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Daily Newsletter, Tuesday, 07/10/2001

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The Option Investor Newsletter                  Tuesday 07-10-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       7-10-2001          High      Low     Volume Advance/Decline
DJIA    10173.08 -123.76 10335.63 10162.71 1.24 bln   1223/1861	
NASDAQ   1963.00 - 63.92  2045.12  1960.15 1.62 bln   1370/2364
S&P 100   608.43 -  9.50   620.96   607.59   Totals   2593/4225
S&P 500  1180.93 - 12.26  1203.43  1179.93
RUS 2000  478.12 -  7.84   487.38   477.50
DJ TRANS 2775.98 +   .98  2789.17  2764.15
VIX        26.53 +  1.98    26.70    24.31
Put/Call Ratio      0.94
******************************************************************

Chalk Up Another For The Bears!

This was not a day we wanted to ponder. The continued flurry of
warnings from giants like Corning and Compaq as well as worry
over south of the border currency problems pushed the major
averages below recent support levels. Not just "support" levels
but significant "psychological support levels" as in Nasdaq-2000.
The S&P-500 finally also gave up in its battle to hang on to the
1200 level and started another drop.







Corning turned up the heat on the networking and telecom sectors
again with another warning including layoffs and a $5.1 billion
charge. The optical company said that without the $5 billion
charge it would have been slightly ahead of analyst estimates.
Since 2000 sales (not profits) were only $7 billion, I would
hope it was at least close. Corning has refused to release
further guidance due to the "abrupt" slowdown in their business.
Currently analysts estimate that the backbone build out has been
so over done that it is operating at only 2-3% of capacity. The
problem appears to be what is called the "last mile" in Internet
delivery. Until broadband providers are able to provide connectivity
to the retail consumer in volume any further growth in backbone
infrastructure is doubtful at best. This of course hit all the
gang led by drops in JNPR -2.88 and CSCO -1.05 to $16.20.

After the bell Compaq warned that revenue would slide to $8.4
billion but earnings would hit estimates at four cents due to
aggressive cost cutting and further layoffs. They said business
was worsening in Europe and further aggressive cuts would be
necessary to maintain profitability. They have already cut 3500
jobs and now say the total could reach 8500. They said they were
suffering from an industry wide slowdown and "fierce" price
competition. The current four cent estimate is down from their
five cent estimate in April and far less than the seventeen cents
analysts had previously estimated.

Even the biotech sector lived up to the "tech" portion of their
name with multiple news challenges. Guidant (Nyse:GDT) had a device
for treating congestive heart failure denied by the FDA and it
fell over $5 on the news. Medtronic (Nyse:MDT) which also has a
like device in for approval, gained +1.45. Genentech, Xolair and
Novartis hit a wall when the FDA requested more information on
the asthma drug they are developing. The group said they were
considering different scenarios for resubmitting Xolair data
to the FDA with "conservative" estimates for resubmissions in
2002 to 2003. That is an eternity in investor terms and Nyse:NVS
lost -1.27 but that was tame compared to the -11.16 for Nasdaq:TNOX
and -8.29 for Nyse:DNA.

DoubleClick announced earnings after the bell that were disappointing
but inline with analyst estimates. They said they would continue
"manage" costs and would not rule out further job cuts. The kiss
of death were comments that they saw no catalyst for growth until
mid-2002 or later. YHOO which announces this week also fell in
after hours as investors feared the worst from their advertising
business.

IBM continued to fall as analysts argue about whether they will
miss estimates. This helped put pressure on the Dow along with
MMM which lost -3.29. The Compaq warning and emphasis on the
worsening European economy could put more pressure on IBM which
does substantial business in Europe and will be faced with currency
challenges as well. Offsetting some of the IBM weakness was AT&T
which gained +1.94 on the Comcast offer for its cable unit. AT&T
said it was unlikely to accept the current offer which led to a
round of guesses about who may step up to the table to start a
bidding war.

Retailers continued to warn with FTUS, LIN and GADZ adding to
the Federated warning from last week. This is particularly
disturbing to investors since it shows that the consumer is
slowing their spending. The weak economy is finally filtering
down to the real spenders and something the Fed is very
concerned about.

Merrill Lynch went on record today saying their analysts could
not own the same stocks they were recommending. What is this?
Morals? You mean they can't buy just before they recommend it
or short it just before they cut estimates? While it is encouraging
I think it would be better if they made them buy 10,000 shares
of every stock they recommend but just make them wait five days
after the recommendation to buy. Then prevent them from selling
until five days after they drop the stock. If analysts HAD to
own the stock under these guidelines they might think twice
before riding a stock down from $250 to $2.50 before dropping
coverage. They would probably reconsider before "risking" their
own money.

Remember Brazil in 1999? Russia's 1998 default on its debt?
The fall of Thailand's currency? Professional traders do! I had
a small fortune in Telebras call options when the last Brazilian
currency crisis knocked our markets for a loss. History lessons
last a long time when they involve large real losses. Argentina
is poised to repeat the problems of several years ago and investors
want nothing to do with it. Greenspan and company took the role of
the world bank when those prior problems arose. Should Argentina
collapse now the Fed does not have much room to move. The problem
is Argentina's massive dollar denominated debt and their refusal
to implement reforms. They continue to borrow to maintain the
current standard of living. They had to borrow $1.1 billion at
14% this week to avoid defaulting on some older debt. Their cash
flow is not sufficient to maintain their debt load and a crash
is almost a certainty. Traders do not want to be caught holding
when the balloon bursts. This takes money out of the stock market
in uncertain times and puts it into the bond market. This outflow
of cash, when stocks need every penny just to stay even, is a
continuing problem. With Argentina carrying over $140 billion in
dollar denominated debt the stronger the dollar becomes the harder
it is to make ends meet. Who cares about foreign debt? Remember
the hedge fund run by Nobel Prize recipients? Foreign bonds
took them out and the Fed had to step in and rescue not only them
but many say the world economy because of their highly leveraged
positions. Grossly over leveraged hedge funds should be a thing
of the past but professional investors with long historical
memories want to be safe not sorry. There is considerable worry
that the Argentine government could devalue its currency as soon
as this coming weekend. They have less cash than they need to
survive for another month and without a currency event or a
new loan guarantee they will self destruct.

Japan is set to release their current account status on Wednesday
and this report could show the severity of the slowdown in the
Asian markets. Should this report be much weaker than expected
the Asian markets could sell off and dictate our open as well.

The oversold relief rally came right on cue yesterday and the
markets initially ignored the Corning warning at the open on
Tuesday. Reality raised its ugly head in late morning and one
by one the leaders were beaten into negative territory on fears
of the global slowdown. Earnings have not taken center stage
yet and without positive results there was nothing to encourage
investors to come back from vacation. The volume was building
all day and the NYSE managed a healthy 1.2 billion shares, not
heavy but healthy. The Nasdaq still lacked confirmation with
only 1.6 billion shares but the down volume accelerated once
the 2000 level was broken. The Dow posted the lowest close
since April 15th and the 27th triple digit loss for the year.
The Russell-2000 got slammed with almost an -8 point loss to
478. The VIX soared to 26.50 and the put/call ratio jumped to
94 which would normally be seen as nearing a strong buy signal
at 1.0.

Because the wildcard here is the Argentine currency problem the
normal market indicators are less reliable. Normal trigger points
will be ignored as long as there is a time bomb ticking in South
America. Based on this worry it is not likely that a major rally
will begin anytime soon.

The futures are actually up on the Compaq news and probably a
little short covering. Earnings announcements will begin in
earnest on Wednesday and traders will be praying for some
daylight to appear. With the Nasdaq below 2000, S&P below 1200
and the Dow nearing 10000, there is a desire to buy but not a
conviction. Investors for decades have followed the Fed to
higher profits after a series of rate cuts. This creates the
desire to buy but with no hint of recovery yet, the fears
of recession and devaluation are overriding that desire. The
Nasdaq is still oversold and traders in denial of the break
under 2000 could provide a sentiment bounce. Wait for
confirmation with volume before joining the party.

Enter passively, exit aggressively!

Jim Brown
Editor

	
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index instead?

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

Tips When Entering Bear Country
By Jeffrey Canavan

According to the Alaska Outdoor Journal, bears are curious,
intelligent, and potentially dangerous animals.  Respecting bears
and learning proper behavior in their territory will help so that
if you encounter a bear, neither of you will suffer.

Here are some tips:

Bears Are Always Looking for Something to Eat
Bears have about 6 months to fatten up for the long winter, and
human food, garbage, and stocks make for an easy meal.  Don't be
foolish and let bears feed on your portfolio.

Don't Crowd Bears.
Bears are defensive of their personal space, and can react
aggressively if that space is violated.  There is no need to
approach a bear and try to rip a stock from its mouth.
Eventually the bear will get bored and walk away from the stock,
making it safer to pick up.

Keep a Clean Campsite
Bears have keen noses, so wash your dishes, keep your stops
close, and avoid smelly food like bacon, fish, or shares of
Lucent.

Bears Don't Like Surprises
If you enjoy hiking, camping, or buying stocks in bear country,
make your presence know by singing, talking loudly, or tying a
bell to your portfolio.  If possible, travel with a group,
preferably an institution.   Groups are noisier and tend to scare
bears away.

Don't Run
Bears often make bluff charges, sometimes coming within 5 feet of
stops, without making contact.  But like dogs, bears will chase
fleeing stocks.  Bears have been clocked at speeds up to 35 mph,
and can easily run down a bull.

Play Dead
If you have followed all the above tips, but you are still
attacked by a smaller bear, like a black bear, fight back
vigorously by hedging your position.  If you are attacked by a
brown, kodiak, or grizzly bear, lie flat on your stomach, curl up
in a ball, put your hands behind your neck, and kiss your butt
goodbye.

===

Market Volatility
VIX   26.53
VXN   56.20

===

          Put/Call Ratio  Call Volume   Put Volume
Total           .94        539,497       505,530
Equity Only     .92        447,667       410,670
OEX            1.32         16,297        21,435
QQQ             .41         60,611        24,848

===

Bullish Percent Data

           Current   Change   Status
NYSE          36     - 6      Bear Confirmed
NASDAQ-100    34     - 2      Bear Confirmed
DOW           34       -      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  1.34

Extreme readings above 1.5 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      1221           1860
NASDAQ    1370           2368

        New Highs      New Lows
NYSE        79            64
NASDAQ      67           100

===

Advisory Sentiment   Bullish   Bearish  Correction
                       50%      25.5%      24.5%

===

Commitments Of Traders Report: 07/03/01
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
The net bearish position of commercial traders increased for the
third straight week.  We are still far away from the most bearish
reading of the year (111,956), but this is a trend bullish traders
want to see reversed.  Also disturbing for bulls is the fact that
small traders, who tend to be wrong, have over twice as many long
positions as short positions.

Commercials   Long      Short      Net     % Of OI
6/19/01      301,376   371,121   (69,745)   (10.37%)
6/26/01      307,889   379,955   (72,066)   (10.48%)
7/03/01      316,543   395,410   (78,867)   (11.08%)

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
6/19/01        128,296    56,038    72,258     39.20%
6/26/01        130,914    56,269    74,645     39.88%
7/03/01        133,098    54,865    78,233     41.62%

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

NASDAQ-100
I must admit that this data is a bit baffling.  Commercial
traders have been slowly reducing their net bearish position for
the past six weeks.  This is the only index where institutions
are getting less bearish.  Could it be that the "smart money" is
getting less bearish on technology?

Commercials   Long      Short      Net     % of OI
6/19/01       23,480    34,097    (10,617)  (18.44%)
6/26/01       26,263    35,690    ( 9,427)  (15.22%)
7/03/01       26,544    34,880    ( 8,336)  (13.57%)

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
6/19/01       14,284     8,403    5,881      25.92%
6/26/01       10,519     6,064    4,455      26.86%
7/03/01       10,443     7,063    3,380      19.31%

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
It looks like institutions have given up on the Dow based on the
increase in their net bearish position, and the performance of
IBM lately.  At the same time, small traders are on the brink of
turning net bullish.

Commercials   Long      Short      Net     % of OI
6/19/01       12,346    10,470    1,876      8.2%
6/26/01       11,371    12,759   (1,388)    (5.8%)
7/03/01       12,761    14,623   (1,862)    (6.8%)

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
6/19/01        3,844     7,555    (3,711)    (32.56%)
6/26/01        4,756     6,341    (1,585)    (14.28%)
7/03/01        4,708     5,715    (1,007)    ( 9.66%)

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


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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:
*****

CEGE $18.51 -1.04 (-0.89) The broad weakness in the biotech
sector dragged CEGE lower Tuesday, below our recently raised
protective stop at the $19 level.  That bearish price action
prompted our closure of the play tonight.  Of consolation, the
stock stopped on its 50-dma at $18.40 Tuesday, and bullish
traders with open positions could use a bounce from that level
Wednesday for an exit.

ORCL $17.59 -1.32 (-0.62) ORCL performed quite well Monday,
but failed to follow-through in Tuesday's session due to the
weakness in the Nasdaq Composite.  The Nasdaq lost the 2000
level and Oracle followed suit by falling back below the $18
level - our recently raised stop price.  As such, we're
dropping the play tonight and bullish traders with open
positions can use any pop back up to $18 early Wednesday to
exit open positions.

ARNA $32.10 -1.70 (-3.37) Amidst another big down day in the
broader markets, investors decided to switch to the sell side on
ARNA, breaking its 2-week uptrend and pushing the stock below
our $32 stop on above average volume.  Weakness pervaded most
sectors, including Drug stocks, and by lunchtime, it was clear
that the bears were firmly in control.  Although there was a
late-day bounce, allowing ARNA to recover the $32 level by the
close, we want to use the bounce to get out rather than
establish new positions.


PUTS:
*****

No dropped puts tonight


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The Option Investor Newsletter                  Tuesday 07-10-2001
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?

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market updates, plays, education and daily commentaries by
those who know.

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

BBY $65.38 -1.47 (+0.54) Lehman Brothers raised their price
target on shares of BBY Monday morning to $76.  That event,
combined with the bounce in the broader markets, allowed for BBY
to once again bounce from its 10-dma and work higher.  Its 10-dma
currently sits at $65, and could be tested yet again Wednesday
if the S&P 500 continues working lower.  That said, bullish
traders can again attempt to enter new positions on a bounce from
that level.  For those who prefer entering call plays into
strength, it would be prudent to wait on the sidelines for the
broader markets to rebound and for BBY to clear the $68 level,
which has served as resistance so far this week.  Our stop
currently sits at $64, just beneath the 10-dma, to allow for
whipsaws and head-fakes.  But should BBY settle below $64, we'll
drop coverage on the play.

BSYS $60.34 +0.45 (+0.44) BSYS managed to shake off the broad
market weakness Tuesday, en route to advancing back above the $60
level.  While its relative strength is certainly encouraging,
without the cooperation of the broader markets any rally attempt
is likely to be capped.  Remember: Market, Sector, Stock.
Speaking of sector, BSYS' cohorts also traded relatively well
Tuesday, including First Data (FDC) and Fiserv (FISV).  Again,
the sector is moving in our direction, but we need to see the
Nasdaq Composite and S&P 500 trade higher for BSYS to
substantially advance.  Also, keep in mind that FDC announces
earnings Thursday, which could impact BSYS one way or the
other.  As for new entries, bullish traders can use an advance
above $61 to enter new call positions if the Nasdaq and S&P
are advancing.  For those who prefer entering on pullbacks,
look for a bounce around support at $59.  Our stop currently
lies at the $57 level.

CD $20.14 -0.11 (-0.36) Following its recent pattern, CD is
consolidating its last upward move, finding support near $20.
Given the broad market weakness today, it was pretty encouraging
that the stock could keep its loss to only 11 cents.  Our stop
is still resting at $19, and as long as the stock resists the
overall market's urge to head south, a bounce above that level
can be used for initiating new positions.  For those of you who
prefer to enter on strength, wait for CD to clear the $20.50
intraday resistance level on strong volume before opening new
positions.  Keep in mind that earnings are set to be released on
July 18th, so time is getting short.

DGX $69.40 -2.55 (-3.75) Following the broader market lower
again on Tuesday, DGX looks like it is on the verge of breaking
down.  We need to use caution in initiating new positions, as
the stock is even underperforming other Laboratory Service
stocks like LH and PPDI.  The $70 support level has now been
broken and the last hope for the bulls is to hold the line at
the $68 support level, also the location of our stop.  Target
entries on a volume-backed bounce above the $68 level but cut
your losses short if this level is violated.  Waiting for
confirmation of strength may be the most prudent strategy at
this point.  A solid rally back above $70 can be used for new
entries, although the real test will be in getting back over
$72, as this is the site of the 10-dma ($72.10).  Earnings are
set for July 23rd after the close, so plan to close all open
positions by then.

LLY $74.7 -1.70 (-0.41) The fledgling rally in the Drug sector
was threatened on Tuesday, as the Pharmaceutical index (DRG.X)
gave back some of the ground it gained on Monday.  Mirroring the
broader sector, LLY fell back as well, giving up better than 2%
on above-average volume.  While there were bigger losers in the
sector, like AGN, it was a bit disconcerting to see Drug stocks
unable to capitalize on their usual defensive status in the
midst of a broad market decline.  With earnings set to be
released the morning of July 19th, we only have a little over a
week in which to profit from our play.  But with our stop
resting at $73, we need to see the bulls charge forward in the
next couple days to motivate more buying ahead of the
announcement.  We can use a solid bounce above $73 as an
opportunity to initiate new positions, although the better
approach may be to wait to enter on strength as LLY pushes
through the $76.50 resistance level.

QCOM $59.05 -2.67 (+0.87) Angry bears extracted their pound
of flesh today, as payment for allowing QCOM to rebound on
Monday.  Although volume was a bit lighter today, there is no
denying that the daily Stochastics oscillator is in a bearish
rollover and we will need to see the bulls defend their
positions forthwith.  Our CDMA hero is set to release earnings
on July 26th after the market close, and with the series of
recent industry deals that have been announced we are looking
for the stock to rally into the announcement.  But in order to
do that, the buyers will need to step up and defend support
levels, first at $58 (the site of the 38% retracement of the
recent advance) and then $55, the location of our stop.  Target
new entries on a volume-backed bounce from either of these
levels, but make sure the NASDAQ is moving positively before
playing.  Alternatively, new entries can be considered on a
solid rally through the $60 resistance level.

TGH $66.02 +0.11 (+0.42) TGH continues to advance in the face
of a declining broader market, and that in itself is impressive.
But looking at the chart raises some concerns.  The stock has
now posted 6 consecutive 'doji' candlestick patterns, which are
usually indicative of indecision and possibly a pending
reversal.  So although the stock has now crested the $65
resistance level and appears to have converted it to support, we
need to be cautious about a sneak attack from the bears.  Keep
protective stops in place at $64, and use any bounce above that
level for initiating new positions.  We'd really prefer to see a
solid rally through the $67 level accompanied by strength in the
Healthcare Payor index (HMO.X) before playing.


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

ANN $30.30 -1.37 (-1.50) ANN is working in our favor, and traders
who entered puts Monday can start thinking about exit points.  The
most obvious level to turn towards is $30, which is the site of
ANN's 200-dma.  Actually, it currently sits at $29.93, but $30
may be close enough.  Those traders who prefer to hold onto
existing positions can look for a break below $30 and target the
$28 area on the downside.  In fact, that same strategy can apply
to those bearish traders looking for new entry points.  That is,
a breakdown below $30 with a $28 downside target.  Conversely,
if the stock rebounds in the coming sessions, bearish traders
can look for entries near resistance at $32.  But be aware that
we have lowered our upside, protective stop down to $33.  So if
the stock closes above that level, we'll drop coverage.

BA $54.15 +1.32 (-0.15) BA rebounded Tuesday, and after several
consecutive down days, a relief rally was not unexpected.
However, at this point, and depending upon your specific entry
point, we need to be careful in how we manage risk in that we
don't want any gains we have in the play to slip away.  That
said, bearish traders can either implement a tight stop just
above current levels to mitigate the possibility of any further
advance.  As for new entries, bearish traders can target
rollovers near our current stop price of $55.  On the downside,
again depending upon specific entry points, bearish traders
might look to exit around $51 or $52.  With the Dow Jones
appearing increasingly weak, and taking out support levels with
reckless abandon, BA could continue working lower in the short
term.  The moral: Keep a close eye on the Dow when trading BA.

BEAS $24.60 -3.42 (-1.59) Bearish traders who have open put
positions in BEAS might start thinking about booking gains in
the stock, as it slid past the psychological support level at
$25 Tuesday without much hesitation at all.  The stock settled
near its low for the day on heavy volume, which could lead to
a gap lower Wednesday morning if the Nasdaq continues to slide.
If that happens, bearish traders in at higher prices could use
any further weakness to exit at least partial positions.  As
for new entries, perhaps the most prudent course of action would
be to wait for a light volume advance back up to resistance
around $26.50 before considering pulling the trigger.  But that
will depend upon risk preference and style.  As such, momentum
traders could enter new positions around current levels, after
conceding that risk is more difficult to quantify at current
levels.  For those traders who didn't exit positions around $25
Tuesday, use any weakness down to the low 20's to exit open
positions.  We have lowered our stop down to $27.

AMGN $57.53 -1.19 (+0.37) Despite a concerted effort by the
bulls to get Drug stocks moving into rally mode this morning,
the lack of follow-through gave bearish traders a nice downtrend
to trade all day.  With another rollover this morning, AMGN is
solidifying the $60 resistance level and appears likely to drop
through the $57 support level in short order.  Although the
Pharmaceutical index (DRG.X) lost ground today, its losses were
fairly tame (0.54%) compared to AMGN's 3.8% intraday loss.  It
isn't very encouraging to bullish traders to see the Drug sector
apparently unable to capitalize on its typical defensive nature
on a day when the broader market saw a sharp decline.  Use
failed intraday rallies to resistance or a drop through support
as your trigger for initiating new positions, and move stops
down to $60.  After breaking below $57, the next level likely
to provide support will be $53-54, a likely target for taking
profits.

ANF $40.14 -0.42 (-0.72) A valiant rally effort by the bulls
did little more than provide us with a more attractive entry
point this afternoon, as ANF rolled over just below the $42
level.  Proving that the strength/weakness of the overall sector
is a dominant factor, the stock followed the Retail index
(RLX.X) lower throughout the afternoon.  The RLX index is
perched just above the critical $820 support level.  If it
breaks below that level, ANF will likely plunge below the $40
level, and once it trades $39, we'll have a double-bottom
breakdown on the Point and Figure chart.  That will produce
another entry point and open the door for a drop to $37 and
possibly $35.  Consumer spending appears to be slowing and
reduced discretionary expenditures are likely to hit Specialty
Retailers like ANF particularly hard.  Given today's weakness,
we are moving our stop down to $42.  We can still use failed
intraday rallies below this level as attractive entries into
the play.

PMCS $23.67 -2.74 (-2.63) With the breakdown in the Networking
index (NWX.X) and Semiconductor index (SOX.X) continuing
unabated, it is no wonder that PMCS got smacked for a 10% loss
today.  Sure volume was just over half the ADV, but that didn't
keep the bears from pushing the stock steadily lower.  An
absolutely abysmal earnings warning from GLW today is one of
the main culprits behind the selling in Networking stocks, as
it pointed to a much more protracted downturn in the
Telecommunications sector than many had been hoping for.
Intraday resistance is now sitting first at $26 and then $27,
the new location of our stop.  Closing near the low of the day,
the stock is just about to break below its June lows at $23.50.
Once that occurs, the bears will be setting their sights on the
April lows between $19-20.  As long as the NWX and SOX indices
continue to be under pressure, use any weak rallies as an
opportunity to initiate new positions as PMCS rolls over yet
again.  Use caution initiating new positions on a drop through
the $23.50 level, as the stock is near-term oversold and needs
to have a bit of the bearish pressure relieved before resuming
its downtrend.


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

JCI - Johnson Controls $76.20 +1.55 (+2.66 this week)

Johnson Controls is a global market leader in automotive
systems and facility management and control.  In the automotive
market, it is a major supplier of seating and interior systems,
and batteries.  For nonresidential facilities, Johnson Controls
provides building control systems and services, energy management
and integrated facility management.  Johnson Controls, founded in
1885, has headquarters in Wisconsin.  Its sales for 2000 totaled
$17.2 billion.

By no means sexy.  But attractive nonetheless.  Perhaps that's
the best way to describe the auto parts sector, to which
Johnson Controls belongs.  Also in that group include Dana (DCN),
Lear (LEA), Delphi Automotive (DPH) and Visteon (VC).  By
perusing the charts of each of the aforementioned companies,
it's obvious that the group of stocks has something rare in
the current market environment: relative strength.  Indeed,
General Motors (GM) has been trading rather well as of late,
which may lend to the out performance by the parts suppliers.
Johnson Controls is one of the leading suppliers to General
Motors, which we can extrapolate the positive correlation between
the two stocks.  Johnson Controls possesses another rare attribute
in the current economic environment: stable earnings growth.  The
company is slated to report in about one week, on Wednesday,
July 18, so that gives our play a rather short life.  But an
earnings run, as difficult as it might seem, is certainly
possible over the next week.  The technicals of the stock are
equally as attractive as the fundamentals of the company.  JCI
has spent the last two and a half months basing, and broke out
from that base Tuesday on exceptional volume to trace a new
52 week high at $76.50.  Fans of breakouts such as the one that
JCI displayed Tuesday can enter new positions at current levels.
While another entry possibility is to wait for a pullback down
around the $75 level, on lower volume, of course.  Initially,
we're setting stops at $73.

***July contracts expire in less than two weeks***

BUY CALL JUL-70 JCI-GN OI=170 at $6.70 SL=4.75
BUY CALL JUL-75*JCI-GO OI=957 at $2.45 SL=1.25
BUY CALL AUG-75 JCI-HO OI= 10 at $3.80 SL=2.25
BUY CALL AUG-80 JCI-HP OI=  8 at $1.45 SL=0.75

Average Daily Volume = 360 K



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

HGSI - Human Genome Sciences $47.57 -2.86 (-1.28 this week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

So much for the rally in the Biotechs!  After helping to prop
up the ailing NASDAQ during the rally of April and May, the
Biotechnology index (BTK.X) has been leading the Technology
index lower for the past month.  After consolidating above the
$580 level for nearly 3 weeks, the bears finally gained the
upper hand and slashed nearly 9% off the BTK in the past 3
sessions.  HGSI is leading the charge to the downside, having
given up more than 35% of its value since early June, and the
past few days have seen selling volume on the rise.  Countless
support levels have given way over the past month, the most
recent of which were $52 on Friday and then $50 today.  Despite
the fact that daily Stochastics are now deep in oversold
territory (we know from recent experience that they can stay
there for weeks on end), it looks like the bears will remain in
control.  Once they take out the $47 support level, they will
target $45 and then $42 as temporary resting points along the
way to testing the March lows near $35.  Failed rallies near $50
or $52 will provide the best entries, although a drop through
$47 on strong volume looks attractive as well.  Place stops at
$52.

***July contracts expire in less than two weeks***

BUY PUT JUL-50*HHA-SJ OI= 992 at $3.90 SL=2.50
BUY PUT JUL-45 HHA-SI OI=1317 at $1.60 SL=0.75

Average Daily Volume = 3.12 mln



XLNX - Xilinx, Inc. $35.16 -2.29 (-2.50 this week)

XLNX designs, develops and markets complete programmable logic
solutions, including advanced integrated circuits (ICs),
software design tools and field engineering support.  The
company's programmable logic devices (PLDs) include field
programmable gate arrays and complex programmable logic devices.
These company standard devices are field-programmable,
allowing customers to customize them to fit their desired needs.
XLNX's products are designed to provide high integration and
quick time-to-market for electronic equipment manufacturers,
primarily in the telecommunications, networking, computing,
industrial and consumer markets.

With seemingly endless selling pressure, the Semiconductor index
(SOX.X) has given up every support level which has held the
bears at bay since mid-April.  Now resting on tenuous support
near $540, it is easy to believe that the SOX is about to take
a serious run at the $520 level, if not the April lows near
$450.  As we've heard many times before, if you're going to play
the downside in a sector, pick a weak stock in that sector to
amplify your chances of winning.  XLNX looks like that weakling,
as it has now fallen through the $37 support level and today
closed at its lowest level since April 10th as pessimism reigns
supreme ahead of the company's earnings announcement, set for
July 19th.  Hope for the second-half recovery has all but
disappeared and investors are hunkering down to ride out the
storm, but they aren't choosing to hold stocks in the weak
sectors like Semiconductors.  We'll take advantage of the
weakness and put a few dollars in our account in the process.
Target new entries on any failed rally attempt that is unable
to clear the $38 level, which is where we have placed our stop.
Alternatively, a continuation of the decline should provide
attractive entries as the price falls below the $35 level.  Be
sure to continue monitoring the SOX, as strength in the sector
is likely to lend strength to XLNX.

***July contracts expire in less than two weeks***

BUY PUT JUL-40 XLQ-SH OI=4848 at $5.60 SL=3.50
BUY PUT JUL-35*XLQ-SG OI=1881 at $1.90 SL=1.00
BUY PUT JUL-30 XLQ-SF OI=2494 at $0.45 SL=0.00

Average Daily Volume = 7.27 mln



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

ANF - Abercrombie & Fitch $40.14 -0.42 (-0.72 this week)

A specialty retailer, ANF is principally engaged in the
purchase, distribution and sale of men's, women's and children's
casual apparel.  The company's retail activities are conducted
through retail stores, a catalogue, a magazine and a website,
all bearing some form of the company name.  Merchandise is
targeted to appeal to customers in specialty markets, who have
distinctive consumer characteristics.

Most Recent Write-Up

A valiant rally effort by the bulls did little more than
provide us with a more attractive entry point this afternoon,
as ANF rolled over just below the $42 level.  Proving that the
strength/weakness of the overall sector is a dominant factor,
the stock followed the Retail index (RLX.X) lower throughout
the afternoon.  The RLX index is perched just above the
critical $820 support level.  If it breaks below that level,
ANF will likely plunge below the $40 level, and once it
trades $39, we'll have a double-bottom breakdown on the
Point and Figure chart.  That will produce another entry
point and open the door for a drop to $37 and possibly $35.
Consumer spending appears to be slowing and reduced
discretionary expenditures are likely to hit Specialty
Retailers like ANF particularly hard.  Given today's weakness,
we are moving our stop down to $42.  We can still use failed
intraday rallies below this level as attractive entries into
the play.

Comments

The Retail Sector Index (RLX.X) traded poorly Tuesday, and
appears to be headed lower.  That technical aspect combined
with a bit of nervousness ahead of the retail sales report
Friday could pressure shares of ANF Wednesday.  Watch for
continued weakness in the RLX and look to enter new positions
on a breakdown below $40 on heavy volume.

***July contracts expire in less than two weeks***

BUY PUT JUL-40*ANF-SH OI=1810 at $1.70 SL=1.00
BUY PUT AUG-40 ANF-TH OI= 108 at $2.95 SL=1.50

Average Daily Volume = 1.31 mln



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