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Daily Newsletter, Thursday, 07/05/2001

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The Option Investor Newsletter                 Thursday 07-05-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
         7-5-2001        High      Low     Volume Advance/Decline
DJIA    10478.05 - 91.25 10567.64 10461.14  .93 bln   1377/1690 
NASDAQ   2079.91 - 60.69  2130.96  2079.83 1.32 bln   1339/2320
S&P 100   628.65 -  9.99   638.55   628.51   totals   2716/4010
S&P 500  1219.32 - 15.21  1234.45  1219.15
RUS 2000  492.34 -  4.10   496.83   492.14
DJ TRANS 2811.68 +  3.46  2820.86  2789.71
VIX        22.72 +  1.77    23.22    22.12
Put/Call Ratio      0.66
******************************************************************

Marconi Sparks Market Fizzle!

Just when you thought the earnings warnings were about over another
tech/networking/communications company bares all. Marconi (MONI)
fell -53% after saying sales would drop by at least -15% and it
would cut 4000 jobs. Profits could be down by -50% but the critical
point at issue was the accelerating decline of the European business
climate. U.S. companies that had been struggling to break free of
our own economic problems took another hit in their stock prices.







Alacatel, Cisco, Nokia, Ciena, Juniper all headed lower after the
Marconi warning. U.S. companies reap between 20-40% of their income
from European/Asian sales. The Nasdaq never had a chance with the
networking, communications and fiber sectors all DOA. Chips also
headed lower since slow sales of those communications devices
would also suggest that chips to make those devices would also
be slow. There was also a report out of Lehman Brothers on Thursday
saying that they expect a -30% decline in semiconductors this year
after a -88% increase last year. This could be the worst year in
the last 20 years for semiconductors in their opinion. ABN Amro
also said they expect revenue to decline more than -25% in 2001.
PMCS, BRCM, AMCC, AMAT, NVLS, KLAC and CREE were all lower.

Another foreign chip equipment maker, ASML Holdings, (ASML) warned
that they would experience a sharp drop in profits due to weaker
global sales. The main bullet point from ASML was a comment that
a "fourth quarter economic recovery was increasingly unlikely."
Just what tech stock buyers needed to hear! ASML is the worlds
largest maker of scanners and steppers which map out circuitry on
silicon wafers. They should know if semiconductors are still sick
or getting well.

AMD (Another Microchip Disaster) warned after the close and it
may be a huge problem. Analyst estimates were for 27 cents and
the new guidance by AMD is in the 3-5 cent range. Ouch! They said
sales for the quarter fell -17% and far more than their previous
-10% warning. Demand for flash memory continues to be much weaker
than expected. Price pressure in the processor market depressed
average selling prices even though they achieved record unit sales
of the Athlon chips. They said aggressive pricing by Intel was
hurting sales and profits. No kidding! Can you spell "price war?"
INTC dropped -$2 and AMD fell to $24 in after hours. Is Intel going
to be next to warn or miss earnings?

EMC also warned after the close that revenue would fall about -20%
to $2 billion and profits of 4-6 cents compared to 12 cents expected
by analysts. They said the slowdown which began in the U.S. has
now spread to virtually all international geographies which were
further impacted by the strong dollar. Gross margins were expected
to fall to the 40% range due to lower sales volume and pricing
pressures. EMC fell to $25 in after hours after a close of near $30.

BMCS warned that earnings would drop as much as -5% from the low
end of previous estimates. Customers were canceling or postponing
especially large orders. PMTC warned that earnings would drop
to between 2 and 4 cents and analyst estimates had been for 8 cents.
PMTC lost -2.25 to $10. "While we see no indication that the current
economic conditions are likely to improve in the foreseeable future,
we continue to believe, based on evidence from customers and industry
experts, that PMTC is well-positioned for growth when the economy
recovers," said President and CEO Richard Harrison in a company
statement. "No indication of improvement in foreseeable future?"
Why not just say "techs are dead, bail out now?"

Sony (SNE) got hit for almost a -$4 drop to $59.40 after news that
they would recall 560,000 cell phones for battery problems. AAPL
continued to fall slightly after saying they were going to stop
production on the new G4 cube computer which had been hyped so
much recently. Apparently consumers were not so excited about
a computer that looked like a box of Kleenex. Dell took another
hit today after Prudential said the computer price war was getting
worse and pricing pressure in notebooks and desktops was increasing.
Dell does a majority of their business in these areas but also has
a strong server business to help offset consumer weakness. Still
Dell lost ground and closed near the low of the day.

Just so you don't think techs were the only disaster today, a
retail company, Federated Dept Stores, (Nyse:FD), dropped their
own bomb. They cited continued weak sales in their department
store segment as the reason for the earnings drop. They are now
expecting as low as 40 cents when analyst estimates were in the
65 cent range. They are expecting same store sales for the fall
season to decline and said they would continue to mark down and
discount existing inventory in order to start the fall in good
shape. Analysts have been saying that the retail sector has
been slashing prices to dump inventory and maintain volume but
the deep discounting would hurt profits. The FD warning today
is evidence of this. You can sell anything if you sell it cheap
enough but it is hard to make a profit if you sell below cost.
FD is generally accepted to be the best run retail franchise
and analysts fear their problems will be magnified in the
lesser quality stores.

There was some good news hidden in the flood of warnings. WCOM
raised their estimates by a percent or two and said they would
buy back $670 million in debt. Bear Stearns said today that AMZN
may be ahead of the street estimates. They said they expect
Amazon to post smaller losses and increased revenue and come in
"well ahead " of street estimates. User traffic analysis apparently
showed them that revenue would top $700 million or about +$25
million ahead of estimates. They raised their rating to attractive
with a $30 price target.

The economic news was not exciting with jobless claims moving
up +7000 to 399,000 again and stopping a three week drop. Now
that the holiday is over we could expect even more claims next
week. Not a sign of economic recovery. The June NAPM survey
did jump slightly to 52.1 which indicates a slight recovery in
non-manufacturing services. Tomorrow's nonfarm payroll report
will be crucial to market direction. Should no sign of recovery
be seen there is likely to be nothing to pull institutional
investors off the sidelines.

Until today there was an increasing amount of sentiment that the
economic news could not get any worse. It remains to be seen if
the same feeling will continue after the warnings tonight. The
market internals today were terrible on very low volume. The
Nasdaq posted the lowest volume day of the year at 1.3 billion
and decliners beat advancers almost 2:1. The Dow only managed
931 million but decliners only beat advancers by 313. I warned
on Tuesday that the low volume and the lagging warnings could
jerk investors around Thr/Fri and that certainly came true.
Waiting until Monday as suggested is looking like a better plan
as the minutes and warnings tick by. There is a growing fear
that the "summer rally" writers have been predicting actually
came in April and left in May and may not return. Stocks are
cheap but can get cheaper and as traders we can wait patiently
for that next tidbit of information that will cause the next
bounce. The major indexes are nearing support at 2000 and
10400-10450 and would be ripe for an oversold bounce at those
levels. Caution is the watch word because although warnings
may be drawing to a close, earnings misses are sure to follow.
Friday would be a great opportunity for those dip buyers to
rush to the rescue thinking it can't get any worse. It has
happened before as with the last CSCO warning. Either way
Friday should be really exciting!

Enter passively, exit aggressively!

Jim Brown
Editor


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

Post-Holiday Hangover
By Jeffrey Canavan

Traders must have stayed up too late watching fireworks, and came
into work tired, grumpy, and looking to sell some stocks.

They were greeted with the news that earnings from Federated
Department Stores and British telecom equipment maker Marconi
would come up significantly shy of expectations.  So what.  We've
been able to shake off earnings warnings before, and some stocks
have actually gained when the announced poor earnings.  So why
would a high-end retailer and a foreign telecom company have a
negative impact?  Scuttlebutt has it that this confirms the
worries over a global slowdown, and waning consumer spending.
Call me crazy, but a reduction in the amount of Armani suits sold
at Bloomingdale's isn't a true gauge of consumer spending.  But
if Federated's warning is truly predicting a reduction in
consumer spending, which makes up two-thirds of the nation's
economy, it could have a serious impact on market psychology.
Next weeks retail sales data could set the tone.

A more immediate blow to market psychology could be the latest
earnings warnings from AMD and EMC.  Advanced Micro Devices
drastically lowered earnings expectations from 27 to 3 cents a
share, and is trading down $5 in after hours.  EMC is going to
come up 14 cents shy of expectations, and is getting whacked to
the tune of $3.  The markets reaction tomorrow should tell us if
the market sentiment is starting to turn more bearish, or if we
can put on our bullish blinders and close out the week flat or
mildly lower.

The VIX is also telling us the tide may be turning.  After
setting a low of 20.29, the VIX has climbed 2.5 points in the
past two days to 22.72.  The move isn't that significant, but
keep an eye on resistance at 23.50.  The last time this fear
gauge climbed above that level, the S&P 500 lost 4% in 3 days.

When we add it all up it looks like the markets head lower
tomorrow, but we should get a clearer picture once everyone gets
back from their extended holiday and back in the game.

===

Market Volatility - The VIX is slowly starting to creep high.
Watch for a break above 23.50 as a potential bearish signal.

VIX   22.72
VXN   49.44

Put/Call Ratio - Still neutral, but put volume is starting to
pick up.

Total            .66
Equity Only      .65
OEX             1.07
QQQ              .85

Bullish Percent Data - No changes
           Current   Change   Status
NYSE          42       -      Bull Alert
NASDAQ-100    50       -      Bull Alert
DOW           44       -      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  1.20

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      1376           1693
NASDAQ    1337           2322

A 10-day moving average of the Nasdaq Adv/Dec line is starting to
set up a bearish trend, and is on the brink of falling into
negative territory.

        New Highs      New Lows
NYSE        87            48
NASDAQ      58            70

The trend of news highs compared to new lows remains in a bullish
trend, but that trend could be tested soon.

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


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

Retracement Brackets 1.0
By Eric Utley

Oftentimes here at Option Investor, embedded in the charts we use
to depict market action, we use retracement brackets.  This
technical analysis tool is often a source of questions and
sometimes confusion.  So it is with the aim or demystifying
retracement brackets that we embark on a mathematical journey.
But before we delve into the practical application of retracement
brackets and the implication on market operations, let's
explore the origins of retracement brackets.

Retracement brackets are also referred to as Fibonacci retracement
brackets because the tool is founded on the Fibonacci series of
numbers.  For those who've forgotten or, perhaps, misplaced the
Fibonacci series of numbers, let's review their origins and
explore who exactly this Fibonacci guy was.

To begin with, Leonardo Fibonacci was born around the dawn of the
13th century, somewhere in Italy.  His farther was an affluent
politician and director of a business colony, so naturally
Fibonacci was to become a merchant per his father's wishes.  As
Fibonacci aged, his father taught him basic accounting
calculations which piqued an interest in the young Italian.  In
addition, father Fibonacci sent his son to various places of
business such as Egypt, Greece and Syria, among other
destinations.  Young Fibonacci's travels to exotic places offered
the opportunity to study the various calculating and accounting
methods unique to each place.

After returning to Italy following his travels and mass collection
of arithmetic and algebra, Fibonnaci embarked on a mathematical
journey in an attempt to provide solutions to everyday problems.
Among many other accomplishments and various theorems and
formulas, Fibonnaci stumbled upon a unique sequence of numbers
that were ubiquitous in nature and appeared in, among other
things, the Pyramids of Giza.  What's more, it is believed that
Fibonacci stumbled upon the peculiar sequence of numbers while
trying to figure how quickly rabbits could reproduce under ideal
circumstances.  Why Fibonacci wanted to discover how fast wild
hares could reproduce is not much of my concern...

Anyway, the sequence of numbers that Fibonacci discovered follows:

1,1,2,3,5,8,13,21,34,55,89,144,233,377,610,987,1597,2584,4181...

..and so on to infinity.  The derivation of the numbers is
actually quite simple.  All Fibonacci did was to take the
preceding number in the sequence, add it to the following number
and arrive at the next number in the sequence.  For example, 1 +
2 = 3; 2 + 3 = 5, and so on.

A couple of other interesting derivations can be taken from the
Fibonacci sequence which concern market participants.  By
dividing any given number in the sequence by the following
number yields a very interesting fraction: 0.618.  The further
out in the sequence, the closer the fraction gets to exactly 0.618.
For example, 3 / 5 = 0.600; 8 / 13 = 0.615...2584 / 4181 = 0.618.
The number 0.618 is a very special number in mathematics and
indeed nature - it occurs in everything from the growth in plants
to the proportions of the human body, hence its practicality in
one of the most natural mechanisms on earth: the market.

The number 0.618 is also known as the perfect number, the golden
ratio and/or the golden mean.  Take my word for it, as a student
of mathematics, it's important.  Anyway, when we convert this
magical number to a percentage we arrive at 61.8%; 0.618 * 100 =
61.8%.  One more simple calculation, and we can get the other
side of this equation.  We subtract 61.8% from 100% to arrive at
38.2%; 100 - 61.8 = 38.2%.  (This may seem to be a slippery slope
on my part, with a few missing links, but it will make sense in
the following paragraphs).

Getting back to the market, most participants concede that no
index nor individual equity trades in a straight line, whether
it be up or down.  The fact is, the majority of indexes and
stocks retrace all or a significant portion of a substantial
move in one direction or another.  (The exception being a company
that goes bankrupt and its stock goes to zero (Read: 360 Networks
(NASDAQ:TSIX)).

So if we accept the fact that stocks and indexes normally retrace
an advance or decline, we can begin to measure the moves using
retracement brackets.  What's interesting, widely observed
and accepted is that while stocks and indexes retrace their
respective moves, they tend to find support and resistance levels
around the percentages we just arrived at: 61.8 and 38.2, derived,
of course, from the Fibonacci sequence of numbers.  The third
primary percentage that stocks tend to gravitate around while
retracing a move is 50%.  It's half, and that's easy for us
humans to relate to.  Whether this is a naturally occurring
phenomenon or simply a self-fulfilling prophecy is the topic of
intense debate.  In either case, the Fibonacci retracement brackets
work!

The essence of the Fibonacci retracement brackets is to measure
a stock's move and attempt to determine where a stock is likely
to find support and resistance once that move is retraced.

Let's take a current example.  Let's say we wanted to trade
NVIDIA (NASDAQ:NVDA) from the short side and wanted to try to
figure out where the stock could find support if it were to
pullback from its recent advance.  We'd start by taking the
stock's meaningful relative low which, in my estimation, was
traced at $27.50 in December of 2000.  The stock traded as
high as $100 in early June.  We simply measure that move:
$100 - $27.50 = $72.50.  Now that we have the magnitude of the
move, we can apply our percentages to begin to determine
possible support levels on the way back down, should the stock
pullback.  For example, we take 38.2% of $72.50 and subtract
that from $100 to arrive at our first possible support level:
$100 - ($72.50 * 0.382) = $72.31.  That simple calculation
gives us the 38.2% retracement level, which is a possible
support level if NVIDIA pulls back.  We can apply the same
arithmetic to arrive at the 50% and 61.8% retracement levels.

That concludes my explanation on where Fibonacci retracement
brackets originated and why they're used in market
operations.  Be sure to check back next week for Version
2.0 of the Retracement Bracket series.

Questions are welcome:
eutley@OptionInvestor.com


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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:
*****

EMC $30.03 (-1.59) (+0.78) Bullish traders voiced little protest
as EMC fell from the $31 level shortly after the open on
Thursday.  With light holiday volume (the stock barely topped
50% of the ADV) accompanied by nervousness about the upcoming
earnings cycle, it is no wonder that EMC couldn't maintain its
upward move from earlier in the week.  After the close, we got
the explanation for the weakness as the company warned that
sales for the current quarter would fall far short of estimates.
Although the stock closed the day well above our $27 stop, the
After hours session has not been nearly so kind with EMC trading
as low as $27.  This looks like it has the potential for further
weakness tomorrow, so we'll drop the play tonight on the
expectation that shares will continue to weaken.

JNPR $28.50 -2.77 (-2.60) The Networking index (NWX.X) once
again topped the list of losers on Thursday, and not wanting to
be left behind, JNPR gave up nearly 9% as it fell through our
$29 stop, never to return.  Even anticipation of the company's
earnings report wasn't enough to hold the sellers at bay.  Or
perhaps it was fear of the earnings report (especially after the
recent slew of warnings) that motivated the bears to go on a
selling spree.  Whatever the cause, the fledgling uptrend is now
gone, and it is time for us to go.

MVSN $68.75 -1.16 (+0.25) With light volume dominating the
broader markets due to the holiday, MVSN has been drifting lower
the past couple days.  Since hitting our first target at $70-71,
the stock has been drifting aimlessly, although volume continues
to be brisk.  Although the bulls could have more gains in mind,
given the fact that we have significant gains in the play, the
prudent move is to lock in those gains and go out in search of
another winning play.  Investors that followed our advice rode
the stock up from below $60 and got out earlier this week above
$70.  Congratulations if you were one of them!

OPWV $28.93 -2.95 (-5.77) As light volume continues to pervade
the holiday-shortened week, the bulls have clearly gone on
vacation, allowing OPWV to drift a little bit lower each day.
Actually today's "drift" got a little too energetic for our
taste, as the stock gave up nearly 10%.  Despite the light
volume, we don't have the stomach for this game and are dropping
OPWV tonight after it closed well below our $30 stop.


PUTS:
*****

No dropped puts tonight


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The Option Investor Newsletter                 Thursday 07-05-2001
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.

Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.IndexSkybox.com
************************************************************


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

MEDI $43.39 -3.18 (-3.81) MEDI, along with the broader Biotech
Sector (BTK.X), dropped at the opening bell Thursday and continued
lower into the closing bell.  Both, however, stopped at
significant support levels.  For its part, the BTK closed right
around the 575 level, which is very critical support.  MEDI, on
the other hand, stopped right at its ascending support line that
began in late March around the $28 level.  Although MEDI slipped
more than $3 on heavier volume Thursday, we're maintaining
coverage on this play because its decline may have offered a
solid, low-risk entry point.  The strategy for Friday is to watch
for a rebound in the BTK early on, and upon confirmation of
strength, traders can look to enter call positions in MEDI with
a very tight stop at $43 - our current stop.  This will allow
for a good trade with limited risk if the BTK rebounds Friday.
But to reiterate, watch the BTK closely if you're going to trade
MEDI.  If the BTK breaks below 570.00, all bets are off!

MWD $63.30 -0.40 (-0.93) MWD advanced early Thursday to the upper
end of its trading range, which has been capped by the 50-dma,
which currently sits at $64.82 - essentially, MWD's intraday high
Thursday.  As we've been writing, MWD is clearly in a trading
range, and traders can use this to their advantage by entering
new call positions near support and exiting as MWD approaches
resistance.  Its options are liquid enough to produce profits
within the $2 point range the stock is stuck in, between roughly
$63 and $65.  But for those who'd rather trade breakouts, we'll
reiterate to wait for the stock to print $66 on heavy volume
before entering new call positions.  It will most likely take
cooperation from the broader market as measured by the S&P 500
(SPX.X) as well as the confirmation from the Securities Broker/
Dealer Index (XBD.X) to push MWD out of its trading range.  That
said, further deterioration in the two aforementioned indexes
may cause MWD to break below the support of its trading range.
It's paramount that traders monitor the two indexes if they're
gaming MWD's trading range!

BSYS $59.90 -1.10 (+0.90) BSYS' volume Thursday, during its
pullback, was a little more than its average daily volume,
which is a cause for concern.  Nevertheless, the stock is being
held back by the broader market and the rampant weakness.  As
such, bullish traders in the stock should wait for confirmation
of direction in the S&P 500 (SPX.X) and the Nasdaq Composite
(COMPX) before considering new positions in this play.  Without
cooperation from the major market averages, BSYS is likely to
drift lower.  But for those traders who prefer entering call
plays on weakness, look for support to materialize around the
$59 level first, or lower around the $58 level.  Our stop
remains at the $57 level, but those traders with any small
gains in this play might consider snugging up those stops to
preserve any profits.

CEPH $70.52 -1.37 (+0.02) Despite the terrible price action in
the broader Biotechnology Sector (BTK.X), CEPH held its ground
for the most part.  Volume was terribly light during Thursday's
mild pullback, which lends to the idea that its weakness was
sector/market related.  CEPH stopped near its 10-dma, which
currently lies at $70.41.  It was encouraging to at least see
buyers step in near that level to defend the stock, as they've
done for the past week.  CEPH's relative strength portends
higher prices in the stock, that is IF the Biotechnology group
rebounds.  And while entering on the dips has proved lucrative
in this stock over the past three months, it may be more
prudent to wait for confirmation in the BTK before entering
new CEPH call positions.  Bullish traders in the Biotech group
will want to keep a close watch on the BTK Friday; should it
break below 570, it could portend extended weakness in the
group.

BBY $66.78 -1.40 (+3.26) BBY's market bucking ways came to a
halt Thursday as the broader market averages pulled back across
the board.  The weakness in our play can most definitely be
attributed to market-related selling.  In fact, it's surprising
that the stock didn't fall further in the wake of Federated
Department Stores' (FD) earnings warning.  Perhaps BBY's
relative strength portends out performance on the upside IF the
broader markets rebound.  But, that's the operative variable
we must contend with in this play: the broader market.  Even if
BBY is hitting on all cylinders and likely to benefit from the
tax rebate this summer, the broader market supercedes those
events.  Since we do have modest gains in this play since
picking up coverage, traders with open positions might tighten
stops, whether hard or mental, depending upon time frame and
risk tolerance.  Although our stop remains at $64, traders
can better determine their risk profile and time frame and
should take those factors into account when sizing up BBY.  On
the flip side, a rebound in the broader market should allow for
BBY to work higher.  In terms of new entry points, light
volume pullbacks down to $65 may server the purpose, or a
breakout above $69 on heavy volume.

CEGE $20.72 -0.25 (+0.22) CEGE was another of our call plays
that was adversely impacted by the weakness in the AMEX
Biotechnology Sector Index (BTK.X) Thursday  The stock finished
only fractionally lower and traded in a relatively tight range,
on volume that was less than inspiring.  Its price and volume
action was actually quite encouraging and lends to the
possibility of the stock out performing the BTK if it
rebounds in the coming sessions.  However, bullish traders will
want to watch the BTK closely Friday - make sure it doesn't
break below 570!  We'd like to see buyers step up at the $20
level in CEGE for its psychological and technical importance.
The 10- and 200-dmas are currently converged at that level,
which makes it all the more significant.  If the BTK does
continue to weaken, traders might look for a dip-related
entry near $20.  Otherwise, we'll wait for the BTK to
decidedly rebound and carry CEGE above $21 before considering
entries.

ADBE $44.66 -0.64 (-2.34) Light volume was the order of the day
again on Thursday, resulting in another fractional loss for
ADBE.  Although the bulls tried to rally the stock at the open,
they were unable to overcome the overall bearish market
sentiment.  The stock is gradually approaching our $44 stop
level and it remains to be seen whether we are being offered an
attractive entry point or if the play is over.  A solid bounce
from current levels will give the upper hand to the bulls again,
offering an opportunity to establish new positions.  Waiting for
confirmation of the bounce seems prudent at this juncture, and a
rally through the $46 resistance level will be our trigger
point.  The light volume is exacerbating any price moves this
week, so if you must play, keep those stops in place.

FMKT $21.41 +0.14 (+1.41) The upgrades keep on coming, and
Wedbush Morgan joined the parade today, reiterating their Strong
Buy rating and $90 price target for shares of FMKT.  Although
buying interest was still strong this morning, it began to fade
shortly after the open, resulting in sideways action throughout
the afternoon, before a sharp drop in the final 30 minutes.
Volume once again was heavy at nearly double the ADV and the
stock did manage to eke out a small fractional gain.  While the
gain wasn't particularly exciting, it was encouraging as the
stock closed in the green on a day when the broader markets
spent all day in the red.  If the upward stair-step pattern of
the past couple weeks continues, we could be looking at an
attractive entry opportunity as FMKT bounces near the $20
support level.  Recall that our stop is now resting at $19.
Momentum players will want to wait for buying volume to kick
into overdrive again, pushing the price through the $23 level
before playing.

TGH $64.76 -0.11 (-0.09) Despite volume well in excess of the
ADV, TGH traders produced another boring trading session, as the
stock meandered in an $0.80 trading range throughout the
session.  This makes the third doji candlestick pattern in as
many days, so we want to be on our guard.  Doji patterns
frequently foretell a change of direction, and with the strong
rally of the prior 2 weeks, the bulls could be in trouble.  Our
stop is resting at $61, just above the 200-dma ($61.14), and
while a pullback and bounce near this level could provide for
attractive entries, we need to see it happen on robust volume
before we decide to play.  Conversely, a rally through the $65
level on solid volume also looks like a good entry for new
positions.  Another danger sign is the fact that the Healthcare
Payor index (HMO.X) is rolling over.  If it continues to
weaken, it will make it harder for TGH to advance.

VRTX $45.53 -3.05 (-3.97) A lack of buying volume on Thursday
delivered a warning signal to VRTX investors, as the stock fell
more than $3, eliminating all the gains accrued during Tuesday's
abbreviated session.  A bearish cross on the daily Stochastics
oscillator combined with a close below the 10-dma ($45.97) and
the 30-dma ($45.77) has the stock threatening to exit our call
list.  The Biotechnology index (BTK.X) is likely the principal
culprit here, falling all day and giving up nearly 5%.  While
our $44 stop is still intact, further weakness could violate
that on Friday.  Make sure any bounce above that level comes on
stronger volume before initiating new positions.  Otherwise,
wait for buyers to show their conviction by pushing VRTX solidly
above the $47 level before playing.

WB $70.60 -0.02 (-0.55) Offering hope to bullish traders, WB
once again found support at $70 this morning before recovering
throughout the afternoon.  The significance of the move is hard
to gauge though, as volume continued to be very weak, barely
topping one-third of the ADV.  This is the second consecutive
day that the stock fell below the 3-week ascending trendline
(currently $70.75), and it is a bit disturbing that the bulls
couldn't push the price above this level by the close.  While
dips near the $70 level still look attractive for new positions,
we need to be careful with the emerging weakness.  The more
prudent approach might be to wait for the stock to prove itself
by once again cresting the $71 level before jumping into the
play.  Keep stops in place at $68.


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

BA $55.23 -1.10 (-0.37) BA finally drifted below the $56 level
Thursday, which may or may not have offered bearish traders a
chance to enter puts in this play.  For those who opted for
entry, we'll turn our attention to the $55 level going into
Friday's session for confirmation of our bearish leanings.
Ideally, we'd like to see BA fall past $55 without support from
buyers, which would confirm our put positions indeed.  In
addition, for those who opted for further confirmation of
weakness, the $55 level can serve as an action point should it
be broken in the coming sessions.  When trading BA, keep a
close eye on the Dow Jones Industrial Average (INDU) to better
gauge direction and for confirmation of trend.

PMCS $28.24 -2.01 (-2.83) Every cloud has a silver lining, and
the cloud today was the 6.36% loss in the Networking index
(NWX.X).  The silver lining was our PMCS play as it fell with
the sector, completing the rollover in its daily Stochastics
oscillator.  While the holiday-shortened week is keeping volume
less than half the ADV, that is no consolation to the bulls.
PMCS is behaving beautifully for us, rolling over right at the
descending trendline and making a beeline for the $28 support
level (also the 50% retracement of the gains in April and May).
While $28 doesn't appear to be a particularly strong support
level, when the sellers push PMCS below that level, it will
provide new entry opportunities, confirmed by a subsequent drop
to test the more substantial support at $27.  With the drop in
price this week, we are shifting our stop down to $32, and we
can consider new positions on any rally that fails to penetrate
that level.  The $30-31 resistance level looks particularly
attractive for new entries, especially if volume picks up as
PMCS rolls over.

QLGC $57.37 -1.74 (-7.08) Confirming the rollover that began in
shares of QLGC earlier this week, the bears once again piled in
on Thursday on continued heavy volume.  Despite light volume in
the broader markets, selling volume exceeded the ADV again,
driving the stock below the $59 support level.  Storage stocks
continued to deteriorate throughout the day, and next likely
support level that will emerge is near $55.  After taking the
ball from the bulls near the 200-dma (then at $66.46), the bears
are gaining strength and look like they could be making a run at
the June lows near $46.  As long as the NASDAQ pushes towards
the lower end of its recent range, use intraday rallies near the
$59-60 level to initiate new positions.  We have moved our stop
down to $62 and would consider a drop below $55 (also the site
of the 30-dma) to be an attractive entry as well.  Late-breaking
news has EMC issuing an earnings warning and QLGC is off more
than $4 in the after hours session.  This is great news for those
of us holding puts, and we will want to watch for follow-through
tomorrow before initiating new positions.


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

CD - Cendant Corporation $20.90 +0.67 (+1.40 this week)

Cendant is a diversified provider of business services,
especially in the real estate and travel industry.  Cendant's
Real Estate Division is the leader in the world's largest
industry, with affiliates responsible for more than one out of
every four homes sold or purchased in the U.S., the leading
relocation services company, and a leading home-related Internet
portal.  As one of the world's leading franchisers of mid-economy
market lodging brands and a leading car rental company, and the
world's largest timeshare exchange company, Cendant's Travel
Division is one of the largest providers of travel services
around the globe.

Back on the call list for another round, CD just keeps
ratcheting up the chart.  The current uptrend began in late
December, and is showing no signs of letting up.  The trendline
is currently resting at $19 (the location of our stop),
sandwiched between the 30-dma ($19.22) and the 50-dma ($18.66).
While the stock isn't a fast mover, it is steady, having more
than doubled in the past 6 months.  Despite a weak market on
Thursday, CD still attracted strong buying interest, allowing it
to close at its highest level in 18 months.  That's the kind of
relative strength we like to see, and we are ready to step onto
this steady mover to harvest some gains.  Earnings are set for
July 18th, and CD should rally into the announcement as it is
projected to top its results from last quarter as well as the
year-ago numbers.  We are looking to ride the uptrend as long
as it lasts, entering new positions on pullbacks so long as they
don't violate the trendline.  Target new positions on a bounce
near $20 or even $19, but make sure the bounce continues to be
accompanied by strong buying volume.  Alternatively, consider
new positions on a continued upward move as CD pushes above the
$21 level.

BUY CALL JUL-20.0 CD-GD OI=10862 at $1.25 SL=0.50
BUY CALL JUL-22.5 CD-GX OI= 1714 at $0.25 SL=0.00
BUY CALL AUG-20.0*CD-HD OI=25949 at $1.70 SL=0.75
BUY CALL AUG-22.5 CD-HX OI= 1027 at $0.50 SL=0.00
BUY CALL NOV-20.0 CD-KD OI= 9387 at $2.60 SL=1.25
BUY CALL NOV-22.5 CD-KX OI=  905 at $1.35 SL=0.75

Average Daily Volume = 7.23 mln



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

BEAS - BEA Systems $27.42 -2.59 (-3.29 this week)

BEA Systems is one of the world's leading e-business
infrastructure software companies.  Put simply, BEA helps
business become e-business.  In the Internet age, businesses
that are built to last are built for speed - not just in time
to market but also in adapting to change and in innovating with
every up tick of Internet time.  More than 10,000 companies have
chosen the BEA WebLogic E-Business Platform as the underpinnings
of their business to keep them fast moving, flexible, and future
proofed.  With WebLogic at their core, these businesses turn
change into opportunity and use their agility as a
competitive advantage.

Recently, we had been trading the long side in the broader
Software sector.  But in light of recent warnings within the
group, the short side may now produce profits.  During the
recent run in the Software sector, as measured by the GSTI
Software Index (GSO.X), we noticed that BEAS under performed
the group.  That is, the stock traded relatively weak.  Despite
recently reaffirming full year, fiscal guidance, management
warned that a continued deterioration in the economy would
result in erosion of sales.  Perhaps their comments lend to
BEAS' relative under performance.  Or perhaps it was Oracle's
comments that it would aggressively pressure BEAS in the
applications server market.  Whatever the reason, BEAS is
trading "heavily" and appears to have further downside,
especially if the Nasdaq continues to decline.  BEAS printed
$28 on its point & figure chart Thursday, which generated a
triple bottom breakdown signal - a pattern that is generally
reliable and indicative of further downside.  Moreover, the
daily chart displays that BEAS broke below its meaningful
near-term support levels and volume was active Thursday, to
boot!  In terms of entry points, trades can look to enter new
put positions on a break below Thursday's intraday low at
$27.32.  If the stock gaps down Friday morning, look for
breakdowns below whole levels, such as $26, or $25.  Conversely,
rebounds on light volume and subsequent rollovers near $30 would
offer entries into new positions.  With a current bearish price
objective of $22 and little in the way of meaningful support
remaining, BEAS could very well retest its relative lows in the
low $20's.  Initially, we are setting our closing stop at the
$31 level.

BUY PUT JUL-30*BUC-SF OI=12036 at $3.70 SL=1.75
BUY PUT JUL-25 BUC-SE OI= 2926 at $1.10 SL=0.25

Average Daily Volume = 13.9 mln



AMGN - Amgen, Inc. $58.22 -2.50 (-2.46 this week)

The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

If you're looking for the cause of AMGN's precipitous drop over
the past 2 weeks, look no further than the FDA.  AMGN is
awaiting approval for ARENSP, its successor to the blockbuster
anemia drug, Epogen.  Delays in the approval process are
prompting analysts to pan the stock and investors to hit the
sell button.  In just the past 2 weeks, AMGN has lost 13.5%, and
in an otherwise quiet trading session today, lost $2.50 on above
average volume.  The double-bottom breakdown on the Point and
Figure chart is pointing to a tentative price target of $48, and
today's drop through the bullish demand line adds fuel to the
bearish fire.  Thursday marked the stock's lowest close since
late April, and although there is some mild support in the
$56-57 area, it appears more likely that AMGN will test the
April lows near $52 before finding any serious support.  A
failed rally near the $62 level (the highs from earlier in the
week) would provide a very attractive entry point.  Continued
weakness that pushes AMGN below the $57 level, preferably on
strong volume looks attractive as well.  Place stops at $63.

BUY PUT JUL-60*YAA-SL OI=10010 at $3.00 SL=1.50
BUY PUT JUL-55 YAA-SK OI= 8383 at $1.00 SL=0.00

Average Daily Volume = 8.56 mln



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

PMCS - PMC-Sierra, Inc. $28.24 -2.01 (-2.83 this week)

PMCS designs, develops, markets and supports high-performance
semiconductor networking solutions.  The company's products are
used in the high-speed transmission and networking systems,
which are being used to restructure the global
telecommunications and data communications infrastructure.
Providing components for equipment based on Asynchronous
Transfer Mode, Synchronized Optical Network, Synchronized
Digital Hierarchy, High Speed Data Link Control, and Ethernet,
the company sells its products to over 100 customers either
directly or through its worldwide distribution channels.

Most Recent Write-Up

Every cloud has a silver lining, and the cloud today was the
6.36% loss in the Networking index (NWX.X).  The silver lining
was our PMCS play as it fell with the sector, completing the
rollover in its daily Stochastics oscillator.  While the
holiday-shortened week is keeping volume less than half the
ADV, that is no consolation to the bulls.  PMCS is behaving
beautifully for us, rolling over right at the descending
trendline and making a beeline for the $28 support level
(also the 50% retracement of the gains in April and May).
While $28 doesn't appear to be a particularly strong support
level, when the sellers push PMCS below that level, it will
provide new entry opportunities, confirmed by a subsequent drop
to test the more substantial support at $27.  With the drop in
price this week, we are shifting our stop down to $32, and we
can consider new positions on any rally that fails to penetrate
that level.  The $30-31 resistance level looks particularly
attractive for new entries, especially if volume picks up as
PMCS rolls over.

Comments

With the warnings omnipresent in the tech sector after the bell
Thursday and the Marconi-related momentum, shares of PMCS are
poised to trade lower Friday.  The stock's technicals are
weak and the fundamentals of the company's business are shaky.
This should present bearish traders with the opportunity for
profit Friday.  Look for confirmation of weakness in the Nasdaq
early Friday and if it's there, consider entering new positions
near the open.

BUY PUT JUL-30*SQL-SF OI=1775 at $3.60 SL=1.75
BUY PUT JUL-25 SQL-SE OI=2355 at $1.15 SL=0.25

Average Daily Volume = 9.01 mln



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