that means is that I experienced
government bureaucracy at its best and have developed a true
appreciation for the unfettered nature of trading and writing
for a living.  So keep those emails coming.  Your questions are
the source for some of my best writing ideas, and as long as I
have interesting topics on which to write, I can continue to
share my knowledge through cyberspace.  It sure beats working
for a living!

Yesterday, I promised to cover the downside of the LEAPS Covered
Calls strategy.  So without further adieu, let's get to it.
Rather than copy any of the well-stated questions requesting
coverage of this side of the trade, I thought I would take a
more direct approach, stating the problem and then providing
an appropriate solution.

As I see it, there are 2 possible ways in which this trade can
go against you.  The first is that the stock declines
significantly, dramatically eroding the premium of your LEAP.
While that doesn't create any issues with respect to the sold
call (it will very likely expire worthless), but we can't just
sell our LEAP on a stop loss, as that would leave us short a
naked call.  We definitely want to avoid that situation.

So here is the simple plan of action.  We should always have a
stop loss on the LEAP (typically below significant support, or
based on a maximum loss we are willing to incur), at which point
we want to sell the LEAP.  Instead of placing an order just to
sell the LEAP, we need to place an order to close the spread by
buying back the covered call and then selling the LEAP.  Some
brokers will allow you to exit the trade in a single
transaction, while others will require you to buy back the
covered call before shedding the LEAP.  Check with your broker
to determine exactly what options are available to you.

Falling back on our tried and true AOL example, we will use the
stop loss listed in the LEAPS Portfolio, since at $48, it is
just below the $49-50 support level that we expect to act as a
launching pad for the stock's eventual recovery.  Recall that
the LEAP we own is the $40 2003 LEAP.  As of this writing we are
short the $55 July call (more on that down below).  Assume that
AOL warns that they will miss earnings estimates by a country
mile and over the course of the week, the stock drops to $49,
then $48, and finally on Friday, falls through that level.

My Good-Til-Cancelled (GTC) stop loss order is already placed
with my broker, and when that $48 level is breached (I usually
avoid placing my stops at round numbers, and actually have the
stop placed at $47.75) the Covered Call is bought back for a
pittance and the LEAP is sold for a profit.  If we assume that
I received $16.50 when I sold the LEAP, and it cost me $0.25 to
buy back the Covered Call, I can calculate my total return on
the position.  Cost Basis = LEAP Cost ($8.70) - May CC ($0.70)
- JUNE CC ($1.00) - July CC ($2.00) + Buy Back July CC ($0.25)
= $5.25.  So my profit is $16.50 - $5.25, for a total profit of
$11.25 or 174%.

Not bad for a 3-month hold, huh?  And this was our exit strategy
for the case where the overall position went against us, forcing
a premature exit.  Granted, the final closing prices are
educated guesses, but it is close enough for government work,
don't you think?

This brings us to the other way in which the strategy can go
against us, that the stock moves through the sold strike,
putting us at risk of having the call exercised.  While my exit
strategy is fairly simple, there are many different ways in
which this situation can be handled.  Let's cover my approach
and then I'll address some special situations.

Falling back on the AOL example, let's start by updating the
position.  We left off last week after the June call expired
worthless and I was looking for an entry point to sell the July
call.  Due to writing that article some time ahead of
publication, by the time it went to press, I had already sold
the July $55 call at the close of trading on June 21st.
Although I may have jumped the gun somewhat, the stock was once
again looking overextended and I was expecting to see weakness
heading into the July earnings season.  Resistance looks decent
at $55 and even stronger at $57.  With Stochastics entering
overbought territory, and price exceeding the upper Bollinger
band on the second of two heavy volume up days, I decided to
play a little closer to the edge, expecting an imminent
pullback.  So as prices peaked at the close on Friday, I sold
the July $55 calls for $2.00.




So now I need to figure out my exit strategy.  If AOL continues
higher, at what point would I exit the Covered Call, and how
would I go about doing it.  Since I took in $2.00 from selling
the Covered Call, I can allow the stock to go all the way to $57
at expiration before I have to be concerned about a loss on that
leg of the position.

So my stop loss on the covered call will be set at $57.  A move
through that level and I will need to consider buying back the
sold call.  In the meantime, I can let time decay work in my
favor and the first week is certainly shaping up nicely.  No
matter how it plays out though, I am in a good position.  If the
July call expires worthless, I get to repeat the process next
month.  If AOL moves above $55 and looks like it will top $57
before expiration, I will need to contemplate an early exit of
the Covered Call by buying it back, probably at a loss.  But
the good news is that I have a fat profit in the overall play
and have another interesting development to write about in this
column.

But let's talk specifics.  I manage my covered call with a GTC
stop order so that if I'm not watching the stock when it makes
a move against me, that part of the position will be closed
without the interference of emotion that so frequently clouds
our judgment.  But then I am faced with another decision.  I may
want to consider turning around in fairly short order and
selling the next higher strike, possibly in the next expiration
cycle, depending on the amount of time remaining in the July
expiration cycle.  Of course, I will still want to follow my
general rule of selling into strength when the stock appears to
be topping out in overbought territory, without developing a new
strong uptrend.  Remaining disciplined should allow me to ride
this trade for many months into the future, eventually working
my cost basis to zero.  Of course, you may want to root for my
covered call to move through resistance because then you will
know I'll be writing the details of how I managed the exit from
the trade in real-world conditions.

That about wraps up the ordinary conditions, but before I
conclude this evening's rambling, I thought I would share a
rather unusual case brought up by another of my faithful
readers.

The basic question is "What happens if the company you have been
writing covered calls against receives a premium buyout offer
and the price shoots up $20 overnight?  How do you gracefully
exit the position?"

Simply put, we will shortly close the entire position, buying
back the covered call and selling the LEAP.  Since the LEAP has
a higher delta than the short-term call, it will appreciate more
on such a dramatic move.  There would be nothing wrong with
closing the entire position the day after the buyout
announcement juiced the stock price.

But if we are 3 weeks from expiration of the sold call, we may
be able to milk just a little more profit from the trade by
watching the actual price of the short-term option.  While an
equity call can be exercised at any time in the expiration
cycle, it is unlikely to happen until such time as all of the
time value has been squeezed out of the option.  So by watching
the option price and regularly checking how much time value
remains, we can more precisely time our exit from the play.
When the time value component (total premium minus intrinsic
value) drops to $0.25 or less, we have milked just about all we
can from the play and have reached the optimum exit point.

One final wrinkle to the strategy involves the issue of what to
do in the unlikely case that our sold call actually is
exercised.  This is another issue that will likely vary on a
broker-by-broker basis, so the best course of action is to check
with yours for specifics.  But if you are forced to deliver the
shares at the strike price of the sold call (your broker will
likely short the shares in your account), you should be able to
turn around and buy them back with the combined proceeds of the
sale of the shares and the premium received from the sold call.
This leaves your LEAP intact, putting you back on the road,
selling front-month calls in the quest to reduce your LEAP cost
basis to zero.

Happy Trading!

Mark
Contact Support


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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:
*****

No dropped calls tonight


PUTS:
*****

QCOM $63.87 +6.00 (+5.39) Well, that didn't last very long.
Dead before we even got a chance to play, our QCOM put play was
hijacked by the bulls.  After the pre-market announcement of an
expanded CDMA deal with NOK, QCOM got the boost it needed to
shoot through the $60 resistance level, and then some.  By the
time the early closing bell rang, the stock had racked up better
than a 10% gain on heavy volume, ending just below the high of
the day.  This is one of those plays where we were trumped by a
news event, and we are thankful it happened before we had a
chance to enter any positions.


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


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The Option Investor Newsletter                  Tuesday 07-03-2001
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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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
********************

MEDI $46.57 +0.52 (-0.63) It is becoming apparent that MEDI is
stuck between its 10- and 200-dma, which currently lie at $46
and $47.75, respectively.  The stock is coiling on decreasing
volume, which is normally indicative of consolidation prior to
a large move in one direction or another.  And judging by MEDI's
most recent trend, we speculate that the stock is going to
breakout above its 200-dma.  In terms of entry points, traders
can wait for an advance, on heavy volume, above the 200-dma.
Those who prefer confirmation might wait for MEDI to clear the
$48 level, which has served as significant resistance recently.
Those traders who prefer to enter call positions on pullbacks
can look for MEDI to attract buyers around the $45 level, which
is where it has bounced during the last four trading days.  In
an attempt to gain better entry points, whether on strength
or weakness, keep a close eye on the Biotechnology Index (BTK.X).
The 600 level has acted as a magnet, pulling the BTK lower on
each attempt to advance.  Bullish traders might want to confirm
any rally attempt in MEDI with the BTK advancing past 620.

CEPH $71.89 -1.12 (+1.39) CEPH continues to work in our favor,
using a stair-step method of moving higher.  However, in light
of CEPH's price action, traders need to be very careful in
picking entry points.  If CEPH's pattern persists, it may be
more prudent to enter on low volume pullbacks, instead of
entering new positions on strength.  In terms of support, CEPH
continues to bounce from its 10-dma, which currently sits at
$70.  If CEPH falls below $70, look for support to materialize
around $69, which is the current site of our stop.  However,
if the stock settles below that level, its pattern of higher
highs is likely to come to an end and so will our play.  In
terms of resistance, CEPH faces minor congestion around the
$72.75 level.  Beyond that, CEPH has some historical resistance
around $74 but thereafter it should be a clear shot to $80.  Make
sure to keep close watch on the Biotechnology Sector Index
(BTK.X) when gaming entry points into CEPH.

MWD $63.70 +0.18 (-0.53) MWD's trading range is tightening, and
only its daily chart, the stock appears to be forming a bullish
pennant pattern.  This is most encouraging for bullish traders
as it may portend an advance up to the $70 level in the short
term.  But in order for MWD to breakout above its trading range
and work higher, we need to see the broader market and its
sector advance.  Insofar as the broader market concerns MWD,
keep an eye on the S&P 500.  The sector to keep an eye on is
the Securities Broker/Dealer Index (XBD.X).  Ideally, we'd like
to see the XBD advance above the 510 level and for MWD to
breakout above $66, which would generate the buy signal we've
been waiting for.  Conversely, traders who'd prefer to get in
prior to any breakout attempt can continue to look for relatively
low risk entries around MWD's current levels.  Bounces from $63
or lower near $62 would offer solid entry points that are low
risk because traders can employ a relatively tight stop at $61.

BSYS $61.00 +0.34 (+2.00) BSYS continues to work higher on volume
that supports its advance.  The path of least resistance does
appear to be to the upside as long as the broader markets don't
suffer an extended pullback.  Further, if the broader markets
do decidedly advance, BSYS is likely to out perform due to its
relative strength.  Ne entries can be found on pullbacks down
to support around the $60 level, or lower around $57 or $58.  We
have moved our stop up to the $57 level and choose to keep it
relatively liberal in case BSYS dips down to its 10-dma around
that level.  Traders who prefer to enter on strength can use
any advance above the $61.50 level or above the $62 level to
gain entry into new long positions.  Just make sure that the
broader market is advancing when entering on strength.  Watch
the Nasdaq Composite (COMPX).

BBY $68.18 +1.17 (+4.66) BBY broke out early Monday morning
and has since continued to work higher despite the mild weakness
across the broader market Tuesday.  In addition, the trading
activity in the stock remains robust, which may portend continued
strength in the stock.  For traders who entered new positions
early Monday, look for an exit point around current levels or
slightly higher around the $70 level.  At the very least, traders
can look to lock in any gains by exiting half positions.  After
all, the stock has advanced by roughly $4 from its opening price
Monday morning.  For those not yet in the play, a pullback down
to the platform around the $65 level may offer entries, but make
sure that any weakness comes on relatively light volume.  Further,
if BBY does continue to work higher Thursday, traders might
look to enter new positions near the open.  Watch the Dow and
S&P 500 early Thursday, along with the Retail Sector Index (RLX.X)
to gauge the path of least resistance in BBY.  We have moved our
stop up to the $64 level in this play.

ADBE $45.30 -1.65 (-1.70) Those wondering when ADBE will manage
to crest the formidable $48 resistance level are going to have
to wait a little while longer.  Yesterday's encouraging action
as the stock managed to close virtually unchanged gave way to
selling today.  ADBE fell through the $46 support level and is
either about to fall out of its uptrend again or provide a fresh
entry point with a renewed bounce.  We are leaning towards the
latter, as the weakness on Tuesday was likely due in large part
to the pathetic earnings warning from RATL, a fellow software
company.  While weak volume is likely to continue throughout the
week, we may still be able to gain a prudent entry into the
play.  Look for a bounce near the $44-45 area, but remember that
$44 is the location of our stop.  A close below that level will
have us kicking ADBE off the playlist in a hurry.  As an
alternative to buying the dip, waiting for buyers to push ADBE
back above the $46 level also looks like a viable entry
strategy.

JNPR $31.27 -0.49 (-0.17) It was a yawner of a day as JNPR
dropped at the open and then barely budged for the remainder
of the session.  With light holiday-week volume, it is no wonder
there was so little movement.  JNPR traded less than 4 million
shares on Tuesday, equating to just 15% of the ADV - not the
type of environment in which to make high-odds trading
decisions.  And we are likely to see more of the same this week
if the Networking index (NWX.X) is any indication, trading flat
all day.  Flat trading leaves our strategy unchanged.  Stops
should still be set at $29, and we will look for a bounce near
the $29-30 level to provide for new entry points.
Alternatively, we can wait for a solid push through the $32.25
intraday resistance level before playing.  Don't forget, JNPR
will release its earnings report on July 12, after the market
closes.

MVSN $69.91 -0.52 (+1.41) Did you follow our advice and take
profits on the continued rally yesterday?  Just like clockwork,
as MVSN crested the $70 resistance level (also the site of the
50% retracement) yesterday afternoon, profit takers began to
appear, keeping the stock under pressure throughout Tuesday's
short trading session.  It was encouraging to see MVSN continue
to hug the $70 resistance level, and barring a fiasco like an
earnings warning, it looks like the stock may actually be
gathering its strength to break through.  Personally, we'd like
to see a bit more of a pullback to allow us to gain entry on a
bounce near $68 or even $66, but that may not happen.  We may
have to content ourselves with jumping back into the play as
buyers push it through the $71 resistance level, but we need
to remember our bullish target is not far away at $73.  For
those that didn't take profits off the table, note that we have
moved our stop up to $65.

OPWV $31.88 -1.36 (-2.82) "Uh-oh" said the bulls, as they
watched OPWV pullback from the 50% retracement just above $35
and fall through the 38% level at $33 so far this week.
Thankfully the volume on the pullback has been exceedingly
light, just over a third of the ADV on Tuesday.  As the price
pulled back again today, OPWV closed below its ascending
trendline for the first time in 2 weeks.  Consolidating between
$31.50-32.50 throughout the day left very little in terms of
trading opportunities ahead of the holiday.  While support
should be firm near our $30 stop, a drop through this level will
have OPWV making a quick trip to the Drop list.  Consider new
positions on a bounce above $30, or wait for buying volume to
pick up again driving the stock through the  $33 intraday
resistance or the more formidable $35 level.

TGH $64.87 +0.58 (+0.02) "I think I can, I think I can", TGH
can almost be heard to say as it struggles mightily to crest the
$65 resistance level.  After its strong volume-backed rally last
week, it is only natural that the bulls will want to take a bit
of a breather, and you can see that in the volume picture this
week.  Barely reaching two-thirds the ADV today is a far cry
from Friday's reading of nearly triple the ADV.  The Healthcare
Payor index (HMO.X) has fallen back a bit over the past few
days, so the fact that TGH has been  able to hold its ground
looks like an indication of relative strength.  Look for volume
to increase, pushing the stock through the $65 resistance level
before initiating new momentum-based positions.  Given the
strong run last week, we could be lucky enough to get an
intraday pullback, possibly as low as the $61-62 level,
reinforced by the 200-dma ($61.06) and that would also be an
attractive entry point.  Keep stops set at $61.

VRTX $48.58 +1.70 (-0.92) The opening dip this morning was met
by solid buying, helping VRTX to regain the upper side of the
$48 level before the premature closing bell rang.  Aside from
hyper-aggressive traders that bought the opening dip, it was
hard to make a case for an entry point during the quiet trading
session, as VRTX just managed to claw its way to just under
$1.00 below last Friday's close.  Drug stocks gave up some
ground today, while the Biotechs posted a modest advance as
overall rangebound markets prevailed.  Recall that the $47
level was where VRTX gave us the quadruple-top breakout on the
Point and Figure chart last week, making it an important level
to maintain if the rally is going to continue.  Keep stops set
at $44, and target new entries on intraday bounces from either
$47 or even the $45 support level, just below the 30-dma.
Traders that are waiting for the play to get moving again
before initiating new positions will want to target a breakout
over the $51 resistance level.

WB $70.62 -0.57 (-0.53) Anemic trade made for a quiet day for
WB traders, although dip buyers may have seen a decent entry
this morning as the stock rebounded from the $70 support level.
The early drop pushed the stock below its ascending trendline
for the first time in nearly 4 weeks, and it was a relief to see
buyers help to prop up the stock allowing it to close above that
trendline.  We are at a pivotal point in our WB play, as a drop
and close below that trendline would be bad news for the bulls.
As we mentioned over the weekend, WB could be running out of
gas.  Investors seem to be losing interest in the merger tryst
between WB, Suntrust Banks, and First Union and that should have
us on our guard with stops in place at $68.  Targeting bounces
in the $69-70 range should continue to provide for decent
entries, although we need to see the bounce come on solid
volume, which is unlikely to materialize this week.  A rally
through the recent highs near $71.50 will also present new
entry points, but keep in mind that we will look to take profits
as WB approaches the $75 resistance level.


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

BA $56.33 -0.03 (+0.73) Once again Tuesday, BA edged past the $57
level before selling pressure pushed the stock lower.  BA has
traced four lower relative highs in as many trading sessions.  The
stock appears technically weak and continues to trader poorly
relative to the broader market.  Traders who are comfortable with
entering puts on strength can continue to turn to the $57 level as
resistance and possible entry points.  Otherwise, keep a close
watch for a breakdown below the $56 level early Thursday for an
entry point into weakness.  For those traders who need further
confirmation weakness, look for a high volume breakdown below the
$55 level in the coming days for an entry point.

PMCS $30.25 +0.07 (-0.82) Light trading ahead of the holiday
kept PMCS in a fairly tight trading range on Tuesday.  Although
the bulls tried to break out of the 3-day downtrend, they gave
up most of their intraday gains by the close, with the stock
eking out a paltry 7 cent gain on the day.  We want to continue
targeting new entries on failed rallies near the $31 or $32
resistance levels.  The 6-week descending trendline is resting
near $31, reinforcing that resistance level and increasing the
likelihood that the bears are going to return to dominance in
the days ahead.  Use continued weakness to enter the trade as
PMCS falls below the $29 support level on its way to testing
major support near $25.  Keep stops set at $34 and monitor the
Networking index (NWX.X) to verify that the sector is still
under pressure.

QLGC $59.11 -3.42 (-5.34) After meandering around the $63
level for much of the holiday-shortened day, QLGC suddenly
experienced an increase in gravity in the final hour,
plunging more than $3.00 on rapidly increasing volume.  With
no news to drive the move, this is a reminder of what can
happen on a light-volume holiday-shortened trading day.  While
it could have been profit-taking from last week's run, the
heavy volume would seem to indicate that the downside move we
were expecting got an early start.  The remainder of this week
is likely to be volatile due to traders being on vacation, so
we are keeping a loose stop at $64.  Use any weak intraday
rallies as opportunities to enter the play if you missed
your opportunity today, targeting a rollover either at $60 or
possibly $62-63.  Further weakness will provide additional
entries as the price falls through the $58 resistance level.


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NEW CALL PLAYS
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CEGE - Cell Genesys $20.97 +0.11 (+0.47 this week)

Cell Genesys, a leading gene therapy company, is focused on the
development and commercialization of cancer vaccines and gene
therapies to treat major, life-threatening diseases.  The
company has a broad portfolio of clinical stage product
development programs, the largest patent portfolio in the gene
therapy field, proprietary gene delivery techniques, and a strong
balance sheet, all of which have helped position Cell Genesys as
a leader in gene therapy.

CEGE broke above triple-top resistance last Friday on an intraday
basis, and has since worked higher.  The stock is out performing
the broader market in the Nasdaq and its sector in the
Biotechnology Index (BTK.X).  Any advance in the Nasdaq and BTK
from current levels should allow for CEGE to work its way up to
the mid to upper 20's.  The stock has a solid trend in place,
which has followed a pattern of higher lows and highs since late
March.  Traders can look to exploit this pattern by entering on
any light volume pullback near key support levels.  First look
for the stock to find support around the psychologically
significant $20 level if any pullback occurs Thursday.  Below
that, the stock should find support at the $18.50 level which is
the site of our stop.  Conversely, if CEGE continues to work
higher in the latter half of this holiday-shortened week, traders
can look to enter new call positions on any rally above the $21.14
mark, which was CEGE's intraday high during Monday's session.
Just make sure to confirm strength in the stock's sector - BTK -
before entering on strength.  In addition, monitor the price
action in competitors such as Forest Labs (FRX), Millennium
Pharma (MLNM) and Teva Pharma (TEVA) when gaming entry points.

BUY CALL JUL-17.5 UCG-GW OI= 246 at $3.80 SL=2.50
BUY CALL JUL-20.0*UCG-GD OI=1143 at $1.80 SL=1.00
BUY CALL JUL-22.5 UCG-GX OI= 306 at $0.65 SL=0.00
BUY CALL AUG-22.5 UCG-HX OI=  31 at $1.50 SL=0.75
BUY CALL AUG-25.0 UCG-HE OI=  11 at $0.80 SL=0.00

Average Daily Volume = 311 K



EMC - EMC Corporation $31.62 +1.02 (+2.37 this week)

EMC wants to be your storage solution.  The company designs,
manufactures and markets a wide range of enterprise storage
systems, software, networks, and services.  The company’s
products store, retrieve, manage, protect and share information
from all major computing environments including mainframe, UNIX,
and Windows NT.  With offices around the world and a 35% growth
rate for the first 9 months of the year, EMC is effectively
filling its role as the worldwide storage leader.

After confirming support near $26 just over 2 weeks ago, EMC has
been on a gradual upward trend and finally managed to clear the
pivotal $31 resistance level, as well as the 30-dma ($31.35) on
Tuesday.  While volume remains on the light side, this is
largely due to the market-wide light volume associated with the
holiday-shortened week.  With earnings for the Storage company
just over 2 weeks away, we could be looking at the beginning of
a sustained rally, provided the broader Technology market
cooperates.  Light volume will accentuate any price moves this
week, but this may be just the opportunity we need to enter new
positions for a rally into earnings.  Provided the bulls can
continue to push EMC higher, the first serious obstacle will
emerge near $34, the site of historical resistance and the 38%
retracement of the decline seen since the April high.  Then we
can begin to focus on the $36 resistance level, coincidentally
the site of the 50% retracement.  Consider entering new
positions as EMC moves up through the $32 level (near today's
high), or target intraday pullbacks near $30-31 or even $29.  In
order to ride out any low-volume induced weakness this week, we
are setting a loose stop at $27.

BUY CALL JUL-30*EMC-GF OI=30226 at $2.90 SL=1.50
BUY CALL JUL-35 EMC-GG OI=22843 at $0.60 SL=0.00
BUY CALL AUG-30 EMC-HF OI= 5134 at $4.00 SL=2.50
BUY CALL AUG-35 EMC-HG OI= 5076 at $1.70 SL=0.75
BUY CALL AUG-40 EMC-HH OI= 1567 at $0.55 SL=0.00

SELL PUT JUL-30 EMC-SF OI=46667 at $1.05 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 18.5 mln



FMKT - FreeMarkets, Inc. $21.27 +1.87 (+1.27 this week)

FreeMarkets creates B2B online markets and provides electronic
commerce technology and services for the procurement of
industrial parts, raw materials, commodities and services.  The
company has created over 9200 online markets and has enabled
its customers to source products from more than 165 supply
chains.  More than 9300 suppliers from over 55 countries have
participated in online markets created by FMKT   In addition to
its FullSource offering, which provides customers with the full
range of the company's technology, services and information,
FMKT offers its DirectSource and QuickSource hosted services,
which enable customers to run their own online markets.

It's been awhile since a B2B company has graced the Call list,
but one look at the chart of FMKT will convince you that it is
an event that is long overdue.  After recovering from its April
lows, the stock built a nice solid base between $12-15 before
breaking out in a big way, just over a week ago.  On strong
volume, FMKT blasted through the $15 level and today cleared the
resistance at $20.  Of course, it didn't hurt to have W.R.
Hambrecht raise their rating from Buy to Strong Buy and issue a
$30 price target yesterday.  Morgan Stanley made positive
comments this morning and the price responded by launching
nearly 10% higher.  While volume was a bit weak compared to
recent days, it still topped the ADV lending credence to the
strong breakout theory.  If the Point and Figure chart is to be
believed, the recent triple-top breakout points to a bullish
price target of $31.50, giving the stock plenty of room to run.
Before you load up the truck though, we need to be mindful of a
few obstacles.  Both the bearish resistance line on the Point
and Figure chart ($25) and the 200-dma ($25.21) are indicating
that it will take a strong push (read:volume) to clear that
level.  Those that initiate new positions on an intraday dip may
want to consider locking in some profits as FMKT approaches that
level.  We are starting the play with our stop at $19, and
intraday dips in the $19-20 range look attractive for new
positions, but only if support holds.  While aggressive traders
can continue to chase the price higher, just beware of potential
profit taking as the stock is now up 60% in the past 2 weeks.

BUY CALL JUL-20.0*FAQ-GD OI=398 at $2.50 SL=1.25
BUY CALL JUL-22.5 FAQ-GX OI=255 at $1.10 SL=0.50
BUY CALL JUL-25.0 FAQ-GE OI= 81 at $0.60 SL=0.00
BUY CALL AUG-22.5 FAQ-HX OI= 23 at $2.40 SL=1.25
BUY CALL AUG-25.0 FAQ-HE OI=  0 at $1.45 SL=0.75  Wait for OI!!

Average Daily Volume = 817 K



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

No new puts tonight


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*********************
PLAY OF THE DAY - PUT
*********************

QLGC - QLogic Corporation $59.11 -3.42 (-5.34 this week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC's I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Most Recent Write-Up

After meandering around the $63 level for much of the holiday-
shortened day, QLGC suddenly experienced an increase in gravity
in the final hour, plunging more than $3.00 on rapidly
increasing volume.  With no news to drive the move, this is a
reminder of what can happen on a light-volume holiday-shortened
trading day.  While it could have been profit-taking from last
week's run, the heavy volume would seem to indicate that the
downside move we were expecting got an early start.  The
remainder of this week is likely to be volatile due to traders
being on vacation, so we are keeping a loose stop at $64.  Use
any weak intraday rallies as opportunities to enter the play if
you missed your opportunity today, targeting a rollover either
at $60 or possibly $62-63.  Further weakness will provide
additional entries as the price falls through the $58
resistance level.

Comments

QLGC staged a steep sell-off into the final hour of Tuesday's
trading.  Worth noting, its competitor EMLX displayed similar
price action.  Whether or not the sharp sell-off in these
stocks portends a warning in the group remains to be seen.  But
judging by Tuesday's heavy selling, QLGC could very well
work lower Thursday with any weakness in the Nasdaq.

BUY PUT JUL-60*QLC-SL OI=2452 at $4.70 SL=2.75
BUY PUT JUL-55 QLC-SK OI=1614 at $2.45 SL=1.25

Average Daily Volume = 6.25 mln



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